GFOABC Dollars & Sense - March 2021 - Issue 114

Dollars & Sense P e r s p e c ti v e

Issue #114 • March 2021

Membership Survey What is Fiscal First Aid? Becoming a Smart Community

p r es i d e nt ’ s m es s ag e in this issue President’s Message 2 Executive Director’s Message 3 Membership Survey 4 Conference Update 5 Asset Retirement Obligations 6 MFA’s Corner 8 What is Fiscal First Aid? 10 Economic Update Q1 11 Navigating PSAB 14 Rethinking the Budget Process in Uncertain Times 15 PSAB Conceptual Framework and Reporting Model Exposure Drafts 16 Budget Insurance for Natural Disasters 19 Becoming a Smart Community 20 What is a Certificate of Insurance and Why is it Important? 22 Collectors’ Corner 23 Quarterly Question 24 Thank You Exhibitors 25 Thank You Sponsors 26

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hank you to those who served on the Board and committees over this past year. Your commitment to our Association has allowed us to achieve many of our strategic goals and work towards our vision to be the leading source for knowledge sharing that empowers BC local government financial excellence.

If you are interested in serving the membership by becoming

a GFOABC Board or committee member please reach out to President Trevor Thompson at tthompson@mapleridge.ca.

Committee Members-at-Large Julia Aspinall, City of Vancouver Komal Basatia, City of Abbotsford Kathy Humphrey, City of Kamloops Elio Iorio, District of North Vancouver Mario Piroddi, BDO.

e x e c uti v e d i r e c t o r ’ s m es s ag e W

ell, it has been a year! A year since the entire planet was brought to a screeching halt, as the World Health Organization declared the novel coronavirus (COVID-19) outbreak a global pandemic. A year since the local government emergency operations centers were activated and drastic changes were made to ensure the safe delivery of essential and non-essential services to their communities and citizens. A year since the local government sector made the largest technological transformation, almost overnight, as thousands of employees were transitioned to working from home.

Board of Directors President Trevor Thompson Vice President Lorraine Coughlin Secretary-Treasurer Nyla Attiana Past President Genelle Davidson Directors at Large Jim Bauer Jeannie Bradburne Shelley Hahn Rianna Lachance Lenora Lee Jennifer Lockhart Michelle Mason Talitha Soldera Staff Kala Harris, Executive Director Erica Christie, Manager, Operations and Member Services Gerilee McBride, Graphic Design

While there is much hope on the horizon with the phase 2 rollout of the province’s vaccination program, working from home, visiting friends and families over Zoom, and dreaming of post-COVID-19 travel will continue to be our “new normal” for a bit longer.

To borrow from the very famous and widely popular motivational British poster, we will all need to “Keep Calm and Zoom on”, …remote on…dream on…AND conference on!

Planning for our second annual virtual conference, The Future is Now: Response, Recovery & Resilience, is in full swing! Last year, we did our absolute best to provide an in-person experience for our first virtual conference— minus the social events. This year, we are upping the ante all around by delivering more live presentations, maximizing engagement opportunities for all delegates, and delivering a Gala & Awards night hosted

by Adam Growe of Canada’s Cash Cab fame. Adam will bring his Cash Cab quizmaster skills to engage and entertain gala goers.

We are extremely excited about this year’s keynotes. Dan Pontefract, former head of Learning & Collaboration at Telus and author

of several leadership books, including Flat Army, Open to Think, and Lead, Care, Win, will draw on his vast experience to reflect on leadership transformation and remaining resilient in times of major change. Shachi Kurl, president of the Angus Reid Institute and declared winner in the BC Leader’s Debate this past October, according to BC Business, will address the pressing and important issues facing Canadians here in BC and across the country pre-, mid-, and post-pandemic.

In addition to the social events, keynotes, an array of plenary panels, and concurrent sessions including forum sessions, we have also added some personal development micro-learning sessions aimed at increasing productivity, building emotional IQ, acknowledging the importance of good mental health, and getting social with LinkedIn. We hope that you and your team will join us this year to learn, engage and connect and to help make our second annual virtual conference an even bigger success than last year! • Kala Harris Executive Director

MARCH 2021 • DOLLARS & SENSE PERSPECTIVE | 3

Membership survey and the survey says…

GFOABC is an association whose mandate is to provide education and training to local government finance professionals around BC. As such, our services are meaningless if we are not able to clearly communicate their value and availability. To put a GFOABC twist on the old philosophical question: if one does not hear of the resources available to them, do they even exist?

Over the last few years, GFOABC staff, board and committee members have worked to strengthen the educational offerings that are delivered to members while ensuring that something is provided for every type of local government finance professional, at any stage of their career. The last four of our membership surveys focused on our workshops and the development of our educational framework. This year we focused on our communication methods to help us to identify ways in which we can improve how we share the resources we provide to the membership.

The membership was surveyed from December until mid-January and we received excellent feedback. The results showed that although the people who read our communications felt we were providing a good service, many of the individuals who did not utilize our communication tools were unaware of their existence. Here lies the major takeaway from the survey which provides us with an opportunity to implement valuable change for our members. We need to ensure that all local government finance professionals are made aware of our resources and know where to find them.

One would expect the members who were not aware of the existence of our communication resources would be new to a finance role in local government, but this was not the case. When the data was sorted to isolate respondents who answered: “I did not know it existed”, the duration of service in their role or in local government did not

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affect the results. It appears that both new and seasoned members learned of some or all our offerings by taking this survey.

Over the next year, GFOABC staff will be tasked with developing a communication strategy that communicates our resources and tools. Perhaps we need to deliver a GFOABC poster to the break room of every local government around the province or maybe just an email to be circulated around the office that summarizes our resources. Our goal is to ensure that all members, both new and existing, are aware of what their member benefits are and feel encouraged to utilize them. Does your finance department share GFOABC resources internally? Are we part of your new employee onboarding process? If so, we would love to hear from you.

If you were not fully utilizing your GFOABC member benefits, here are a few easy ways to start engaging today: • Subscribe to the Newsletter and E-Updates • Create your MyAccount profile • Check out the free resources in MemberLINK • Visit the Online Forum and engage with your peers around the province • Participate in the current Quarterly Question • Consider nominating a colleague for Excellence in Local Government Finance Awards • Share all the above with someone in your finance department!

Erica Christie Manager, Operations and Member Services Membership Survey Winner: Warren Everton – City of West Kelowna You have won a free 2021 conference registration for your entire finance team!

c o n f e r e n c e u p d ate enter the early bird draw for a free registration Early bird pricing ends March 31 | REGISTER NOW Pre-Conference Workshops May 4, 2021 | Asset Retirement Obligations (Session 2) May 6, 2021 | Treasury & Investment Management - NEW (Part 1) May 12, 2021 | Property Tax Policy & Tax Rate Setting May 19, 2021 | Regional District Day May 20, 2021 | Ethics & Leadership: The Political Administrative Interface

Gala and Awards Night Heard of Cash Cab? Join us May 27, 2021 for the Adam Growe Quiz show! Adam’s unique virtual Quiz Show will put your municipality in the spotlight in an interactive and entertaining way. Brought to you by our Platinum Sponsor CIBC Wood Gundy | Hobson Chahal Advisory Group

Keynote Speakers Day 1 Keynote: Dan Pontefract: Thinker, Author and Leadership Strategist – READ MORE Day 2 Keynote: Shacki Kurl: Head of Canada’s public interest pollster – READ MORE Tradeshow REGISTRATION is still open!

MARCH 2021 • DOLLARS & SENSE PERSPECTIVE | 5

Asset Retirement Obligations – Understanding What is in Scope

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dding to an increased focus on municipal assets, the Public Sector Accounting Standard (PSAS) 3280 will require organizations to identify Asset Retirement Obligations (AROs). In its simplest form, AROs look to determine the overall liability an organization will need to recognize based on the future retirement of certain assets. Herein lies the challenge; determining what asset groups and types of obligations make up the liability and how to determine when the asset will be permanently removed from service.

As daunting as this work may seem, there is time to take a purposeful approach and develop a plan to meet the April 2022 implementation date. GFOABC, in partnership with KPMG, has developed a series of sessions intended to support municipalities and regional districts in understanding and creating a plan to meet these new requirements.

The start of your work to meet the PSAS 3280 requirements is to have a conversation with your auditor. You should expect that they have a number of questions related to the accounting of AROs; including how you have identified these obligations, what is the source of the information and what assumptions you have applied in order to determine the obligation. This proactive approach is intended to support the development of the program, and allows financial professionals to build a solution that will meet the long-term objectives of the organization.

Once the understanding of what will be required in future audits is clear, then as with all good plans, the organization begins determining what is in scope and what is not. The activity of scoping looks to identify what tangible capital assets are in scope and what other obligations may need to be considered. The scope for each municipality and regional district is going to be both similar and different given the various levels of services each organization delivers with their assets.

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Many organizations will discover there is a higher degree of risk with some assets created before the 1990s. Items that should be considered in scope are: asbestos and other various types of hazardous materials, both storage and septic underground tanks, and post closure landfill costs may need to be adjusted.

These are likely the most obvious assets to consider, but other obligations fall into these requirements as well. For example, leases or use of land with restoration clauses, and sewage and wastewater facilities will need to be considered as well. To support the gathering of this information the finance teams will need to work with their operations and safety teams. There have likely been a number of assessments and inventories already compiled that will help to identify these risks.

Many of the assets in scope will be in use for a considerable period of time, so determining when that asset will be permanently retired is going to rely on discussions with the operations team and using professional judgement. The next layer of complexity is how to value the obligation. This valuation is specific to the asset retirement obligation, not the costs for replacing

a component, routine repairs and maintenance, or costs associated with selling the asset. As with determining any future obligation, documenting your assumptions along the way is going to be a key step.

Implementing the ARO requirement is going to come with challenges, some of which may be significant. But spending some time before starting to develop a plan, identifying key stakeholders, and developing initial assumptions will make the work a bit easier to complete. •

DAVID HALLINAN, FCPA, FCMA is an accounting professional with over 30 years of business experience in industry as well as provincial and municipal governments. Dave is currently the Planning and Procurement Manager with the City of Kamloops. He oversees the Financial Planning, Procurement and Asset Management activities for the organization.

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M fa ’ s c o r n e r the government bond landscape in canada

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he Government bond market in Canada is a vital building block for fixed income investors. The Government of Canada, the provinces and agencies of those governments are the major constituents of this market (municipal issuance is only a small component. Debt issued by this segment is generally considered high-quality and liquid, making it desirable for various portfolio needs. Early in 2020 it became clear low oil prices and fallout from COVID-19 would have sizeable impacts on government finances.

Uncertainty swirled around governments’ ability to refinance their debt, potential ‘ratings actions’ and the associated impact on the value of debt and ultimately the necessity to finance looming deficits. Aided by various support programs provided by the Bank of Canada, after a brief period of volatility in March/April 2020, investor appetite for Canadian government debt rebounded quickly and remains strong. The market absorbed an estimated $338.8 billion of new Federal/Provincial debt in 2020 along with $5.6 billion of municipal debt.

The credit quality of Canadian government issuers, as measured by ratings, remains strong (Table 1). An equally weighted composite of provincial credit ratings remains near and above AA-, a level it has maintained since 2007. Meanwhile, on average, Canada continues to maintain its AAA rating. Although ratings remain high-quality, some governments’ ratings have been put

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on a negative watch or outlook, which can be interpreted as an intermediate step before a potential ‘letter-rating’ change. Rating agencies have indicated they are focused on medium-term financial plans, they will be closely following fiscal projections and core debt ratios. Due to that, investors can take some cues from the market’s reception to government fiscal policy announcements. Fiscal policy decisions which suggest debt levels in excess of ratios deemed acceptable at certain credit ratings or continued outsized deficits could lead to ratings downgrades. Despite the negative trend in core government credit measures, most investors believe outright defaults in the government bond space to be extremely unlikely, even for highly indebted and challenged provincial governments such a Newfoundland and Labrador who rely heavily on resources revenues.

In contrast municipal debt issuance was modest, as borrowing by local governments is almost exclusively done for long-term capital expenditures (not to pay for deficits). Municipalities rightsized their budgets in the face of the pandemic and maintained their high credit ratings, thereby becoming rarified issuers with stable credit quality. As a result, AAA-rated MFA bonds now trade at the same level as the Province of Ontario (the most liquid benchmark) and at better levels than almost every other province, except for the Province of BC. From another perspective, the weight of the $338.8 billion 2020 government issuance had an impact on index proportions. Indices are used both for performance benchmarking and portfolio construction. A broad index of Canadian debt is the FTSE Canada Bond Index – which includes government, financial and non-financial issuers.

Governments increased their relative size in the Canadian bond index by about 1.5% percent in 2020 to about 73.5% of the index – with the provinces leading the way, increasing their share by about 2.2% to 37.5%.

Due to their liquidity and high credit quality, government debt will continue to play an integral role in MFA’s Pooled Investment Funds. MFA’s professionally managed funds provide well-diversified exposure to the Canadian debt markets at a low cost. MFA has several investment funds to suit common local government investment needs. We would be pleased to discuss your investment program, our investment offerings and anything in between. •

KYLE DERRICK is the Credit & Economic Analyst at MFA. He is an MBA graduate from Royal Roads University and a CFA Level 1 Candidate. Mr. Derrick earned an undergraduate degree in Business Administration (Finance) and holds certificates in Economics and Bank Analysis.

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What is Fiscal First Aid?

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OVID-19 and the associated recession has presented immediate financial difficulties and has also harmed the long-term financial outlook for local governments.

To help local governments deal with the many shortterm and long-term challenges, the GFOA has a provided a program called Fiscal First Aid. Fiscal First Aid was actually created more than ten years ago to help local governments deal with the 2008 Great Recession. We have completely updated and revised it for 2020. Fiscal First Aid is the process of recognizing, arresting and reversing a pattern of financial decline.

At the core of Fiscal First Aid is its Three Stages of Recovery. We have summarized the three stages below and provided links to some of the most essential resources at our Fiscal First Aid website. #1 Bridge. In the Bridging Stage, the government must get through the immediate crisis and create breathing room to make more sustainable reforms. Bridge includes: • Averting immediate crises. You can do this by following the steps below: 1. Forming a team to lead the recovery. The finance officer can’t do it alone. Help will be needed.

2. Slowing the flow of money out the door with basic cost-cutting techniques that can be deployed quickly.

3. Implementing a Cash Flow Forecast to get forewarning of potential cash flow difficulties.

• Considering higher risk treatments. Low-risk treatments might not be enough. Consider higher risk treatments carefully.

• Exploring ideas for bigger reform. #3 Transform. In the Transform Stage, the government institutionalizes long-term financial planning and becomes more resistant to future financial distress and adaptable to a changing environment. Transform includes: • Increasing adaptability.

• Increasing resistant to future crises.

• Coming back better, stronger and more resilient than before. and • Building a strong financial foundation and thriving community for the long-run.

Where should you go from here?

#2 Reform. The government carries out the short-term recovery plan and develops and implements long-term therapies in the Reform Stage. Reform includes:

• Visit GFOA.ORG/FFA for access to the following:

• Balancing the budget without making things worse in the long run.

• Diagnostic model. A full, ready-to-use diagnostic model is available to help find causes of financial distress that you can address.

• Diagnosing your causes of financial distress. Diagnosis must come before treatment.

• Applying low-risk treatments. Some budget balancing techniques have little risk of adverse side effects.

An example of an adverse side effect would be increasing your long-term costs, as would be the case with deferring maintenance on critical infrastructure.

Treatments without such side effects should be your first choice.

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• A breakdown of the three stages of recovery into a more detailed 12-step process.

• Catalogue of budget balancing techniques. The site highlights the most and least recommended techniques for providing short-term relief for financial distress.

• Catalogue of long-term treatments. A number of strategies to improve financial condition over the long term are discussed.

Mike Mucha, GFOA Deputy Executive Director Shayne Kavanagh, GFOA Senior Manager of Research Katie Ludwig, GFOA Senior Manager Jamie Porter, GFOA Program Associate

e c o n o m i c u p d ate Q 1 the beginning of the end by avery Shenfeld

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o paraphrase Sir Winston, this is not the end of the pandemic, but it might be the beginning of the end, or at least the end of the beginning, and it’s time for monetary policymakers to give more weight to that fact in their forward guidance. The Bank of Canada has its opportunity to do so, but it faces a tricky task in balancing some good economic and vaccine news with a desire to avoid sounding overly hawkish just yet.

For 2021, and likely much of 2022, monetary stimulus will still be warranted. Experts are cautioning that we need to be wary of COVID variants that could spark an escalation of cases in the coming weeks. Unemployment remains highly elevated, the most heavily impacted sectors are still reeling, and many businesses and households are living off of temporary government assistance.

Even so, recent Canadian data have surprised to the upside, as we get more juice out of resource production, home building and other sectors that have stayed up and running through the second wave of the pandemic. The Bank of Canada doesn’t publish a new forecast until April, but it will have to acknowledge that its January projection now looks to have been too conservative, as was ours at that time. The Bank will reiterate that we’re a long way from closing the output gap and seeing sustained (not one-time) 2% inflation, but when it publishes a new forecast in April, it might have to move the timing of that into late 2022.

We’re in the last couple of months in which the Bank’s asset portfolio will see heavy maturities. That’s allowing the BoC to sustain a $4 bn per week pace of purchases without driving up its overall balance sheet, but the maturities will drop off sharply after April.

As a result, at its April announcement, we look for the Bank to cut its bond purchase program by $1 bn per week.

Its March statement doesn’t have to give a warning about that post-April adjustment, but we can’t rule that out.

Our rates strategist will have more to say in his report on Monday about how to trade along the curve given that context.

Despite these coming shifts in tone, the Bank of Canada can’t afford to get too hawkish, too soon, in a short March statement that doesn’t have a fully-fledged forecast. It has to weigh its words given that bond yields have backed up a fair bit, and the market is already pricing-in outright rate hikes a bit earlier than what we’re actually likely to see.

Moreover, the Fed is still talking very dovishly, unreasonably so in our view, about how long it can wait to hike.

The US economy outperformed Canada in 2020 by a wide margin, has more stimulus coming, and is ahead on vaccines. Governor Macklem can’t afford to get too far ahead of Chair Powell, lest he send the Canadian dollar through the roof. If he can, before he spills the beans on a pre2023 rate hike, Macklem would like to wait until Powell gives his own Churchillian speech about the beginning of the end to the war on COVID, and the need to rethink the timetable for monetary policy adjustments.

Continued next page.

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Canadian Forecast Summary

Sources: Statistics Canada, Bank of Canada, CIBC World Markets Inc.

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TIME FOR A CHARET CHAHAL, CFA Prior to joining CIBC Wood Gundy, Charet worked in the oil and gas sector, developing a wealth of experience in energy markets.

Charet also managed and led a start-up business venture to be listed on the public exchange. Charet is an avid supporter of the Calgary Children’s Hospital.

JAMES HOBSON, CFA With over 10 years of experience at CIBC, James focuses on identifying major market themes, analyzing equity and fixed income securities, and monitoring client portfolios to ensure investment policy compliance. Among the numerous charities he assists, James is a long-time supporter and donor for the Kids Cancer Care Foundation of Alberta.

JAMES HOBSON, CFA, PM, First Vice-President, Portfolio Manager, Investment Advistor & Chairman’s Council Member 403-260-0574 james.hobson@cibc.ca CHARET CHAHAL, CIM, Portfolio Manager, Investment Advisor & Chairman’s Council Memeber 403-260-0440 charet.chahal@cibc.ca This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change.

CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives will receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. © CIBC World Markets Inc. 2020. CIBC Wood Gundy is a division of CIBC World Markets Inc., a subsidiary of CIBC and a Member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada. James Hobson and Charet Chahal are Investment Advisors with CIBC Wood Gundy in Calgary The views of James Hobson and Charet Chahal do not necessarily reflect those of CIBC World Markets Inc. If you are currently a CIBC Wood Gundy client, please contact your Investment Advisor. Clients are advised to seek advice regarding their particular circumstances from their personal tax and legal advisors.

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Navigating PSAB: 6 Quick Steps to Improve Your Knowledge

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hen does the Public Sector Accounting Board (“PSAB”) matter to you? It is a good question to ask ourselves. As professional accountants our plates are full. In fact, they are heaped with deadlines for operational and project work, never mind the stuff that gets thrown over the fence. Many of us only begin caring about a particular PSAB topic based on the Effective Date for Adoption. The equation becomes:

projects will prepare you for the coming implementation project and relax the tight deadline that might otherwise be in your future. Even better, you have an opportunity to help steer the ship and perhaps come up with a more efficient, effective and reliable standard that will avoid worse implementation issues.

Here are six quick steps to get involved and stay in the loop:

[Effective Date] - [# of staff hours to implement the change] = [Date I will start thinking about it]

1. Visit the site! The Public Sector Accounting Board has a great site summarizing all their Current, Completed and Deferred Projects.

The biggest problem with this approach (only being concerned with the effective dates) is that government finance departments are always rushing to respond to the latest crisis. You are missing the opportunity to have input into how the standards are modified or introduced for adoption. Considering the impact that our ever changing standards have on how we report out and operate our organization, you would think we would prioritize participation. For example, consider the potential impact of the changes that could come out of the proposed Financial Statement Presentation, Section PS 1202.

So why don’t we give PSAB updates the proactive attention they deserve? Undoubtedly, the most significant factor is time. Finance professionals never have enough of it and they often only hear about PSAB’s active projects at a conference or when reading a blurb in a magazine.

The fantastic thing about the public sector accounting community is that not only does PSAB ask for your feedback; but in our experience, they really consider your submissions.

Take a look at the Feedback Statements that are published; it is evident that there is a real review and careful thought put into the comments gathered from the community.

So even though we do not have a lot of spare time, prioritizing review and feedback of PSAB’s current

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2. Follow the Public Sector Accounting Standards Board on LinkedIn. .

3. Get involved. Peruse the Open for Comment documents and try your hand at filling one out and submitting it.

Remember, you can spend as much or as little time as you desire on your responses depending on other time commitments.

4. Attend the one-hour webinars offered and archived on the Financial Reporting & Assurance Standards website.

5. Watch for update seminars and courses offered locally through CPA Canada or your provincial body, also take advantage of PSAB seminars offered at any conferences you may be attending.

6. SIGN UP FOR OUR BLOG as we regularly report on PSAB topics.

TRICIA FRASER CPA, CA, MPA is the Manager of Implementation and Training Services at F.H. Black & Company Incorporated. For the last seven years, she has focused on increasing finance department efficiency & effectiveness through the implementation of technology and best practices. Before joining FHB, Tricia worked in the finance department at the City of Lethbridge.

Rethinking the Budget Process in Uncertain Times

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egislation requires a local government to adopt an annual financial plan. This process can be taxing and time consuming at the best of times.

COVID-19 has made budgeting especially challenging for smaller local governments who may have limited administrative resources to invest in deep data analysis and forecasting. For these entities, relatively small items could have a material impact.

Your local government may have already adopted its current year financial plan; however, the plan can be amended by bylaw at any time. Here are some things to keep in mind: Good decisions come from good data The usual starting point in making a budget is the prior year’s actual results. When reports and analysis of historical results are robust, then you have a good foundation for making a budget on the last year’s numbers.

Take the time to examine if your reporting and budgeting tools are appropriate (Excel is not always the answer!), or if the data is disaggregated enough to give useful information. Unusual revenues, expenditures or other transactions from one-time or discontinued programs may be mixed in with normal operating accounts.

Ensure the trial balance is classified efficiently so that these unique items can be identified.

This is particularly important for smaller local governments where unusual events can have a significant financial effect. Due to COVID-19, many local governments saw decreases in recreation and parking revenues, and large increases in cleaning and information technology costs.

These changes may not be a good indication of next year’s operations without fully understanding which items were one-time occurrences and which are recurring.

Input from outside the finance team The financial plan will impact the operations of the entire organization. You must understand each department’s plans and projects for the upcoming year. COVID-19 may

have created revised expectations for service levels, which will affect each department differently. It is the responsibility of the finance department to work with department managers to translate their needs into a financial budget. Frequent communication and feedback with department managers is important to ensure the budget is accurate and realistic.

Reserve forecasts Future costs may depend on circumstances or decisions outside of your local government’s control. It is important to understand the financial risk of likely outcomes and how it will impact cash needs. In addition to budgeting operating revenues and expenditures, it is equally important to create reserve forecasts to fund adverse or unforeseen events. In this current environment of uncertainty, it is prudent to build cash reserves.

Revisiting budgets and forecasts Without a crystal ball, you cannot create the perfect budget, regardless of how strong the budget process is.

There will be changes and uncontrollable events that will skew actual results. It is important to update forecasts so that stakeholders will understand projected results and make changes to the budget, if needed. It is equally important to explain the updates to the forecast in comparison to the original budget. A revised forecast or budget should not be treated as carte blanche for future spending, but rather an adjustment to the original budget based on better data.

KAYAN YU is an A&A Senior Manager at BDO Canada with more than 12 years of experience specializing in public sector, First Nation and NPO organizations. Her experience is diverse, having worked with small NPOs to large government entities. Kayan is passionate about helping her clients achieve efficiency in their accounting and assurance needs.

MARCH 2021 • DOLLARS & SENSE PERSPECTIVE | 15

PSAB Conceptual Framework and Reporting Model Exposure Drafts

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n January 11, the Public Sector Accounting Board (PSAB) released four exposure drafts proposing new standards impacting the conceptual framework and financial statement presentation for public sector organizations. These projects are in the last stage of consultation before finalizing new standards. New comments are being accepted until May 12, 2021.

PSAB is proposing changes to its Conceptual Framework and Reporting Model because: • it is necessary for a standard setter to periodically review its conceptual framework to ensure it remains relevant; • the Board was asked to look at the existing conceptual framework to ensure it properly reflects and is grounded in the public sector environment; and • certain standards-level issues made some stakeholders question the foundations of public sector financial reporting, so reconfirming if they were appropriate was necessary.

Proposed Changes to the Conceptual Framework A conceptual framework is the foundation for principles-based standards. It is a coherent set of interrelated objectives and fundamentals that lead to consistent standards or the application of consistent concepts in the absence of specific standards. PSAB proposes, subject to comments received following exposure, to issue a revised Conceptual Framework that would include 10 chapters addressing areas from financial reporting objectives to financial statement foundations, objectives, information, recognition and measurement. The proposed Conceptual Framework would replace the conceptual aspects of existing sections FINANCIAL STATEMENT CONCEPTS, Section PS 1000 and FINANCIAL STATEMENT OBJECTIVES, Section PS 1100.

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The proposals developed to date not only consider all of the feedback received from all the documents for comment issued (in 2011, 2012, 2015 and 2018), but they also consider international developments, PSAB’s proposals in other projects on its technical agenda, its strategic objectives and the Joint Working Group’s recommendations.

The changes to the existing conceptual framework would not have an immediate effect on the financial statements of most reporting entities. Local governments would be required to use the revised Conceptual Framework when no standard specifically applies to a particular economic resource, economic obligation, transaction, or other event. In such circumstances, the revised Conceptual Framework would be applied prospectively.

Proposed Changes to Financial Statement Presentation (Reporting Model) The proposed reporting model builds on the existing one in Section PS 1201. The proposals would be effective for fiscal years beginning on or after April 1, 2024.

The anticipated effects of the proposed reporting model are: • increased user understanding of financial statements and the indicators within them; and • improved accountability information for users.

Four key amendments are being proposed to the Statement of Financial Position: • the relocation of the net debt or net financial assets subtotal to its own statement; • the introduction of two categories of liabilities: financial and non-financial; • a restructured statement of financial position; and • the addition of a new component of the net assets or net liabilities position.

*This article was compiled by KPMG in partnership with GFOABC from information published by PSAB

How to Learn More About the Exposure Drafts Visit the PSAB website for full details of the Exposure Drafts and Basis for Conclusions The Conceptual Framework Financial Statement Presentation Attend PSAB Webinars (live or available on demand)

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New budget requirements: The exposure draft proposes that budget amounts on the financial statements should be presented using the same basis of accounting, following the same accounting principles, for the same scope of activities, and using the same classifications as the actual amounts. Amortization for example should be presented in the budget presented on the financial statements.

There are two situations in which an entity may present an amended approved budget and those situations relate to when there has been a change in governance. When there is an election and a newly elected Council approves a new budget, or when the majority of a governing body has been newly elected, an amended budget should be disclosed.

A visual of the proposed changes is included on the next page.

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The Conceptual Framework for Financial Reporting in the Public Sector | March 8 (English) or 29 (French), 9:00-10:00 am PST Financial Statement Presentation Proposed Section PS1202 | March 10 (English) or 31 (French), 9:00-10:00 am PST How to Provide Comments on the Exposure Drafts Submit feedback on the exposure drafts by May 12, 2021 by submitting a comment letter or through the PSAB ONLINE SURVEY MARCH 2021 • DOLLARS & SENSE PERSPECTIVE | 17

Reporting Model1

Financial Statement Package New Statement

Statement of Financial Position as at March 31

New Structure

Financial assets2 Non-financial assets2 Total assets Financial liabilities2 Non-financial liabilities2 Total liabilities

New Categories

Net assets (net liabilities) Net assets (net liabilities) components: accumulated surplus/deficit accumulated remeasurements New accumulated other Component

20X3 xx xx xx

20X2 xx xx xx

xx xx xx

xx xx xx

xx

xx

xx xx xx xx

xx xx xx xx

Financial assets New Name

20X2 xx xx xx

◦ accounting principles; ◦ scope of activities; and ◦ classifications as the actual amounts.

New Requirements

•

When budget information is not prepared or approved, an acknowledgment stating this fact should be presented, as the budget is a key aspect of the accountability cycle.

Amended budgets may be used but only in certain specific circumstances when there has been a change in governance.

New Requirements

20X3 xx

20X2 xx

Cash provided by (applied to) operating transactions2

xx

xx

Cash provided by (applied to) capital transactions2

xx

xx

Cash provided by (applied to) investing transactions2

xx

xx

Net cash provided by (applied to) operating, capital and investing transactions

xx

xx

Net cash before financing transactions

xx

xx

xx

xx

xx

xx

Cash provided by (applied to) financing transactions2 Cash end of year

xx New Option

Statement of Changes in Net Assets (Net Liabilities) for the year ended March 31 20X3

20X2

xx xx xx

xx xx xx

Accumulated Remeasurements Change in remeasurements2 Opening balance Ending balance

xx xx xx

xx xx xx

Accumulated Other Change in accumulated other 2 Opening balance Ending balance

xx xx xx

xx xx xx

Total Net Assets (Net Liabilities)

xx

xx

•

Only assets and liabilities comprise financial position.

•

Financial position = net assets or net liabilities.

•

Three components of net assets or net liabilities position.

•

Default recognition of all revenue and expense in surplus or deficit.

•

Unless….. PSAB alone determines if a revenue or expense should instead be initially recognized directly in a component of net assets or net liabilities. Justification required regarding how such recognition provides better accountability.

•

Revenues and expenses to be reported at gross amounts unless net amounts required by another standard.

•

Revenue or expense recognized in net assets or net liabilities may or may not be recognized in surplus or deficit in a future period(s).

•

Cash flow statement restructured to highlight need for cash from financing transactions, as applicable.

•

Refined calculation of net debt indicator to allow it to measure what it was meant to measure; future financial resource requirements.

Net debt indicator renamed “net financial liabilities”.

•

New option to present and explain change in net financial liabilities on statement of net financial liabilities or net financial assets.

Notes: 1.

This document summarizes the reporting model proposed in the Exposure Draft, “Financial Statement Presentation, Proposed Section PS 1202.”

2.

For illustrative purposes, the financial statements have been summarized.

The actual financial statements would show the details under the heading.

3.

If the detail of the changes in “accumulated remeasurements” or “accumulated other” component of net assets or net liabilities becomes too complex, secondary statements may be needed, such as the statement of remeasurement gains and losses. Or, schedules to the financial statements could provide the details.

Notes and Schedules

18 | GFOABC.CA

xx

xx

Key features

Statement of Cash Flow for the year ended March 31 Cash beginning of year

xx

Financial liabilities Net financial assets (net financial liabilities)

Accumulated Surplus/Deficit Surplus (deficit) Opening balance Ending balance

Requirements for the Budget Presented on the Statement of Operations • Budget should be presented using the same: ◦ basis of accounting;

•

20X2 xx

This presentation allows all the information on the indicator to be on one statement.

New Statement

Budget 20X3 xx xx xx xx xx xx

20X3 xx

Explanation of the meaning of the indicator is required.

An entity can choose to present the change in the above indicator and the reasons for the change.

Statement of Operations for the year ended March 31 Revenue2 Expense (by function)2 Surplus (deficit)

Statement of Net Financial Assets (Net Financial Liabilities) as at March 31

Budget Insurance for Natural Disasters: An Innovative Approach to Address Growing Costs of Climate Change in Canada

E

ach year, extreme weather events, including floods, wildfires, heatwaves, wind, snow and hail storms pose a serious risk to governments in Canada. These events are growing in frequency and severity, leading to a rise in public and private sector infrastructure damages, economic losses, business disruptions, insurance claims, lawsuits, as well as financial and mental health impacts on people, who experienced these natural disasters.

In 2020, Canada’s total economic losses from natural disasters amounted to $4.5-billion, of which $2.4-billion was insured, meaning that nearly half of the economic losses were absorbed by governments, businesses and individuals.

At a time when the economy in general is under a lot of stress from the COVID-19 pandemic, the question is how can governments ensure they have the resources to support the economic recovery efforts AND respond to natural catastrophes?

One answer is budget insurance for natural disasters.

Budget insurance for natural disasters is a public sector fiscal risk management tool that provides immediate funds after a natural disaster to expand taxpayer resources and to support the response functions, expedite the recovery efforts and build back better.

Budget insurance for natural disasters is not a new concept. In fact, governments have successfully used the private markets (capital markets, insurance and reinsurance) to manage natural disasters for over a decade.

For example, the United States Federal Emergency Management Agency (FEMA) purchased reinsurance for the National Flood Insurance Program (NFIP) and collected $1 billion within 10 days of loss notice from a panel of reinsurers in the aftermath of Hurricane Harvey in 2017.

In addition to the immediacy at which funds are received, budget insurance provides governments with

the flexibility to redirect contingent funds that would otherwise be held to support post-disaster response needs towards other priorities.

This flexibility means there are more funds to invest into critical climate adaptation and mitigation projects, so that elected officials can better serve taxpayers in minimizing extreme weather impacts.

In its 2019 Canada’s Changing Climate Report, the federal government said Canada has warmed at a rate twice the global average and will continue on that trajectory in the future. According to Canada’s Expert Panel on Sustainable Finance, whose membership included Tiff Macklem, current Governor of the Bank of Canada, “The effects of climate change are upon us. Shifting weather patterns are amplifying the natural risks we already face – floods, storms, heat and drought – leading to more frequent and extreme loss events. Preparing for and adapting to the current and future impacts of climate change is a critical aspect in managing risk to our communities, businesses and ecosystems.”

Although governments across Canada face different climate change challenges, the need to stretch budgets to respond to natural disasters is common. Budget insurance for natural disaster offers governments an eloquent way to unlock adaptation capital today, in anticipation of bigger disasters tomorrow.

NATALIA MOUDRAK, Director, Climate Resiliency Leader, Aon Public Sector Partnership. Natalia advances the development of innovative solutions that create greater climate change resiliency for Aon’s public sector clients. Prior to joining Aon, Natalia worked as a Director of Climate Resilience at the Intact Centre on Climate Adaptation at the University of Waterloo.

MARCH 2021 • DOLLARS & SENSE PERSPECTIVE | 19

Becoming a Smart Community: How the City of Fort St. John is unlocking innovation through structural and cultural change

20 | GFOABC.CA

photo: kylewith.com

I

nnovation is a key attribute that local governments are looking to integrate into their organization. But it’s easier said than done. To be truly innovative requires a long-term commitment across all facets of the organization – a tall order for local governments given such a wide range of responsibilities.

When Milo MacDonald started his position at the City of Fort St. John as Chief Administrative Officer in August 2020, fostering an innovative culture and building a smart community was top of mind.

“My council was looking for solutions to address high turnover in management, poor outcomes on safety and issues relating to organizational culture. They wanted to start my tenure by supporting the creation of a modern organizational structure to address these concerns,” MacDonald explains.

Local governments can often see silos develop, where departments function independent of one another when, in practice, they have considerable interdependencies that require constant collaboration and communication.

The City made changes to take down the barriers between departments. For example, information technology and information management are handled now through a cross city committee which allows for greater knowledge sharing. In fact, most areas where there is overlap in responsibility or service delivery have collaborative meetings.

MacDonald also wanted to push the culture forward. The goal is to encourage staff to feel comfortable bringing new ideas forward and see themselves as people who can help create positive benefits for the entire city.

“We created a Chief Human Resources Officer position to ensure that human values such as learning and development, labour relations, and safety took equal priority and had C-level influence in corporate decision making,” MacDonald said.

These initiatives align well with MNP’s whitepaper, “Becoming a Smart Community Through Innovation”. The whitepaper was created by MNP’s Public Sector team and features an innovation maturity model and a four-step roadmap to becoming a smart community.

From looking at the whitepaper, MacDonald learned the city was further along in than their journey than anticipated and gained insight on where to focus future efforts.

“My predecessor had prepared the organization well for the future by fostering a climate of innovation and leaving the organization in a financial position to take advantage of technological opportunities for innovation,” MacDonald explains.

The organization continues to make progress, but they have larger goals ahead too. MacDonald highlights how these aims centre on enhancing the quality of life for citizens, and notes that to be successful there is a need is for regional relationships to increase the efficiency and reach of services. Added to this is a focus on building, fostering and maintaining relationships with nearby communities including local First Nations.

Becoming a smart community is a long process. To understand how your organization can evolve, you need to understand where you currently stand.

To learn more about becoming a smart community and how MNP’s Public Sector team can support your efforts, visit MNP.CA.

BILL REID, MBA, CMC, CE is the BC Leader of MNP’s Public Sector Consulting team based in Victoria. Bill specializes in results-oriented governance, planning and management. He has developed strategic and operational plans, led program evaluations and operational reviews, facilitated enterprise risk assessments and provided facilitation services.

JULIE ZIEBART, CPA, CA is a member of MNP’s Fort St. John team. Julie has been helping small and medium-sized enterprises in a variety of industries, including oil and gas services, improve and grow their businesses for more than two decades.

MILO MACDONALD is the Chief Administrative Officer for the City of Fort St. John. Before taking on the leadership position with the City of Fort St. John, MacDonald served as CAO of the City of Williams Lake following a 20-year career with the RCMP. MARCH 2021 • DOLLARS & SENSE PERSPECTIVE | 21

What is a Certificate of Insurance and Why is it Important?

I

nsurance is a common risk transfer method local government can use to minimize a potential financial loss. They pay a premium to the insurer to provide this coverage. A Certificate of Insurance (COI) provides proof that insurance is in place.

It is usually a one-page statement summarizing the coverage that is provided by the insurer or broker.

A COI serves a bigger purpose when you are entering into contractual agreements with other parties, such as contractors and service providers. Insurance requirement provisions in contracts and agreements are a very common risk transfer method. They are typically followed by a request for all parties to produce a COI confirming that the coverage is in place and that it meets the requirements of the contract or agreement. We recommend that all local governments include specific insurance language in their contracts and agreements that can be evidenced and confirmed in a COI. Examples include: Your local government added as an “Additional Insured” When your local government is added as an additional insured to the contractor’s insurance policy, the coverage is extended to you without having to pay a premium. So, if

22 | GFOABC.CA

you receive a claim because of the work of a contractor or service provider, their insurance will provide a defence because you are an additional insured.

Liability insurance for either $2 million, $5 million, or more (depending on the contract) The level of liability insurance requested is dependent on the work being completed and the level of risk arising from that work. The MIABC’s matrix can assist local governments in identifying the minimum level of insurance you may want to require from contractors that is commensurate with the contract risk.

30 days notice of cancellation When you request notice of cancellation on the COI it ensures that you are provided with an update if the insurance is cancelled. There are many other types of insurance coverage that you can request to be included in the COI that are more specific to the work or services being provided. If you are unsure what types of insurance you should request, consult the MIABC insurance matrix to obtain some guidance. MIABC members can also contact the MIABC at AskUsAnything@miabc.org for further guidance.

Requesting a COI to confirm that the contractual requirements have been met is very common. The contractor should not incur any additional costs by requesting a COI from their broker or insurer. A new COI can typically be obtained by the contractor within a day or two at most.

Members of the MIABC can take advantage of the new option in the Loss Control Program offering document services for MIABC Certificate of Insurance templates that can be tailored to the needs of individual members. For more information on the MIABC’s programs, contact Sandra Mayo at smayo@miabc.org or AskUsAnything@miabc.org.

SANDRA MAYO is the Risk Control Specialist at MIABC. Sandra is part of the Member Services Team, focusing on the newly launched Loss Control Program to meet the evolving needs of members. Until recently, Sandra managed risk and insurance at the City of Coquitlam and, prior to that, managed risk and insurance at the YMCA of Greater Vancouver.

c o l le c t o r s ’ c o r n e r Writing Off Taxes – LGA 781 – What You Need to Know

I

originally wrote an article in the November 2010 GFOA Newsletter about when and how Local Government Act S781 (previously S315.3) applies. I updated that article in the December 2014 GFOA Newsletter. With the changes to the deferment and home owner grant programs, it seems timely to update that article again. The intent of this legislation is to write off uncollectible taxes, not to write off a duly imposed tax, which includes the late payment penalty. Section 781 states: “The minister may confer on a local government further powers to manage and dispose of assets, including taxation revenue, that the minister considers necessary or advisable.” Interestingly, while applying to any municipal asset, this section has almost solely been used with regards to taxation revenue.

When does S781 apply?

• For an uncollectible debt such as to write off uncollected taxes on mobile homes.

• Due to an error made by the municipality such as failure to include a qualified property in the permissive exemption bylaw.

• Due to an error made by BC Assessment such as an assessment roll error.

• An ‘Act of God’, such as the Calgary flood in 2013, if Council is willing to adopt a written policy regarding the situation. The point is that this section of the legislation should be applied fairly to all taxpayers and properties in the same situation.

When does S781 NOT apply? In cases of penalties applied to unpaid taxes: • To an individual business due to the general prohibition against providing assistance to businesses.

• Sickness, death and “other crummy stuff” so that the municipality does not have the burden of arbitrating when the penalty should apply.

• A letter is sent to the Minister of Municipal Affairs requesting the write off. The request should include the folio number, the street address and the circumstances per above. Usually, the staff report to Council on the issue is sufficient.

However, do not include the owner(s) name for privacy reasons.

• Once the Minister’s Order is received, the tax account is adjusted including recovery for other taxing jurisdictions. The Order may be used to request an adjustment to the municipality’s School Tax account from the Ministry of Finance.

• Mail strike.

• Bank errors. Clearly, S781 is not intended to arbitrarily write off a tax penalty if there was any opportunity for another party to pay the property taxes or to check whether the taxes had been received by the municipality.

What is the process to use S781?

• Document the circumstances that created the need for the request to write off the taxes.

• Prepare a report to Council recommending that Council request the authority to write off the taxes pursuant to the LGA S781.

Reference: Write-Off of Local Government Financial Assets

DOUG STEIN has worked in municipal finance for over 30 years. In 2011 he retired from his position as Manager of Revenue Services for the District of Saanich. Doug leads the Collectors’ Forum, is a GFOABC Life Member, and a CPA, CMA.

• Council passes a resolution to that effect.

MARCH 2021 • DOLLARS & SENSE PERSPECTIVE | 23

CIVICINFOBC CIVICINFOBC

q u a rte r ly q u estio n

staffing levels…how has covid changed operations?

T

he diverse group of local governments that returned this survey gave a snapshot of how this pandemic fast-tracked change and technological transformation in the sector.

The initial lockdown brought about a number of challenges. For the majority of respondents, these included: • Procuring IT equipment including laptops • Finding virtual solutions for council and staff meetings alike Unique challenges arose showcasing the diverse nature and operations of the local governments that serve British Columbians. While many northern communities reported connectivity issues, other local governments struggled with space constraints caused by the need for social distancing.

Finance officers also shared several unexpected positive outcomes of remote work: • Flexible work hours and the opportunity to attend personal appointments without taking time off • Reduced commutes resulting in increased leisure time and reduced emissions • Minimized interruptions led to better productivity for some staff The challenge was enormous, and finance officers stepped up to ensure local government operations were minimally impacted by the global pandemic. Some of the changes will undoubtedly have a long-term impact on how local governments operate in British Columbia.

?

quarterly question the next Quarterly Question: Despite these challenges, many finance officers shared achievements brought about by the necessity for quick change including: • New or improved digitization of office records • Increase in electronic options available to the public and customers In some local governments, necessity sped the implementation of services that reduced customer visits to municipal hall, including:

Property Taxes…

What is the Trend?

APLEASE USE THIS LINK TO BE A PART OF THE RESULTS OF THE NEXT QUARTERLY QUESTION. YOUR PEERS WILL THANK YOU! The survey should only take about 2–3 minutes to complete.

The responses to this question will be profiled in the next GFOABC Newsletter.

If you have a topic for a future quarterly question, please contact the office at office@gfoabc.ca or (250) 382-6871

• Online payment via credit card • E-billing for both utilities and property taxes 24 | GFOABC.CA

If you would like to learn more about this free service, contact CivicInfoBC at info@civicinfo.bc.ca

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next newsletter publication is June Please contact us if you would like to submit an article or suggest a newsletter topic. office@gfoabc.ca • (250) 382-6871

MARCH 2021 • DOLLARS & SENSE PERSPECTIVE | 25

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