Vancouver City Council

CITY OF VANCOUVER ADMINISTRATIVE REPORT

	Date:	December 6, 2004
	Author:	Terry Corrigan
	Phone No.:	604-873-7225
	RTS No.:	04747
	CC File No.:	1503
	Meeting Date:	January 18, 2005

TO:	Vancouver City Council
FROM:	General Manager of Corporate Services/Director of Finance
SUBJECT:	Appointment of External Auditor for 2005

RECOMMENDATION

A. THAT the accounting firm of KPMG LLP (KPMG) be confirmed as the City's External Auditor for the fiscal year 2005 in accordance with the terms of the Form of Agreement between the City and KPMG to supply audit services to the City for a period of five years commencing with the audit of the 2003 fiscal year.

B. THAT the audit fee be set at $ 144,303 (exclusive of GST). Funding is included in the 2005 operating budget.

CITY MANAGER'S COMMENT

The City Manager concurs with the recommendations in this report.

COUNCIL POLICY

On December 10, 2002, Council approved the appointment of KPMG as the City's External Auditor for a five year term commencing with the fiscal year 2003. This appointment is subject to confirmation on an annual basis in order to meet the requirements of Section 230 of the Vancouver Charter.

PURPOSE

The purpose of this report is to recommend confirmation of KPMG as the City's External Auditor for 2005.

DISCUSSION

The City's audit service requirements include:

· Auditing of the City's annual financial statements for the year ended December 31, 2004 in accordance with generally accepted auditing standards.
· Reporting to Council on or before April 30 of the following year, an opinion on whether or not the financial statements, which include all City boards as well as all owned and controlled corporations, fairly present the City's financial position and results of operations in accordance with generally accepted accounting principles for local governments.
· Providing as part of the annual audit, advice and recommendations on the City's management and internal control procedures.
· Attending meetings with City officials as required for the planning and review of the external audit process and the financial statements.
· Responding to requirements and duties of the auditors as outlined in the provisions of the Vancouver Charter in Sections 231 to 235.
· Auditing the Vancouver Public Housing Corporation's annual financial statements for the year ending December 31, 2005 in accordance with generally accepted auditing standards.

Effective for the audit of the 2004 financial statements, the Canadian Institute of Chartered Accountants has revised the auditing standard regarding the auditor's responsibility to consider fraud and error (CICA Handbook section 5135, The Auditor's Responsibility to Consider Fraud and Error). The significant changes over previously required auditing procedures are summarized as follows:
· More extensive enquiries of management by audit staff regarding the design and implementation of the City's processes for identifying and responding to the risk of fraud and error;

· Enquiries of senior staff in the City's internal audit, technologies group, risk management group, and other personnel that are outside the financial reporting function regarding their knowledge of any actual, suspected or alleged fraud;

· Detailed enquiries and discussions of fraud risks in meetings the auditors have with the City Manager and Director of Finance;

· More detailed scrutiny of additional corporate information including a comparison of budget revisions to the original approved budget, as well as publicly available information such as bond rating agency reports;

· Increased testing of journal entries, more extensive reviews of accounting estimates, and more detailed enquiries regarding significant business transactions to respond to the risk of management override;

· Testing for fraudulent accounting including inappropriate revenue recognition, inappropriate expense recognition or deferral, and inappropriate use of reserve accounts; and

· Meetings to discuss and documentation of the results of the auditor's procedures and the manner in which they have addressed our assessment of fraud risk.

These additional and more extensive procedures have resulted in a change in the scope of the base audit services covered in the service agreement with KPMG. In accordance with the service agreement with KPMG, when there is a change in Canadian generally accepted auditing standards that impact the scope of audit services, KPMG is entitled to an adjustment of the fees. The base fees paid in 2004 were adjusted by $6,297 as a result of the effect of the audit scope change. This adjustment will impact the annual fees to be paid for audit services for the balance of the contract with KPMG which expires with the audit of the 2007 financial statements.

FINANCIAL IMPLICATIONS

The fee proposal for 2005 is $ 144,303(exclusive of GST). The 2005 fee reflects a 2.4% increase over the 2004 fee as adjusted for the additional fees due to the change in audit scope. The percentage change is based on the change in the Vancouver CPI (all items) for the period October, 2003 to October, 2004. In accordance with the terms of the contract awarded to KPMG for audit services the annual increases in fees after the audit of the 2003 financial statements is limited to the annual change in the CPI (all items) for the City of Vancouver.

The table below shows the Year 2005 proposed fee by audit entity compared with 2004 fees (excluding GST).

Audit Program	Original 2004 Fees	Adjust For Scope Change	Restated 2004	Proposed 2005 Fees	Increase	%
City general and related funds	$ 124,991	$ 5,749	$ 130,740	$ 133,878	$ 3,138	2.4
City Public Housing Corporation	$ 9,633	$ 548	$ 10,181	$ 10,425	$ 244	2.4
Total Basic Fee	$ 134,624	$ 6,297	$ 140,921	$ 144,303	$ 3,382	2.4

Funding is provided in the 2005 annual operating budget.

CONCLUSION

Appointment of KPMG as the City's external auditor will satisfy the requirements of Section 230 of the Vancouver Charter that Council appoint an auditor to audit the accounts and transactions of the City and every other administrative body for the year.

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