STAFF REPORT. November 16, Audit Committee. Purpose:

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1 STAFF REPORT November 16, 2001 To: From: Subject: Audit Committee City Auditor Terms of Reference Purpose: To provide the Audit Committee with the terms of reference for certain audit projects included in the 2001 annual work plan or requested in Financial Implications and Impact Statement: There are no financial implications resulting from the receipt of this report. Recommendations: It is recommended that this report be received for information. Background: At its meeting of February 16, 2000, the Audit Committee approved the 2001 Audit Work Plan. The work plan provided a summary and brief description of the audit projects to be undertaken in In addition to the audit projects listed in the work plan, unscheduled audit work may also be required as a result of requests from Council or Committees of Council. This report provides the terms of reference for certain audit projects included in the work plan or requested in The terms of reference for projects that will be undertaken in 2002 will be submitted at a later date. Comments: The terms of reference are developed during the initial planning stages of each audit project and in consultation with senior staff of the unit under review. The terms of reference provide the following information:

2 - 2 - (a) (b) (c) (d) (e) overview of the project; financial/operational highlights; key financial/operational issues and controls; audit objectives and scope; and project time frame. The terms of reference for certain projects are provided in the appendices to this report as follows: (1) FIS Post Implementation Review (2) Review of Tax Arrears Collection Process (3) Review of Golf Course Operations The terms of reference for the purchasing review are currently being developed and will be reviewed with the Chief Administrative Officer on completion. Conclusion: Terms of reference for audit projects are important in that they provide direction and focus for the work undertaken. They also specify the parameters, scope and objectives for the review, as well as the time frame for completion. Contact: Jeffrey Griffiths, City Auditor, Tel: (416) , Fax: (416) Jeff.GRIFFITHS@city.toronto.on.ca Jeffrey Griffiths City Auditor cg List of Attachments: Appendix 1: Appendix 2: Appendix 3: FIS Post Implementation Review Review of Tax Arrears Collection Process Review of Golf Course Operations C:\DATA\Audit\2001\Reports\Audit Services\Terms of Reference -FINAL Nov doc

3 - 3 - APPENDIX 1 AUDIT SERVICES TERMS OF REFERENCE Department: Finance Department Division: Accounting Services Project Name: FIS Post Implementation Review Year: 2001 Project Code: 01 FAS 02 A. Introduction Our 2001 Audit work plan, approved by Council in March 2001, included a project entitled Financial Information System Post Implementation Review. The review has two primary objectives. First, we will assess the current reporting functionality of the SAP financial system against the specific management information needs of the various City Departments. Second, we will review the implementation to determine that it was completed within approved expenditure limits. The review will identify any opportunities for improvement to provide necessary additional functionality where properly justified by departments. The Policy & Finance Committee requested the City Auditor to report on the extent to which the financial management needs of different City Programs are adequately met by the City s SAP financial system. B. Financial/Operational Highlights The Finance Department, Accounting Services Division, has the responsibility for overseeing implementation of the SAP Financial Information System (FIS), including ongoing maintenance and upgrade/enhancements to the Financial Accounting Systems, which includes the financial reporting components. Stage I and II of the Business Blueprint for FIS, as implemented, provided only for standard SAP reporting including the ability to develop custom reports through the Report Painter module.

4 - 4 - C. Audit Objectives and Scope This review will address such issues as: (a) (b) (c) (d) (e) (f) (g) Does the standard reporting available within SAP financial system provide information that is complete, accurate and timely? Do departments have sufficient training in the use of the Custom Reports feature of SAP and is this feature utilized effectively to augment management information? Is management information limited due to lost functionality from former legacy systems and/or incomplete mapping of cost element detail from former systems? To what extent have FIS user group concerns and requests for additional reporting capabilities been considered during the implementation of FIS? Have all costs been appropriately accounted for with respect to the implementation of the SAP financial system and has the implementation been completed within approved expenditure limits. To what extent have departments program managers resorted to the use of shadow systems (separate records and books of account) to aggregate required management information that may not be available from the SAP financial system? Does the use of shadow systems reflect a lack of user knowledge and training or a lack of user confidence and acceptance of the new information system? Where information system reports are not considered adequate and appropriate, have program managers documented the cost/benefits to justify desirable changes to financial management reporting? Based on preliminary work during the planning process of this review, we have identified the following key risk areas that will be the focus of our work. 1) Strategic/Operational Risk - that deficiencies in financial reporting limit available management information and inhibit effective management processes to monitor, control and adjust operations as necessary to ensure delivery of the highest quality City programs. 2) Financial Risk - that ineffective financial reporting could result in less than optimum use of resources and higher expenditures in terms of time and resources to maintain shadow systems that provide additional or more timely information to support the decisions of program staff.

5 - 5 - The project will include a review of the standard reporting capabilities of the SAP Financial Information System and interviews with appropriate finance personnel and management. In addition, surveys and interviews will be conducted of management and staff responsible for different City programs to assess management reporting information needs. D. Project Time Frame Draft Report to Client February 2002 Audit Committee Meeting March/April 2002 G:\AUD\2001\Audit files\finance\other\sap Post Imp review -Terms of Ref Aud Ctee.doc

6 - 6 - APPENDIX 2 AUDIT SERVICES TERMS OF REFERENCE Department: Finance Department Division: Revenue Services Project Name: Review of Tax Arrears Collection Process Year: 2001 Project Code: 00 FRS 01 A. Introduction The Audit Committee, on April 11, 2001, referred a communication to the City Auditor from Councillor Moscoe for comment. Councillor Moscoe was concerned that the Finance Department was not adhering to a previous Council resolution adopted in June 2000 to implement more aggressive tax collection procedures for collection of commercial tax arrears. The overall objective of the review will be to assess the tax collection procedures employed by the Finance Department since the aforementioned June 2000 Council resolution and report back to Audit Committee on the efficiency and effectiveness of those collection efforts. The review will identify any opportunities for improvement and make appropriate recommendations. B. Financial/Operational Highlights The Finance Department, Revenue Division, has the responsibility for the issuance and collection of assessed taxes. The Revenue Division has a program of tax collection based on internal and external strategies. Internal strategies include mailing of arrears notices, telephone contact and collection letters. After all internal collection efforts have been exhausted, the arrears accounts (excluding residential properties) are assigned to a bailiff for further tax recovery efforts. As of June 30, 2001, 822 accounts with a value of $10.6 million had been assigned to bailiffs.

7 - 7 - C. Audit Objectives and Scope The objective of this review is to answer the following questions with respect to tax collection procedures: (a) (b) (c) (d) Are there documented policies and procedures to guide staff in the collection of tax arrears? Are departmental policies and procedures for the collection of tax arrears appropriate and effective? Are departmental policies and procedures consistently applied? Are information system reports adequate and appropriate and do they allow for the efficient preparation of reports necessary to comply with Council directives for quarterly updates on the largest tax receivables? Based on preliminary work during the planning process of this review, we have identified the following key risk areas that will be the focus of our work. 1) Strategic/Operational Risk - that benefits from Council directives to implement more effective tax collection procedures may not be realized. 2) Financial Risk - that ineffective collection procedures could result in a loss of revenue to the City, particularly if market values are insufficient to cover taxes due. 3) Public Perception Impact Risk that failure to have transparent, equitable and consistent processes could erode public confidence and commitment to ensure timely payment of assessed taxes. The project will include a review of past reports on the use of bailiff s and the tax collection process, interviews with appropriate Finance personnel and management, an audit of commercial tax collection files comparing actual processes against current policy standards, a review of other cities practices to determine best practices employed for this area and any other procedures necessary to achieve audit objectives. D. Project Time Frame Draft to Management November 30, Audit Committee January 2002 G:\AUD\2001\Audit files\finance\revenue Services\Terms of Reference Tax Collection Procedures.doc

8 - 8 - APPENDIX 3 AUDIT SERVICES TERMS OF REFERENCE Department: Economic Development, Culture & Tourism Division: Parks and Recreation Unit: Special Facilities Project Name: Review of Golf Course Operations Year of Audit: 2001 Project Code: 01 EPR 02 A. Introduction Audit Services 2001 Work Plan, which was approved by Council in March 2001, included the review of the golf course maintenance functions carried out by the Parks and Recreation Division, Economic Development, Culture & Tourism. Based on interviews conducted during the planning phase of the audit, other audit issues have been identified and a more comprehensive review is now planned. The main objective of this audit is to review the adequacy of the system for planning, directing and managing the golf course operation. The review will identify opportunities to improve financial management, control course maintenance costs and strengthen program management. This will include reviewing and commenting on the business operations, organizational structure, including roles and responsibilities, the operating budget system, management information systems, performance measurement and the safeguarding of assets. A review of other cities practices and a comparison to industry data will be done to determine best practices, and for benchmarking purposes. B. Financial/Operational Highlights A total of five 18-hole golf courses are operated and managed by Parks and Recreation. The courses vary from a par three facility to full length regulation golf courses. The operating principle is to provide an accessible quality golf experience in the urban environment. In 2001, a combined total of over 217,000 full rounds ( ,833 rounds played) of golf will be played at the five City operated golf courses. Total revenue for the year from the five golf courses is budgeted at $6.01 million (2000 actual revenue of $6.11 million).

9 - 9 - The golf program is managed by staff within the Business Services Unit, Central Services and the Waterfront District, of Parks and Recreation. The Business Services Manager is responsible for managing the golf course operation. This includes negotiating concessionaire contracts, engaging a Director of Golf to be responsible for the nonmaintenance operations of the five golf courses and overseeing the business, financial and maintenance activities of the golf courses, including adjacent grounds and facilities. The Golf Courses Supervisor oversees day-to-day activities of concessionaires and City maintenance crews. Accounting, budget and other support staff within Economic Development, Culture & Tourism provide additional support. The Clubhouse operation is managed by the Director of Golf, who is engaged on a contract basis. This person operates the Pro Shop and is responsible for the employment and supervision of all contractors and staff at each golf course, including activities such as marshalling and the sale of green fee tickets. City maintenance crews, under the direction of the Golf Courses Supervisor and three Golf Superintendents provide golf course maintenance. Two of the Golf Superintendents have responsibility for two courses each. Each course also has three to four permanent staff assigned to maintenance. Arborists and forestry staffs are engaged to provide planting, landscaping, tree pruning and tree removal services. Seasonal labour is used during the busy golf season to help with peak maintenance workload. Machinery and equipment repair is done by golf course staff and Corporate Services, Fleet Management Services. The golf courses capital replacement program is part of Fleet s capital budget. The 2001 expenditure budget for golf course operations is $3.4 million. C. Audit Objectives and Scope The objectives of this review are: (a) (b) (c) (d) to ensure that the City has established goals and objectives for the operation of the golf courses; to determine how well the golf course operation is managed and whether the operation is effectively integrated with other corporate and departmental business plans; to determine the adequacy of management information systems and reports in meeting management needs and facilitate decision-making; and to assess whether the organization has a long range plan that ensures the golf course operation is adequately managed and maintained, such that this revenue stream is effectively protected.

10 Based on preliminary interviews during the planning process of this review, we have identified the following key risk areas that will be the focus of our work. 1) Strategic/Operational Risk - that goals, objectives and strategies are not clearly defined, leading to poor decisions, inefficient operations, insufficient resource allocations and potential loss of revenues; and - that mechanisms may not be in place to react to, as well as, identify and address the impact of both internal and external changes on the operations, leading to a loss of market share and declining operations. 2) Budget/Financial Risk - that financial information may not be complete and accurately reflect the entire operational activities and operations may not be appropriately revised to address any new or previously uncontrolled risk. 3) Customer Service Risk - the inability to identify and react to the changing demands of the customer and changes in the direction of the golf industry increases the risk of losing customers and revenues. 4) Other Risk D. Key Deliverables - that support frameworks and functions of other City business units may not be sufficiently harmonized to support the golf course program resulting in inefficiencies in resource allocations and the way the golf course is managed. Our report will answer questions such as: - What procedures and systems are in place to promote and increase golf facilities utilization and total revenues? - Are roles and responsibilities clear and properly communicated? - Are current policies and procedures adequate to manage the golf courses? - What is the extent of control over golf course expenditures including course maintenance costs (labour, materials and equipment)?

11 Are actual maintenance activities compared against standards and is this comparison used to address staffing levels, scheduling or productivity? - Is the available management information adequate to properly manage the golf course operation? The project will include interviews with appropriate Parks and Recreation Division personnel and management, a review of policies, procedures and information systems and a review of other cities and industry data to determine best practices. E. Project Time Frame Draft Report to Management January 11, 2002 Audit Committee Meeting February/March 2002 C:\DATA\Audit\2001\Reports\Economic Development\Economic Development\Terms Of Reference Golf Course Operation.doc