Contents

Items of Audit Significance Discussed with Management 2

New Public Private Partnerships Initiatives 2

Balances with Ottawa Community Housing Corporation 3

Landfill Closure and Post Closure Accrual 3

Hydro Ottawa Variances 3

Accounts Receivable for Blackout Costs 3

Year End Receivables 3

Provisions for Contract Settlement 3

New upgrades to information systems 3

Significant Accounting Estimates – Employee Benefit Costs 3

Legal Matters 4

Significant Accounting Estimates – Tax Provisions 4

Significant Accounting Estimates – Other Provisions 4

Accounting Policies, Judgments and Estimates 5

Required Communications 5

Consideration of Fraud in a Financial Statement Audit 8

Items of Audit Significance Discussed with Management

The use of estimates has particular significance to the City’s financial statements and the most significant areas of estimation included in the financial statements are summarized below. Overall, we are satisfied that the City’s estimates are well supported, fall within our range of reasonableness and are fairly presented in the consolidated financial statements.

Area	Comments
New Financial Statement Presentation	City of Ottawa decided to change the Financial statement presentation for the classification of expenditures from “an organizational classification” to “a functional classification” on the basis of the recommendations of Plamondon & Associates who was engaged to undertake an objective, comprehensive review of municipal best reporting practices and the City’s current practices. We concluded the City’s presentation is reasonable.
New Public Private Partnerships Initiatives	The City is entering into public/private partnerships for facilities such as Ray Friel Center, the Kanata Ice Rinks Facility and the Ottawa Paramedic Service Headquarters. We read the agreements and considered the appropriateness of the accounting for these transactions and concluded the City’s accounting is reasonable.
Balances with Ottawa Community Housing Corporation	Ottawa Community Housing Corporation (“OCHC”) is consolidated in the City’s financial statements. At December 31, 2004, the inter-entity balances between the City and OCHC did not agree by approximately $2.8 million. The matter has been resolved and management has determined that the inter-entity balances will be corrected and reflected as a charge in the City’s 2005 financial statements. As such, we have carried the $2.8 million to our summary of audit differences. We concluded the difference is not material to the City’s financial statements.
Landfill Closure and Post Closure Accrual	As noted in the financial statements, the Landfill Closure And Post Closure provision represents the present value of the expected landfill closure and post closure costs based on management’s best estimate of the costs to be incurred to perform the required work to close and maintain closed sites. The provision is currently estimated at $17.8 million (2003 - $14.6 million) after taking into account the timing of when the work is to be performed, inflation rates and discount rates. We concluded the City’s estimate is reasonable.
Hydro Ottawa Variances	Hydro Ottawa is a wholly owned subsidiary and the City accounts for this investment on the modified equity basis in its consolidated financial statements. Last year, we told the City Ernst & Young’s view was Hydro Ottawa's provisions for unrecoverable variances was too conservative and Hydro Ottawa should have recognized an asset of at least $4.9 million at December 2003 and, still on a conservative basis, approximately $4.6 million at December 31, 2002. In 2003 we reflected this conservative estimate ($4.9 million in 2003 and $4.6 million 2002) on our summary of audit differences as an understatement in the City’s investment in the subsidiary and an understatement of net earnings of $0.3 million (2002-$4.6 million). This was not material to the City’s financial statements. In 2004, Hydro Ottawa booked a $7.9 million recapture of provision for doubtful recovery in its income statement, which is included in its 2004 earnings from continuing operations of $17.2 million in 2004 compared to $2 million in 2003. We concluded the recapture should have been recorded in prior years; however Hydro Ottawa now takes a more realistic view about realization of its Regulatory assets.
Accounts Receivable for Blackout Costs	At December 31, 2003, the City reflected a claim receivable from the Province for approximately $1.3 million for recovery of costs incurred during the August 2003 electricity blackout. Generally accepted accounting principles do not allow the recording of the claim in financial statements until there is agreement among the parties and collection is reasonably assured. We carried this amount to our summary of audit differences in 2003. In 2004, the City wrote off the balance. We agree with this treatment.
Year End Receivables	We reviewed cash receipts for the first few months of 2005 and identified funding totaling $966,000 from Ottawa Transit Vehicle Program for the 2004 year not reflected in financial statements. We carried this amount to our summary of audit differences in 2004 as it is not material to the financial statements.
Provisions for Contract Settlement	We reviewed the City’s accrual for contract settlements at December 31, 2004 and concluded the accrual in the financial statements is understated by $707,000. We carried this amount to our summary of audit differences in 2004 as it is not material to the financial statements.
New upgrades to information systems	During fiscal 2003, the City changed its payroll systems to enhance the functionality and consolidate into two payroll systems, SAP 4.6 and Peoplesoft. In 2004, the City completed its migration to one payroll environment (SAP 4.6). We tested the conversion of payroll data to the SAP system and found no problems.
Significant Accounting Estimates – Employee Benefit Costs	Employee benefit costs represent a significant unfunded liability for the City. At December 31, 2004, the provision totaled $ 237 million. Our audit procedures consisted of ensuring the assumptions related to various rates used within the actuarial calculations were reasonable. We concluded the City was in full compliance with the appropriate accounting principles for the calculation, presentation and disclosure of these liabilities in the consolidated financial statements.
Legal Matters	The City is subject to legal claims in the normal course of operations. Current accounting recommendations do not require the City to provide for any contingent liabilities at year-end. Our audit approach is to review the status of ongoing claims to ensure any resolved claims have been appropriately accounted for and any ongoing ones are appropriately disclosed within the notes to the consolidated financial statements. The City’s Legal Department prepares summaries for us on the litigation and insurance matters outstanding as of our audit reporting date. We review this information to determine if there should be any provisions recorded in the financial statements. We agree the provisions recorded in the financial statements and the disclosures in the notes to the consolidated financial statements are appropriate. The accounting rules will change commencing in 2005 for the city and a contingent liability must be recognized as an expense in the financial statements when it is likely that a future event will confirm that a liability has been incurred at the date of the financial statements; and the amount can be reasonably estimated.
Significant Accounting Estimates – Tax Provisions	Valuation of property taxes requires judgment. Our audit procedures include a review of the City’s process for estimating the impact of appeals on current receivables recorded by the City. We have audited the work performed by the City staff and agree with the reasonableness of the provisions made.
Significant Accounting Estimates – Other Provisions	We review the significant receivable balances at year end and the support and work done by staff in developing an estimate of the amount that is not collectible. Our audit procedures ensure the basis of the estimates used and the ultimate provisions made are reasonable within our professional judgment. We concluded the City’s provisions made against the significant balances as at December 31, 2004 are reasonable.

Accounting Policies, Judgments and Estimates

We are required to communicate our judgments about the quality, not just the acceptability, of the City’s accounting principles as applied in its financial reporting. We also are required to communicate sensitive accounting estimates. The table below summarizes these communications.

Area	Accounting Policy	Judgments and Sensitive Estimates	E&Y Comments on Quality of Accounting Policy and Application
• Retirement allowance and sick leave accrual • Property assessment appeals • Landfill retirement and post closure expense accrual • Allowance for doubtful accounts – property, payments-in-lieu and business tax arrears • Allowance for doubtful accounts • Legal Claims accrual	Provide allowance for non-collectible accounts, and tax appeals and accrue for estimated future payments for costs incurred in the current year. (i.e. site restoration costs and payroll benefits to be paid in the future).	Reserves are based on account aging plus identified specific accounts compared to past experiences and current trends. Estimated tax appeals and costs requiring future payments are calculated based on management’s best estimate given available information and historical experience.	Provisions are consistent with the prior year policy and municipal practice. We have reviewed management’s estimates and have determined their assumptions and conclusions to be reasonable.

Area

Accounting Policy

Judgments and Sensitive Estimates

E&Y Comments on Quality of Accounting Policy and Application

• Retirement allowance and sick leave accrual

• Property assessment appeals

• Landfill retirement and post closure expense accrual

• Allowance for doubtful accounts – property, payments-in-lieu and business tax arrears

• Allowance for doubtful accounts

• Legal Claims accrual

Provide allowance for non-collectible accounts, and tax appeals and accrue for estimated future payments for costs incurred in the current year. (i.e. site restoration costs and payroll benefits to be paid in the future).

Reserves are based on account aging plus identified specific accounts compared to past experiences and current trends.

Estimated tax appeals and costs requiring future payments are calculated based on management’s best estimate given available information and historical experience.

Provisions are consistent with the prior year policy and municipal practice.

We have reviewed management’s estimates and have determined their assumptions and conclusions to be reasonable.

Required Communications

CICA Handbook Section 5751 and other professional standards require the auditor to communicate certain matters that may assist the Committee in overseeing management’s financial reporting and disclosure process. Below we summarize these required communications as they apply to the City.

Area	Comments
Auditors’ Responsibilities under Generally Accepted Auditing Standards (GAAS) The financial statements are the responsibility of management. Our audit was designed in accordance with Canadian generally accepted auditing standards) to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. As a part of our audit, we obtained an understanding of internal control sufficient to plan our audit and to determine the nature, timing, and extent of testing performed.	We have issued an unqualified opinion on the City’s consolidated financial statements for the year ended December 31, 2004.
Our Judgments About the Quality of the City’s Accounting Principles We discuss our judgments about the quality, not just the acceptability, of the accounting policies as applied in the City’s financial reporting, including the consistency of the accounting policies and their application and the clarity and completeness of the financial statements and related disclosures.	We have provided our views in the following section titled “Accounting Policies, Judgments and Estimates.”
Sensitive Accounting Estimates The preparation of the financial statements requires the use of accounting estimates. Certain estimates are particularly sensitive due to their significance to the financial statements and the possibility that future events may differ significantly from management’s expectations. We determine that the Committee is informed about management’s process for formulating particularly sensitive accounting estimates and about the basis for our conclusions regarding the reasonableness of those estimates.	We have provided our views in the following section titled “Accounting Policies, Judgments and Estimates.”
The Adoption of, or a Change in an Accounting Principle We determine that the Committee is informed about the initial selection of, and any changes in, significant accounting principles or their application when the accounting principle or its application, including alternative methods of applying the accounting principle, has a material effect on the financial statements.	During 2004 the city was not required to adopt new accounting policies resulting from newly issued guidelines.
All Material Alternative Accounting Treatments Discussed with Management We report to the Committee all alternative accounting treatments within GAAP for policies and practices related to material items (including recognition, measurement, presentation and disclosure alternatives) that have been discussed with management during the current audit period including the acceptability of the policies or methods ultimately retained by management.	There were no significant alternative accounting treatments discussed with management.
Methods of Accounting for Significant Unusual Transactions and for Controversial or Emerging Areas We determine that the Committee is informed about the methods used to account for significant unusual transactions and the effects of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus.	We are not aware of any significant unusual transactions recorded by the City or of any significant accounting policies used by the City related to controversial or emerging areas for which there is a lack of authoritative guidance.
Significant Audit Adjustments We provide the Committee with information about adjustments arising from the audit (whether recorded or not) that could in our judgment either individually or in the aggregate have a significant effect on the City’s financial statements. [Note: Our communication includes proposed corrections to interim financial information, as well as significant disclosure items that were addressed principally as a result of the audit.]	There were no significant recorded audit adjustments related to audit.
Unadjusted Audit Differences Considered by Management to Be Immaterial We inform the Committee about unadjusted audit differences accumulated by us (i.e., adjustments either identified by us or brought to our attention by management) during the current audit and pertaining to the latest period presented that were determined by management to be immaterial, both individually and in the aggregate, to the financial statements as a whole.	All accounting differences identified during the audit were discussed with management to determine whether an adjustment should be recorded. The unrecorded accounting differences individually or in the aggregate are not significant to the financial statements. As communicated to Committee in our Audit Planning document, all the net unadjusted errors greater than $675,000 are discussed in this document, (the largest of which was the $2.8 million Ottawa Community Housing Corporation inter-entity balance with the City discussed above), well below the materiality level set for the audit of $22..5 million.
Fraud and Illegal Acts We report to the Committee fraud and illegal acts involving senior management and fraud and illegal acts (whether caused by senior management or other employees) that cause an other than trivial misstatement of the financial statements.	We are not aware of any significant fraud or illegal acts. Refer to “Consideration of Fraud in a Financial Statement Audit” section for more information about our procedures related to fraud.
Significant Weaknesses in Internal Control We communicate all significant weaknesses in internal control over financial reporting that may have been identified during the course of our audit.	No significant weaknesses were identified.
Other Information in Documents Containing Audited Financial Statements Our financial statement audit opinion only relates to the financial statements and accompanying notes. However, we also review other information in the Annual Report.	Once it is complete, we will review the City’s Annual Report for consistency between the audited financial statements and other sections of that document.
Disagreements with Management	None.
Serious Difficulties Encountered in Dealing with Management when Performing the Audit	None.
Major Issues Discussed with Management Prior to Retention	None.
Consultation with Other Accountants	None of which we are aware.
Related Party Transactions Related party transactions identified by the auditor that are not in the normal course of operations and that involve significant judgments made by management concerning measurement or disclosure must be disclosed to the Committee.	All related party transactions of which we are aware are disclosed in the financial statements.
Matters Relating to Component Entities of the City When the financial statements of a City (primary entity) include financial information from financial statements of a component entity or an entity whose financial information from financial statements is included with those of the primary entity), the auditor communicates with the Committee those matters relating to the component entities that in the auditor's judgment are of significance in the context of the primary entity (for example, weaknesses in systems of internal control that have resulted, or could result, in material errors in the primary entity's consolidated financial statements).	None of which we are aware.
Fees and Related Regulatory Disclosures Under our professional standards, we are required to disclose to the Committee the total fees charged for audit and non-audit services provided by us and by our related businesses or practices to the City and its related entities. : · Audit Fees · Audit-Related Fees · Tax Fees · All Other Fees	Total fees charged by Ernst & Young for the following services to the City: Audit of the City of Ottawa Audit of the Pineview Golf Course Audit of the Business Improvement Areas Audit of the Ottawa Public Library Board Audit of the Ottawa Sinking Fund Audit of the Homes for the Aged Trust Funds Audit of the City of Ottawa Superannuation Fund Audit of the City of Ottawa Statement of Expenditures on Waste Disposal Audit of the OC Transpo Benefit Trust Audit of the OC Transpo Pension Plan Audit of the Homes for the Aged Annual Reports Audit of the Homes for the Aged annual reconciliation Ernst & Young charged the agreed fees of $174,000 for audit services and approximately $25,000 for audit related services during the period January 1, 2004 to May 10, 2005
Independence We communicate, at least annually, the following to City Council: 1. Disclose, in writing, all relationships between Ernst & Young and our related entities and the City and its related entities that, in our professional judgment, may reasonably be thought to bear on independence; 2. Confirm in writing that, in our professional judgment, we are independent of the City within the meaning of the Institute of Chartered Accountants of Ontario– Rules of Professional Conduct; and 3. Discuss our independence with the Committee.	We are not aware of any relationships between the City and us that, in our professional judgment, may reasonably be thought to bear on our independence, that have occurred from January 2004 to May 10, 2005. The total fees charged to the City $174,000 for audit services, $25,000 for audit related services during the period January 1, 2004 to May 10, 2005. GAAS require that we confirm our independence to the Committee. in the context of the Rules of Professional Conduct of the Institute of Chartered Accountants of Ontario. Accordingly, we hereby confirm that we are independent with respect to the City within the meaning of the Rules of Professional Conduct of the Institute of Chartered Accountants of Ontario as of May 10, 2005. This report is intended solely for the use of the Committee, Council, management, and others within the City and should not be used for any other purposes. We look forward to discussing with you the matters addressed in this letter at our upcoming meeting..

Area

Comments

Auditors’ Responsibilities under Generally Accepted Auditing Standards (GAAS)

The financial statements are the responsibility of management. Our audit was designed in accordance with Canadian generally accepted auditing standards) to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. As a part of our audit, we obtained an understanding of internal control sufficient to plan our audit and to determine the nature, timing, and extent of testing performed.

We have issued an unqualified opinion on the City’s consolidated financial statements for the year ended December 31, 2004.

Our Judgments About the Quality of the City’s Accounting Principles

We discuss our judgments about the quality, not just the acceptability, of the accounting policies as applied in the City’s financial reporting, including the consistency of the accounting policies and their application and the clarity and completeness of the financial statements and related disclosures.

We have provided our views in the following section titled “Accounting Policies, Judgments and Estimates.”

Sensitive Accounting Estimates

The preparation of the financial statements requires the use of accounting estimates. Certain estimates are particularly sensitive due to their significance to the financial statements and the possibility that future events may differ significantly from management’s expectations.

We determine that the Committee is informed about management’s process for formulating particularly sensitive accounting estimates and about the basis for our conclusions regarding the reasonableness of those estimates.

We have provided our views in the following section titled “Accounting Policies, Judgments and Estimates.”

The Adoption of, or a Change in an Accounting Principle

We determine that the Committee is informed about the initial selection of, and any changes in, significant accounting principles or their application when the accounting principle or its application, including alternative methods of applying the accounting principle, has a material effect on the financial statements.

During 2004 the city was not required to adopt new accounting policies resulting from newly issued guidelines.

All Material Alternative Accounting Treatments Discussed with Management

We report to the Committee all alternative accounting treatments within GAAP for policies and practices related to material items (including recognition, measurement, presentation and disclosure alternatives) that have been discussed with management during the current audit period including the acceptability of the policies or methods ultimately retained by management.

There were no significant alternative accounting treatments discussed with management.

Methods of Accounting for Significant Unusual Transactions and for Controversial or Emerging Areas

We determine that the Committee is informed about the methods used to account for significant unusual transactions and the effects of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus.

We are not aware of any significant unusual transactions recorded by the City or of any significant accounting policies used by the City related to controversial or emerging areas for which there is a lack of authoritative guidance.

Significant Audit Adjustments

We provide the Committee with information about adjustments arising from the audit (whether recorded or not) that could in our judgment either individually or in the aggregate have a significant effect on the City’s financial statements.

[Note: Our communication includes proposed corrections to interim financial information, as well as significant disclosure items that were addressed principally as a result of the audit.]

There were no significant recorded audit adjustments related to audit.

Unadjusted Audit Differences Considered by Management to Be Immaterial

We inform the Committee about unadjusted audit differences accumulated by us (i.e., adjustments either identified by us or brought to our attention by management) during the current audit and pertaining to the latest period presented that were determined by management to be immaterial, both individually and in the aggregate, to the financial statements as a whole.

All accounting differences identified during the audit were discussed with management to determine whether an adjustment should be recorded. The unrecorded accounting differences individually or in the aggregate are not significant to the financial statements. As communicated to Committee in our Audit Planning document, all the net unadjusted errors greater than $675,000 are discussed in this document, (the largest of which was the $2.8 million Ottawa Community Housing Corporation inter-entity balance with the City discussed above), well below the materiality level set for the audit of $22..5 million.

Fraud and Illegal Acts

We report to the Committee fraud and illegal acts involving senior management and fraud and illegal acts (whether caused by senior management or other employees) that cause an other than trivial misstatement of the financial statements.

We are not aware of any significant fraud or illegal acts. Refer to “Consideration of Fraud in a Financial Statement Audit” section for more information about our procedures related to fraud.

Significant Weaknesses in Internal Control

We communicate all significant weaknesses in internal control over financial reporting that may have been identified during the course of our audit.

No significant weaknesses were identified.

Other Information in Documents Containing Audited Financial Statements

Our financial statement audit opinion only relates to the financial statements and accompanying notes. However, we also review other information in the Annual Report.

Once it is complete, we will review the City’s Annual Report for consistency between the audited financial statements and other sections of that document.

Disagreements with Management

None.

Serious Difficulties Encountered in Dealing with Management when Performing the Audit

None.

Major Issues Discussed with Management Prior to Retention

None.

Consultation with Other Accountants

None of which we are aware.

Related Party Transactions

Related party transactions identified by the auditor that are not in the normal course of operations and that involve significant judgments made by management concerning measurement or disclosure must be disclosed to the Committee.

All related party transactions of which we are aware are disclosed in the financial statements.

Matters Relating to Component Entities of the City

When the financial statements of a City (primary entity) include financial information from financial statements of a component entity or an entity whose financial information from financial statements is included with those of the primary entity), the auditor communicates with the Committee those matters relating to the component entities that in the auditor's judgment are of significance in the context of the primary entity (for example, weaknesses in systems of internal control that have resulted, or could result, in material errors in the primary entity's consolidated financial statements).

None of which we are aware.

Fees and Related Regulatory Disclosures

Under our professional standards, we are required to disclose to the Committee the total fees charged for audit and non-audit services provided by us and by our related businesses or practices to the City and its related entities. :

· Audit Fees

· Audit-Related Fees

· Tax Fees

· All Other Fees

Total fees charged by Ernst & Young for the following services to the City:

Audit of the City of Ottawa

Audit of the Pineview Golf Course

Audit of the Business Improvement Areas

Audit of the Ottawa Public Library Board

Audit of the Ottawa Sinking Fund

Audit of the Homes for the Aged Trust Funds

Audit of the City of Ottawa Superannuation Fund

Audit of the City of Ottawa Statement of Expenditures on Waste Disposal

Audit of the OC Transpo Benefit Trust

Audit of the OC Transpo Pension Plan

Audit of the Homes for the Aged Annual Reports

Audit of the Homes for the Aged annual reconciliation

Ernst & Young charged the agreed fees of $174,000 for audit services and approximately $25,000 for audit related services during the period January 1, 2004 to May 10, 2005

Independence

We communicate, at least annually, the following to City Council:

1. Disclose, in writing, all relationships between Ernst & Young and our related entities and the City and its related entities that, in our professional judgment, may reasonably be thought to bear on independence;

2. Confirm in writing that, in our professional judgment, we are independent of the City within the meaning of the Institute of Chartered Accountants of Ontario– Rules of Professional Conduct; and

3. Discuss our independence with the Committee.

We are not aware of any relationships between the City and us that, in our professional judgment, may reasonably be thought to bear on our independence, that have occurred from January 2004 to May 10, 2005.

The total fees charged to the City $174,000 for audit services, $25,000 for audit related services during the period January 1, 2004 to May 10, 2005.

GAAS require that we confirm our independence to the Committee. in the context of the Rules of Professional Conduct of the Institute of Chartered Accountants of Ontario. Accordingly, we hereby confirm that we are independent with respect to the City within the meaning of the Rules of Professional Conduct of the Institute of Chartered Accountants of Ontario as of May 10, 2005.

This report is intended solely for the use of the Committee, Council, management, and others within the City and should not be used for any other purposes.

We look forward to discussing with you the matters addressed in this letter at our upcoming meeting..

Consideration of Fraud in a Financial Statement Audit

In April 2004, the Auditing and Assurance Standards Board of the CICA issued amendments to Handbook Section 5135, The Auditor’s Responsibility to Consider Fraud and Error in an Audit of Financial Statements (“CICA 5135”). These amendments are intended to improve the likelihood that auditors will detect frauds that result in a material misstatement in financial statements, thereby meeting public expectations resulting from recent material frauds uncovered in major public corporations. These amendments heighten the awareness of auditors to the potential for fraud when planning and executing audits and also emphasize the need for increased professional skepticism throughout the audit engagement. These amendments do not change our responsibilities as auditors. Under CICA 5135, we are responsible for planning and performing the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or by fraud. However, the extent of required procedures related to the detection of fraud has increased. We approach all audits with an understanding that fraud could occur in any City at any time, and could be perpetrated by anyone. The following provides a summary of the principal procedures required under CICA 5135 and the results of our procedures.

Engagement Team Discussion

CICA 5135 requires, as part of planning the audit, that there be a discussion among the audit team members, which includes all significant locations. The discussion should allow key members of the team to share thoughts and ideas about how and where they believe the client’s financial statements might be susceptible to material misstatement due to fraud. A key element of this discussion, which is led by the partner in charge of the audit, is to emphasize the importance of maintaining the proper mindset throughout the audit regarding the potential for fraud. We conducted our engagement team discussion during our planning meting in the fall and updated our discussion after the completion of our interim procedures.

Gathering Information Needed To Identify Risks of Material Misstatement Due to Fraud

CICA 5135 requires auditors to perform certain procedures to obtain information that is used to identify risks of material misstatement due to fraud. These procedures include:

Inquiring of management and others within the organization about the risks of fraud. Inquiries are required to be made of management, the Committee, the Auditor General, and other operational and financial personnel within the organization, focusing on such areas as the individual’s knowledge of fraud and understanding about specific risks of fraud in the organization. Further, inquiries are made regarding the oversight activities of the Committee regarding management’s assessment of the risks of fraud, whether programs and controls have been established at the organization to mitigate the risk of fraud, how multiple locations within an organization are monitored for fraud, and how management communicates to employees its views on business practices and ethical behavior.

· Inquiring about matters raised from the Committee procedures for complaints (including ‘whistleblowers’) regarding accounting, internal accounting controls or auditing matters.

· Considering unusual or unexpected relationships that have been identified in performing analytical procedures in planning the audit;

· Considering whether fraud risk factors exist; and

· Considering other information gathered throughout the audit.

We have made inquiries of management and other operating and financial personnel and attended two meetings with the Auditor General. We have also performed analytical review procedures and conducted engagement team discussions (as described above) with the purpose of considering whether fraud risk factors exist.

Identifying, Assessing and Responding to Fraud Risks

As a result of the information gathered from the procedures above, we identify and assess specific fraud risks. The auditor's response to the assessment of the risks of material misstatement of the financial statements due to fraud is influenced by the nature and significance of the risks identified and the organization’s programs and controls that address these identified risks. For each identified fraud risk, our audit response would include a combination of tests of fraud programs and controls and substantive tests responsive to the identified risks. Additionally, the auditor’s response to fraud risks might include a change in the timing or nature of audit procedures, or the auditor might decide that the extent of testing needs to be expanded in certain areas.

We concluded there were no fraud risks identified during the audit that would have a potential material impact on the City’s consolidated financial statements.

Mandatory Procedures To Address The Risk Of Management Override

Fraudulent financial reporting often involves management override of controls that otherwise appear to be operating effectively. CICA 5135 includes the following mandatory procedures to address the risk of management override of controls:

· Examining journal entries and other adjustments for evidence of possible material misstatement due to fraud;

· Reviewing accounting estimates for biases that could result in material misstatement due to fraud, including a retrospective review of significant prior year estimates; and

· Evaluating the business rationale of significant unusual transactions.

We reviewed all significant standard and non-standard journal entries and adjustments recorded as part of the financial statement close process and our testing procedures did not identify any problems.

Evaluating Audit Evidence

We assess the risk of material misstatement due to fraud throughout the audit. We are mindful of conditions that may be identified during fieldwork that change or support a judgment regarding the assessment of fraud risks, such as discrepancies in the accounting records, conflicting or missing evidential matter, and/or problematic or unusual relationships between the auditor (including internal audit) and management. No such matters were noted during our audit.