Report: Audit Committee - April 27, 2020

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Via Virtual Meeting Room

REPORT NUMBER 137 OF THE AUDIT COMMITTEE

To the Business Board,
University of Toronto

Your Committee reports that it held a virtual meeting on Monday, April 27, 2020, at 12:00 p.m. with the following members present:

Christopher Thatcher (Chair), Robert Boeckner, Sue Graham-Nutter

REGRETS:
Janet Ecker (Vice-Chair)

NON-VOTING ASSESSORS:
Mark L. Britt (Director, Internal Audit), Sheila Brown (Chief Financial Officer), Sheree Drummond (Secretary, Governing Council), Scott Mabury (Vice President, Operations and Real Estate Partnerships)

SECRETARIAT:
Tracey Gameiro (Audit Committee)

IN ATTENDANCE:
Diana Brouwer (Partner, Ernst & Young), Daniel Ottini (Deputy Director, Internal Audit), Pierre Piché (Controller and Director of Financial Services), Isaac Straley (Chief Information Security Officer), Bo Wandschneider (Chief Information Officer), Joyce Yu (Senior Manager Assurance Services, Ernst & Young)

ITEM 2 WAS APPROVED. ALL OTHER ITEMS ARE REPORTED TO THE BUSINESS BOARD FOR INFORMATION.

Pursuant to section 6.1 of the Audit Committee Terms of Reference, consideration of items 10 and 11 took place in camera.


Audit Committee met in Closed Session.

1. Chair’s Remarks

The Chair welcomed members and guests to the virtual meeting and reminded those in attendance that the Committee meets in closed session.

2. Report of the Previous Meeting

Report Number 136, from the meeting of March 4, 2020, was approved.

3. Business Arising from the Report of the Previous Meeting

There was no business arising from the report of the previous meeting.

4. Reports of the Administrative Assessors

Each of the Assessors provided an update as of April 23, 2020 on the impact of COVID-19 on each of their portfolios. Highlights of the presentation included:

Scott Mabury, Vice-President University Operations & Real Estate Partnerships

  • Detailed financial modeling for the Fall term was ongoing to ensure leadership had the information it needed to prepare the University for as many scenarios as possible.

  • The focus of the Incident Leadership Team was now shifting from dealing with the crisis to planning how to restart operations

  • The President continued to dialogue with senior members of the government regarding incentives for infrastructure to help re-start the economy which created an area of potential opportunity for the University.

Sheila Brown, Chief Financial Officer

  • Work on the year-end has been progressing, with the closing process starting April 28, 2020.

  • Whether or not the financial statements would be ready for June would depend on the collective success of pulling the numbers together, ensuring their quality, and being able to complete the external audit within the timeframe required.

  • The University had a number of financial reserves that would contribute to the management of the financial downturn.

  • Investment return indicators tracked throughout the year, indicated that for the fiscal year running May 1 2019 to March 31 2020, the long-term capital appreciation pool and pension fund master trust were running at approximately -6%.

  • The government’s operating funding was assured for fiscal 2020.

Discussion

As part of the ensuing discussion the following areas were addressed:

  • Almost $10M in ancillary operations rebates had been extended to students.

  • Those commercial tenants of the University who were not essential services and had been forced to shut down, had been put on an initial three month rent deferral, and would beyond that, depending on government funding programs, would likely be dealt with on a case by case basis.

  • Rebates for summer online courses had not been offered, and registration in summer courses was approximately 3,000 more than last year.

  • With regards to student fees going forward, this was largely depending on the University’s ability to deliver an on campus experience of some kind in the Fall; at this time the level of engagement for the Fall was difficult to predict.

  • There had been discussions among the sector in Ontario regarding whether and how to disclose the impact of COVID-19 in financial statements, with some thinking of adding a paragraph or two in the management disclosure, but with most not thinking a significant disclosure was required given the government grants being assured.

  • The external auditor, would work with management to ensure that the impact of COVID-19 was fairly presented in the Financial Report, but assured members that no issues were anticipated.

  • The external auditor would look at indicators of permanent impairment with respect to the University’s investments and would examine the assumptions used for employee benefits with a focus on the University’s receivables to ensure fair and appropriate disclosure.

  • Scenario modeling regarding enrolment revenues was very sophisticated and granular.

  • As a result of substantial increases in government support, losses in domestic tuition were much less than predicted.

  • None of the current capital projects were at risk, but what kind of real estate the University pursues may be adjusted.

  • May not be able to continue to have the low per person square footage that have had historically, as there may be a need for more distancing, but with more people possible working remotely space needs could balance out.

Mark Britt, Director – Internal Audit

  • Internal Audit had been able to carry on with all audits that were in progress at the time of the campus shutdown, at essentially the same pace, to the extent that documentation could be accessed virtually.

  • The investment in technology upgrades made transition to working from home quite seamless for the unit.

  • The unit was also in a position to start new audits, however, how far those are advanced beyond the planning stage would depend on the accessibility of documentation.

  • While more ‘in progress’ audits than ‘completed’ audits will be reported at year’s end, no significant risks of concern had been identified.

  • Work with the external auditor on the year-end audit had continued in a timely way.

  • Work toward automating much of the compliance portion of the audit work had commenced, which would improve efficiencies; with the hope being that these tools would work in the background to identify non-compliant transactions based on rules and other processes as defined by the University.

In response to a member’s question regarding any new areas of focus for the coming year given the COVID situation, Mr. Britt noted that while no specific risks of concern had been identified, internal audit would be looking at what areas the University managed well and where it struggled from a business continuity perspective, so as to be able to make recommendation on how better address them.

The Chair thanked the Assessors for their comprehensive reports and the commitment of their respective teams. Echoing the Chair’s comments, members congratulated the Assessors on a successful transition of their portfolios to the online environment and applauded the administration’s ability to manage an unpredictable situation and the challenges of COVID-19 so nimbly and in such a responsive way.

5. Draft Audited Financial Statements and Notes – April 30, 2020

The Committee received this item for information. The Chair explained that the Committee would be asked to recommend the full report to the Business Board for approval. Dr. Pierre Piché, Controller and Director, Financial Services, spoke to the Notes and highlighted the major changes that had been made which included:

  • New standard for capital assets –buildings were now separated into their key components and each of those amortized based on their useful lives.

  • Investment Notes - Most of the significant changes were with regards of making the notes clearer and easier to understand. To that end, extensive work had been done with UTAM and the external auditor to reach consensus on the changes to ensure the investment notes were clearer for everyone.

  • Investment Note 3 - had been broken down by pool (LTCAP and EFIP), - ‘with’ and ‘without’ the notional exposure of derivative financial instruments.

  • Derivatives - in keeping with other examples in the sector, simplified tables had replaced the complexity of those of prior years, with items now being grouped together, and continued to maintain the fair value by receivables and payables.

  • Note 17 and Financial Risk - the complexity of boilerplate language had been simplified to (1) identify significant financial risks, and (2) strategies to mitigate those risks.

  • Note 22 regarding possible future impact of COVID 19 – had been added to the financial statements.

There were no questions from members.

6. External Auditors - Report on Non-Audit Services by the External Auditor for the Period from October 1, 2019 to March 31, 2020

The Chair noted that in accordance with the Policy on the Use of the External Auditor for Non-Audit Services, the Audit Committee receives from the administration a quarterly report, resulting in an annual report. The report provided details of the payments made to the external auditors with respect to non-audit services.

There were no questions from members.

7. IT Risk Management Conversation with the Chief Information Security Officer

The Committee welcomed Chief Information Security Officer, Mr. Isaac Straley and invited him to provide an update on information technology and its associated security risks at the University.

Mr. Straley provided an overview of the following, focusing largely on the implications of the COVID-19 crisis including:

  • Remote access by employees

  • Security visibility and network protections across use on personally unmanaged devices

  • Increased phishing attacks to disrupt activities

  • Remote identity management support

  • Increase use of unvetted third party services

During the discussion, Mr. Straley confirmed that as a result of having to redirect resources to support remote access other IT priorities were falling behind, including progress on the risk self-assessment tool.

The Chair thanked Mr. Straley for his report.

8. Date of the Next Meeting

Members were reminded that the next meeting, the Committee’s last for 2019-2020 governance year, was scheduled for June 17, 2020.

9. Other Business

No other business was noted.

THE COMMITTEE MOVED IN CAMERA.

10. Internal Auditor – Private Meeting

Members of the administration as well as the Committee Secretary absented themselves and the Committee met privately with the Director of Internal Audit.

11. Committee Members Alone

Committee members discussed topics of interest and concern.

The Committee returned to Closed Session.

The meeting adjourned at 1:59 p.m.

April 28, 2020