Financial Statements of JUSTICE INSTITUTE OF BRITISH COLUMBIA Year ended March 31, 2015 ABCD KPMG LLP Chartered Accountants Metrotower II Suite 2400 - 4720 Kingsway Burnaby BC V5H 4N2 Telephone (604) 527-3600 Fax (604) 527-3636 Internet www.kpmg.ca INDEPENDENT AUDITORS’ REPORT To the Board of Governors of Justice Institute of British Columbia, and To the Minister of the Ministry of Advanced Education, Province of British Columbia We have audited the accompanying financial statements of the Justice Institute of British Columbia, which comprise the statement of financial position as at March 31, 2015, the statements of operations and accumulated surplus, changes in net debt and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Financial Statements Management is responsible for the preparation of these financial statements in accordance with the financial reporting provisions of Section 23.1 of the Budget Transparency and Accountability Act of the Province of British Columbia, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP. Opinion In our opinion, the financial statements of the Justice Institute of British Columbia as at March 31, 2015 and for the year then ended are prepared, in all material respects, in accordance with the financial reporting provisions of Section 23.1 of the Budget Transparency and Accountability Act of the Province of British Columbia. Emphasis of Matter Without modifying our opinion, we draw attention to Note 2 to the financial statements which describes the basis of accounting and the significant differences between such basis of accounting and Canadian public sector accounting standards. Chartered Accountants May 28, 2015 Burnaby, Canada JUSTICE INSTITUTE OF BRITISH COLUMBIA Statement of Operations and Accumulated Surplus Year ended March 31, 2015, with comparative information for 2014 Revenue: Province of British Columbia annual grant Province of British Columbia contract services Tuition and student fees Sales of goods and services Contracts, grants, and donations Investment income Amortization of deferred capital contributions Other Expenses: Ancillary operations Instructional/Educational Sponsored research (Note 4) Budget (note 2(b)) 2015 2014 $ 11,942,663 6,581,610 14,316,979 1,416,900 8,783,851 60,000 1,588,874 422,876 45,113,753 $ 12,640,736 6,512,358 13,523,235 1,301,617 8,765,337 89,447 1,664,449 316,428 44,813,607 $ 12,768,661 6,325,646 12,590,344 1,285,200 9,286,624 87,001 1,686,600 663,369 44,693,445 1,509,014 42,740,648 630,876 44,880,538 1,636,154 41,223,652 1,312,893 44,172,699 1,614,389 41,659,252 1,034,386 44,308,027 233,215 640,908 385,418 17,382,133 17,382,133 16,996,715 $ 17,615,348 $ 18,023,041 $ 17,382,133 (Note 10) Annual surplus Accumulated surplus , beginning of year Accumulated surplus, end of year See accompanying notes to financial statements. 2 JUSTICE INSTITUTE OF BRITISH COLUMBIA Statement of Changes in Net Debt Year ended March 31, 2015, with comparative information for 2014 Budget (note 2(b)) Annual surplus $ 233,215 2015 $ 640,908 2014 $ 385,418 Acquisition of tangible capital assets Amortization of tangible capital assets Acquisition of inventories held for use Consumption of inventories held for use Acquisition of prepaid expenses Use of prepaid expenses 2,735,028 - (2,779,144) 2,650,566 (359,481) 214,911 (1,876,748) 1,833,506 (1,682,466) 2,790,076 (85,445) 76,915 (3,386,284) 3,465,897 Decrease in net debt 2,968,243 324,518 1,564,111 (24,409,301) (24,409,301) (25,973,412) $ (21,441,058) $ (24,084,783) $ (24,409,301) Net debt, beginning of year Net debt, end of year See accompanying notes to financial statements. 3 JUSTICE INSTITUTE OF BRITISH COLUMBIA Statement of Cash Flows Year ended March 31, 2015, with comparative information for 2014 2015 2014 Cash provided by (used in): Operating activities: Annual surplus $ 640,908 Items not involving cash: Amortization of tangible capital assets 2,650,566 Amortization of deferred capital contributions (1,664,449) Revenue recognized from deferred capital contributions (570,020) Amortization of deferred lease inducement (69,001) Change in employee future benefits 9,000 Change in non-cash operating working capital: Decrease in accounts receivable 176,079 Increase in inventories held for resale (25,954) Increase (decrease) in accounts payable and accrued liabilities (531,658) Increase (decrease) in deferred revenue and contributions 2,224,029 Increase in inventories held for use (144,570) Decrease (increase) in prepaid expenses (43,242) Net change in cash from operating activities 2,651,688 $ 385,418 2,790,076 (1,686,600) (466,421) (69,000) 559,000 520,718 (6,588) 22,880 (431,850) (8,530) 79,613 1,688,716 Capital activities: Cash used to acquire tangible capital assets Net change in cash from capital activities (2,779,144) (2,779,144) (1,682,466) (1,682,466) Financing activities: Repayment of obligation under capital lease Deferred capital contributions received Net change in cash from financing activities (270,190) 1,475,159 1,204,969 (215,011) 800,971 585,960 Net change in cash and cash equivalents 1,077,513 592,210 Cash and cash equivalents, beginning of year 8,580,722 7,988,512 Cash and cash equivalents, end of year $ See accompanying notes to financial statements. 4 9,658,235 $ 8,580,722 JUSTICE INSTITUTE OF BRITISH COLUMBIA Notes to Financial Statements Year ended March 31, 2015 1. Purpose of the Institute: The Justice Institute of British Columbia (the “Institute”) is a post-secondary educational institution established in 1978 by the Province of British Columbia (the “Province”) under the provisions of the College and Institute Act. The Institute is exempt from income tax under Section 149 of the Income Tax Act. The mission of the Institute is to provide learning opportunities for practitioners and the public that lead to improved justice and public safety services, and safer communities. 2. Summary of significant accounting policies: (a) Basis of accounting: The financial statements have been prepared in accordance with Section 23.1 of the Budget Transparency and Accountability Act of the Province supplemented by Regulations 257/2010 and 198/2011 issued by the Province Treasury Board. The Budget Transparency and Accountability Act requires that the financial statements be prepared in accordance with the set of standards and guidelines that comprise generally accepted accounting principles for senior governments in Canada, or if the Treasury Board makes a regulation, the set of standards and guidelines that comprise generally accepted accounting principles for senior governments in Canada as modified by the alternate standard or guideline or part thereof adopted in the regulation. Regulation 257/2010 requires all tax-payer supported organizations in the Schools, Universities, Colleges and Hospitals sectors to adopt Canadian public sector accounting standards without any PS4200. Regulation 198/2011 requires that restricted contributions received or receivable are to be reported as revenue depending on the nature of the restrictions on the use of the funds by the contributors as follows: (i) Contributions for the purpose of acquiring or developing a depreciable tangible capital asset or contributions in the form of a depreciable tangible capital asset are recorded and, referred to as deferred capital contributions and recognized in revenue at the same rate that amortization of the related tangible capital asset is recorded. The reduction of the deferred capital contributions and the recognition of the revenue are accounted for in the fiscal period during which the tangible capital asset is used to provide services. (ii) Contributions restricted for specific purposes other than those for the acquisition or development of a depreciable tangible capital asset are recorded as deferred contributions and recognized in revenue in the year in which the stipulation or restriction on the contributions have been met. For British Columbia tax-payer supported organizations, these contributions include government transfers and externally restricted contributions. 5 JUSTICE INSTITUTE OF BRITISH COLUMBIA Notes to Financial Statements (continued) Year ended March 31, 2015 2. Summary of significant accounting policies (continued): (a) Basis of accounting (continued): The accounting policy requirements under Regulation 198/2011 are significantly different from the requirements of Canadian public sector accounting standards which require that  government transfers that do not contain a stipulation that creates a liability, be recognized as revenue by the recipient when approved by the transferor and the eligibility criteria have been met in accordance with public sector accounting standard PS3410; and  externally restricted contributions be recognized as revenue in the period in which the resources are used for the purpose or purposes specified in accordance with public sector accounting standard PS3100. As a result, revenue recognized in the statement of operations and certain related deferred capital contributions would be recorded differently under Canadian public sector accounting standards. (b) Budget figures: Budget figures have been provided for comparative purposes and reflect the fiscal 2015 budget approved by the Board of Governors of the Institute on March 27, 2014. The budget is reflected in the statement of operations and accumulated surplus and the statement of changes in net debt. (c) Financial instruments: Cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities are measured at amortized cost using the effective interest method. Accounts receivable are recorded at cost less any amount for valuation allowance. Valuation allowance are made when collection is in doubt. (d) Cash and cash equivalents: Cash and cash equivalents include highly liquid investments with original maturities of three months or less at the date of acquisition. (e) Inventories for resale: Inventories held for resale, including books and gift shop items, are recorded at the lower of cost or net realizable value. Cost is determined based on weighted average costing. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated selling expenses. When conditions indicate that losses previously recognized have been recovered, the loss is reversed to the extent of the amount recovered. 6 JUSTICE INSTITUTE OF BRITISH COLUMBIA Notes to Financial Statements (continued) Year ended March 31, 2015 2. Summary of significant accounting policies (continued): (f) Employee future benefits: The Institute and its employees make contributions to College Pension Plan and Municipal Pension Plan, which are multi-employer joint trustee plans. These plans are defined benefit plans. As the assets and liabilities of the plans are not segregated by institution, the plans are accounted for as defined contribution plans and any contributions of the Institute to the plans are expensed as incurred. Certain employees are entitled to earned benefits related to retirement allowances, vacation in year of retirement benefits, and continuation of benefits to employees on long-term disability. The costs of these benefits are actuarially determined based on service and best estimates of retirement ages and expected future rate of compensation increases. The obligation under these benefit plans are accrued based on projected benefits as the employees render services necessary to earn the future benefits. Actuarial gains and losses are amortized over the expected average remaining service life of the employees. The employee future benefits are unfunded. (g) Liability for contaminated sites: A liability for contaminated sites is recognized when a site is not in productive use and the following criteria are met:  An environmental standard exists;  Contamination exceeds the environmental standard;  The Institute is directly responsible or accepts responsibility  It is expected that future economic benefits will be given up; and  A reasonable estimate of the amount can be made. The liability is recognized as management’s estimate of the cost of post-remediation including operation, maintenance and monitoring that are an integral part of the remediation strategy for a contaminated site. 7 JUSTICE INSTITUTE OF BRITISH COLUMBIA Notes to Financial Statements (continued) Year ended March 31, 2015 2. Summary of significant accounting policies (continued): (h) Non-financial assets: Non-financial assets are not available to discharge existing liabilities and are held for use in the provision of services. They may have useful lives extending beyond the current year and are not intended for sale in the ordinary course of operations. (i) Tangible capital assets: Tangible capital assets are recorded at cost less accumulated amortization, which includes amounts that are directly attributable to acquisition, construction, development or betterment of the asset. Interest is capitalized whenever external debt is issued to finance the construction of tangible capital assets. Donated assets are recorded at fair value at the date of donation. In unusual circumstances where fair value cannot be reasonably determined, the tangible capital asset would be recognized at nominal value. The cost, less residual value, of the tangible capital assets, excluding land, is amortized on a basis over their estimated useful lives shown below: Asset Rate Site improvements 10 years Buildings 20 to 40 years Furniture, equipment and vehicles (including computer equipment) 3 to 5 years Personal computer equipment and peripherals 3 years Leasehold improvements Lesser of lease term and useful life Assets under construction are not amortized until the asset is available for productive use. Tangible capital assets are written down when conditions indicate that they no longer contribute to the Institute’s ability to provide goods and services, or when the value of future economic benefits associated with the tangible capital assets are less than their net book value. (ii) Leased tangible capital assets: Leases that transfer substantially all of the benefits and risks incidental to ownership of property are accounted for as leased tangible capital assets. All other leases are accounted for as operating leases and the related payments are charged to expenses as incurred. (iii) Inventories held for use: Inventories held for use are recorded at the lower of cost and replacement value. Cost includes the original purchase cost. Replacement value is the estimated current price to replace the items. 8 JUSTICE INSTITUTE OF BRITISH COLUMBIA Notes to Financial Statements (continued) Year ended March 31, 2015 2. Summary of significant accounting policies (continued): (i) Revenue recognition: Tuition and student fees and sales of goods and services are reported as revenue at the time the services are provided or the products are delivered, and collection is reasonably assured. Fees received prior to the year end where the course is delivered subsequent to the year end are recorded as deferred revenue. Contract revenues are recognized in the period in which the related activities are performed. The zero profit margin method is used when a contract’s financial outcome is not reasonably determinable. This method of accounting requires that equal amounts of revenue and expense be recognized until the financial outcome of a contract can be reasonably estimated. Provision for anticipated losses is made in the period in which they become evident. Unrestricted donations and grants are recorded as revenue when receivable if the amounts can be estimated and collection is reasonably assured. Restricted donations and grants are reported as revenue depending on the nature of the restrictions on the use of the funds by the contributors as follows: (i) Contributions for the purpose of acquiring or developing a depreciable tangible capital asset or contributions in the form of a depreciable tangible capital asset are recorded and referred to as deferred capital contributions and recognized in revenue at the same rate that amortization of the related tangible capital asset is recorded. The reduction of the deferred capital contributions and the recognition of the revenue are accounted for in the fiscal period during which the tangible capital asset is used to provide services. (ii) Contributions restricted for specific purposes other than for those for the acquisition or development of a depreciable tangible capital asset are recorded as deferred contributions and recognized in revenue in the year in which the stipulation or restriction on the contribution have been met. Investment income includes interest recorded on an accrual basis. (j) Use of estimates: The preparation of the financial statements prepared in accordance with the basis of accounting described in note 2(a) requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets, liabilities, and related disclosures. Key areas where management has made estimates and assumptions include those related to the fair value of donated tangible capital assets, useful lives of tangible capital assets, accrued losses on contracts, employee future benefits payable and provision for contingencies. Where actual results differ from these estimates and assumptions, the impact will be recorded in future periods when the difference becomes known. 9 JUSTICE INSTITUTE OF BRITISH COLUMBIA Notes to Financial Statements (continued) Year ended March 31, 2015 3. Employee future benefits: (a) Pension benefits: The Institute and its employees contribute to the College Pension Plan and Municipal Pension Plan, jointly trusteed pension plans (together referred to as the “Plans”). The boards of trustees for these plans representing plan members and employers, are responsible for the management of the pension plans including investment of the assets and administration of benefits. The pension plans are multi-employer contributory pension plans. Basic pension benefits provided are based on a formula. The College Pension Plan has approximately 13,000 active members from college senior administration and instructional staff and approximately 6,000 retired members. The Municipal Pension Plan has approximately 179,000 active members, with approximately 5,700 from colleges. The most recent actuarial valuation for the College Pension Plan as at August 31, 2012 indicated a $105 million funding deficit for basic pension benefits. The next valuation will be as at August 31, 2015 with results available in 2016. The most recent actuarial valuation for the Municipal Pension Plan as at December 31, 2012 indicated a $1,370 million funding deficit for basic pension benefits. The next valuation will be as at December 31, 2015 with results available in 2016. Entities participating in the Plans record their pension expense as the amount of employer contributions made during the fiscal year (defined contribution pension plan accounting). This is because the Plans record accrued liabilities and accrued assets for the Plans in aggregate, with the result that there is no consistent and reliable basis for allocating the obligations, assets and costs to individual entities participating in the Plans. During the year ended March 31, 2015, the Institute paid $1,858,959 (2014 - $1,754,395) for employer contributions to the Plans. 10 JUSTICE INSTITUTE OF BRITISH COLUMBIA Notes to Financial Statements (continued) Year ended March 31, 2015 3. Employee future benefits (continued): (b) Other employee future benefits: Certain employees are entitled to earned benefits related to retirement allowances, vacation in year of retirement benefits, and continuation of benefits to employees on long-term disability. The costs of these benefits are actuarially determined based on service and best estimates of retirement ages and expected future rate of compensation increases. The obligation under these benefit plans are accrued based on projected benefits as the employees render services necessary to earn the future benefit. The Institute engaged the services of an actuarial firm to evaluate its employee future benefits. The liabilities reported are based on an actuarial valuation as at March 31, 2015. Information regarding the Institute’s obligations for these benefits is as follows: Accrued benefit obligation, beginning of year Current service and interest cost Benefit payments Actuarial loss (gain) Accrued benefit obligation, end of year $ Unamortized net actuarial gain Accrued benefit liability $ 2015 2014 759,000 77,000 (61,000) 69,000 844,000 $ 292,000 641,000 (64,000) (110,000) 759,000 16,000 92,000 860,000 $ 851,000 The significant actuarial assumptions adopted in measuring the Institute’s accrued benefit liability are as follow: Discount rate Expected future rate of compensation increase 11 2015 2014 2.053% 1.00% 3.350% 1.00% JUSTICE INSTITUTE OF BRITISH COLUMBIA Notes to Financial Statements (continued) Year ended March 31, 2015 4. Deferred capital contributions: Changes in the deferred capital contributions balance are as follows: 2015 2014 Balance, beginning of year Contributions received during the year Amortization of deferred capital contributions Revenue recognized from deferred capital contributions $ 23,510,361 1,475,159 (1,664,449) (570,020) $ 24,862,411 800,971 (1,686,600) (466,421) Balance, end of year $ 22,751,051 $ 23,510,361 5. Deferred lease inducement: Total payments under an operating lease for the premises at 810 Fort Street, Victoria are recorded as an expense on a straight-line basis over the term of the lease. As part of this lease, an inducement of $483,001 was received during fiscal 2011. The amount of the inducement has been recorded as deferred lease costs and is being credited to the statement of operations and accumulated surplus on a straight-line basis over the term of the lease, being seven years. 6. Obligation under capital lease: In 2013, the Institute entered into a capital lease with an imputed interest rate of 3.68%, repayable in monthly principal and interest payments of $24,311 expiring in April 2018. As at March 31, 2015, the Institute is committed to minimum lease payment under the capital lease as follows: 2016 2017 2018 Total minimum lease payments $ Less imputed interest 315,508 315,508 315,508 946,524 (80,476) $ 12 866,048 JUSTICE INSTITUTE OF BRITISH COLUMBIA Notes to Financial Statements (continued) Year ended March 31, 2015 7. Tangible capital assets: Balance at March 31, 2014 Cost Land Site improvements Buildings Furniture, equipment and vehicles Personal computer equipment and peripherals Leasehold improvements Work in process $ 10,416,476 3,049,367 41,753,153 4,698,677 Additions, net of transfers $ 99,541 36,266 1,499,459 810,385 1,438,641 2,627 164,406 979,472 $ 62,169,326 $ 2,779,144 Balance at March 31, 2014 Amortization expense Accumulated amortization Land Site improvements Buildings Furniture, equipment and vehicles Personal computer equipment and peripherals Leasehold improvements $ 2,007,983 15,301,530 2,585,132 $ 224,353 1,182,037 873,142 490,266 458,377 205,101 165,933 Total $ 20,843,288 $ 2,650,566 Balance at March 31, 2015 Disposals $ $ $ $ (610,701) $ 10,416,476 3,148,908 41,789,419 5,587,435 (178,038) - 796,753 1,438,641 982,099 (788,739) $ 64,159,731 Disposals Balance at March 31, 2015 (610,701) $ 2,232,336 16,483,567 2,847,573 (178,038) - 517,329 624,310 (788,739) $ 22,705,115 Net book value March 31, 2014 Net book value Mar 31, 2015 Land Site improvements Buildings Furniture, equipment and vehicles Personal computer equipment and peripherals Leasehold improvements Work in process $ 10,416,476 1,041,384 26,451,623 2,113,545 $ 10,416,476 916,572 25,305,853 2,739,862 320,119 980,264 2,627 279,424 814,331 982,098 Total $ 41,326,038 $ 41,454,616 Work in process having a value of $982,099 (2014 - $2,627) has not been amortized. Amortization of these assets will commence when the assets are put into service. As at March 31, 2015, leased tangible capital asset has cost of $1,649,976 (2014 - $1,649,976) and accumulated amortization of $248,276 (2014 - $165,777), and is included in buildings. 13 JUSTICE INSTITUTE OF BRITISH COLUMBIA Notes to Financial Statements (continued) Year ended March 31, 2015 8. Related organization: The Justice Institute of B.C. Foundation (the “Foundation”) was formed to raise funds for furthering the interests of the Institute. The net assets and results of operations of the Foundation have not been included in these financial statements. The balance due from the Foundation, included in accounts receivable, at March 31, 2015 is $38,397 (2014 - $23,000). The balance arose from expenditures the Institute paid on behalf of the Foundation. During 2015, the Foundation contributed $962,620 (2014 - $1,129,857) in training equipment and student / applied research awards to the Institute. Administrative services, including salary costs, amounting to approximately $132,000 (2014 - $288,000), included in Instruction/Educational expense, were provided to the Foundation by the Institute on a no charge basis. The following is a summary of financial information of the Foundation for the year ended March 31, 2015 and 2014: 2015 2014 Total assets Total liabilities $ 2,059,995 47,316 $ 2,093,878 24,279 Net assets $ 2,012,679 $ 2,069,599 Total revenues Total expenses $ $ 1,667,021 1,330,623 922,376 979,296 9. Contractual obligations: The nature of the Institute’s activities can result in multiyear contracts and obligations whereby the Institute will be committed to make future payments. Future payments relating to significant contractual obligations for operations, including lease commitments for facilities and office equipment, that can be reasonably estimated are as follows: 2016 2017 2018 2019 2020 Thereafter $ 431,094 392,686 309,904 144,340 144,340 204,482 $ 1,626,846 14 JUSTICE INSTITUTE OF BRITISH COLUMBIA Notes to Financial Statements (continued) Year ended March 31, 2015 10. Expenses by object: The following is a summary of expenses by object: 2015 Business development and promotion Contract Instruction and program development Facilities and equipment Professional services Salaries and employee benefits Staff and faculty travel and meetings Student travel and activities Supplies - instructional Supplies - office Other Amortization of tangible capital assets $ 810,565 4,198,487 3,287,677 1,912,576 27,204,127 899,690 438,324 1,113,824 577,381 1,079,482 2,650,566 $ 44,172,699 2014 $ 629,690 4,124,684 3,335,411 2,000,068 27,888,812 901,633 376,268 917,341 399,510 944,534 2,790,076 $ 44,308,027 11. WorkSafe BC: During 2015, WorkSafe BC has provided funding of $1,282,700 (2014 – 1,199,148) that was recognized as revenue and included in contracts, grants and donations revenue for the operation of the Occupational Road Safety Initiatives Program. 12. Adoption of new accounting policy: On April 1, 2014, the Institute adopted PS3260 Liability for Contaminated Sites. The standard was applied on a retroactive basis to April 1, 2013 and did not result in any adjustments to liabilities, tangible capital assets or accumulated surplus of the Institute. 13. Comparative information: Certain comparative information has been reclassified to conform with the financial statement presentation adopted for the current year. 15