Report: Audit Committee - December 01, 2020

Via Virtual Meeting Room


December 1, 2020

To the Business Board,
University of Toronto

Your Committee reports that it held a virtual meeting on Tuesday, December 1, 2020, at 4:00 p.m. with the following members present:

Janet Ecker (Chair); Joanne McNamara (Vice-Chair); Teodora Dechev; Robert Boeckner; Sue Graham-Nutter; Rajiv Mathur; Andrew Szende; Lara Zink

Kathryn Jenkins

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

David Walders, Assistant Secretary, Office of the Governing Council 

Diana Brouwer, Ernst & Young; Alanna Charles, Ernst & Young; Francis Low, Ernst & Young; Daniel Ottini, Deputy Director, Internal Audit; Pierre Piché, Controller and Director of Financial Services 

Audit Committee met in Closed Session


Pursuant to section 6.1 of the audit committee terms of reference, consideration of items 14 and 15 took place in camera.

  1. Chair’s Welcome

    The Chair welcomed members and guests to the meeting. 
  2. Registered Pension Plan
    1. Audited Pension Financial Statements for the Year ended June 30, 2020 

The Chair reminded members that it was the responsibility of the Audit Committee to review the audited financial statements of the pension plan, along with the accompanying auditor’s report, and to recommend the statements to the Pension Committee for approval.  The Pension Committee, on the recommendation of the Audit Committee, had the authority to review, approve, reject or refer back the statements. The Chair also noted that the Annual Financial Report was included solely to provide context and a broader framework for members when reviewing the Financial Statements. 

Ms Sheila Brown re-iterated that the Annual Report was provided as a reference document for members to contextualize the Financial Statements. Dr. Pierre Piché then highlighted the following aspects of the financial statements:

  • The impact on disclosures regarding the reallocation of short-term investments, related to the effects of futures and swaps contracts; 
  • An amended Statement of Investment Policies and Procedures (which had been approved by the administrator on March 25, 2020), included changes to leveraging parameters in the portfolio, aimed at decreasing risk. This was detailed in Note 8;
  • Note 9 outlined that fact that there were no outstanding conditions to be met in advance of the transfer of assets to the new University Pension Plan Ontario (‘UPP’) on July 1, 2021;
  • Uncertainty surrounding the potential risk related to COVID-19 was updated and reflected in Note 10. 

Mr. Francis Low from Ernst & Young, the external auditor for the registered pension plan, then addressed the Committee and reported that he was comfortable with all disclosures, and that the audited financial statements reflected a fair presentation in all material aspects.  He noted that the pension assets were appropriately determined, that the investments were properly valued and that all required disclosures had been met.  Despite being conducted remotely, the audit went smoothly with the full cooperation of all parties.  As such, there was no hesitation in issuing an unqualified opinion. 

The discussion that followed was primarily focussed on the transfer of assets to the UPP on July 1, 2021 with an emphasis on financial reporting under the UPP, the deficit and the assumptions that would be used under the UPP.  There was also a question concerning the valuation of private (level 3) investments in the statements. 

Beginning with financial reporting, Dr. Piché noted that accounting practices of the three university participants of the UPP were being examined to arrive at a mutual agreement on reporting under the UPP. The agreed upon reporting structure would be presented to the Audit Committee at the May 2021 meeting. Discussions were ongoing regarding which assumptions would be used for the financial statements. Turning to the deficit, Ms Brown noted that the deficit applicable at the date of transfer of assets to the UPP would not be known until then. As at that date, the deficit would be determined using UPP assumptions, crystalized and amortized over a 15-year period. Turning to assumptions, Ms Brown noted that the assumptions which would be used under the UPP would be different than the ones currently used. Finally, concerning the valuation of private investments, Mr Low confirmed that the auditors had performed both look-back and roll-forward analysis of the valuations of private investments and confirmed that they were comfortable with the valuations. 

On motion duly made, seconded and carried


THAT the audited financial statements for the University of Toronto Pension Plan for the year ended June 30, 2020 be approved.

  1. Pension Plan Annual Financial Report for the Year ended June 30, 2020

The University of Toronto Pension Plan Annual Financial Report for the year ended June 30, 2020 was received by the Committee for information.  The Report provided context for the Committee’s review of the audited pension financial statements.  

There were no additional questions from members. 

  1. External Auditors
    1. Audit Plan (including Engagement Letter for 2021 and Report on Non-Audit Services) 

      Ms Brown explained that the Engagement Letter set out the terms of the engagement, a summary of the audit approach for 2021, and areas of audit emphasis and significant risk. 

      Ms. Diana Bouwer from Ernst & Young reported that the approach taken in respect of the 2021 audit plan was consistent with past years for both the University’s and pension plan’s financial statements. She reported that there were no concerns with the audit being conducted remotely, and that, as always, revenue recognition would be a central focus of the audit.  

      Neither the Chair nor any members indicated an awareness of any items that would impact audit plans for the current financial year.

      On motion duly made, seconded and carried


      THAT the Audit Committee accept the external auditors’ audit plan and engagement letter for the University for the year ended April 30, 2021, and for the pension plan for the year ended June 30, 2021, as outlined in the report from Ernst & Young dated November 12, 2020.
    2. Report on Audit Fees

      Ms Brown noted that the Report outlined the audit fees charged to Universities in Ontario from 2016-17 to 2017-18 and was provided for background and context.

      There were no questions from members. 
  2. Internal Audit: Semi-Annual Activity Report for the Six Months Ended October 31, 2020

    Mr. Mark Britt, Director of Internal Audit, outlined the allocation of audit efforts over the six months ended October 31, 2020.  There were four areas that were trending to significant variances from the original audit plan: IT and Security, Investigations, Advisory (and Other) and External Audit Assistance.  During the period, five reviews were completed, 17 were in progress and six draft reports were issued. In addition, one investigation was undertaken and completed during the period. Mr. Britt advised members that the audit reviews to date did not indicate the existence of significant unmitigated financial, compliance or operational risk to the University. Mr. Britt also noted that due to COVID-19, the Department of Internal Audit had been unable to hire the usual compliment of work-study students, who typically offered critical assistance in the work of the department. 

    In reply to question relating to deviations in Tri-Agency Research Expenditure Compliance, Mr. Britt noted that the number of non-compliant transactions was high relative to non-Tri Agency transactions due to the specific rules in place until March 31, 2020 for Tri-agency transactions.  Those rules were replaced by a principle-based framework on April 1, 2020 that allowed the University to align the rules for those transactions with the rules/policies applicable to all other transactions as outlined in the Guide to Financial Management. As a result of this harmonization, it was expected that the rates of non-compliant research transactions would decrease. 

    Many of those deviations were attributable to ambiguities in the Tri-Agency research expenditure guidelines.  He also noted that the reported deviations were based on a very small sample size. 
  3. Information Security Update

    Mr. Isaac Straley, Chief Information Security Officer, provided an information security update, highlighting the following key points; 
  • The move to remote work was effective and timely but created increased security and privacy risks. These included increased remote access, decreased security visibility and network protections, and increased likelihood for cyber attacks.
  • Secure U (of T) targeted specific COVID-19 priority areas of focus, including protection of user account logins. As well, a significant amount of time was being spent vetting new systems & functionality.
  • Information Risk Self-Assessment had been delayed due to COVID-19, but it had now resumed. Phase-2 objectives were now being addressed and results were expected in Spring, 2021.
  • The COVID-19 Research Cybersecurity Committee continued to meet regularly, and was taking a risk-based approach to cybersecurity. 

    In reply to a member’s question, Mr. Straley noted that the University was working closely with the Toronto Academic Health Sciences Network to mitigate risk associated with the University’s response to COVID-19, including that which related to research. 

    The Chair thanked Mr. Straley for his presentation. 
  1. Annual Administrative Accountability Reports, 2019-2020

    Dr. Piché explained that all staff with financial responsibilities, including the President, were required to complete an Accountability Report for their supervisor.  The President had submitted his report to the Chair of Governing Council. 

    There were no questions or comments from members.
  2. Enrolment Report to the Ministry of Training, Colleges and Universities, 2019-2020

    Dr. Piché reminded members that the Report was used to confirm the accuracy of enrolment data on which grants to the University were based.  He added that the report was also used by external auditors to substantiate the provincial grant revenue on the University’s financial statements.  

    There were no questions from members. 
  3. Accounting Standard Board’s Contributions – Revenue Recognition and Related Matters

    Dr. Piché offered remarks on the University’s contributions to the consultation paper from the Accounting Standards Board, which he noted was aimed at reducing inconstancies in revenue recognition within the Not-For-Profit Sector. He highlighted the complexities associated with revenue recognition within the sector, including that which related to income earned on endowments as well as whether or not to classify pledges as income. Ms Brouwer noted that, with respect to pledges, additional complexities arose because they were not legally enforceable instruments. Finally, and in reply to a question from the Chair, Dr. Piché noted that consultations on revenue recognition in the Not-For-Profit Sector would likely continue over the next few years.

    There were no other questions from members. 
  4. Report of the Previous Meeting: Report 139, September 16, 2020

    The report of the previous meeting was approved. 
  5. Business Arising from the Report of the Previous Meeting

    There was no business arising from the report of the previous meeting
  6. Reports of the Administrative Assessors

    There we no reports of the Administrative Assessors. 
  7. Date of Next Meeting: March 3, 2021 at 4:00 p.m.

    The Chair confirmed that the next meeting of the Committee would be held on March 3, 2021. 
  8. Other Business

    There were no items of other business

    The Committee moved in camera
  9. Internal Auditor: Private meeting

    Members of the administration absented themselves and the Committee met privately with the Director of Internal Audit
  10. Committee Members Alone

    The Committee members met alone. 

    The meeting moved into closed session.

The meeting adjourned at 5:43 p.m.

December 9, 2020