FOR THE YEAR ENDED DECEMBER 31, 2017
PEO ended 2017 with a $25,788 deficit revenue over expenses. Total revenues were $24,838,883 compared to the approved budget of $25,989,673, and represented an increase of $698,648 over 2016 revenues despite a $167,229 decrease in advertising revenue. Actual expenditures of $24,829,704 in 2017 were favourable when compared to the approved budget of $25,824,577 but were $1,096,965 more than the previous year.
Expenses included a year-over-year increase of $480,041 in staffing costs (salaries and benefits). This was due to a Council approved 3 per cent increase for cost of living and merit adjustments as well as new staff positions. In addition, Council approved expenditures of $106,814 for external hosting of the Practice Evaluation and Knowledge program’s ethics module (starting in March 2017), $42,000 to promote the 70th anniversary of the Ontario Professional Engineers Awards, and $13,703 in aggregate for volunteer expenses relating to the work of the Council Composition Task Force, the Council Term Limits Task Force and the Emerging Disciplines Task Force. Legal costs in 2017 were higher than in 2016 due to higher costs for employment-related matters, investigations, independent legal counsel for discipline prosecution and tribunal fees for discipline hearings.
To counter the revenue shortfall, management undertook several cost-cutting initiatives that resulted in a total reduction in expenses of $994,873. Capital projects that were deferred as part of this strategy included the online licensing project, upgrades to PEO’s website and intranet, as well as upgrades to the elevators at 40 Sheppard Ave. West.
The investment in capital assets for the year was $249,576 ($1,521,795 in 2016). PEO incurred no additional debt for these expenditures in 2017 as these were funded from its cash reserves. At the end of the year, the closing balance in cash and investments was $9,160,601 ($8,001,971 in 2016) and net assets increased to $16,094,555 ($16,039,588 in 2016).
Total revenue in 2017 was $24,838,883, which is 4 per cent below budget. This was largely due to lower than expected application, registration and exams fees as well as lower P.Eng. revenue. Approximately 62 per cent of revenue is comprised of P.Eng. licence revenue. The reduction in P.Eng. revenues was partly attributable to application processing delays brought about by unanticipated shortage in staff resources during a medical leave period. This backlog was cleared by the end of the year. However, as P.Eng. revenues are recognized over a 12-month period for each of the 12 billing cycles, only a portion of these revenues were recognized in 2017; the remaining portion will be recognized next year.
Total expenses before costs for Council special projects were $24,829,704, which is $994,873 or 4 per cent below budget due to various cost-saving measures implemented in 2017. Major expense variances from the budget include:
- Staff salaries and benefits/retiree and future benefits were $488,904 lower than budgeted;
- Volunteer expenses were $215,343 lower than planned;
- Costs for computers and telephones were $210,746 lower than budgeted;
- Purchased services costs were $196,332 lower than budgeted;
- Professional development costs were $121,315 lower than planned;
- Costs for chapters were $109,952 lower than budgeted; and
- Building operations were $105,068 lower than budgeted.
2017 BUDGET VARIANCES BY BUSINESS UNIT
Expenditures were $191,773 or 11 per cent below budget. The key variances include lower than budgeted purchased services largely due to lower printing costs for Engineering Dimensions magazine ($55,603), lower salaries and benefits ($50,581), and lower transaction fees for sales commissions ($27,374) and lower postage costs for Engineering Dimensions ($11,432).
Expenditures were $945,032 or 9 per cent below budget. The key variances within the department include lower than planned costs for staff salaries along with retiree and staff future benefits ($478,334); lower professional development costs for educational courses ($123,130); lower costs for chapters due to lower travel expenses and accommodation expenses for attending the AGM, and lower spending on the chapter certificate program ($109,899); lower spending for 40 Sheppard expenses due to lower recoverable costs, including repairs and maintenance ($105,068); lower occupancy costs due to lower rental recovery costs and offsite space rental ($104,922); and lower costs for meals and catering for various events, such as the AGM, Order of Honour, etc., and lower audiovisual contracts ($102,870). These reductions were partially offset by higher than budgeted costs for employment-related legal expenses ($155,247) and advertising related to staff recruitment ($56,337).
Expenditures were $4,791 or 0.3 per cent above budget largely due to higher salaries and benefits costs ($63,245). This was partially offset by lower legal fees for CEO litigation and related matters ($26,452), lower volunteer expenses for representing PEO at various events ($14,527) and lower staff business expenses for airfare and accommodation ($10,449).
Expenditures were $120,463 or 9 per cent above budget. This was due to higher than budgeted costs for salaries and benefits ($69,831); for purchased services related to tax consulting ($18,227); for postage for administration and fees billing ($15,867); and for office supplies ($11,900).
Expenditures were $69,562 or 3 per cent above budget in 2017. This was due to expenses for Aptify consultants ($126,751) that were not included in the budget. These expenses were offset by lower amortization costs due to delayed spending and cancelled capital projects ($76,285) as well as lower than budgeted costs for computers and telephone-related expenses resulting from lower costs for support and maintenance contracts, software non-capital upgrades, and computer services supplied ($10,642).
Licensing and Registration
Expenditures were $58,786 or 2 per cent below budget. This was largely due to lower than budgeted costs for staff salaries and benefits ($107,597); lower volunteer expenses, including meals and mileage for attending various committee meetings ($74,424); and lower than budgeted costs for licensing enhancement consultants ($33,000). These reductions were offset by higher than budgeted costs for contract staff ($88,607), higher costs for purchased services related to catering costs for various committee meetings ($52,719), and an increase in postage costs for technical and Professional Practice Exams and issuing P.Eng. licences ($15,897).
Expenditures were $364,405 or 19 per cent above budget in 2017. Legal expenses, including costs for discipline appeals and prosecution, were higher than budgeted ($190,562); costs for contract staff were higher due to staff being away on maternity leave ($47,459). These costs were partially offset by lower than expected staff business costs for travel ($6,897).
Tribunals and Regulatory Affairs
Expenditures were $358,505 or 17 per cent below budget. The key variances include lower than budgeted spending on: computer expenses for the Practice Evaluation and Knowledge program ($149,757); salaries and benefits due to unfilled positions ($115,931); purchased services for a policy development survey ($71,069); and volunteer expenses for meals, travel and accommodation for various committee meetings and events ($29,872).
Net expenditures for projects approved by Council were $34,967. This includes $23,085 for the Council Composition Task Force, $10,506 for the Council Term Limits Task Force and $1,376 for the Emerging Disciplines Task Force.
The building generated $3,115,468 in revenue, including PEO’s share of recoverable expenses but excluding the base rent that would have been paid if PEO had paid market rent for its space. Total recoverable expenses were $2,298,300 and other expenses totalled $832,590, thereby creating a deficiency of revenue over expenses of $15,422 (after all expenses, including loan interest), as compared to a budgeted surplus of $35,391 in 2017. Total revenues were lower than budgeted by $155,881 or 6 per cent due to a delay in the leasing of available space. Total expenses were under budget by $105,068 or 4.2 per cent. PEO’s share of expenses totalled $729,089. These costs were reclassified from building operations to occupancy costs in the financial statements. Since PEO is a not-for-profit organization, it received a preferred property tax rate (residential rate instead of commercial rate), thereby reducing PEO’s overall occupancy costs. Total occupancy costs for 2017 were $817,268, which includes security, storage and other occupancy costs. PEO’s total accommodation expense (including interest) was $1,165,274.
PEO occupied 39,100 square feet at December 31, 2017. The market rent of this space is approximately $15 per square foot and operating costs are $21.89 per square foot. Therefore, PEO’s equivalent costs for rent and operating costs would have been $1,442,399 for 2017, leading to a net value to PEO of $277,125.
Capital expenditures for the year totalled $249,576 compared to $1,521,795 in 2016.
Base building improvements totalled $35,551, which is recoverable from tenants. Improvements included costs for a replacement heat pump ($23,100), wall finishes ($16,508) and window replacement ($8,904). Non-recoverable building improvements, which are improvements made to PEO owners space, totalled $99,721 for the year. These costs were to prepare space for a new tenant ($88,532) and miscellaneous leasehold improvements. PEO invested $110,537 in computer hardware and software during 2017, including a WiFi upgrade ($34,716), virtual server hardware and software ($32,408), PC upgrades ($27,468) and several smaller projects. Spending on audiovisual and furniture upgrades totalled $3,766.
All of PEO’s capital expenditures in 2017 were funded from PEO’s cash reserves.
Despite the challenges faced in 2017, staff and management, with the guidance and support of Council, restricted the deficit to $25,788 by adopting several cost-cutting measures. Although there has been a steady growth in the scope and breadth of PEO’s operations over the past several years, the costs for all of these initiatives have been funded without any membership fee increases for the past 10 years. In addition, PEO has the lowest membership fees in Canada in comparison to other provincial engineering associations. In light of this, it could be said that the association has managed its affairs responsibly in 2017 and, as a result, is left with a modest reserve to carry out its regulatory mandate in the public interest.