City of Powell River has been given a clean audit for 2022.
At a special council meeting on May 12, BDO Canada LLP representative Brian Szabo, the accounting firm that provided the audit, provided councillors an overview of the audit findings.
“The scope of the work was conducted in accordance with our planning report, which was provided to mayor and council in March,” said Szabo. “We did not note any material fraud during the year.”
Szabo said BDO is required to have council approve the financial statements before signing off on the auditor’s report.
He said in the current audit year, auditing standards were revised substantially, particularly with respect to the assessment of risk in an audit.
“In previous years it was more of a top-down approach to risk assessment, where we would take our knowledge of the organization, discussions with management, and we would come up with our risks based on those factors,” said Szabo. “What we are required to do now is, from the bottom-up, list all the risks that are potentially in place with respect to all the different transaction streams.
“It did require a fair bit of additional work this year. There was also an enhanced focus on IT systems, as organizations migrate more toward the use of IT and automated processes. It does create additional risk in the audit.”
BDO manager Marjorie Mercado highlighted four financial statement areas, including management override of internal controls. She said management members are in a position to access company records and directly or indirectly manipulate.
“To address this risk, we review the journal entries recorded in the year and look for any unusual transactions,” said Mercado. “In this year’s audit we did not note any audit differences arising from this.
Regarding risk of fraudulent revenue recognition, again, all audit testing in this area was executed as planned and no issues were noted, as was the case with employee future benefits.
The last item was development cost charges (DCC).
“As with all municipalities, collection of DCCs is a complex area, requiring interaction of several of the city’s departments,” said Mercado. “There is a risk that DCCs may not be completely or properly accounted for upon receipt or use.
“We reviewed a sample of DCCs and tested to ensure that appropriate amounts were collected and properly accounted for. No issues were noted.”
Councillor Trina Isakson said Mercado has spoken about areas of risk, and the management override of internal controls and the risk of fraudulent revenue recognition, and they are not risks specific to the city. She said no issues were noted.
“I’m curious if there are policies implemented by other municipalities and institutions that further reduce these risks, or if these are normal risks that are investigated during audits and are not generally mitigated through policy,” said Isakson.
Szabo said they are risks typical of all local governments.
“The risk of fraudulent revenue recognition, as Marjorie indicated, is what we call rebutted, and the reason we do that is because the revenue streams relating to local governments are not typically susceptible to manipulation,” said Szabo. “There’s very little, if any, motivation to do so. There is no compensation that’s tied to any metrics, so there wouldn’t be a particular motivation to do so.
“The revenue streams are quite easily verified. The tax revenue, as you know, is set by council through a bylaw, so it’s very easily verified. The other revenue streams are straightforward to audit. In order to manipulate those, it would require a journal entry and we do test journal entries, so that risk is mitigated.”
Szabo said this is typical of every audit conducted.
Council then unanimously accepted the City of Powell River 2022 draft financial statements.
