Audited Financial Statements 2014-2015
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Investing Peoinple CONSOLIDATED FINANCIAL STATEMENTS THE GOVERNING COUNCIL OF THE SALVATION ARMY IN CANADA YEAR ENDED MARCH 31, 2015 Consolidated Financial Statements of THE GOVERNING COUNCIL OF THE SALVATION ARMY IN CANADA Year ended March 31, 2015 CONTENTS PAGE Management Commentary i Auditors’ Report ix Consolidated Balance Sheet 1 Consolidated Statements of Operations 2 Consolidated Statements of Changes in Fund Balances 3 Consolidated Statement of Cash Flows 4 Notes to Financial Statements 5 - 26 Management Commentary Governance Please see the accompanying Annual Review report for information on the Army’s overall governance structure. The following committees play key roles with respect to financial management and internal control over financial reporting. Territorial Finance Council The Territorial Finance Council is charged with the oversight of the financial management of all financial and property resources of The Salvation Army in Canada and Bermuda. It approves operating and capital budgets, oversees internal and external audits, and makes recommendations to the Governing Council with respect to the approval of the audited financial statements. Number of meetings Number of Office held eligible to meetings Member (if any) Date Appointed attend in attended in 2014/15 2014/15 Commissioner Brian Peddle Chair July 1, 2011 to 9 8 Territorial Commander August 31, 2014 Commissioner Susan McMillan Chair September 1, 2014 13 11 Territorial Commander Colonel Mark Tillsley Vice-Chair June 1, 2013 22 19 Chief Secretary Mr. R. Paul Goodyear Secretary July 1, 2001 22 20 Financial Secretary Lieut.-Colonel Jamie Braund July 1, 2014 16 14 Secretary for Personnel Lieut.-Colonel James Champ July 1, 2013 22 18 Secretary for Communications Mr. David Dunstan August 1, 2012 22 16 Senior Director, Planning & Reporting Ms. Mary Ellen Eberlin September 1, 2013 22 15 Territorial Social Services Secretary Lieut.-Colonel Lee Graves July 1, 2013 22 20 Secretary for Business Administration Lieut.-Colonel Junior Hynes July 1, 2010 22 17 Secretary for Program Mr. Graham Moore September 1, 2013 22 16 Director of Organizational Development Lieut.-Colonel Sandra Rice July 1, 2009 to 6 4 Secretary for Personnel June 30, 2014 Major Fred Waters September 1, 2013 22 19 Corps Ministries Secretary i Investment Advisory Committee The Investment Advisory Committee is responsible to make recommendations to the Territorial Finance Council with respect to the Army’s investment policies and structures. The Committee reviews the statements of investment policy and makes recommendation for revisions, as appropriate; oversees the recruitment and selection of investment management firms, and makes recommendations for their engagement; monitors the performance of the Army’s portfolios and ensures they are managed to achieve optimal long-term performance to meet the Army’s needs, in accordance with the statements of investment policy. Number of meetings Number of Office held eligible to meetings Member (if any) Date Appointed attend in attended in 2014/15 2014/15 Mr. William Chinery, B.Math., FCIA, FSA Chair January 1, 2011 4 4 Independent investment professional * Mr. William J. Stafford, B.Comm., MBA, CFA Secretary October 1, 2001 4 4 Director of Investments, The Salvation Army Mr. Kevin Fahey, B.Comm., LL.B., CFA September 1, 2010 4 4 Director, Investments, Colleges of Applied Arts and Technology Pension Plan * Mr. Michael Gallimore, B.Comm., MBA, CFA June 5, 2013 4 4 Independent investment professional * Mr. R. Paul Goodyear, B. Comm., MBA, FCPA, FCMA October 1, 1998 4 4 Financial Secretary, The Salvation Army Lieut.-Colonel Lee Graves, MBA July 1, 2014 4 2 Secretary for Business Administration, The Salvation Army Mr. Yannick Ménard, B.Sc., CFA, FCIA, FSA July 29, 2013 4 4 Managing Director, Pension Investments, BMO Bank of Montreal * * denotes volunteer members. Internal Audit Advisory Committee The Internal Audit Advisory Committee provides advice to the Territorial Finance Council with respect to the internal audit function and program, as well as with respect to the evaluation of organizational internal control systems. ii Number of meetings Number of Office held eligible to meetings Member (if any) Date Appointed attend in attended in 2014/15 2014/15 Major Wade Budgell Chair July 1, 2013 5 4 Assistant Chief Secretary Lieut.-Colonel Lee Graves Vice-Chair July 1, 2013 5 5 Secretary for Business Administration Ms. Astra Williamson Secretary May 1, 2009 5 5 Director of Internal Audit Mr. Bryan Campbell August 1, 2011 5 4 General Legal Counsel Ms. Mary Ellen Eberlin May 1, 2009 5 5 Social Services Secretary Mr. R. Paul Goodyear May 1, 2009 5 3 Financial Secretary Ms. Carol McDougall May 1, 2009 5 5 Director of Risk Management Major Eddie Vincent March 1, 2014 5 5 Officer Personnel Secretary Internal Controls The Salvation Army has a strong internal control environment to protect the Army’s assets and facilitate accuracy in financial reporting. The Territorial Finance Council has overall responsibility for internal controls, with assistance provided by the Internal Audit Advisory Committee as it relates to the oversight of the internal audit function and plan. In addition to external and internal audits, The Salvation Army is also subject to triennial audits by a team from its International Headquarters in London, England. The most recent audit, conducted in 2014 and covering the period from April 1, 2011 to March 31, 2014, concludes that the Army in Canada and Bermuda “is in a sound financial position which can be largely attributed to careful management and the prudent use of volatile income streams...” The findings and recommendations include no high risk issues, one medium risk issue (the rebuilding of the operating fund balance, which has been depleted due to the recognition of all pension and post-retirement obligations, as noted later in this report) and three low risk issues. A plan is in place to address the medium risk issue and the low risk issues have all been addressed. Both a code of conduct www.SalvationArmy.ca/wp-content/uploads/2014/06/Code-of-Conduct- June-2014.pdf and a ‘whistleblower’ policy www.SalvationArmy.ca/whistleblower-policy are in place. The former sets out expectations for behaviour by all staff and volunteers, while the latter provides a mechanism for making anonymous complaints when violations of the code and other key policies are observed. During the year ended March 2015, no complaints were received with respect to alleged breaches by individuals who had an oversight role in financial reporting. iii About the Financial Statements The consolidated financial statements present the assets, liabilities, fund balances, revenues, expenses and cash flows of the Governing Council and all of the entities it controls. These financial statements were audited by KPMG LLP who rendered their opinion thereon dated June 24, 2015. All separately incorporated entities are consolidated into these financial statements because they meet the definition of controlled entities for financial reporting purposes under Canadian accounting standards. In addition to these consolidated statements, many of the controlled entities, both incorporated and unincorporated, produce separate financial statements for presentation to local stakeholders, including government agencies, donors, members, and others. Financial highlights for the year ended March 31, 2015 Overall, revenue increased by 0.3% in the year ended March 31, 2015. The largest change, year over year, was with respect to revenue from investments, which while still strong in absolute terms, declined by 8.4% from the prior year. The General Investment Fund portfolio rate of return for the year was 12.6%, compared to 15.8% in the prior year, driven largely by lower returns in both the Canadian and global equity markets. Excluding investments, revenue increased 1.9%. Expenses were 3.2% higher than in the prior year. While total costs of programs and services increased only 2.0%, largely as a result of inflationary pressures, Thrift Store expenses increased by 6.4% and headquarters operating costs by 4.7%. The increase in Thrift Store expenses exceeded Thrift Store revenue growth of 4.1%, due largely to increased minimum wage levels. With respect to headquarters costs, 3.6% of the total increase relates to one-time costs for the Army’s national congress held in Mississauga, Ontario, in 2014, the first in over 30 years, as well as for the Army’s 2015 international congress in London, England, in connection with its 150th anniversary. The operating fund balance, which represents the general operations of all Salvation Army units in Canada and Bermuda, declined $22.8 million, driven largely by actuarial re-measurement of the Army’s liability for pension and post-retirement future benefits. The Operating Fund balance, reflected as a fund deficiency of $5.1 million on the Consolidated Balance Sheet, consists of the operating fund balances of the underlying entities, which total $110.7 million, and the net unfunded balance related to pension and post-retirement benefits of $115.8 million. Given that the liability is long-term in nature, The Salvation Army plans to fund this shortfall over time. Total loans and mortgages payable ($83.7 million long-term and $32.8 million short-term) declined by $8.8 million from the prior year as a result of principal repayments and the fact that there were no new financing arrangements put in place during the year. The increase in short-term loans and mortgages payable reflects the fact that a number of these obligations will reach the end of their terms in the year ahead. All are expected to renewed, however, and the Army does not anticipate any cash flow concerns as a result. As of March 31, 2015, the Army’s total assets were $1.7 billion, compared to $1.6 billion at the prior year end. This growth was driven largely by increases in the carrying value of securities of $108.6 million, and is reflected in an increase in other restricted fund balances of $105.5 million.