Greater Napanee audit reveals troubling asset tracking

Napanee town hall. Photo by Michelle Dorey Forestell/Kingstonist.

Tax collection has improved in the Town of Napanee, but where have all the tangible assets gone?

At its meeting on Tuesday, Jan 30, 2024, the Council of the Town of Greater Napanee will receive an Audit Findings Report and a presentation on the Draft Consolidated Financial Statements of the Corporation of the Town of Greater Napanee for the year 2022, from Katie Mahon, partner at KPMG. Mahon noted “a significant control observation” relating to the tracking of tangible capital assets.

The auditor noted that the Town is in the process of implementing a new asset management planning software tool, as required by legislation in fiscal year 2022. Currently, however, or at least in 2022, the assets are being tracked manually in an Excel spreadsheet, which has led to a problem.

“Upon audit,” the report states, “we noted that the 2022 additions and disposals had not yet been added to the spreadsheet.” It is further noted that a review of the asset listings and discussions with management found “discrepancies in the existence and accuracy of the manual tracking spreadsheets.”

This is problematic because it means the record of “tangible assets” is at best, inaccurate — at worst, that there is no record of some assets.

According to the report, “tangible assets” refers to things that have a monetary value and that can be seen or touched. Big assets like roads, buildings, bridges and other structures, and land are included, but so are smaller portable things like “vehicles,” and “other equipment” (which is not defined in the report).

Council will have to consider a number of questions on this matter. Which assets were being tracked this way? Are vehicles listed that were never delisted once they were sold? Were vehicles or other equipment purchased but not accounted for on the tracking sheet? If so, where are these vehicles or equipment? Who has access to them? How are the related expenses being paid?

KPMG recommends completing a thorough review of all the assets on the manual tracking lists before they are entered into the asset management software, in order to verify the completeness, existence, and accuracy of the report: “Due to the magnitude of the tangible capital assets, and the importance of asset management planning and long-term financial planning, it is critical to have an asset register that is accurate.” KPMG says it will continue to monitor this item for fiscal 2023.

Otherwise, KPMG reported “no significant unusual transactions” in its audit and provided some financial statement highlights in its report for Council to consider.

Financial Assets

Despite the lack of clarity explained above, the auditor noted a “reduced cash and investments position from fiscal year 2021, mainly due to investment in tangible capital assets” from $21,203,873 in 2021 to $14,246,158 in 2022, a difference of nearly $7 million ($6,957,715).

A significant improvement in the collection of taxes in arrears resulted in a nearly half-a-million dollar decrease in taxes receivable, from $2,861,831 in 2021 to $2,366,535 in 2022  ($495,296 difference). This was noted to have been due to “collections [improving] from the [COVID-19] pandemic.”

A “slight increase [$266,364] in accounts receivable and user charges receivable” was put down to the timing of government grants received and increased programming in fiscal 2022 vs. 2021 due to less COVID-19 impact: an increase from $674,961 in 2021 to $941,325 in 2022.

Financial Liabilities

Financial liabilities increased by 5.5 million dollars plus (from $16,403,686 in 2021 to $21,927,403 in 2022) partially “as a result of a $600k increase in landfill closure and post-closure costs due to updated information and inflationary cost increases,” according to the auditor.

They made note that the Ontario Environmental Protection Act sets out the regulatory requirements to properly close and maintain all active and inactive landfill sites. The estimated liability for landfills is based on the capacity used to date, compared to the total estimated landfill capacity. 

According to the auditor, the estimated liability for the South Fredericksburg and Roblin landfills is $731,158, based on the present value of closure and post-closure costs, which are estimated at just under $2 million using assumed rates of 6.0 per cent for inflation and 6.0 per cent for interest. The South Fredericksburg landfill has an estimated remaining capacity of 66 per cent and is expected to provide capacity for 40 years, based on estimated current waste generation rates. The Roblin landfill site is closed and no longer receiving waste. This liability is currently unfunded, and it is expected to be funded through budget allocations to a landfill reserve over the remaining life of the landfill. Post-closure landfill care is estimated to continue for approximately 25 years.

Deferred revenue increased as additional development charges water/wastewater impost fees were collected in 2022. In 2021 this number was $7,439,378, whereas it totaled $9,079,245 as of the end of 2022, an increase of  $1,729,867.

The auditor noted that municipal debt decreased by nearly one million dollars, in line with scheduled repayments. Long-term debt decreased from $4,019,042 in 2021 to $3,075,679 in 2022, a difference of $943,363.

Long-term debts include the Strathcona Paper Centre bank loan, which has an effective interest rate of 3.18 per cent, payable in monthly blended payments of $45,806, with a maturity date of April 20, 2024, according to the audit. Another loan, from OMEIFA (Ontario Municipal Economic Infrastructure Financing Authority), bears interest at 2.74 per cent payable in semi-annual payments of $70,372, with a maturity date of June 15, 2045.

On April 5, 2013, the Corporation reached an agreement regarding an assessment by a taxpayer for the years 2003 to 2012, the auditor noted. The Corporation refunded the taxpayer the total amount of $3,500,000, repayable in annual payments of $350,000 commencing in 2014 and ending in 2022. Interest is at an escalating rate of 0.5 per cent each year; for 2022 the interest rate is 5.0 per cent (in 2021 it was 4.5 per cent). The County’s share of this liability, $950,430, was recovered from the County of Lennox and Addington in 2014.

Non-Financial Assets

The auditor made note that tangible capital assets increased from $648,520 in 2021 to $747,098 in 2022 ($98,578 increase). This was driven by net additions of $15 million, offset by an amortization of $5 million, according to the audit.

Revenue

The auditor noted that taxation for 2022 was in line with expectations. Also, government grants were fairly consistent; it is noted that 2021 had COVID-19 funding which did not recur in 2022, but the impact was offset by Stewardship Ontario grants, among others.

Investment income increased as a result of increased interest rates. The auditor notes that investments consist of guaranteed investment certificates yielding interest between 1.32 per cent to 4.41 per cent, with maturities ranging from July 2023 to July 2024. Investments which matured after year-end have been reinvested. Included in accounts receivable is $63,245 (2021 – $16,027) of accrued interest on guaranteed investment certificates.  Interest and penalties decrease as collections on taxes receivable increase. 

“Overall,” the report states, “reserves and reserve funds decreased by $4 million from 2021 to 2022; mainly due to the purchase of capital, such as the new administrative building at 99 Advance Avenue according to the audit report.”

Unfinanced capital also increased to $9.1 million. The auditor notes that unfinanced expended capital alongside reserve balances should be considered when analyzing financing options for future capital projects. The auditor recommends a formal long-term financial plan be undertaken by the Town.

Expenses

The auditor notes that the cost of materials increased due to increased activity as well as increased costs due to inflation and fuel prices. They also note that salaries and wages increased mainly due to an increase in the number of employees.

“As of the date of this report, we have completed the audit of the financial statements,” writes the auditor, noting a few exceptions of certain remaining procedures, some of which are “obtaining evidence of Council’s approval of the financial statements; receipt of the signed management representation letter; completion of our subsequent event review procedures.”

Council meets Tuesday, Jan 30, 2024, at 7 p.m. at the historic Town Hall, 124 John Street, Napanee. Residents can attend in person or follow along on the Town’s YouTube channel.

Leave a Reply

You cannot copy content from this page, please share the link instead!