Meeting of the Board of Directors on June 8, 2018
Published: June 8, 2018
1.1 Board members present
Derry Millar (Chair), John McCamus (Board Chair) (by teleconference), Nancy Cooper (by teleconference), Christa Freiler, Carol Hartman (by teleconference), James McNee, Tim Murphy (by teleconference), Michel Robillard (by teleconference), James Yakimovich, Ann Marie Yantz (by teleconference) David Field (CEO/Ex Officio)
Janet Budgell, Mary‑Ann Cocchetto, Vince Correia, Louis Dimitracopoulos, Stephanie Mealing
Laura Bell (Auditor General’s Office), Michael Hawtin and Jordan Sorvele (PwC)
2. Meeting agenda
The meeting agenda was adopted.
3. Conflict of interest
No conflict of interest was identified.
4. Board reports
4.1 Audit Findings Report
The Vice-President & Chief Administration Officer (CAO) introduced the audit team. Laura Bell from the Auditor General’s Office presented the Audit Findings Report, as follows:
The Auditor General has requested that LAO’s pension asset item be assigned a valuation allowance and that it be displayed as a separate item in LAO’s Financial Statements. This adjustment will reduce the operating surplus from $11.5M to $10.8M. The Auditor General has also requested that the pension asset from prior years also be adjusted. Subject to the approval of the Auditor General, an unqualified opinion will be issued as of today’s date. PwC is the independent agent auditor retained to conduct the audit of LAO on behalf of the Auditor General of Ontario. In the current year, there were no changes in accounting policies. Management and accounting assumptions are similar to last year; estimates made were assessed to be reasonable; and the work performed has been done in accordance with the Audit Plan.
Ms. Bell reported that the audit team received full co‑operation from LAO management and staff. Increased Financial Eligibility Funding has created a small surplus and the Ministry has given LAO permission for the surplus to be used to pay down LAO’s accumulated deficit. Materiality was set at $9.5M.
The Audit Findings Report identified one misstatements with respect to reported accounts receivable in the amount of approximately $486K due to lien property values not being updated in the “allowance for doubtful account” calculation. Internal control recommendations include:
- journal entries should not be created and posted by the same individual as they may not be subject to review,
- portal access rights should be reviewed on an annual basis, and
- property values should be updated in time to utilize the updated value when assessing lien account receivable balances.
LAO Management reported on one case involving billing irregularities in the current year which is currently under internal investigation, however no evidence indicating material misstatements resulting from fraud or illegal acts was reported. The audit team asked the Board members present in-person and by teleconference whether they were aware of any incidents of fraud and illegal acts, to which the unanimous response was in the negative. LAO will receive an unqualified audit report.
At this point in the proceedings LAO staff left the meeting and the Board held an in‑camera discussion with the audit team.
In‑camera session ended.
The Vice‑President & CAO reported that staff will make the required material changes to the financial statements with respect to the pension asset item. Staff are requesting that the Board receive the current version of the Audit Findings Report, subject to the agreed upon changes flowing from the adjusted pension asset valuation.
DECISION: The Board received the Audit Findings Report from the Audit Team.
4.2 LAO’s unapproved financial statements to March 31, 2018
The Vice-President & CAO reported that the amount of the operating surplus disclosed in the current financial statements presented will be amended to reflect the Auditor General’s requirement that the pension asset item be assigned a valuation allowance, as reported in the previous agenda item. The Chief Financial Officer presented the Unapproved Financial Statements to March 31, 2018, highlighting the following key points.
This is a financial report that compares actual figures against data from the previous year. Incorporating the pension asset allowance change suggested, the operating surplus is projected to be $10.8M. This change will not impact LAO’s cash position. LAO’s current financial situation is a significant improvement over the previous year. The revenue increases are attributable, for the most part to:
- increase in Financial Eligibility Funding of $8.1M
- three increases to the Bank of Canada interest rate resulting in increased revenue from the Law Foundation of Ontario (LFO) in the amount of $17.6M
- expenditure reduction of $5.4M over the previous year resulting from in-year savings initiatives under the Balanced Budget Plan
Also noted was the increase in the certificate program which was driven largely by demand for immigration and refugee legal services. LAO’s cash position has increased by $32.2M and the accumulated deficit has decreased by $12.8M. LAO has achieved most of its balanced budget plan objectives.
DECISION: The Board approved the financial statements for the fiscal year ended March 31, 2018, subject to any changes resulting from the Auditor General of Ontario’s review and any language amendments required.
4.3 LAO’s unapproved pension plan financial statements to December 31, 2017
The Vice-President & CAO presented the Unapproved Employees’ Pension Plan Audited Financial Statements to December 31, 2017.
The Chief Financial Officer reported that LAO has two pension plans: a Defined Benefit (DB) plan, and a Defined Contribution (DC) plan. There are only three active and 13 retired employees still enrolled in the DB plan; the majority of LAO employees are in the DC pension plan. LAO’s pension plan auditors will render an unqualified opinion.
LAO’s DB pension plan underwent an evaluation in 2017, as required by the Financial Services Commission of Ontario (FSCO) and the Canada Revenue Agency (CRA), to determine LAO’s ability to meet its future pension plan obligations. The valuation report indicated a hypothetical wind‑up deficiency of $196,100 as of January 1, 2017 requiring solvency amortization payments of $3,629 per month, payments which LAO commenced to remit in January, 2018.
The financial statements represent an audit of the investments only, not the liabilities. The net assets in the DB component have increased by $141K and the net assets in the DC component have increased by $11M due to increased contributions and realized gains. Overall, LAO’s pension plan has done well in 2017. The rate of return in the DB plan is 7.5 per cent (5.9 per cent in 2016) and the rate of return on the DC plan is 7.4 per cent (5.7 per cent in 2016). These rates are close to, or in excess of, the benchmark set against a composite index made up of TSX, S&P, S&P 500 and the Canadian Universal Bond Index.
DECISION: The Board approved the audited financial statements for the Employees’ Pension Plan for the calendar year ended December 31, 2017.
The meeting adjourned.