TABLE OF CONTENTS

REPORTS OF THE STANDING COMMITTEES

AND OTHER COMMITTEES

As Considered by

The Council of the City of Toronto

on November 25, 26 and 27, 1998

AUDIT COMMITTEE

REPORT No. 1

1 Audit Workplan

2 Other Items Considered by the Committee

City of Toronto

REPORT No. 1

OF THE AUDIT COMMITTEE

(from its meeting on November 3, 1998,

submitted by Councillor Doug Mahood, Chair)

As Considered by

The Council of the City of Toronto

on November 25, 26 and 27, 1998

1

Audit Workplan

(City Council on November 25, 26 and 27, 1998, adopted this Clause, without amendment.)

The Audit Committee recommends the adoption of the following report (October 13, 1998) from the City Auditor:

The Audit Committee reports, for the information of Council, having requested that the Audit\Accounting Fee Schedules relating to the BIAs and Community Centres be submitted to the Audit Committee for review and recommendation to Council.

The Audit Committee submits the following report (October 13, 1998) from the City Auditor:

Recommendations:

(1)That the audit workplan set out below be approved; and

(2)That the City Auditor report back to the Audit Committee with his workplan for the balance of 1999 at the first meeting of the Committee in 1999.

Background:

At it's meeting of September 11, 1998, the Audit Committee requested the City Auditor to report on, "a prioritized workplan of audits currently requested by members of Council and civic officials and audits that are recommended".

Comments:

The projects listed below are either in progress or planned during the period from September30,1998 to April 30, 1999. A brief description of each project is included in Appendix A.

Various factors were considered in the identification and prioritization of specific audit projects. In terms of the identification of audit projects a detailed analysis of the City's 1998 budget document as well as the 1997 financial statements of each of the amalgamated municipalities was conducted in order to ensure that all significant revenue, expenditure and balance sheet items were listed as potential audit projects. Senior audit staff have met on a number of occasions to review and discuss potential audit projects. In addition data bases containing information relating to audit projects conducted in both Canadian and U.S. cities were also reviewed in order to ensure that the "audit universe" was as complete as possible. This process resulted in the preliminary identification of some 350 audit projects.

Subsequent to the identification of the projects, a risk ranking exercise was conducted in order to prioritize the 350 projects. Various factors were considered during this evaluation process and included the following:

(a)Total Expenditure

(b)Total Revenues

(c)Value of Assets

(d)Extent of Liabilities

(e)Complexity of Operations

(f)Management and Internal Controls

(g)Legislative Requirements

(h)Previous Audit History

(I)Extent and Complexity of Computerization

(j)Changes to Operations and Organizational Structure

(k)Political Sensitivity

(l)Public Sensitivity

The use of the above factors to prioritize audit projects was validated with other internal audit organizations, both public and private.

Certain projects ranked as high priority were eliminated from the preliminary listing of projects due to the fact that they are being addressed elsewhere in the Corporation. Those projects include a fleet management review, various site location studies (e.g. fire department), property inventories, property lease inventories, etc.

Included in the listing of the audit projects identified by the Department are additional projects relating to requests made by City Council or the Audit Committee. In addition, the City Auditor is committed to providing audit assistance to the Corporation's external auditor in connection with their audit of the 1998 financial statements.

The Departments proposed workplan from September 30, 1998 to April 30, 1999 is as follows:

Ref Project Initiated By

1.Procedures Relating to Sexual Assault Investigations Council

2.Chemical Pricing Council

3.Metropolis Review (Toronto Police Information System)Council

4.Parking Authority Review Council

5.Collision Reporting Centres Review Council

6.Follow-up of Sheppard Subway Budget Review Audit Committee

7.Review of Police Towing Contract Police Services Board

8.Payroll Processing Controls Audit Department

9.Investments Review Audit Department

10.Cash Management Review Audit Department

11.Property Tax Review Audit Department

12.Parking Tags Revenue/Administration Audit Department

13.Parking Enforcement Review Audit Department

14.Compliance with Expenditure Policies Audit Department

15.Financial Information System (FIS)Audit Department

16.Year 2000 Review (Y2K)Audit Department

17.Consolidation of Financial Information Audit Department

18.Client Identification and Benefits System (CIBS)Audit Department/

Social Services Division

19.Review of Quality Assurance Function - Community Svcs. Audit Department

20.Bylaw Enforcement Audit Department

21.Contract Compliance Audit Department

22.Vehicle Safety Compliance Audit Department

23.Children Services Project Children's Services Division

24.External Audit Assistance Statutory Audit*

25.Business Improvement Areas (BIA) Operational ReviewAudit Department

(approved by Audit Committee)

26.Financial Audits Relating to BIA's (37)**Statutory Audit*

27.Financial Audits Relating to

Community Centres/Arenas (17)**Statutory Audit*

28.Homes for the Aged Subsidies Statutory Audit*

29.Compliance Audit - Election ExpensesCouncil

* The Request for Proposal for the City's external audit considered that these audits would be performed by staff of the City Auditor's office.

**Figures in brackets represent the number of individual audits within the listed audit project.

Appendix B presents the above workplan in chart format.

Conclusion:

It is suggested that the City Auditor report back to the Audit Committee at its first meeting of 1999 with his workplan for the balance of 1999. Ultimately, it is proposed that the City Auditor operate on the basis of a three year workplan which would be reviewed and updated annually. In view of the significant and ongoing changes taking place at the new City it is suggested that the compilation of a three year workplan may be premature.

The audit projects planned and currently underway represent a mix of departmental request, political requests, and projects identified as high risk through the risk ranking process conducted by the City Auditor. The completion of these projects by April 30, 1999 is contingent upon minimal additional, higher priority requests for audits.

Contact Name and Telephone No.:

Jerry Shaubel, Director of Audit 392-8462

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Appendix A

Details for Project List Submitted

to November 3, 1998 Audit Committee Meeting

Ref Project

1.Procedures Relating to Sexual Assault Investigations:

The audit was requested by Council and came about as a result of the ruling by Madam Justice Jean MacFarland of the Ontario Court relating to the Jane Doe balcony rapist case. The audit entails the review of the Toronto Police Services handling of sexual assault and domestic violence cases.

2.Chemical Pricing:

City Council at its meeting of July 8, 9 and 10, 1998 adopted a report from the Works and Utilities Committee wherein the Committee, in considering a report regarding the purchase of Liquid Chlorine, requested the City Auditor to submit a report to the appropriate committee on the issue of chemical pricing.

This review is in progress and is intended to determine whether procedures and the selection process for the procurement of chemicals in the City of Toronto are effective in ensuring fair market competition and economy. The review will also assess whether procurement decisions are made in compliance with Council and departmental policies and procedures.

3.Metropolis Review (Toronto Police Information System):

During the 1998 budget process several questions were raised as to the value of technology expenditures being made in the City in general and the Police specifically. The Metropolis project has consumed a significant amount of resources. In view of this Council recommended that the Police request the City Auditor to perform a value for money audit of the expenditures incurred on the Metropolis project. The audit will attempt to determine whether amounts were spent as planned, whether anticipated results were realized, and whether the expenditures represented good value for money for the City.

4.Parking Authority Review:

Council approved the transfer of responsibly for off-street municipal parking operations and on-street metered parking operations within the former municipalities to the Toronto Parking Authority.

The approval also included a request that, "... the City Auditor conduct a review of the operations of both the present City meter collection system and the Toronto Parking Authority, and submit recommendations thereon to Council through the Corporate Services Committee". In discussions with the Councillor who moved the amendment requesting an audit, it was determined that the primary focus of the audit was to obtain information sufficient to allow appropriate comparisons of operating results between the former cities and the newly amalgamated Toronto Parking Authority. Any operational recommendations arising from this information gathering exercise would be reported as requested.

5.Collision Reporting Centres Review:

Council requested the City Auditor to report on the collision reporting centres' operations and their profit margins. This report is in the final stages of completion.

6.Follow-up of Sheppard Subway Budget Review:

Council requested the City Auditor to report on the projected over-expenditures relating to the Sheppard Subway project. In reviewing the Auditor's Report, the Audit Committee requested a follow-up review be conducted on a number of issues relating to the project.

7.Review of Police Towing Contract:

At the request of the Police Services Board the City Auditor was asked to review contract compliance in relation to the award of the Police Towing Contract. Two in-camera reports were issued to the Board. A report for the public session of the Board is currently in process.

8.Payroll Processing Controls:

This review will assess the effectiveness of procedures and controls with respect to the processing of payroll in the City. The fact that payroll is still being processed on several different accounting systems combined with restructuring and downsizing that is occurring across the organization increases the risk of errors and other irregularities. In addition to evaluating overall controls, the review will ensure, on a sample basis, that staff who have exited the Corporation are no longer on the payroll, that staff whose position has changed are being paid the correct rate and that staff are being charged to the correct department or division. Separation payments made will also be reviewed to ensure they are accurate and in accordance with the Corporate policies.

9.Investments Review:

The significant size of the City of Toronto's investment portfolio requires a full review now that the City has several months experience with the combined portfolio of the former Cities. Our review will include an examination of the role and mandate of the function, the appropriateness of policies and procedures relative to legislative requirements including development of appropriate policy manuals, the incorporation of performance benchmarks, the implementation of adequate internal control and segregation of duties and appropriate management and independent controls.

10.Cash Management Review:

This audit will focus on an assessment of the current policies and procedures and practices that exist within the organization to provide effective cash management. Cash management encompasses several components including cash balances, receipts, disbursements and banking relationships. The audit will review the impact of amalgamation and its effect on cash management in the former cities and include testing of identified higher risk areas using audit sampling and compliance testing of the appropriate internal control structure, segregation of duties and timely processing of cash receipts.

11.Property Tax Review:

Revenue from property taxes is the City's major source of income. The implementation of an actual value assessment base along with the restructuring of the new City of Toronto has resulted in significant changes in systems, procedures and controls in the Property Tax functions. Audit resources will be used to verify the accuracy of the assessment base as received from the Province, review the property tax collection operations, the magnitude of assessment deficiencies and controls over them and the value of, and controls over tax collection write-offs.

12.Parking Tags Revenue/Administration:

This review will focus on the Parking Tag Operations Unit, Finance Department, which is responsible for the processing of parking tags including payments, court scheduling and customer service at three First Appearance Facilities.

The review will assess the validity of recorded receivables and whether the collection rate and per tag value, used in conjunction with annual tag issuance as the basis for revenue projections, are reasonable. The review will also evaluate the adequacy of procedures with respect to payments, determine the reasonableness of guidelines and controls regarding tag withdrawals, and ensure reconciliations are completed on a timely basis. In addition, we will follow up on recommendations made in previous audits and report on the status of their implementation.

13.Parking Enforcement Review:

This review will assess the operations of the Parking Enforcement Operation of City Police Services. The review will examine the mandate of this unit and determine how effective this mandate is being carried out. The reasonableness of performance indicators being used (if any) will be assessed and compared if possible to other comparable jurisdictions. The adequacy of policies, procedures and systems will be evaluated, and any applicable budgetary and organizational issues addressed.

14.Compliance with Expenditure Policies:

The overall objective of this review is to ensure that expenditures incurred are in compliance with the respective Corporate Expense Claim policy. The review will also assess the effectiveness of procedures and management reports in monitoring expenditures against budget.

15.Financial Information System (FIS):

City Council has approved the purchase of SAP, a new financial information system. The Audit department has requested to be included on the design/implementation team both to gain knowledge of the system and to ensure that adequate controls are designed into the system. In addition, Audit would review testing procedures and results prior to implementation and would subsequently review the adequacy of the conversion to the new system.

16.Year 2000 Review (Y2K):

The Year 2000 problem may be the most significant business issue facing the City at this time. A Y2K Program Office has been established to co-ordinate activity to remedy the problem. In addition to our consulting role as a member of the Y2K project teams; we will monitor the project against pre-defined criteria designed to measure the progress and success of the project.

17.Consolidation of Financial Information:

As a result of the amalgamation of the seven former municipalities, a consolidation of financial information is required as of January 1, 1998. Audit will perform a traditional financial audit function to ensure that this consolidation was accurately performed and that all balances as at December 31, 1997 at each of the individual municipalities were carried forward correctly to the new City.

18.Client Identification and Benefits System (CIBS):

CIBS is an automated system which offers enhanced access to benefits for general welfare assistance clients. The system also improves client identification through the use of biometrics. The Audit department is a member of the CIBS Security team which is tasked with ensuring the assets of the City and the information assets acquired and/or maintained in the CIBS environment are properly and adequately safeguarded.

19.Review of Quality Assurance Function - Community Services:

The Social Services Division of Community Services includes a Quality Review and Improvement Unit. The responsibilities of this Unit include conducting audits to ensure the effective administration of client accounts, compliance with policies and procedures and the identification and investigation of client or caseworker fraud. Recent audits by the City Auditor's office of the Social Services Division suggest that the operations of the Unit could be improved. Given the dollar value of expenditures passing through the Social Services Division, and the many changes accompanying the provincial downloading of social programs, an efficient and effective Quality Review and Improvement Unit is important to the operations of the Division. The Audit Department will review current policies, procedures, work load, audit approach, training programs and make recommendations where appropriate.

20.Bylaw Enforcement:

The amalgamation of these functions requires review to ensure the combination of staff and office locations has or is being accomplished with harmonization of appropriate policies and procedures, efficient deployment of inspectors and by-law officers, full adherence to legislative requirements with due regard to management and internal controls, and with consideration to program performance metrics for evaluation of efficiency and effectiveness.

21.Contract Compliance:

A sample of corporate contracts will be selected to ensure compliance with Corporate policies and terms and conditions of the contract.

22.Vehicle Safety Compliance:

The objective of this review is to ensure that applicable staff are aware of the requirements under the Highway Traffic Act with respect to commercial vehicles, and that procedures are in place in all City departments and local boards to ensure compliance with legislation. This review will focus on the City's commercial vehicle fleet and will evaluate procedures with respect to registration of vehicles, maintenance, inspection, training, transportation of dangerous goods and other related issues and requirements. Compliance with applicable legislation and effective training, maintenance and inspection procedures are important in ensuring the safety of our drivers and the public at large.

23.Children Services Project:

As a result of provincial downloading of responsibilities, over 300 new programs will have contractual and financial agreements with the City of Toronto. The Audit Department will assist in establishing controls over these programs by undertaking to describe the financial and cost elements of each downloaded service, outline agency requirements and accountability processes and develop criteria for funding allocation. Financial accountability and fee assessment practices differ in many of the programs and will need to be harmonized to ensure public funds are expended in a manner consistent with approved program guidelines.

24.External Audit Assistance:

The request for proposal for the external audit of the City proposed that the City Auditor would provide 1,000 staff hours in assistance to the successful proponent. The details of the assistance to be provided will be agreed upon between the external auditor and the City Auditor.

25.Business Improvement Areas (BIA) Operational Review:

The amalgamated City includes the operations of some 37 BIA's. Most of these organizations are managed by volunteers with varying degrees of experience. Accordingly, the management practices, policies and procedures and financial administration of many of these organizations are inconsistent and/or below acceptable good business practices.

This audit will examine the operations of these BIA's and make appropriate recommendations with respect to their managerial and financial practices including their reporting relationship and responsibilities with the City. It will also review the appropriateness of expenditures under existing operating guidelines for BIA Boards of Management, by laws under Chapter 20 of the Municipal Act and provincial enabling legislation.

26.Financial Audits Relating to BIA's (37):

The request for proposal for the external financial audit of the City proposed that the City Auditor would perform the detailed audit work required for the audit of the numerous Business Improvement Areas operating within the City.

27.Financial Audits Relating to Community Centres/Arenas (17):

The request for proposal for the external audit of the City proposed that the City Auditor would perform the detailed audit work required for the audit of the many Community Centres and Arenas operating within the City.

28.Homes for the Aged Subsidies:

This project relates to the 1997 subsidies for the former Metropolitan Toronto's Homes for the Aged Division. A separate audit opinion on the Provincial subsidy claim is required for each home. The audit could not be completed earlier as the Province was changing the required reporting format. The format has not yet been finalized and therefore the Homes for the Aged Division has been unable to prepare final subsidy claims. Once the required reporting format is received from the Province, the Division will complete appropriate financial statements and the audit will be performed.

29.Compliance Audit - Election Expenses:

Council requested the City Auditor to perform a compliance audit relative to the election expenses of a candidate for the last Municipal election. This audit has been completed and forwarded to Council. In connection with the results of this Audit, City Council "directed the City Auditor to lay the information to begin legal proceedings."

The Audit Committee also submits the following communication (November 2, 1998) from Ms. Anne Dubas, President, CUPE Local 79:

This report outlines the Workplan for the new Audit Department. The City Auditor has prioritized twenty-nine audit projects over a seven month period.

In examining these projects, it would appear that this is an unrealistic amount of work to be completed by eighteen employees.

Historically, the auditing of the Community Centres and Business Improvement Areas has been detailed and time-consuming. Due to their limited resources, a great deal of reliance was placed upon City Audit staff to assist in the completion of their records. Yet, only 880 hours of staff time is being allocated to this important area.

Each Community Centre is only allotted twenty hours. This potential underestimation of audit time is a significant risk to the City. For each of the thirty seven BIA's, 11.35 hours have been allocated. This rushed timetable must include travel time, preparation and examination of the books, organization of working papers, supervisor's review and Auditor's signature.

Compliance with expenditure policies supposedly has been completed and took seventy hours. We certainly hope that ten hours spent on each municipality was sufficient to investigate the adequacy of controls throughout the seven former municipalities and ensure that they comply.

We urge the Audit Committee members to examine the Workplan with great care. Comparisons should be made between the projected and actual hours for completed functions such as Projects 7, 10 and 14. This will provide a basis for the accuracy of other projections in the Workplan.

The new City is large and complicated. During this period of change, Councillors must ensure that the Audit Department has the capacity to carry out its Workplan as required.

2

Other Items Considered by the Committee

(City Council on November 25, 26 and 27, 1998, received this Clause, for information.)

(a)Report on the Review of the Data Conversion, York Employees' Pension and Benefit Fund

The Committee reports having:

(1)received the following report for information; and

(2)requested the City Auditor to submit a progress report on the status of the Management Response to the City Auditor's Review within six months:

(October 26, 1998) from the City Auditor recommending that the report entitled, "York Employees' Pension and Benefit Fund, Review of Data Conversion", dated August 10, 1998, be received for information.

(b)Metropolitan Toronto Zoo - Management Letter

The Committee reports having received the following for information:

(i)(October 20, 1998) from the City Auditor recommending that the 1997 management letter and the corresponding response relating to the audits of the accounts of the Metropolitan Toronto Zoo be received for information; and

(ii)(October 22, 1998) from the Secretary, Toronto Zoo advising that the Management Committee on September 18, 1998, had before it the City Auditor's report on the audit of the Board of Management of the Metropolitan Toronto Zoo for the year ended December 31, 1997, together with the Management's response to the Auditor's recommendations, and noting that the Management Committee received the report; and advising that the Board of the Toronto Zoo received the aforementioned report.

(c)Follow-Up - 1997 Management Letter of The Board of Governors of Exhibition Place

The Committee reports having received the following for information:

(i)(October 27, 1998) from the City Auditor respecting Follow-Up - 1997 Management Letter of the Board of Governors of Exhibition Place, and recommending that the follow-up of the 1997 Management Letter and corresponding response from Exhibition Place be received for information; and

(ii)(October 26, 1998) from Ms. Diane Young, Interim General Manager, Exhibition Place, forwarding the response to the City Auditor's follow-up report and recommending to the Board of Governors of Exhibition Place that the foregoing report be received for information.

Respectfully submitted,

DOUG MAHOOD,

Chair

Toronto, November 3, 1998

(Report No. 1 of The Audit Committee was adopted, without amendment, by City Council on November 25, 26 and 27, 1998.)