STAFF REPORT. March 30, Audit Committee. Audit Recommendations Follow-up. Purpose:

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1 STAFF REPORT March 30, 2001 To: From: Subject: Audit Committee City Auditor Audit Recommendations Follow-up Purpose: To provide the Audit Committee with information relating to the status of audit recommendations contained in various reports issued by the City Auditor. Financial Implications and Impact Statement: There are no financial implications resulting from the adoption of this report. Recommendations: It is recommended that the Chief Administrative Officer, the Chief Financial Officer and Treasurer, and the appropriate Commissioners, report to the next meeting of the Audit Committee on the status of those audit recommendations included in Appendix 1 and provide the specific action taken or to be taken along with a time frame for implementation. Background: Since amalgamation, the Audit Department has issued a significant number of audit reports containing many recommendations. As part of the ongoing audit process, follow-up audits are conducted in order to ensure that recommendations approved by Council are implemented. In some cases, depending on ongoing audit priorities, these follow-up audits may be conducted up to eighteen months to two years after the initial audit. The time frame for follow-up audits is consistent with the practice at the Ontario Provincial Auditor s Office. The City Auditor s 2001 work plan includes a provision for a number of follow-up audits. While there is a need for follow-up audits, there is also a requirement that the implementation of recommendations be monitored prior to these audits taking place, particularly if follow-up audits are not planned for a period of time.

2 - 2 - Comments: The implementation of audit recommendations made by the City Auditor and approved by City Council is the responsibility of management. Included in Appendix A is a listing of those recommendations which, in our view, continue to be outstanding. At the present time we have not conducted follow-up audits on these particular projects, so some of the recommendations listed as outstanding may have already been addressed by the respective department head. A number of reports relating to the review of cash controls in the Parks and Recreation Division have been issued. These reports contained a significant number of recommendations. The implementation of these recommendations is currently being addressed by an internal task force established by the Economic Development, Culture & Tourism Department, specifically for that purpose. Audit Services is participating on this task force and the implementation of recommendations is ongoing. While certain of these recommendations continue to be outstanding, they are being addressed and, consequently, are not included in Appendix A. Other reports issued during 2000 also contained a significant number of recommendations. These reports included specific audit work related to the Fire Services, Tam Heather Country Club, the Toronto Zoo, Community Centres, Arenas, Business Improvement Areas and the Toronto Public Health Division, Community & Neighbourhood Services Department. At the present time, it is our understanding that each of the recommendations contained in these reports have either been implemented or are in the process of implementation and, as such, are not included in Appendix A. An annual memorandum of recommendations is also prepared by the City s external auditors, Ernst & Young. The comments in the annual memorandum are usually at a fairly high level and are based on Ernst & Young s annual audit of the financial statements of the City. In order to ensure that there is no duplication of audit efforts, we coordinate our audit work with Ernst & Young and work co-operatively with them throughout the year. In addition, we review in detail those recommendations made by Ernst & Young in order to ensure that items of significance are addressed on a timely basis. Certain of the recommendations made by Ernst & Young have previously been made by the City Auditor. Those recommendations that continue to be outstanding are included in Appendix A. A number of audit reports have also been issued to the Toronto Police Services Board. These reports include the following: - Review of the Metropolis Project - Review of the Parking Enforcement Unit - Review of the Investigation of Sexual Assaults - Review of Controls Relating to Police Overtime and Premium Pay

3 - 3 - Specific responses to each of these audits have been provided to the Toronto Police Services Board. The 2001 Audit work plan, relating to the Toronto Police Service, includes a provision for follow-up audits for each of the above, except for the Review of the Investigation of Sexual Assaults. This follow-up audit is planned for In order to provide the Audit Committee with an update in regard to the status of each of the outstanding recommendations included in Appendix A, the Chief Administrative Officer, the Chief Financial Officer and Treasurer and the appropriate Commissioners should provide this information to the next meeting of the Audit Committee. This report should include the specific action taken or to be taken on each recommendation, as well as a time frame for implementation. Conclusions: A number of recommendations made by the City Auditor continue to be outstanding. Prior to the conduct of follow-up audits by my office, there needs to be a process in place to monitor such recommendations. The recommended action in this report will assist in the timely implementation of those issues raised by the City Auditor and approved by City Council. Contact: Jeffrey Griffiths, City Auditor, Tel: (416) , Fax: (416) Jeff.GRIFFITHS@city.toronto.on.ca Jeffrey Griffiths City Auditor dl/cg List of Attachments: Appendix A: Outstanding Audit Recommendations C:\DATA\audit\2001\Reports\Audit Services\Audit Recommendations - Follow-up Mar doc

4 - 4 - OUTSTANDING AUDIT RECOMMENDATIONS APPENDIX A Date of Report June 5, 2000 Review of Snow Budget Over-expenditures (3) the General Manager, Transportation Services conduct a review to determine the most effective mix of in-house and contracted staff that would deliver the required winter maintenance services at a minimum cost to the City, and report to the Works Committee prior to re-tendering of the winter maintenance contracts; (4) Finance Department staff be required to meet with district management staff in order to identify specific financial reporting requirements. Such financial reports be at a level of detail which would enable the division to effectively manage their respective budgets; (5) responsibility for budget monitoring be delegated to district management staff, and that timely and reliable cost and budget information be provided to these managers to enable them to monitor and compare actual costs with the approved budget at the district and activity levels; (6) formal performance measures be established to properly evaluate the performance of winter maintenance services and the economy, efficiency and effectiveness that such services are carried out; (7) the interface of the Maintenance Management System with the SAP Financial Information System and Human Resources/Payroll System be expedited to eliminate duplication of processing and to ensure the accuracy and completeness of expenditure and payroll information in the Maintenance Management System; (8) the necessary staff, computer resources and training be provided to district operations to proceed with the timely implementation of the Maintenance Management System. Any deviations from the established timelines for implementation be reviewed and followed up; and (9) in consultation with Legal Services and the Purchasing and Materials Management Division, a revised Contractor Performance Evaluation Form and a Contractor Infraction Report Form be implemented for all winter maintenance contracts. - General Manager, Transportation Services - City Solicitor

5 - 5 - Date of Report June 16, 2000 Toronto Harbour Commissioners Financial Review (1) City Finance, in consultation with City Legal Services, be directed to advise all City Agencies, Boards and Commissions and other Special Purpose Bodies of a requirement to comply with City administrative policies. All such policies be communicated to the respective Agency, Boards and Commissions and other Special Purpose Bodies; (4) City Council direct that all costs relating to travel approved by and incurred for the benefit of Agencies, Boards, Commissions or Special Purpose Bodies be processed by the entity approving the travel; (5) in accordance with Council s directive, City Finance, in consultation with City Legal Services, be authorized to recover the amount of $21,278 from the Toronto Port Authority in relation to certain non-subsidizable expenses, including first class air travel and expenses relating to spousal travel; (6) City Finance, in consultation with City Legal Services, clarify the subsidy responsibilities of the City in regard to expenditures incurred by the Toronto Port Authority which do not form a part of their budget submission to the City. For those expenditures not budgeted, the Toronto Port Authority be required to reimburse the City for such amounts; and (8) City Finance in consultation with City Legal Services, during its deliberation of the budget of the Toronto Port Authority, determine the composition of the surplus account at the Toronto Port Authority with a view to determine whether or not any of this surplus qualifies as surplus profits as defined in the Toronto Harbour Commissioners Act of Funds qualifying as surplus profits be returned to the City. - City Solicitor

6 - 6 - Date of Report September 13, 2000 Review of the City s Bank Reconciliation and Deposit Procedures (1) the Chief Financial Officer and Treasurer implement formal policies and procedures with respect to the reconciliation of the City s bank accounts including the requirement: (a) (b) (c) (d) that bank reconciliations for all bank accounts be completed within 30 days of month-end; that all reconciling items be properly investigated on a timely basis and supported by appropriate documentation; that supervisory review of each bank reconc iliation include the review of unusual reconciling items and signing of each reconciliation as evidence of supervisory approval; and that procedures be implemented to ensure timely and accurate recording of reconciliation adjustments in the general ledger; (2) the Chief Financial Officer and Treasurer, in conjunction with all other Commissioners, establish a policy requiring daily deposits of cheques received and establish a reporting procedure for deposits such that: (a) (b) (c) staff responsible for the receipt of cheques be required to restrictively endorse such cheques with an appropriate City of Toronto corporate name and date stamp; staff preparing bank deposits review the date stamps on cheques being deposited. Where significant delays are noted between the date on the date stamp and the date of deposit, this fact should be brought to the attention of appropriate supervisory staff for necessary action; and the Accounting Services Division work with departments to identify where additional training is required regarding the use of the general ledger account codes.

7 - 7 - Date of Report January 15, 1999 Review of Staff, Councillors and Mayor s Office Expenses 5. Due to the delay in settling travel claims, and the fact that many expenses (i.e., air fair, registration fees) relating to travel can be paid directly by the Corporation: (a) (b) The Chief Financial Officer and Treasurer consider eliminating travel advances; and Accounting staff follow-up on all advances currently outstanding for more than 30 days, to either recover any unspent funds or to settle the advance, and that any travel advance still outstanding after follow-up by Accounting, be escalated to the respective department head for appropriate action. 6. With respect to cellular telephones: (a) (b) the Telecommunications Division, Corporate Services, in consultation with Departments, Agencies and Commissions, develop a policy covering the criteria and authorization for purchase and issuance of cellular telephones, guidelines for business and personal use, and procedures for the reassignment and return of these telephones; a complete inventory of all cellular telephones be undertaken by each department, and a listing indicating the staff member assigned each telephone be forwarded to the Telecommunications Division, Corporate Services; (c) all future purchases of cellular telephones be made through the Telecommunications Division, Corporate Services, which will also maintain an inventory of cellular telephones for the Corporation; and (d) cellular telephone bills be reviewed and approved by the appropriate departmental staff and any personal calls reimbursed to the City. - Commissioner, Corporate Services Department

8 - 8 - Date of Reports February 1, 1999 and June 14, 2000 Investment Policy Compliance It is recommended that: (2) City Finance staff seek legal advice and clarification relating to the scope of the Council approved policy entitled Investment Policy and Procedures and determine whether or not such policy applies to Agencies, Boards and Commissions. If it is determined that the policy does apply to these entities, management of the City Finance Department forward the policy to staff of all Agencies, Boards and Commissions for which the policy is deemed to be applicable. All applicable Agencies, Boards and Commissions be advised that they are required to comply with such policy; (3) where practical, consideration be given to the consolidation of Agencies, Boards and Commissions investing activities by the City Finance staff. In addition, the decision on whether to consolidate should consider whether or not the services of outside professional investment managers are utilized, the practicality based on dollar amounts and the average length of terms investments are held, the types of investments allowed under legislation and the degree of control exercised by the City over the Agencies, Boards and Commissions; (5) consolidated financial reporting of all City investments be reported to Council on a more regular basis than once a year; (7) the document approved by Council entitled Investment Policy and Procedures be finalized, particularly in terms of addressing key management administrative procedures; and (8) performance benchmarks for investment returns be set for those funds administered by the City without an established performance benchmark.

9 - 9 - Date of Report July 8, 1999 Payroll Review Outstanding Recommendation (1) All payroll bank reconciliations be brought up to date and from thereon be completed in a timely manner, that all reconciling items be promptly investigated and cleared, and that reconciliations be reviewed and approved by supervisory staff.

10 Date of Report August 30, Management Letter Summary Community Centres and Arenas (3) City Finance staff should prepare standardized written policies and procedures for all community centres and arenas. Where possible and appropriate, these policies and procedures should be consistent with those of the City; (4) community centres and arenas should be instructed by City Finance staff that under no circumstances will they be permitted to make expenditures which are not included in their annual approved budget submissions; and (5) the Chief Financial Officer and Treasurer give consideration to the standardization of all accounting systems at each of the community centres and arenas. In the longer term, all accounting should be done centrally using the City s new SAP accounting system. - Chief Financial Officer & Treasurer

11 Date of Report November 29, 1999 Review of Reserves and Reserve Funds (1) the Chief Financial Officer and Treasurer provide Council with reserve and reserve fund continuity schedules on a semi-annual basis, itemizing contributions to and withdrawals from each reserve and reserve fund; (5) the Chief Financial Officer and Treasurer develop by January 1, 2000, appropriate accounting policies and procedures relating to reserves and reserve funds, ensure that proper controls exist to monitor these accounts and that management information is complete, accurate and up-to-date; (6) the Chief Financial Officer and Treasurer confirm the roles and responsibilities of the various divisions within the Finance Department with respect to reserves and reserve funds and ensure that all applicable Finance staff are apprised accordingly; and (7) the Chief Financial Officer and Treasurer clearly advise user departments regarding their roles and responsibilities with respect to reserves and reserve funds and ensure that departments are provided information relating to specific accounts, as requested.

12 Date of Report April 30, 1998 Finance Department - Management Letter for the Year Ended December 31, Decisions relating to the future direction of identifying and accounting for environmental liabilities should be co-ordinated at the corporate level particularly as such liabilities may exist in a number of departments throughout the former Metro, as well as at the former area municipalities, agencies, boards and commissions. Accounting policies for the recording, reporting and funding of environmental liabilities should be developed as soon as possible. Once identified, all liabilities should be recognized in the City s accounting records and appropriately disclosed in the annual financial statements. This process should include ensuring that the liabilities are complete and properly valued. 2. Management should consider contacting the Environmental Compliance Section of the Safety Department at the Toronto Transit Commission as an information resource. The TTC has been doing some work in this area for a number of years and has identified a number of environmental liabilities. Appropriate provisions for these liabilities have been made in the financial statements of the TTC. 31. An inventory of fixed assets should be compiled as soon as possible with priority being given to computer equipment. Management should establish a policy regarding the purchase and control of fixed assets. This policy should include the keeping of detailed records for all fixed assets over a specified amount and a requirement for periodic physical inventory counts to ensure that adequate controls exist to safeguard the assets. 38. To provide consistent financial reporting of the total operating costs of each local board, agency or commission, consideration should be given to preparing the financial statements of each entity that recognizes all capital and related expenditures. Chief Financial Officer & Treasurer

13 Date of Report August 31, 1998 Use of Long Term Consultants (2) the standard report on the status of all long term consulting contracts and related expenditures be expanded to include all future commitments, as well as the expected completion date of the appropriate contracts; (5) all consulting contracts should be awarded in accordance with City of Toronto policy; and (6) all departments be requested to identify and report to the City Finance Department consulting arrangements with individuals including incorporated individuals. In addition, Finance staff evaluate all such contracts to determine whether or not an employee/employer relationship exists. If this relationship does exists, appropriate employee deductions should be made. - Commissioner, Works & Emergency Services

14 Date of Report November 10, 1998 Investigation of Withdrawn Parking Tags 1.(a) (b) PTO staff request that the Parking Authority provide written confirmation with respect to all investigations of defective meters so as to provide for a complete and proper audit trail; and administrative procedures with respect to meter checks be reviewed with staff from the Parking Authority with a view to streamlining the process and eliminating redundant procedures so as to ensure that PTO deadlines are not compromised.

15 Date of Report November 20, 1998 Chemical Pricing 2.(a) (b) in the event two or more suppliers offer the same lowest bid for the provision of goods or services, the contract be awarded to one supplier based on other evaluation criteria; and City Purchasing consult with Legal Services on any legal issues that should be considered in awarding a contract to only one supplier in the case of two or more tied low bids, and on any additional clauses that should be added to the City s purchasing documents (Request for Quotations, Request for Tender, etc.) to protect the City s interests accordingly.

16 Date of Report December 23, 1998 Review of Parking Tag Operations 2. Parking Tag Operations staff review its current arrangement with the Ministry of Transportation relating to the administration of plate denial and enter into a formal agreement with the Ministry of Transportation which outlines the administrative responsibilities of the respective parties regarding the collection of parking fines at plate denial; 3. priority be given to the reconciliation of Parking Tag Operations records with Ministry of Transportation records to ensure that all tags filed for plate denial are in fact awaiting collection at plate denial. This reconciliation should be done at least annually; 4. Parking Tag Operations staff perform an analysis of the tags outstanding at plate denial, investigate the reasons for the delay of their collection and assess their current collectability. In addition, management should evaluate Ministry of Transportation s collection procedures and take appropriate action to ensure that reliance can be placed on the Ministry s processes for the collection of outstanding fines at plate denial; C:\DATA\audit\2001\Reports\Audit Services\Audit Recommendations - Follow-up Mar doc