Report: Audit Committee - June 17, 2024

REPORT NUMBER 158 OF THE AUDIT COMMITTEE

MONDAY, JUNE 17, 2024

CLOSED SESSION 

1. Chair’s Remarks
   
   
   The Chair welcomed members and guests to the final meeting of the governance year. She reminded those in attendance that the Committee met in closed session and that the materials were confidential. She also noted that item 8 on the agenda would be considered in advance of item 7.

CONSENT AGENDA
 

On motion duly moved, seconded, and carried

YOUR COMMITTEE APPROVED

THAT the consent agenda be adopted and that Item 3, the Report of the Previous Meeting, be approved.

2. Risk Reporting Assessment Table
   
   The Committee received the Risk Reporting Assessment Table as of June 10^th, 2024, for information.
3. Report of the Previous Meeting – Report Number 157 (April 17, 2024)
   
   The Report of the Previous Meeting, was approved.
4. Business Arising from the Report of the Previous Meeting
   
   There was no business arising from the report of the previous meeting. 
5. Date of the Next Meeting: September 18, 2024, 4:00 p.m. – 6:00 p.m.
   
   The Committee was made aware that the next meeting of the Committee would be held on September 18, 2024.

6. Reports of the Administrative Assessors

   
   Professor  Scott Mabury, Vice-President, Operations & Real Estate Partnerships, reported to the Committee on the financial impact the encampment related to the ongoing Israeli-Hamas conflict has had on the University.

   Professor Mabury also provided an update on a recent cyber security incident.

   In the ensuing discussion, Committee members were advised on the ongoing injunction proceedings.

7. Audited Financial Statements for the Year Ended April 30, 2024

   1. Financial Report Presentation
      
      The Committee received a presentation of the Audited Financial Statements from Mr. Trevor Rodgers, Chief Financial Officer, and Mr. Sanish Samuel, Controller and Director of Financial Services. The efforts of the Financial Services team were recognized, as well as the contributions of the Internal Audit Department and the External Auditors in completing the audit successfully. The presentation of the Financial Report for the year ended April 30, 2024, highlighted the following :

   • The University remained in a strong financial position, with net assets increasing by $923 million to $9.9 billion in 2024. However, it faced challenges due to slowing enrollment growth, fee restrictions, and rising expenses. The net income of $508 million had been largely driven by strong returns on working capital investments and funds set aside for future priorities.
   • In 2024, the University had paid $2.5 billion for salaries and employee benefits, comprising 61% of the University’s $4.1 billion in expenses. The University was a member of the University Pension Plan Ontario (UPP), and it had set aside $175 million in a pension special payments reserve to fund any future obligations. That year, $60 million of the reserve was transferred to the UPP as a prepayment against potential future special payment obligations.
   • Additional expenses had included $364 million for scholarships, fellowships, and bursaries, $311 million for materials, supplies and services, $222 million for amortization of capital assets, and $147 million for inter-institutional contributions.
   • The University had continued to invest in vital capital infrastructure, spending $369 million (net) on capital asset additions in 2024. It also acquired a 20% interest in the CampusOne Student Residence and completed construction of Harmony Commons, a 746-bed student residence at the Scarborough Campus.
   • Despite the challenges, the University had continued to generate funding for research and raise funds from philanthropy, including $312 million raised in 2024. The Long-term Capital Appreciation Pool realized a return of 11.4% during fiscal year 2024. The University also implemented a new Advancement Investment Model (AIM) to support strategic investment in fundraising.
8. External Auditors’ Report on Audit Results
   
   Ms Diana Brouwer, Ms Joyce Yu and Ms Helen Pham of Ernst & Young presented an overview of the External Auditors’ Report of Audit Results which provided the Committee with a summary of the audit procedures and the discussion with management that supported their unqualified audit opinion. 
   
   The external auditors highlighted:
   • the changes in the audit strategy were consistent with the audit plan;
   • areas of audit emphasis included revenue recognition, investment, pension and other post-retirement employee benefit, legal matters and risk of management override of controls; and
   • there were no major deviations from the audit plan and scope during the execution of the audit, and no exceptions noted.

The Committee agreed with the views expressed by the external auditors. Inquiries were also made with respect to the risk of material misstatements due to fraud and suspected fraud.  There were no significant matters that arose from the audit and no corrected or uncorrected errors noted. The Committee was also informed by the external auditors that they received excellent and on-going cooperation from management.  All required audit communications were provided to the Committee by the auditors. The Chair confirmed that the Committee was not aware of any concerns of fraud or non-compliance.

The audited financial statements were examined in detail by the Committee, and the audit results indicated that there were no issues to bring to the Committee’s attention.
 

3. Legal Claims
   
   The Committee received the 2023-2024 summary of legal actions against the University exceeding $500,000 prepared by the administration.
    
4. External Auditors: Private Meeting
   
   The Committee moved in camera.
   
   The Committee met privately with the external auditors with no University staff, other than Mr. Alex Matos, Director, Internal Audit, present.  No issues were identified for the Business Board’s attention.
   
   Ms Brouwer was invited to advise of any problems encountered by the auditors, any restrictions on their work, the co-operation received in the performance of their duties by the administration and the Internal Audit Department, and any matters requiring discussion arising from the auditors’ findings.
   
   The Committee returned to closed session.
   
   The Chair reported that there had been no matters arising from the Committee’s in camera session with the external auditors that would require action.
    
5. Discussion and Recommendation
   
   The Chair thanked Mr. Rodgers and commended the Financial Services team for their work in preparing the financial statements.

On motion duly moved, seconded and carried

YOUR COMMITTEE RECOMMENDED

THAT the University of Toronto audited financial statements for the fiscal year ended April 30, 2024, be approved.

8. Appointment of the External Auditors for 2024-2025
   
   Mr. Rodgers reported that the university issued a Request for Proposals for external audit services in November 2023 which had been ten years since its last formal tender process. An evaluation working group had been established and included the Chair of the Business Board, and the Chair and Vice-Chair of the Audit Committee.
   
   He further commented that Ernst & Young (EY) had been the external auditor for the past 10 years and had been invited for an interview process. He reported that there were only 3 firm that do the work required by the University, in Canada. Two of the companies reported conflicts of interest given their existing engagements with the University. The working group recommended that EY continue as the university’s external auditor for the fiscal year 2024-25 and noted that Ms Kathi Aspros would now be the Audit Engagement Partner, with Ms Diana Brouwer as Transition Partner.

On motion duly moved, seconded and carried

YOUR COMMITTEE RECOMMENDED

THAT Ernst & Young LLP be appointed as external auditors of the University of Toronto for the fiscal year ending April 30, 2025.

9. Internal Audit Annual Report (to April 30, 2024)
   
   Mr. Alex Matos, Director, Internal Audit, highlighted the following key points from the Internal Audit Annual Report Summary for the year ended April 30, 2024: 
   • The Annual Internal Audit Plan 2023-2024 was being executed as planned, with all projects either in progress, reporting, or completed.
   • There were recurring themes, challenges, and opportunities for improvement related to resource deployment, data management, security, and overall oversight. Most assurance activities were noting opportunities to leverage technology across these themes.
   • Internal Audit was broadening its engagement across the community, proactively leveraging completed work and supporting strategic initiatives.
   • There were positive trends in the timely implementation of follow-up action items due to a focus on more significant items and expanded dialogue with management.
   • The continuous audit function, including both operating and research funds, was evolving. Adjustments were being made to enhance the focus of sampling, prioritize identified gaps to focus on significant risks, and leverage reporting to educate the community.
   • Assistance had been provided to EY for the audit of the University’s 2024 financial statements, enrolment audit, and program audits.

Discussion

The Committee discussed the ongoing assessment and approach to the number of outstanding management action items referenced in the Report. Mr. Matos noted that there had been as reassessment of older action plans and that some recommendations had been reassessed as low based on current risk criteria.

10. Other Business
    
    The Chair thanked, members, assessors, the internal and external auditors, and the Secretariat for their time and efforts devoted to the Committees throughout the year.
    
    THE COMMITTEE MOVED IN CAMERA.

11. Internal Auditor – Private Meeting
    
    Members of the administration absented themselves and the Committee met privately with the Alex Matos, Director, Internal Audit.

12. Committee Members Alone
    
    Committee members discussed topics of interest and concern.
    
    The Committee returned to Closed Session.