Community Plan and Zoning By-Law Renewal Project 2020-2021

State of the Town Address: Part 4

Financial note

Please note that during the 2018 fiscal year end audit, the 2016 and 2017 asset amortization was recorded in error. The amortization at those year ends were recorded using double declining balance and the Town policy on amortizations to use straight line amortization. It appears the audit work did not factor the Town policy for those fiscal years. In completing the 2018 audit the new Auditor with assistance from GL Services made a required prior period adjustment of approximately $2,500.000 to the total accumulated surplus noted in the 2017 audit report.

*NEW* After receiving a request for information from a community member, we would like to clarify the following:

Amortization – the systematic allocation of the historical cost of a tangible capital asset over its useful life.

The straight line basis is a method of calculating depreciation and amortization, the process of expensing an asset over a longer period of time than when it was purchased. It is calculated by dividing the difference between an asset’s cost and its expected salvage value by the number of years it is expected to be used.

The objective of an audit of a municipality is to express an opinion as to whether the financial statements are presented fairly, in all material respects, in accordance with Canadian public sector accounting standards. Municipalities must prepare their financial statements in accordance with Canadian public sector accounting standards as recommended by the Chartered Professional Accountants of Canada (CPA Canada). Every municipal auditor must follow the CPA Canada Handbook – Assurance while conducting the audit. The auditor must be satisfied that the financial statements of the municipality present fairly in all material respects the financial position and results of its operations and cash flows in accordance with Canadian public sector accounting standards. If the auditor feels that any municipal accounting policy results in a financial statement that materially misleads the readers of the statement he or she must report and explain the discrepancy.

It is therefore incumbent on the auditor to collect and apply any existing financial policies of the municipality. The double declining balance method is an accelerated amortization method that counts as an expense more rapidly (when compared to straight-line depreciation that uses the same amount of depreciation each year over an asset’s useful life). In the case of Norman Wells the past auditor incorrectly utilized the double declining balance method.

Tangible Capital Assets Policy

Category: Financial

Title: Tangible Capital Assets Policy

Adopted:        11 October 2011 by Resolution Number:  11-379

Revised:       

Purpose:

– The objective of this policy is to prescribe the accounting treatment for tangible capital assets so that users of the financial reports can discern information about the investment in property, plants and equipment, and the changes in such investment. The principal issues in accounting for tangible capital assets are the recognition of the assets, the determination of their carrying amounts and amortization charges and the recognition of any related impairment losses. Upon approval of Council this policy will be in effect commencing January 1, 2010, to comply with the new accounting standards recommended by Public Sector Accounting Board (PS3150).

Definitions:

Tangible Capital Assets

Assets have physical substance that;

-are used on a continuing basis

-have useful lives extending beyond one year

-are not held for re-sale in the ordinary course of operations

Betterments

Subsequent expenditures on tangible capital assets that;

-increase physical output or service capacity

-lowers related operating costs

-extends the useful life of the asset

-improves the quality of the output

Fair Value

The amount of consideration that would be agreed upon by an arm’s length individual who was knowledgeable and willing, not under compulsion to act.

Capital Lease

Capital lease is a lease which transfers substantially all the benefits and risks of the property.

Asset Classification:

Major Assets:

A – Land – includes land purchased or acquired for value for parks, recreation, building sites and infrastructure, but not land for resale.

B – Land Improvements, Structures & Buildings – included are all improvements of a permanent nature to land such as buildings, parking lots, landscaping, pathways and fencing.

C – Water systems & Wastewater systems – includes intake, distribution, storage and treatment of water & assets for collection and treatment of non-potable water

D – Natural Gas System  – permanent structural works  for distribution of natural gas

E – Roadways – includes roads, bridges, lights, sidewalks and signage.

F – Other, Machinery and equipment – heavy equipment, small equipment in building and offices, furnishing, computer hardware and software.

G – Vehicles – Motorized equipment for transportation purposes.

Capitalization Threshold:

1) All land       

2) All buildings

3) All other items of $10,000 or greater

Valuation:

Tangible capital assets will be recorded at cost including all amounts that are directly attributable to acquisition, construction, developments or betterment of the asset.

Contributed assets that meet the criteria of tangible capital asset will be recorded at their fair value at the date of contribution.

Amortization:

The cost, less any residual value, should be amortized over its useful life.

A straight-line method will be used for calculating the annual amortization. In acquisition year 100% of the annual amortization amount is recorded. Assets under construction are not amortized until the asset is available for productive use.

Financial oversights and spending management:

This is the process for issuing cheques at the Town of Norman Wells.  When an invoice comes in it is coded and approved by the department manager and then it goes to the finance clerk.  It is then approved for payment by the finance manager or SAO before a cheque is issued. Cheques are not issued without an invoice or receipt.  When cheques are being processed, they are approved again by the finance manager or the SAO, and then they are produced by the finance clerk.  She then arranges to have them signed by two signatories in the office. The cheques don’t leave the office to be signed.  The signatories come into the office to sign the cheques and then they are distributed. 

This is the process for credit card charges. There is only one credit card at the office.  Anything bought on the credit card must be approved the same way the cheques are. We have tightened up our procedures for cheques and credit cards with checks and balances in place.

  • All attempts made by Council, Administration and auditors to follow existing Council financial policy and Bylaws
  • All attempts made to adhere to Council approved budgets
  • Resolution of Council to transfer monies from restricted accounts
  • Ensure that grant regulations at NWT and Federal levels are strictly adhered to ie: required 25% share of grants is covered by cash
  • A fair and equitable RFP and RFQ process
  • No budgeted or unbudgeted expense accounts for Council or Administration
  • High level overtime oversight such as:
  • All overtime approved by Department Manager, Finance Clerk, Finance Manager and SAO
  • No overtime for any Managerial positions, including SAO

Segregation of duties:

  • Petty cash kept in locked safe and reconciled weekly and monthly, segregation of duties is such that only one staff member has access to
  • One who reconciles the bank does not do data entry