TABLE OF CONTENTS

REPORTS OF THE STANDING COMMITTEES

AND OTHER COMMITTEES

As Considered by

The Council of the City of Toronto

on July 27, 28, 29 and 30, 1999

AUDIT COMMITTEE

REPORT No. 5

1 1998 City of Toronto Consolidated Financial Statements

2 The Metropolitan Toronto Housing Company Limited - Financial Statement for the Year Ended
December 31, 1998

3 City of Toronto Non-Profit Housing Corporation - Financial Statement for the year Ended December 31, 1998

4 Payroll Review

5 Request for Commitment of City Auditor

6 Other Items Considered by the Committee

City of Toronto

REPORT No. 5

OF THE AUDIT COMMITTEE

(from its meeting on July 19, 1999,

submitted by Councillor Doug Mahood, Chair)

As Considered by

The Council of the City of Toronto

on July 27, 28, 29 and 30, 1999

1998 City of Toronto

Consolidated Financial Statements

(City Council on July 27, 28, 29 and 30, 1999, amended this Clause by adding thereto the following:

"It is further recommended that the Chief Financial Officer and Treasurer be requested to submit a report to the Policy and Finance Committee for its meeting to be held in September 1999 on the following:

(1) the names of the 20 largest debtors who have had outstanding balances for more than one year;

(2) an age analysis of the receivables, as at December 31, 1998;

(3) a source analysis (i.e., how the receivable arose, for example, refuse disposal, tax, parking revenue, etc.) of the outstanding other receivables as at December 31, 1998; and

(4) what steps the City can take to reduce the balance of receivables.")

The Audit Committee recommends that:

(1) the 1998 City of Toronto Consolidated Financial Statements be adopted; and

(2) the report (July 9, 1999) from Ernst & Young, Chartered Accountants entitled, "City of Toronto - Report to the Audit Committee - 1998 Audit Results" be received for information.

The Audit Committee reports, for the information of Council, having requested:

(1) the City Auditor to communicate with the Acting Commissioner of Corporate Services on the issue of computer log-in password controls of computer service access programs, particularly as they relate to non-financial systems; and

(2) that the management letters and financial statements of Agencies, Boards and Commissions be forwarded to the City Auditor.

The Audit Committee submits the following report (undated) from the Chief Financial Officer and Treasurer:

Purpose:

To present the City's consolidated 1998 Financial Statements.

Financial Implications:

Under current accounting rules, the City's financial position as represented in fund balances appears reasonable. However, these fund balances artificially reflect the unspent TTC capital subsidy reserves of $453M that will be used in 1999 and currently do not reflect the funding required to reasonably fund the City's unfunded employee and other liabilities. Future reports to the Policy and Finance Committee through July to October 1999 will recommend funding approaches to prepare for the pending changes to accounting rules anticipated to be implemented within the next few years.

Recommendation:

It is recommended that the attached 1998 Consolidated Financial Statements be adopted.

Discussion:

These financial statements consolidate the assets, liabilities, revenues and expenditures of the City, all committees of Council and a number of boards and municipal enterprises. They do not consolidate the operations of the Metro Toronto Housing Company Limited, the Toronto Non-Profit Housing Corporation, the Toronto District School Board and the Toronto Hydro-Electric Commission, nor do these statements include the City's trust funds. Note 2 to these financial statements identify the consolidated entities. The City's 1999 consolidated financial statements will include the operation of Toronto Hydro from the date of incorporation - July 1, 1999 onwards.

The 1997 final financial statements of the seven former municipalities presented to Council in July 1998 were prepared from the seven former financial systems with generally seven independent accounting staff units. During 1998, the City of Toronto continued to use a number of financial systems. As noted, there were seven operating systems at the beginning of 1998. During 1998, two of these systems were deactivated and a third system was decommissioned at yearend. The number of financial systems presented challenges during the year for departments to monitor their budgets and particularly for Finance Accounting Division staff to consolidate seven financial systems in varying degrees of use. Difficulties and delays in analysis were experienced due to the different account structures and alignment in programs in each system.

The time for the preparation of these financial statements was extended as staff worked to consolidate the financial information from each of the systems. With the implementation of a single financial system during 1999 and the physical consolidation of Accounting staff into one accounting unit by September 1999, the time required to produce future annual statements should be greatly reduced. As of the end of June 1999, the financial operations of five former municipalities have been consolidated into SAP in our Phase 1 implementation. The balance of the FIS project implementation representing former Toronto and Metro is scheduled for the end of August 1999.

Balance Sheet Analysis:

Cash - Balances are reduced from 1997 year end balances and are reflected in higher investments and accounts payable balances in 1998.

Investments - The major items affecting the increase in the balance over the prior year are as follows:

- $829M received from the Province in July 1998 and invested in August. The funding was restricted for the TTC and Sheppard Subway capital projects and consisted of the present value of a 5 year stream of payments that was due from the Province.

- $100M loan received from the Province in 1998. $41M was restricted as funds for transition projects.

- $250M of debt was issued in December 1998 and was invested at year end.

The investments are reported at cost and there were no foreign currency investments held at year end.

Taxes Receivable - This includes all outstanding taxes including those items that have been added to the tax roll, such as utilities arrears, drainage charges, local improvement charges, and the accumulated penalties and interest charges against such taxes, less any allowance for uncollectible taxes. The provision amount has increased in 1998 for two reasons - I) to begin to provide for the former Metro portion of tax writeoffs (prior to amalgamation, the former Metro did not make provisions against taxes receivable and only deducted as an expense their share of tax writeoffs) and ii) to provide for the various elements of uncertainty regarding the implementation of current value assessment. There will be further review in 1999 on the provision amount required. Business taxes outstanding in 1998 are $93M as compared to $120M in 1997. A breakdown of the receivable is noted below:

1998 1997

Current year $172M $159M

Prior year $ 89M $ 59M

Previous years $ 56M $ 48M

Interest/penalty $ 41M $ 31M

Less: Allowance ($103M) ($ 23M)

Net receivables $255M $275M

Accounts Receivable and User Charges Receivable - This includes amounts receivable for goods or services during the normal course of business, less any allowance for uncollectible accounts. This line also includes amounts receivable from any departments or agency of the Government of Canada or the Province of Ontario for such items as subsidies, payments in lieu of taxes. User charges receivable includes sewer and water, transit, licenses and permits, rents, and concessions.

Of the $578M, the significant items include:

-$95M from the Province and the Federal governments

-$54M for water and sewer receivables

-$40M for payments in lieu

Other Assets - This includes amounts set up as inventory or prepaid operating expenses. Of the $170M, approximately $66M is for inventories on hand at year end ($14M - City; $52M - TTC), $46M for prepaid welfare payments and a $30M loan to TDHC.

Capital Outlay to be recovered in future years - This includes capital expenditures and capital transfers to the extent that with the approval of the OMB they have been financed from the issue of long term liabilities. A $250M debenture issue in December 1998 combined with the receipt of the first $100M interest free loan from the Province of Ontario contributed to the increase in both this line item and long term liabilities.

Accounts payable and accrued liabilities - This includes amounts for trade accounts payable, payroll deductions and accrued liabilities for goods and services received before the year end. It also includes any amounts payable to the Federal or Provincial governments, to nonconsolidated local boards, municipal enterprises, utilities, and sinking funds. Accounts receivable and accounts payable between the consolidated funds and agencies are eliminated in these statements. Of the total balance of $899M, approximately $178M relates to the TTC.

Deferred Revenue - Of the total $114M in deferred revenue, $24M relates to deferred passenger revenue for the TTC, $30M for a loan to TDHC.

Other Current Liabilities - $102M of the $143M balance relates to the TTC with the rest representing various deposits on hand and other miscellaneous amounts.

Fund Balances - Fund balances have increased by approximately $550M. Fund balances with respect to operations have increased by $30M due mainly to two major elements - i) as a result of an increase in water and sewer operations which will be used to offset user charges in future years and ii) as a result of $43M of operating or tax rate surplus that has been incorporated into the 1999 operating tax supported budget. The fund balance in city reserves has increased due mainly to the creation of a homes for the aged reserve in 1998 and the addition to the winter stabilization reserve. The fund balance in city reserve funds has increased to reflect the unused portion of the provincial subsidy funds with respect to the five year TTC capital agreement.

Consolidated Statement of Operations:

This statement combines both operating and capital operations. Schedule 1 and 2 are presented to distinguish the impact of each on the city's operations.

Schedule 1 - This statement demonstrates the impact of the provincial downloading or local services realignment from operations. Residential education tax room of approximately $695M was created for the city as evidenced by the reduction in the amounts payable to the school boards while less taxes were billed as a result of reduced education tax rates to residential and commercial properties leaving a net increase in taxation revenue of $544M.

The expenditures are disclosed by the following categories:

General Government - Includes expenditures by the Mayor & Council, Clerks, Finance, Legal, Human Resources, Information Technology, Audit, Real Estate, Communications, Chief Administrator's Office and Administrative Facilities. New expenditures for assessment services and the capital financing costs (i.e., the amount of the provincial loan needed to balance the 1998 operating budget) account for the increase.

Protection to Persons & Property - Includes Police, Fire Services, Conservation Authority, Licensing Commission, and expenditures related to by-law enforcement.

Transportation Services - Roadways, bridges and sidewalk maintenance and construction are included in these expenditures. Street lighting and traffic control devices, the operations of the Toronto Parking Authority and the City's new share of GO Transit costs are also reported in this category.

Environmental Services - Water purification, sewage treatment, solid waste management as well as environmental initiatives are included in this category.

Health Services - Expenditures related to public health services including public health inspections and control and ambulance services are reported under this category.

Social and Family Services - Expenditures for Children's Services, Toronto Housing, Shelters, Housing and Support, Social Services, Homes for the Aged and Social Development are included here.

Recreation and Cultural Services - Parks & Recreation, theatres and galleries are reported under this caption. This category also includes Toronto Public Library, Exhibition Place, Arena Boards of Management and Heritage Toronto.

Planning and Development - This expenditure line includes the City's new share of the Housing Costs of $248M transferred from the province commencing in 1998, Urban Planning and Development, Economic Development and TEDCO.

Schedule 2 - The consolidated capital operations demonstrate the receipt of the provincial subsidy of $829M for TTC capital to finance the 1999 capital requirements as well as the proceeds of a $250M debenture issue in December 1998. Transportation expenditures reflect the need for the increased financing required in 1999. Excess provincial subsidy of $451M was transferred to reserve funds.

Reserves:

Note 8 to the financial statements outlines the City's reserve and reserve funds. City reserves, which earn interest for the operating budget, have increased by almost $15M. The most significant increases are to two reserves - the winter control stabilization and the homes for the aged reserve. Funds were available from operations in 1998 to add to the winter control stabilization and due to the one time nature of the significant snow expenditures in January 1999, it was determined that this action was prudent. This reserve will likely be utilized in the 1999 operating budget to offset the $30M overexpenditure in the 1999 Transportation program budget. The increase to the Homes for the Aged reserve was approved by Council in 1998 to reflect the one time nature of the funds received from the province for transitional purposes. A current project underway in the Treasury and Financial Services division that will report out in September 1999 will assess the need and quantum in reserves necessary to provide for the various city's risk exposures.

Reserve funds:

City reserve funds, which maintain interest earnings within the funds themselves, increased by $476M over 1997 levels predominantly due to the OMERS contribution holiday, the unspent TTC capital subsidy and the creation of the welfare stabilization reserve fund. Reserve funds are represented by investments that are restricted on the balance sheet. Increases to the Employee Benefits reserve fund reflect a transfer from the 1998 operating budget of the OMERS contribution holiday that came into effect in August 1998. The Workforce Reduction reserve fund reflects a zero balance after total funding of $19M from the Employee Benefit reserve fund was transferred to fund employee severances in 1998. Council had previously approved $11M as an initial contribution, but further funding was required of $8M in order to keep the reserve from being in a negative year end position.

The reserve funds that relate to capital expenditures increased overall. The reserve funds set up for the residual/unspent balance of the 5 year TTC capital subsidy amounts account for the significant increase in the transit area. The City's land acquisition reserve fund has decreased due to the acquisition and development of the Dundas Square project which has used this fund for $34M in temporary financing.

The category of Social and family services reserves funds reflects Council's decision to provide reserve funding from 1998 operating budget savings from welfare caseload decreases and an element from savings from childcare operations.

The reserve funds also demonstrate the creation of a new reserve for TTC operating surpluses in April 1999 in order to stabilize their operating budget in future years. The 1998 surplus of $1.2M has been added to this new reserve.

Initiatives for 1999 Financial Statements:

A number of initiatives have been identified to improve the timely reporting and the effectiveness of the information in the statements for 1999 and future years.

(i) The current financial statement presentation is aligned closely with the format required by the Province for the Financial Information Return (FIR) that is filed annually by all Ontario municipalities. This format does not represent the alignment of programs as delivered by the City of Toronto.

The 1999 Financial Statements will be presented in a manner consistent with the programs administered by City departments. This will allow the reader to more readily compare the results reflected in the financial statements to the annual budget. It will also allow in the future for citizens and other readers to determine the costs of providing the various services offered by City departments. The revised format will follow closely the style used for variance reporting by the City and will therefore allow a reader to easily compare the two reports.

(ii) The implementation of the new financial information system will allow the preparation of the 1999 financial statements to be expedited. The 1999 financial statements should be presented to Audit Committee at its May 2000 meeting.

(iii) In July 1999, Finance's Accounting Services division will prepare a consolidated balance sheet reflecting the City's financial position as at June 28,1999 in order that any adjustments or problems to accounts from analysis are corrected on a timely basis. In 1998, attention was focussed on the operating accounts. The analysis of the assets and liabilities was done at year end only. Because of the number of financial systems, this analysis at year end presented significant challenges in terms of consolidation and analysis and was a major reason for the delay in finalizing these statements. Preparing a mid year balance sheet as recommended by both sets of auditors should expedite year end closing.

Future Issues:

The Public Sector Accounting Board (PSAB) has been studying standards to improve and harmonize financial reporting in the public sector. One of the recommendations will require a full accrual basis of accounting. Presently the City is generally on an accrued basis of accounting as disclosed in Note 2(b)(I) and accrues expenses such as suppliers invoices that have not been paid and interest charges on long term debt. However, liabilities for certain employee related costs including sick leave, WSIB liabilities and post retirement costs are not 'booked' in the City's accounts and are shown only in the notes to the financial statements. Adopting full accrual accounting would book these liabilities. At the end of 1998, the City of Toronto had approximately $800M in unfunded employee benefit liabilities. Since the current level of funding contained in reserve funds does not match the level of liability, there will be a major drain on the City's fund balances and reflect in severely depleted fund balances on the balance sheet. It is therefore important that a policy be adopted to aggressively fund these liabilities. A report on the unfunded employee related liabilities will be presented to the Policy and Finance Committee in September 1999.

Conclusion:

These statements reflect the financial results for the year 1998. The advent of a single financial system will allow the preparation of the 1999 financial statements on a more timely basis. The Finance Department will work during 1999 to develop a reporting format that more closely mirrors the variance reports that will be presented to Council during 1999.

Contacts:

Al Shultz, Director, Accounting Services, 397-5240

Ken Colley, Manager, Financial Reporting, 397-4445

The Audit Committee also submits the following report (May 31, 1999) from Ernst & Young, Chartered Accountants:

To the Members of Council, Inhabitants and Ratepayers of the Corporation of the City of Toronto

We have audited the consolidated balance sheet of the Corporation of the City of Toronto as at December 31, 1998 and the consolidated statement of operations for the year then ended. These financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the City as at December 31, 1998 and the results of its operations for the year then ended in accordance with the accounting principles disclosed in note 2 to the financial statements.

The financial statements for the preceding year were audited by other Chartered Accountants.

The Audit Committee also submits the following communication (July 9, 1999) from Ernst & Young, Chartered Accountants:

Recommendation:

It is recommended that the report entitled "City of Toronto - Report to the Audit Committee - 1998 Audit Results", be received for information.

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The Audit Committee reports, for the information of Council, also having had before it during consideration of the foregoing matter the following:

- City of Toronto Consolidated Financial Statements for the year ended December 31, 1998; and

- Report, titled, "1998 Audit Results" from Ernst and Young;

copies of which have been forwarded to Members of Council under separate cover.

The Metropolitan Toronto Housing Company Limited -

Financial Statement for the Year Ended

December 31, 1998

(City Council on July 27, 28, 29 and 30, 1999, adopted this Clause, without amendment.)

The Audit Committee recommends that the Metropolitan Toronto Housing Company Limited Auditor's Report and Financial Statement for the year ended December 31, 1998 be approved.

The Audit Committee submits the following report (May 26, 1999) from the Corporate Secretary, Toronto Housing Company Inc.:

The Board of Directors of The Toronto Housing Company Inc., on May 17, 1999 had before it a report (May 10, 1999) from the Chief Executive Officer, advising that the Finance/Audit Committee had reviewed the Auditor's Report for the City of Toronto Non-Profit Housing Corporation and the Financial Statements for the year ended December 31, 1998 and recommends their approval by the Board of Directors: submitting the following documents for the year ended December 31, 1998:

(A) Report to Board of Directors (May 10, 1999);

(B) Auditor's Report; and

and recommending:

(1) that the Board of Directors approve the Financial Statement of the City of Toronto Non-Profit Housing Corporation for the year ended December 31, 1998, and that the two Directors be authorized to sign the Balance Sheet on behalf of the Board;

(2) that the Auditor's Report and Financial Statements be forwarded to the City Clerk for Submission to the Annual Meeting of the shareholders to be held at the next convenient meeting of the City of Toronto Council; and

(3) that the appropriate Housing Company officials be authorized to take the necessary action to give effect to Recommendations Nos. (1) and (2).

The Board of Directors:

(i) Approved the recommendation of the Finance/Audit Committee, and adopted without amendment the aforementioned report; and

(ii) authorized Dr. John Metson and Councillor Michael Feldman to sign said statements on behalf of the Company.

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The Audit Committee reports, for the information of Council, having also had before it a communication (May 10, 1999) from the Chief Executive Officer, Toronto Housing Company respecting Auditor's Report and Financial Statements for the year ended December 31, 1998, and a copy thereof has been forwarded to Members of Council under separate cover.

City of Toronto Non-Profit Housing Corporation -

Financial Statement for the Year Ended

December 31,1998

(City Council on July 27, 28, 29 and 30, 1999, adopted this Clause, without amendment.)

The Audit Committee recommends that the City of Toronto Non-Profit Housing Corporation Auditor's Report and Financial Statement for the year ended December 31, 1998 be approved.

The Audit Committee submits the communication (May 26,1999) from Corporate Secretary, Toronto Housing Company:

(A) Report to Board of Directors (May 10, 1999);

(B) Auditor's Report; and

and recommending:

(3) that the appropriate Housing Company officials be authorized to take the necessary action to give effect to Recommendations Nos. (1) and (2).

The Board of Directors:

(i) Approved the recommendation of the Finance/Audit Committee, and adopted without amendment the aforementioned report; and

(ii) authorized Dr. John Metson and Councillor Michael Feldman to sign said statements on behalf of the Company.

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Payroll Review

(City Council on July 27, 28, 29 and 30, 1999, adopted this Clause, without amendment.)

The Audit Committee recommends the adoption of the following report (July 8, 1999) from the City Auditor:

Recommendations:

It is recommended that:

(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 ;

(2) the upcoming conversions to the new SAP payroll system be adequately planned and properly managed, that all required testing be performed and documented, and that the necessary signoffs and approvals be obtained before implementation; and

(3) payroll management staff review the current procedures for employees on salary continuance and utilize electronic and other controls available, to further ensure employees are not paid beyond their termination date.

Background:

As part of the Audit Work Plan, a review of specific payroll areas was completed to ensure the existence of effective control procedures. The review focused on the following areas:

- the proper and timely completion of payroll bank reconciliations;

- the adequacy of procedures utilized in the conversion of payroll systems; and

- controls over payroll changes, with particular emphasis on terminated employees.

The review included interviews with applicable payroll staff, an examination of relevant documents, an evaluation of procedures and processes, and the testing of transactions on a sample basis. The results of our review are provided below.

Comments:

Payroll Bank Reconciliations:

The proper and timely completion of payroll bank reconciliations and the prompt investigation and correction of outstanding items are extremely important control procedures that assist in the detection of errors and other irregularities. Our review noted that payroll bank reconciliations for the various payroll systems are not up-to-date. Two reconciliations (for the former City of Etobicoke and the former Metro) have not been completed since August 1998. A number of long outstanding reconciling items were also identified. Several of these items date back to early 1998 and are for significant amounts. For example, an unreconciled balance of $6 million has appeared on the payroll reconciliation for the former City of North York since April 1998. Staff have been unable to determine the cause of this outstanding item. In addition, reconciling items were noted where manual cheques were cashed but were not recorded in the general ledger. These transactions occurred in the period January to September 1998.

Payroll Conversions:

Upon amalgamation of the former municipalities, the processing of payroll was performed on seven different systems by seven separate payroll functions. During 1998, a rationalization of these functions resulted in the number of payroll systems and functions being reduced to four. Specifically, payroll processing for employees in the former City of York and Borough of East York were merged with that of the former City of North York. Similarly, the payroll processing for the former City of Scarborough staff was merged with that of the former Metro. The former cities of Etobicoke and Toronto retained their respective payroll systems.

Based on our review of these conversions and discussions with staff, it would appear that the conversions completed to date have not been particularly well planned or managed. Any conversion testing that was performed was done on an informal basis and was not documented. Evidence of formal review and approval of the conversions was not available. We were therefore unable to review the testing performed and determine the accuracy and completeness of the conversions.

In order to minimize the risk of errors and avoid other problems, it is important that system conversions be adequately planned and that appropriate testing be performed and documented. This is especially important in the conversion of payroll systems, since the accurate and complete payment of employees is at risk and should not in any way be compromised.

Payroll Changes:

As a result of downsizing, a number of staff terminated their employment with the City. We performed testing to ensure that exit payments made to terminated employees were accurate and in compliance with the corporate policy. No errors were identified from the sample testing completed.

Some staff that exited the Corporation negotiated, as part of their termination package, to continue to receive their salary up to a pre determined date. To ensure that no overpayments occur, the former cities of Toronto and North York have electronic controls in their systems that automatically discontinue any payments after the prescribed date. The former Metro system also has this functionality, however, it is not being utilized. Instead, payroll staff monitor those individuals on salary continuance manually every pay period. While only 12 individuals are still on salary continuance in the Metro system, it would be appropriate to utilize the electronic control that exists in the payroll system to better ensure that no overpayments are made.

The former Etobicoke payroll function also manually controls staff on salary continuance. Payroll staff advised that since there are only a few individuals on salary continuance, the risk of overpayment is minimal. Nonetheless, the current procedure is subject to human error and as such the procedures should be reviewed to determine if any compensating controls can be implemented.

Conclusions:

The rationalization of payroll functions combined with the secondment of several payroll staff to the SAP project implementation team has placed significant pressure on payroll operations and has increased the risk of errors occurring. It is therefore important that supervisory review, in the current environment, be more diligent, that electronic controls available be fully utilized, and that key control procedures such as the completion of bank reconciliations be performed on a regular basis. It is also important that the future conversions to the SAP payroll system be adequately planned and properly managed to minimize the risk of error and ensure the conversions occur without significant problems.

Contact Name and Telephone Number:

Tony Veneziano, Senior Audit Manager, 392-8353.

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The Audit Committee also submits the following report (July 8, 1999) from the Chief Financial Officer & Treasurer:

Purpose:

To respond to the City Auditor's report related to the Payroll Review.

Funding Sources, Financial Implications and Impact Statement:

None.

Recommendation:

That this report be received for information.

Discussion:

Payroll Bank Reconciliation

Payroll Bank Reconciliations will be completed on a monthly basis with all reconciling items reviewed and addressed within one month. All bank reconciliations are to be reviewed by the Supervisor, Funds and approved by the Manager, Financial Reporting.

The large unreconciled balance was due to a payroll error that required payroll staff review. Frequent staff changes resulted in this review taking longer than is normally necessary to identify all the adjustments that were required. This amount has now been reconciled and properly recorded.

Payroll Conversions:

During 1998 the number of payroll systems in operation was reduced from seven to four. This was done mainly to retain financial control as management staff were exiting from the Corporation. In some of these payroll system conversions, technical resources were limited, therefore some of the conversion was handled manually.

The implementation of the SAP HR/Payroll system is being properly planned and managed. All required testing is being performed and properly documented and necessary sign-offs and approvals will be obtained prior to implementation.

Payroll Changes:

The implementation of SAP is being phased in over the period August 1999 to February 2000. The former Metro payroll system which now processes payroll for both former Metro and Scarborough employees is scheduled for conversion to SAP in November 1999. This implementation date is beyond the Y2K office's requirement of September 1999. Therefore, this system, CYBORG, is also being remediated to ensure it is year 2000 compliant.

Since both the remediation of CYBORG as well as implementation to SAP are being performed in the latter part of 1999, any programming changes to the system have been frozen. Although the manual tracking of both terminated employees on salary continuance is not our preferred way of monitoring, it is only an interim measure. Controls, although manual, have been put in place to ensure employees are not paid incorrectly.

Conclusion:

The rationalization of the payroll systems has enabled us to continue to maintain financial control in the remaining four systems. The SAP implementation and Y2K requirements have caused us to minimize any programming changes to the existing legacy systems. As SAP is implemented, proper automated controls are also being implemented.

Contact Name:

Ivana Zanardo

Director, Pension, Payroll & Employee Benefits

397-4143

Request for Commitment of City Auditor

(City Council on July 27, 28, 29 and 30, 1999, adopted this Clause, without amendment.)

The Audit Committee recommends that Recommendation No. 14 contained in the communication (July 7, 1999) from the Chairman, Toronto Police Services Board respecting the involvement of the City Auditor in the Towing Tendering process, be approved.

The Audit Committee reports, for the information of Council, having received Recommendation No. 13 of the communication (July 7, 1999) from the Chairman, Toronto Police Services Board.

The Audit Committee submits the following communication (July 7, 1999) from the Chairman, Toronto Police Services Board:

Background:

The Policy & Budget Sub-Committee of the Toronto Police Services Board met on Monday July 5, 1999. The meeting was attended by Chairman Norman Gardner, Vice-Chair Judy Sgro and Board Members - Olivia Chow, Jeff Lyons, Sandy Adelson, Sylvia Hudson.

In regard to the matter of Towing Contracts Tendering for the Toronto Police Service the Sub-Committee made the following recommendations:

Recommendation # 13 - That City Legal and the City Auditor sign-off on the Towing Tendering process.

Recommendation # 14 - That a written request be made to the City Audit Committee for the City Auditor's involvement in the Towing Tendering process.

The Toronto Police Services Board members voted to accept these recommendations.

The Minutes of this Sub-Committee will be taken to the July 22, 1999 Board Public meeting to be ratified.

Due to the timing issues involved I ask that this request be taken to the next meeting of the Audit Committee - City of Toronto for consideration.

Other Items Considered by the Committee

(City Council on July 27, 28, 29 and 30 , 1999, received this Clause, for information.)

(a) Staff Car Allowance.

The Audit Committee reports having received the following report (June 22, 1999) from the City Auditor and forwarded same to the Administration Committee:

(June 22, 1999) from the City Auditor respecting Staff Car Allowance, and recommending that this report be received for information and forwarded to the Administration Committee.

(b) Works Best Practices.

The Audit Committee reports having recommended to the Works Committee that:

(1) the report (July 12, 1999) from the City Auditor be amended by deleting the words, "and report directly to Works staff" and inserting in lieu thereof the words, "be accountable to the City Auditor and report concurrently on any issues to both the City Auditor and Works staff" in Recommendation No. (4), and that the report, as amended be adopted;

(2) the City Auditor perform an analysis of the consultant services for the Works Best Practices Program to date, including value for money of Phase 1 of the program; and

(3) the City Auditor not be precluded from commenting on Phase 1 of the Works Best Practices Program while following through with any of the recommendations outlined in the report.

(i) (July 12, 1999) from the City Auditor respecting Works Best Practices, and recommending that:

(1) the Commissioner, Works and Emergency Services, establish for each consultant contract award, a performance management process, incorporating appropriate parameters and relevant, measurable and objective benchmarks; and that any future consulting contract awards recommended to the Works Committee and Council include a description of the consultant performance management criteria and process to be used;

(2) prior to or in conjunction with awarding any future consulting contracts, the Commissioner, Works and Emergency Services report to the Works Committee on the total cost of consulting services required for this project, including those consulting services required in the implementation of process control systems and other facilities;

(3) prior to or in conjunction with awarding any future consulting contracts, the Commissioner, Works and Emergency Services clarify how the consulting services to be provided in Phase 2 of the Works Best Practices program differ from those rendered during the planning and design stage (Phase 1) as well as from those consulting services to be procured for the construction and implementation component;

(4) any quality assurance activities deemed necessary in Phase 2 of the Works Best Practices program be performed either by Works staff or, if a consulting firm is used, that the firm be independent of the consulting consortium and report directly to Works staff;

(5) in view of the magnitude of the Works Best Practices program, the City Auditor work with Works staff during the implementation phase of the program to ensure that appropriate performance management criteria are established, and report independently to Council on any concerns or issues, including areas relating to value for money.

(6) this report be forwarded to the Works Committee for consideration

(ii) (July 19, 1999) from Toronto Civic Employees' Union, Local 416

Ms. Gina Gignac, National Representative, Toronto Civic Employees' Union appeared before the Toronto Community Council in connection with the foregoing matter.

(c) Update on the Audit of the Handling of Sexual Assault and Family Violence Cases by the Toronto Police Service.

The Audit Committee reports having received the following matter and having forwarded same to the Audit Reference Group and the Toronto Police Services Board for information:

(i) (April 13, 1999) from the City Auditor respecting Update on the Audit of the Handling of Sexual Assault and Family Violence Cases by the Toronto Police Service, and recommending that:

(1) this report be received for information by the Audit Committee; and

(2) this report be forwarded to the Audit Reference and the Toronto Police Services Board for their information;

(ii) (June 1, 1999) from the City Clerk, Audit Committee, addressed to the City Clerk, forwarding the Committee's actions of May 25, 1999; and

(iii) (July 8, 1999) from the City Clerk respecting Authority for Payment of Honorarium and recommending that this report be received for information.

(d) Request for Commitment of City Auditor.

The Audit Committee reports having approved the following request to the City Auditor from the Administration Committee and having directed him to submit his report to the Audit Committee:

(1) that the City Auditor review the business case and the financial and technical evaluation of the proposals, including a rent-to-buy option, where included as part of the proposals; and

(2) that the City Auditor review and evaluate the systems used in Vancouver, Ottawa, Chicago, Cook County, Philadelphia and Seattle, based on information in the City Clerk's Department.

(e) In Camera Matter.

The Committee reports having adjourned its public session and meeting in Camera to consider a matter the subject of which deals with the security of the property of the municipality or local board.

The matter remained in Camera.

Respectfully submitted,

DOUG MAHOOD

Chair

Toronto, July 19, 1999

(Report No. 5 of The Audit Committee was adopted, as amended, by City Council on July 27, 28, 29 and 30, 1999.)