Office of the Auditor General 2012 ANNUAL REPORT

Office of the Auditor General

November 28, 2013

Mayor and Members of Council:

I am pleased to present the 2012 Annual Report of the Auditor General of the City of Ottawa. The by-law governing the office requires that the Auditor General present a report at least once per year.

The 2012 Audit Plan consisted of an Environmental Risk Assessment as well as five new audits in addition to conducting a follow-up of 14 previously completed audits; 1 from 2009 and 13 from 2010. The results of each of these are presented in this report as well as an overall summary and assessment of progress made to date against audit recommendations. The eighth annual report on the Fraud and Waste Hotline is also presented here.

Respectfully,

Alain Lalonde, FCGA, CIA Auditor General

Staff of the Office of the Auditor General 2012 Suzanne Bertrand Ray Kostuch Alain Lalonde Dan Presse Louise Proulx Lise Renaud Laura Roe

Office of the Auditor General 2012 Annual Report

Table of Contents

1 OVERVIEW OF ACTIVITIES IN 2012 ...... 1 1.1 Fraud and Waste Hotline ...... 1 1.2 Tabling Protocol ...... 2 1.3 2012 Budget ...... 2 2 PROGRESS TOWARD IMPROVEMENT ...... 2 3 SUMMARY AND ASSESSMENT OF OVERALL PROGRESS MADE TO-DATE ON 2009 AND 2010 AUDIT RECOMMENDATIONS ...... 2 4 EXECUTIVE SUMMARIES – FOLLOW-UP AUDITS ...... 7 4.1 Follow-up to the 2010 Audit of the Use of City Vehicles and Mileage Claims ...... 9 4.2 Follow-up to the 2010 Audit of Selected Grant Recipients - Signed Agreements and Audit Clauses ...... 11 4.3 Follow-up to the 2010 Audit of the Nepean Sailing Club Agreement ...... 13 4.4 Follow-up to the 2010 Audit of the Sugarbush (Action Vanier) Agreements15 4.5 Follow-up to the 2010 Audit of the Revenue Branch...... 17 4.6 Follow-up to the 2010 Audit of a Staffing Process - Children's Services Branch ...... 19 4.7 Follow-up to the 2010 Audit of the City‟s Management of a Loan Agreement ...... 21 4.8 Follow-up to the 2010 Audit of the City's Role Regarding a Canada Day Event ...... 23 4.9 Follow-up to the 2010 Audit of Internet and Email Usage Policies and Procedures ...... 25 4.10 Follow-up to the 2010 Audit of Compressed Work Week Agreements ...... 27 4.11 Follow-up to the 2010 Audit of the Procurement Process for the SmartBus Next Stop Announcement System ...... 29 4.12 Follow-up to the 2009 Audit of the Bridge Maintenance Process...... 31 5 EXECUTIVE SUMMARIES – 2012 AUDITS ...... 33 5.1 Audit of the Treasury Function ...... 35 5.2 Audit of Corporate Credit Cards ...... 47 5.3 Environmental Risk Assessment ...... 59 5.4 Audit of Client Service Centres ...... 61 5.5 Audit of Construction Supervision ...... 75 5.6 Audit of Ontario Works Eligibility Assessment Process ...... 107 6 2012 ANNUAL REPORT ON THE FRAUD AND WASTE HOTLINE ...... 127 6.1 Description of the Hotline ...... 127 6.2 Hotline Statistics ...... 127 6.3 Summary of 2012 Hotline Reports ...... 128 6.4 2012 Issues Arising from the Hotline ...... 129

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7 POTENTIAL SAVINGS ...... 130 8 2013 AUDIT WORK PLAN ...... 130 8.1 Methodology ...... 130 8.2 2013 Audit Work Plan ...... 131 8.3 2014 Audit Work Plan ...... 132 9 AUDITOR GENERAL‟S FINAL REPORT ...... 133 APPENDIX A: RECOMMENDATIONS TO BE RAISED TO THE ATTENTION OF THE AUDIT SUB-COMMITTEE ...... 134 APPENDIX B: POTENTIAL SAVINGS IDENTIFIED IN 2005-2012 AUDITS ...... 135 APPENDIX C: FRAUD AND WASTE HOTLINE REPORTING CATEGORIES ...... 141 APPENDIX D: BY-LAW 2009-323 ...... 142 APPENDIX E ENVIRONMENTAL RISK ASSESSMENT...... 153

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1 OVERVIEW OF ACTIVITIES IN 2012 The 2012 Audit Plan for the City of Ottawa has focussed on conducting both new projects and follow-ups on audit projects completed by the Office of the Auditor General (OAG) in 2009 and 2010. An Environmental Risk Assessment, attached as Appendix E to this report, as well as 14 separate follow-up audits were completed during 2012. It should be emphasized that recommendations arising from audits represent the Auditor General‟s (AG) suggested course of action to resolve the issues identified, however, once these recommendations are approved they become direction from Council to management. As such, progress in implementing these recommendations should be viewed as fulfilling Council‟s direction. In addition to the follow-up audits, five new audits were also completed in 2012. These include: 1. Treasury Function; 2. Corporate Credit Cards; 3. Client Service Centres; 4. Ontario Works Eligibility Assessment Process; and, 5. Construction Supervision.

Based on the advice of the City Clerk and Solicitor, the following audits and follow- ups will only be presented once any related arbitration and/or litigation are concluded: 2011 Audit of the Procurement Process - Source Separated Organics Contract 2011 Audit of the Procurement Process – Springhill Landfill Follow-up to the 2010 Audit of the West End Flooding Event and the Development Review Processes within the Carp River Watershed Follow-up to the 2010 Audit of the MacKenzie Bridge Resurfacing

1.1 Fraud and Waste Hotline The City‟s Fraud and Waste Hotline was launched on November 1, 2005 to provide an anonymous and confidential vehicle for City staff and the public to report suspected fraud or waste. Section 6 of this report contains the eighth annual report on the Hotline. It includes overall statistics on the types and frequencies of reports to the Hotline as well as summaries of reports selected by the Mayor and Chair of the Audit Sub-Committee as directed by Council on April 13, 2011.

Office of the Auditor General 2012 Annual Report Page 1

1.2 Tabling Protocol In February 2013 Council approved the mid-term governance review report. That report resulted in revisions to the tabling protocol for the OAG‟s Annual Report such that any transit-related audit report would be routed through the Transit Commission while all other audit reports would be presented first to the Audit Sub- Committee and then through the Finance and Economic Development Committee to Council. 1.3 2012 Budget Council has decided to change the method in which the OAG budget is determined. Since its inception in 2004, this budget has been set at a fixed percentage of the total operating budget of the City. Beginning in 2012, the annual budget for the Office of the Auditor General is in accordance with the budget strategy for the Term of Council. The by-law governing the OAG can be found in Appendix D. 2 PROGRESS TOWARD IMPROVEMENT The Office of the Auditor General became fully operational in 2005. Since that time a total of 122 separate audits, representing over 1,700 recommendations, have been completed (including those presented here). The majority of these audits have also now been followed up and it is clear from the results of these follow-ups that management has done a great deal to address issue raised by the audits and improve management practices in these areas. Of particular note are the improvements in financial controls over this time, progress in streamlining the development approvals process, advances in the Food Safety Program and enhancements in waste water management. Management is to be commended for these efforts. 3 SUMMARY AND ASSESSMENT OF OVERALL PROGRESS MADE TO-DATE ON 2009 AND 2010 AUDIT RECOMMENDATIONS Audits are designed to improve management practices, enhance operational efficiency, identify possible economies and address a number of specific issues. The follow-up audits completed in 2012 included: 1. Audit of the Use of City Vehicles and Mileage Claims 2. Audit of Selected Grant Recipients - Signed Agreements and Audit Clauses 3. Audit of the Nepean Sailing Club Agreement 4. Audit of the Sugarbush (Action Vanier) Agreements 5. Audit of the Revenue Branch

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6. Audit of a Staffing Process - Children's Services Branch 7. Audit of the City‟s Management of a Loan Agreement 8. Audit of the City's Role Regarding a Canada Day Event 9. Audit of Internet and Email Usage Policies and Procedures 10. Audit of Compressed Work Week Agreements 11. Audit of the Procurement Process for the SmartBus Next Stop Announcement System 12. Audit of the Ottawa Municipal Campground 13. Audit of Bridge Maintenance Process 14. Audit of the Pine View Municipal Golf Course Although not included in the 2010 Annual Report of the Auditor General, the audits of Pine View Municipal Golf Course and the Ottawa Municipal Campground were conducted during 2010 and provided to their respective boards. During 2012, we completed the follow-up of recommendations addressed to both City management and the Pine View Board of Management and provided our assessment directly to the Board of Management and to the City Manager‟s Office. On June 4, 2012, the Chair of the Ottawa Municipal Campground advised the Auditor General that the Authority would follow-up the audit recommendations addressed to the municipal campground themselves. Therefore only the five recommendations to City management were followed-up and our assessment reported to the City Manager‟s Office. The results of these are reported in aggregate as part of the table below summarizing our assessment of the level of completion of each recommendation for follow-ups completed in 2012.

Office of the Auditor General 2012 Annual Report Page 3

Percent Number of % of Total Cumulative % of Total Action complete Recommendations Recommendations

Little to no 0 – 24 2 1% action < 50% complete: 4% of total Action 25 – 49 4 3% recommendations initiated }

Partially 50 – 74 12 8% 8% complete

Substantially 75 – 99 33 23% complete 75 -100% complete: 88% of total recommendations Complete 100 95 65% }

Total (for follow-ups completed 146 100% 100% to-date)

As was the case in 2011, this report is not intended to provide an assessment of each individual recommendation. Rather, it presents our overall evaluation of progress made to-date across all completed audits. Should Council wish to have a more detailed discussion of specific follow-ups, OAG staff are available to do so. In the years since the creation of the OAG in 2004, we have seen management practices gradually evolving to better reflect the size and complexity of the City of Ottawa. Our follow-up audits since 2005 indicate that operational improvements have occurred in a number of areas. As mentioned in the previous Annual Reports, success depends ultimately upon Council and Management working in synergy to alter the organization‟s culture and practices. We note that there is a clear commitment on the part of both Council and Senior Management to fulfill their role as change agents and move the City toward greater efficiency and effectiveness. The follow-up audits presented here demonstrate solid improvement with regard to this objective. We have categorized each of the follow-up audits based upon the following criteria: Solid Progress = 50% or more of the recommendations evaluated at 75-100% complete. Little or No Progress = 50% or more of the recommendations evaluated at 0-49% complete. Gradual Progress = All others.

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A. Solid Progress 1. Audit of the Use of City Vehicles and Mileage Claims 2. Audit of Selected Grant Recipients - Signed Agreements and Audit Clauses 3. Audit of the Nepean Sailing Club Agreement 4. Audit of the Sugarbush (Action Vanier) Agreements 5. Audit of the Revenue Branch 6. Audit of a Staffing Process - Children's Services Branch 7. Audit of the City‟s Management of a Loan Agreement 8. Audit of the City's Role Regarding a Canada Day Event 9. Audit of Internet and Email Usage Policies and Procedures 10. Audit of Compressed Work Week Agreements 11. Audit of the Procurement Process for the SmartBus Next Stop Announcement System 12. Audit of the Ottawa Municipal Campground 13. Audit of Bridge Maintenance Process 14. Audit of the Pine View Municipal Golf Course B. Little or No Progress No audits C. Gradual Progress No audits

With these follow-up audits now complete, no further work to review the implementation of these recommendations is intended by the OAG. However, as a result of the annual work plan and/or Council requests, new audits in any of these areas may occur in the future. The 2013 Annual Report will include the follow-up of audits, namely: 1. Audit of the OC Transpo Scheduling Process for Bus Operators 2. Audit of OC Transpo Communication of Cancelled Bus Trips 3. Audit of the Management of Vacant Positions

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4. Audit of the Corporate Communications Function 5. Audit of Procurement Practices – General 6. Audit of Procurement Practices – Hedging Activities 7. Audit of Performance Measurement 8. Audits of Occupational Health and Safety 9. Audit of the Human Resources Master Plan 10. Audit of Budgeting for Growth Funding

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4 EXECUTIVE SUMMARIES – FOLLOW-UP AUDITS This section contains the executive summaries for 12 of the 14 follow-up audits completed in 2012. Although not included in the 2010 Annual Report of the Auditor General, the audits of Pine View Municipal Golf Course and the Ottawa Municipal Campground were conducted during 2010 and provided to their respective boards. During 2012, we completed the follow-up of recommendations addressed to both City management and the Pine View Board of Management and provided our assessment directly to the Board of Management and to the City Manager‟s Office. On June 4, 2012, the Chair of the Ottawa Municipal Campground advised the Auditor General that the Authority would follow-up the audit recommendations addressed to the municipal campground themselves. Therefore only the five recommendations to City management were followed-up and our assessment reported to the City Manager‟s Office. As such, these two follow-ups are not included herein.

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4.1 Follow-up to the 2010 Audit of the Use of City Vehicles and Mileage Claims EXECUTIVE SUMMARY

Introduction The Follow-up to the 2010 Audit of City Vehicles and Mileage Claims was included in the Auditor General‟s Audit Plan. The key findings of the original 2010 audit included: $106,000 in potential budget savings if the City implemented better controls over the use of City vehicles and mileage claims. The City needs comprehensive policies and procedures in place to govern the use of City vehicles, mileage allowances and parking passes to realize these savings; Other improvements recommended in the audit include: Develop a complete management framework governing the use of City vehicles, mileage allowances and parking passes; Implement review and monitoring practices to ensure the most appropriate and cost effective provision of compensation for vehicles used for business purposes; Improve tracking and documentation; and, Areas of excess expenditures include payment of parking passes that are not used frequently enough to justify the cost, and vehicle allowances paid to employees who are not required to use a vehicle in their job description. Summary of the Level of Completion 1. The table below outlines our assessment of the level of completion of each recommendation as of May 31, 2013.

NUMBER OF PERCENTAGE OF TOTAL CATEGORY % COMPLETE RECOMMENDATIONS RECOMMENDATIONS RECOMMENDATIONS

LITTLE OR NO ACTION 0 – 24 36 1 2.5%

ACTION INITIATED 25 – 49 - - -

PARTIALLY COMPLETE 50 – 74 4, 14a, 18a, 28 4 10.0%

SUBSTANTIALLY 3, 7, 8, 9,14b, 14d,15,16,18b, 15 37.5% 75 – 99 COMPLETE 25, 27, 29, 31, 33, 34

COMPLETE 100 1, 2, 5, 6, 10, 11, 12, 13, 14c, 17, 20 50.0% 19, 20, 21, 22, 23, 24, 26, 30, 32, 35

TOTAL 40 100.0%

Office of the Auditor General 2012 Annual Report Page 9 Follow-up to the 2010 Audit of City Vehicles and Mileage Claims

2. The table below outlines management‟s assessment of the level of completion of each recommendation as of July 2013 in response to the OAG‟s assessment. These assessments have not been audited.

NUMBER OF PERCENTAGE OF TOTAL CATEGORY % COMPLETE RECOMMENDATIONS RECOMMENDATIONS RECOMMENDATIONS

LITTLE OR NO ACTION 0 – 24 - - -

ACTION INITIATED 25 – 49 36 1 2.5%

PARTIALLY COMPLETE 50 – 74 4, 14a, 18a 3 7.5%

SUBSTANTIALLY 9 22.5% 75 – 99 7, 8, 9, 14b, 18b, 25, 28, 31, 33 COMPLETE

COMPLETE 100 1, 2, 3, 5, 6, 10, 11, 12, 13, 14c, 27 67.5% 14d, 15, 16, 17, 19, 20, 21, 22, 23, 24, 26, 27, 29, 30, 32, 34, 35

TOTAL 40 100.0%

Conclusion Management has been very proactive in addressing the audit recommendations by updating and establishing policies and procedures relating to vehicle use and mileage claims. Over 85% of the recommendations have been fully or substantially completed. Acknowledgement We wish to express our appreciation for the cooperation and assistance afforded the audit team by management.

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4.2 Follow-up to the 2010 Audit of Selected Grant Recipients - Signed Agreements and Audit Clauses EXECUTIVE SUMMARY

Introduction The Follow-up to the 2010 Audit of Selected Grant Recipients - Signed Agreements and Audit Clauses was included in the Auditor General‟s Audit Plan. The key findings of the original 2010 audit included:

The City should standardize its audit clause for all granting agreements to replace the three main versions currently in use. Regardless of the dollar amounts, it is important that the City have the right to undertake an audit of any grant recipient to ensure that the purpose for which funding has been provided has been achieved. A sample of 50 grants from the Community and Cultural funding programs was examined, and the audit found all but one contained a signed agreement between the City and the recipient organization. Summary of the Level of Completion The table below outlines management‟s assessment of the level of completion of the recommendation as of July 3, 2012, as well as our assessment as of March 31, 2013.

NUMBER OF PERCENTAGE OF TOTAL CATEGORY % COMPLETE RECOMMENDATIONS RECOMMENDATIONS RECOMMENDATIONS LITTLE OR NO ACTION 0 – 24 - - - ACTION INITIATED 25 – 49 - - - PARTIALLY 50 – 74 - - - COMPLETE SUBSTANTIALLY 75 – 99 - - - COMPLETE COMPLETE 100 1 1 100%

TOTAL 1 100%

Conclusion Management has standardized the audit clause and is to implement the changes across funding programs and agreements as they are renewed. Acknowledgement We wish to express our appreciation for the cooperation and assistance afforded the audit team by management.

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4.3 Follow-up to the 2010 Audit of the Nepean Sailing Club Agreement EXECUTIVE SUMMARY

Introduction The Follow-up to the 2010 Audit of the Nepean Sailing Club Agreement was included in the Auditor General‟s Audit Plan. The key findings of the original 2010 audit included: An audit of the City of Ottawa‟s lease and loan agreements shows that the Nepean Sailing Club is in compliance with the terms and conditions. The Nepean Sailing Club is considered an arms-length organization and so the audit was limited to examining if the agreements were up to date and in compliance. The loan of $1.45 million dollars is being repaid on an annual basis to the City until June 2023. The length of the leases has now been updated to reflect the end date of the loan agreement. Summary of the Level of Completion The table below outlines our assessment of the level of completion of each recommendation as of December 2012. It also outlines management‟s assessment of the level of completion of each recommendation as of March 2013.

PERCENTAGE OF NUMBER OF TOTAL CATEGORY % COMPLETE RECOMMENDATIONS RECOMMENDATIONS RECOMMENDATIONS LITTLE OR NO ACTION 0 – 24 - - - ACTION INITIATED 25 – 49 - - - PARTIALLY COMPLETE 50 – 74 - - - SUBSTANTIALLY COMPLETE 75 – 99 - - - COMPLETE 100 1, 2, 3 3 100%

TOTAL 3 100%

Conclusion The City has fully addressed the recommendations of the 2010 audit of the Nepean Sailing Club Agreement. Implementation of these is completed. Acknowledgement We wish to express our appreciation for the cooperation and assistance afforded the audit team by management.

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4.4 Follow-up to the 2010 Audit of the Sugarbush (Action Vanier) Agreements EXECUTIVE SUMMARY

Introduction The Follow-up to the 2010 Audit of the Sugarbush (Action Vanier) Agreements was included in the Auditor General‟s Audit Plan. The key findings of the original 2010 audit included: The City has continued to provide annual funding for the Vanier Sugarbush even though the non-profit organization forecast a $22,000 surplus. There are a number of recreation grants which have been considered grandfathered “renewals”, including Action Vanier, that the City needs to review and update to ensure funds are still required and that they continue to meet Council‟s funding priorities. The Action Vanier Inc. (Sugarbush) agreement, originally signed by the former City of Vanier in 1998, was inherited by the City of Ottawa which continues to provide annual funding for the maple syrup festival known as SugarFest. The audit found a number of documents were missing from the Action Vanier files and their funding submission included a much lower forecast surplus. Summary of the Level of Completion 1. The table below outlines our assessment of the level of completion of each recommendation as of January 2013.

PERCENTAGE OF NUMBER OF TOTAL CATEGORY % COMPLETE RECOMMENDATIONS RECOMMENDATIONS RECOMMENDATIONS LITTLE OR NO ACTION 0 – 24 - - - ACTION INITIATED 25 – 49 - - - PARTIALLY COMPLETE 50 – 74 2, 6 2 22% SUBSTANTIALLY COMPLETE 75 – 99 1, 4, 9 3 33% COMPLETE 100 3, 5, 7, 8 4 45%

TOTAL 9 100%

Office of the Auditor General 2012 Annual Report Page 15 Follow-up to the 2010 Audit of the Sugarbush (Action Vanier) Agreements

2. The table below outlines management‟s assessment of the level of completion of each recommendation as of February 2013 in response to the OAG‟s assessment. These assessments have not been audited.

PERCENTAGE OF NUMBER OF TOTAL CATEGORY % COMPLETE RECOMMENDATIONS RECOMMENDATIONS RECOMMENDATIONS LITTLE OR NO ACTION 0 – 24 - - - ACTION INITIATED 25 – 49 - - - PARTIALLY COMPLETE 50 – 74 6 1 12% SUBSTANTIALLY COMPLETE 75 – 99 1, 2, 4, 9 4 44% COMPLETE 100 3, 5, 7, 8 4 44% TOTAL 9 100%

Conclusion Overall, we agree with management as to the level of completion of the audit‟s recommendations. Progress has been made towards implementation of many of the recommendations. Specifically, 78% of these have been substantially or fully implemented. Challenges to the full implementation are twofold: Identifying all outdated land utilization agreements and signing a new agreement with Muséoparc; and, The re-organization of the Department (April 2012), which we were informed delayed the completion of the Community Support and Partnership Framework to Q3 2013 and the review of the Community Funding Framework Policy (CFFP) postponed to Q3 2013. More effort is required to complete implementation of all recommendations from the original audit. Acknowledgement We wish to express our appreciation for the cooperation and assistance afforded the audit team by management.

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4.5 Follow-up to the 2010 Audit of the Revenue Branch EXECUTIVE SUMMARY

Introduction The Follow-up to the 2010 Audit of the Revenue Branch was included in the Auditor General‟s Audit Plan. The key findings of the original 2010 audit included: The City‟s Revenue Branch should continue to implement automation of their processes and look for additional opportunities to realize operating efficiencies and improve service to residents and businesses in Ottawa. Currently, there are many systems including stand-alone spreadsheets used by the Revenue Branch that require additional staff time. There are some systems projects underway, for which Management has identified operational efficiencies. In addition, greater automation could result in offering additional automated services to the public. Overall, the audit found the corporate tax system is effective and efficient with all property tax bills tested being accurate. However, $6.7 million in property tax appeals represent a potential outstanding liability that is not recorded in the financial statements. Summary of the Level of Completion 1. The table below outlines our assessment of the level of completion of each recommendation as of December 2012.

PERCENTAGE OF NUMBER OF TOTAL CATEGORY % COMPLETE RECOMMENDATIONS RECOMMENDATIONS RECOMMENDATIONS LITTLE OR NO ACTION 0 – 24 - - - ACTION INITIATED 25 – 49 1, 3 2 9% PARTIALLY COMPLETE 50 – 74 4, 7, 8 3 14% SUBSTANTIALLY COMPLETE 75 – 99 20 1 5% 2, 5, 6, 9, 10, 11, 12, COMPLETE 100 13, 14, 15, 16, 17, 18, 16 72% 19, 21, 22 TOTAL 22 100%

Office of the Auditor General 2012 Annual Report Page 17 Follow-up to the 2010 Audit of the Revenue Branch

2. The table below outlines management‟s assessment of the level of completion of each recommendation as of January 31, 2013 in response to the OAG‟s assessment. These assessments have not been audited.

PERCENTAGE OF NUMBER OF TOTAL CATEGORY % COMPLETE RECOMMENDATIONS RECOMMENDATIONS RECOMMENDATIONS LITTLE OR NO ACTION 0 – 24 - - - ACTION INITIATED 25 – 49 1, 3 2 9% PARTIALLY COMPLETE 50 – 74 4, 7, 8 3 14% SUBSTANTIALLY COMPLETE 75 – 99 - - - 2, 5, 6, 9, 10, 11, 12, 13, COMPLETE 100 14, 15, 16, 17, 18, 19, 20, 17 77% 21, 22 TOTAL 22 100%

Conclusion Revenue Branch management has made significant progress in implementing the audit recommendations. Acknowledgement We wish to express our appreciation for the cooperation and assistance afforded the audit team by management.

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4.6 Follow-up to the 2010 Audit of a Staffing Process - Children's Services Branch EXECUTIVE SUMMARY

Introduction The Follow-up to the 2010 Audit of a Staffing Process – Children‟s Services Branch was included in the Auditor General‟s Audit Plan. The key findings of the original 2010 audit included: Greater transparency, fairness and impartiality in the hiring process should be encouraged. While only one case of employing someone to a temporary and eventual full-time position was examined, the audit demonstrates that posting such opportunities will attract the very best candidates. The case involves hiring an external person to a temporary position in the Children‟s Services Branch without considering potential candidates already on staff. Seven months later, when a competition was held for the full-time position, the same person was the only candidate considered qualified based on having filled the temporary position. Summary of the Level of Completion The table below outlines our assessment of the level of completion of the recommendation as of December 2012. It also outlines management‟s assessment of the level of completion of each recommendation as of February 2013.

TOTAL 1 100%

Conclusion The City addressed the recommendation of the audit and has completed its implementation. Acknowledgement We wish to express our appreciation for the cooperation and assistance afforded the audit team by management.

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4.7 Follow-up to the 2010 Audit of the City’s Management of a Loan Agreement EXECUTIVE SUMMARY

Introduction The Follow-up to the 2010 Audit of the City‟s Management of a Loan Agreement was included in the Auditor General‟s Audit Plan. The key findings of the original 2010 audit included: The Ottawa Firefighters Community Foundation still owes the City of Ottawa $225,000 even though the loan for a memorial was supposed to be completely paid off by December 2010. The original $550,000 loan was approved by City Council in October 2006 and was scheduled to be fully repaid by the end of 2010. While Council has now extended the repayment period by an additional seven years from the original four years, the City should ensure the repayment schedule is properly monitored and that Council is informed on a regular basis. Summary of the Level of Completion 1. The table below outlines our assessment of the level of completion of each recommendation as of January 31, 2013.

TOTAL 4 100%

Office of the Auditor General 2012 Annual Report Page 21 Follow-up to the 2010 Audit of the City’s Management of a Loan Agreement

2. The table below outlines management‟s assessment of the level of completion of each recommendation as of April 2013 in response to the OAG‟s assessment. These assessments have not been audited.

Conclusion Management has addressed all the recommendations of the original audit, and has fully implemented all but one of them. We found that the Foundation‟s payments are in compliance with the loan repayment terms as revised in March 2011. Acknowledgement We wish to express our appreciation for the cooperation and assistance afforded the audit team by management.

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4.8 Follow-up to the 2010 Audit of the City's Role Regarding a Canada Day Event EXECUTIVE SUMMARY

Introduction The Follow-up to the 2010 Audit of the City‟s Role Regarding a Canada Day Event was included in the Auditor General‟s Audit Plan. The key findings of the original 2010 audit included: The City needs to carry out proper monitoring of park rental contracts with organizers. The City needs to perform its role to monitor compliance with the park rental contract, by-laws and subsequent enforcement with consequences for non- compliance. The audit of the 2009 and 2010 Canada Day events at the park found the following: Unauthorized helicopter rides; Non-compliant electrical hook-ups; Diesel spill (2009) with clean-up costs of $57,000 that the City should recover. Summary of the Level of Completion The table below outlines our assessment of the level of completion of each recommendation as of July 3, 2012. It also outlines management‟s assessment of the level of completion of each recommendation as of February 2013.

PERCENTAGE OF NUMBER OF TOTAL CATEGORY % COMPLETE RECOMMENDATIONS RECOMMENDATIONS RECOMMENDATIONS LITTLE OR NO ACTION 0 – 24 - - - ACTION INITIATED 25 – 49 5 1 10% PARTIALLY COMPLETE 50 – 74 - - - SUBSTANTIALLY COMPLETE 75 – 99 4, 8, 10 3 30% COMPLETE 100 1, 2, 3, 6, 7, 9 6 60%

TOTAL 10 100%

Conclusion The majority of the recommendations made in the original 2010 audit have at least been partially implemented, including six of the ten recommendations, which have been fully implemented.

Office of the Auditor General 2012 Annual Report Page 23 Follow-up to the 2010 Audit of the City’s Role Regarding a Canada Day Event

Two more recommendations will be fully implemented in Q1 2013 if the Special Events By-laws are approved by Committee/Council as planned by management. For recommendation 5, in 2013, after approval of the Special Events By-law, the City will have to develop a supporting policy to define the costs that will be recovered for events and ensure consistency in tracking of in-kind services for special events. Finally, the City still has some work to do in regards to recommendation 10 that concerns streamlining the business process for permits for events, including implementing its purchase of an off-shelf software program that will automate the process for event permits in City parks and to which stakeholders will have access. This said, the OAG still wishes to outline the fact that even with the need to continue improving its business process, the City of Ottawa was named the 2010 Top North American City by the International Festival and Event Association (IFEA) in the population category of 500,000 to 1,000,000. Acknowledgement We wish to express our appreciation for the cooperation and assistance afforded the audit team by management.

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4.9 Follow-up to the 2010 Audit of Internet and Email Usage Policies and Procedures EXECUTIVE SUMMARY

Introduction The Follow-up to the 2010 Audit of Internet and Email Usage Policies and Procedures was included in the Auditor General‟s Audit Plan. The key findings of the original 2010 audit included: Corporate email and Internet policies at the City of Ottawa are in accordance with industry practices but some areas require further attention. The audit recommends that the City review the existing three month retention period for Corporate emails. Currently, email records are retained for only three months and the audit recommends that the retention period be reviewed to ensure it is sufficient for both legal and IT requirements. In addition, there may be no City record of information exchanged by PIN to PIN (personal identification number) handheld devices. Summary of the Level of Completion The table below outlines our assessment of the level of completion of each recommendation as of December 2012. It also outlines management‟s assessment of the level of completion of each recommendation as of January 2013.

TOTAL 3 100%

Conclusion The City addressed the recommendations of the audit and has essentially completed their implementation. Acknowledgement We wish to express our appreciation for the cooperation and assistance afforded the audit team by management.

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4.10 Follow-up to the 2010 Audit of Compressed Work Week Agreements EXECUTIVE SUMMARY

Introduction The Follow-up to the 2010 Audit of Compressed Work Week Agreements was included in the Auditor General‟s Audit Plan. The key findings of the original 2010 audit included: An audit of compressed work week agreements at Social Services Centre South (Employment and Financial Assistance) showed non-compliance with the policy and procedures including missing or expired agreements, missing signatures and cases where cover-off partners were not specified. Alternative work arrangements need to be properly managed if they are to work effectively. The audit found that approximately 25% of staff had compressed work week agreements at the Centre, but they were not fully compliant with the established policy and procedures. In addition, a staffing program used to manage employees‟ work time contained information that did not match the agreements. Summary of the Level of Completion The table below outlines our assessment of the level of completion of each recommendation as of December 2012. It also outlines management‟s assessment of the level of completion of each recommendation as of February 2013.

PERCENTAGE OF NUMBER OF TOTAL CATEGORY % COMPLETE RECOMMENDATIONS RECOMMENDATIONS RECOMMENDATIONS LITTLE OR NO ACTION 0 – 24 - - - ACTION INITIATED 25 – 49 3 1 33% PARTIALLY COMPLETE 50 – 74 - - - SUBSTANTIALLY COMPLETE 75 – 99 1 1 33% COMPLETE 100 2 1 34%

TOTAL 3 100%

Conclusion The Alternate Work Arrangement policy was reviewed and responsibilities for Human Resources, for managers and for employees have been assigned as recommended. Recommendation 2 is fully implemented.

Office of the Auditor General 2012 Annual Report Page 27 Follow-up to the 2010 Audit of Compressed Work Week Agreements

For recommendation 1, the implementation of the file process is a good step toward monitoring. Improvements are however needed to ensure that permitted alternative work agreements are properly managed, including ensuring that alternative work agreements and monitoring tools are complete, accurate and compliant with City policies. As for recommendation 3, the capacity to use SAP for Compressed Work Agreements continues to be developed and management indicates it should become available in early fall 2013. Acknowledgement We wish to express our appreciation for the cooperation and assistance afforded the audit team by management.

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4.11 Follow-up to the 2010 Audit of the Procurement Process for the SmartBus Next Stop Announcement System EXECUTIVE SUMMARY

Introduction The Follow-up to the 2010 Audit of the Procurement Process for the SmartBus Next Stop Announcement System was included in the Auditor General‟s Audit Plan. The key findings of the original 2010 audit included: Management should have informed Council of the increased cost of the SmartBus contract as soon as it became apparent that the initiative no longer had full funding. The initial cost estimate for Next Stop Announcement System of $6.7 million omitted key elements and there was little communication with Council on the procurement in the 24 months prior to the September 16, 2009 Transit Committee meeting. The revised cost estimate of $17 million was to be covered by a budget reallocation by the Branch which Council was not asked to approve. When finally brought to Council, the issue was confusing with no apparent overarching strategy for Council to refer to. It appears management did not fully appreciate Council‟s potential concern with the magnitude of cost and/or scope variance in the project. Summary of the Level of Completion 1. The table below outlines our assessment of the level of completion of each recommendation as of December 2012.

TOTAL 6 100%

Office of the Auditor General 2012 Annual Report Page 29 Follow-up to the 2010 Audit of the Procurement Process for the SmartBus Next Stop Announcement System

Conclusion In the original audit, management disagreed with some of the findings and recommendations, or agreed with a recommendation but believed they had met the requirement during the NSAS procurement process. This related primarily to the issues of on-going communication to Council. However, during our follow-up audit, we found that most of the recommendations have been acted upon either directly or indirectly as noted in the table above. Acknowledgement

We wish to express our appreciation for the cooperation and assistance afforded the audit team by management.

Page 30 Office of the Auditor General 2012 Annual Report

4.12 Follow-up to the 2009 Audit of the Bridge Maintenance Process EXECUTIVE SUMMARY

Introduction The Follow-up to the 2009 Audit of the Bridge Maintenance Process was included in the 2011 Auditor General‟s Audit Plan. It was subsequently delayed as additional audit work was completed. It is now being presented as part of the Auditor General‟s 2012 Annual Report. The key findings of the original 2009 audit included: The City‟s bridge maintenance program is generally effective. The City‟s overall bridge maintenance process has the necessary policies and procedures and most aspects are being completed according to Provincial Regulations. The City does not follow the Provincial methodology for detailed visual inspections. While this is permitted, the method used by the City does not meet all the requirements of the Regulation. Management has agreed with the Auditor General that it should adopt the Provincial process for these inspections. Although many of the structure files examined were incomplete, the complete files tend to be the most recent ones and those for more important projects. Summary of the Level of Completion The table below outlines our assessment of the level of completion of each recommendation as of July 2013.

SUBSTANTIALLY COMPLETE 75 – 99 - - - COMPLETE 100 1, 2, 3, 4, 5, 6 6 100%

TOTAL 6 100%

Office of the Auditor General 2012 Annual Report Page 31

Follow-up to the 2009 Audit of the Bridge Maintenance process

Conclusion The City has made very good progress and has fully implemented all of the recommendations. In September 2011, a failure of the Highway 174 Jeanne d‟Arc 3.6 m diameter pipe occurred. We found that the pipe was classified by the City as part of a storm sewer in the City‟s asset management database. Consequently, it was not subject to the inspection and maintenance requirements of a structure under Provincial legislation for structures. The City‟s approach was confirmed by consultation with the Ministry of Transportation of Ontario; the cities of Toronto and Hamilton classify similar situations the same as the City. Based on a review of the characteristics of the 3.6 m diameter pipe, we concur that the pipe is part of the storm sewer system. The City‟s approach to the inspection of the storm sewer system follows a risk-based approach. Acknowledgement We wish to express our appreciation for the cooperation and assistance afforded the audit team by management.

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5 EXECUTIVE SUMMARIES – 2012 AUDITS In addition to the follow-up audits described in Section 4, several other audits were also completed in 2012. The following presents the executive summaries for each of these audits. As per protocol, the AG is required to report on any report recommendation where management and the OAG disagree. For 2012 there were no disagreements.

Office of the Auditor General 2012 Annual Report Page 33

5.1 Audit of the Treasury Function EXECUTIVE SUMMARY

Introduction The Audit of the Treasury Function was included in the 2012 Audit Plan of the Office of the Auditor General, approved by Council on December 14, 2011. Background The Treasury Unit consists of five full-time equivalents reporting to the Deputy City Treasurer, Corporate Finance.

Treasury Manager

Senior Investment Officer Senior Investment Officer Capital Financing Short Term Long Term Analyst

Treasury Analyst

The Unit is responsible for the City‟s cash management, which includes banking, money market, reserve fund and sinking fund portfolios, and large foreign currency requirements. The Unit is also responsible for the City‟s long-term financing which includes debentures, commodity hedging, securities, tile drain loans and letters of credit. The Treasury Unit also provides advice, analysis and support for various loan guarantee requests and P3 projects. In addition to the above, the Treasury Unit is responsible for certain aspects of the administration of an Endowment Fund and two pension funds. The Endowment Fund was created with the proceeds of refinancing of Hydro Ottawa and was valued at $195.3 million at the end of 2011. The two pension funds include the OC Transpo (OCT) Employees‟ Pension Plan that had an estimated asset position of $4.5 million in 2011 and the City of Ottawa Superannuation Fund (COSF) with an estimated liability position of $32.1 million in 2011. The Treasury Unit must comply with the regulations defined within the Municipal Act of the provincial government of Ontario. The City has developed and implemented policies intended to reflect the requirements of this act. The City‟s Investment Policy defines the governing guidelines over the management of the City‟s investment portfolios. The City‟s Administration of Capital Financing and Debt Policy governs the use and administration of debt issuance.

Office of the Auditor General 2012 Annual Report Page 35 Audit of the Treasury Function

Short term investments are managed through a money market portfolio which consists of investments of less than one year. Funds invested for longer terms are managed in separate portfolios consisting of bonds, debentures, and other eligible investments, with maturity dates extending to 2019. As of December 31, 2011, investments held by the City were $943 million with a weighted average yield on investment of 3.98% and the City‟s total net long-term debt was $1.091 billion, consisting mainly of instalment and sinking fund debentures. The City had a trading volume of 227 short term investment purchases and 5 sales during fiscal 2011. The main systems utilized by the Treasury Unit consist of: Treasura made by Wall Street Systems, a new system installed in 2012 to replace Thomson Financials Treasury Manager; RBC Investor Services, owned by RBC, a subsidiary of Royal Bank of Canada; RBC Express, owned by RBC, a subsidiary of Royal Bank of Canada; Information Control System Debenture; Reuters; and SAP, City‟s Accounting System.

Oversight of the City‟s treasury activities is provided through the following committees:

Debenture Committee The Debenture Committee was established by Council in January 2010. The Committee has the power to enact debenture by-laws to authorize the issuance of debentures where the project debt authority has been approved by Council. The Committee meets on request.

Endowment Fund Investment Committee As per the Endowment Fund Policy adopted by Council in 2006, the Endowment Fund Investment Committee is authorized to approve the asset mix (Appendix B – Fund Activity Chart approved by Council of the full audit report). Specific responsibilities include selecting an investment management structure, interviewing and appointing investment managers, establishing investment guidelines for individual investment managers within the context of the investment policy, selecting custodians, selecting investment consultants, and monitoring and evaluation performances. The Committee is provided with reports describing the performance of the Funds and the investment managers on a quarterly basis.

Finance and Economic Development Committee (FEDC) As specified by its terms of reference, the FEDC oversees and develops the City‟s annual Operating and Capital budgets and reviews and approves all high-level operating and capital budget adjustments. Members of the FEDC meet monthly or on request.

Page 36 Office of the Auditor General 2012 Annual Report Audit of the Treasury Function Audit Objectives and Scope The audit was undertaken in order to provide an assessment of the extent to which the Treasury Unit‟s policies are in compliance with relevant legislation, the effectiveness of practices to maximize returns and minimize financing costs, and the overall efficiency and effectiveness of operations under the responsibility of the Treasury Unit. The audit objectives are to: 1. Assess the extent to which the Treasury function has implemented a framework to identify, measure, and monitor key risks of relevance to its mandate; 2. Assess the extent to which the City‟s treasury policies and procedures are in compliance with relevant legislation (i.e., Provincial Regulations) and are adhered to in practice; 3. Assess the extent to which the Treasury Unit‟s management practices are designed to maximize investment returns and/or minimize financing costs and the effectiveness of these activities in practice; 4. Assess the extent to which Treasury staff are properly qualified and trained with appropriate experience and designations; 5. Assess the overall efficiency and effectiveness in the management and operation of the Treasury function, including identifying areas of potential savings for the City; and, 6. Assess the extent to which the City is utilizing all available methods for receiving and making payments efficiently and effectively. The audit examined current management practices in place, with a focus on practices in place during fiscal 2011 and year to date fiscal 2012. Audit procedures requiring examination and analysis of treasury transactions included fiscal years 2009 through 2011. The scope of this audit focused on the management control framework surrounding the Treasury Unit and included an assessment of the design and operating effectiveness of key controls over investments and debt management, cash flow management, compliance with legislative authorities and policies, and financial management. The audit considered cash and liquidity management that includes: banking, forecasting, and investment of excess funds; capital financing and leveraging activities including risk management; reporting activities to Council as well as the decision-making process with respect to investments and borrowing; monitoring of custodian management over the Endowment Fund and two pension funds; operational efficiency and effectiveness of Treasury processes; and capability and capacity of staff. Evidence of rates of returns and treasury practices utilized by other municipalities, where available, was also gathered for benchmarking purposes.

Office of the Auditor General 2012 Annual Report Page 37 Audit of the Treasury Function

This audit did not include a review of pension accounting as this is covered separately in the external audit of the financial statements of the City of Ottawa. Summary of Key Findings 1. The Treasury function has participated in the initial implementation of the corporate risk assessment process in 2010. However, the Enhanced Risk Management Policy and Framework require individual departmental managers to embed risk management principles in their day to day activities. Though the Treasury Unit practices risk management through the course of their day to day operations, management has not devoted time and resources to more consistently documenting and conducting risk assessment and risk monitoring activities. 2. Although risks have been formally identified, measured, and considered in the development of the Finance Department Strategic Plan, the audit identified a need to continue to develop and implement mitigation strategies that reflect the Treasury-specific risks identified through the risk assessment process. 3. Although the City's Treasury related policies and procedures are consistent with relevant legislation, the audit noted some areas where the legislation provides additional detail that should be included in the City‟s policies to help further clarify the requirements and expectations of treasury management. 4. The portfolio performance and total values reported vary between the different reports due to the different methodologies utilised. Specifically, the City‟s financial statements are prepared in accordance with generally accepted accounting principles which require a disclosure of the weighted average yield of the investments held as of the financial statement date. In contrast, the yield reported in the Investment Report is based on the average portfolio value throughout the year which can result in a different yield percentage than that disclosed in the financial statements. There is no legislative requirement with respect to the methodology to be utilised to report the portfolio performance in the Investment Report. As the portfolio can vary considerably throughout the year due to the timing of tax receipts, City management believes that a weighted average yield over the course of the year better reflects the actual yield of the portfolio throughout the year, rather than using an average at a specific point in time, as disclosed in the financial statements. As noted above, both methodologies being utilized are valid in the context of the related reports. However, these differences in reporting may lead to stakeholder confusion as to the validity and accuracy of the amounts reported. 5. The Treasury Unit has not implemented a formal process to benchmark its investment returns.

Page 38 Office of the Auditor General 2012 Annual Report Audit of the Treasury Function

6. Two of the five positions in the Treasury Unit are at risk of becoming vacant in the near future due to upcoming retirements. The audit noted that the Treasury Unit does not have a current, documented succession or training plan. Consideration should also be given to combining the duties of the Analyst and Senior Investment Officer positions. If combining duties results in savings of one FTE based on an average annual salary (including benefits) this would result in savings of $85,400. 7. The Treasury Unit does not have current job descriptions available for all positions. Because of this, there is a risk that the current organizational structure does not reflect the current needs of the Treasury Unit. This combined with the lack of a defined training and succession plan may result in an inability to optimize the role and allocation of responsibilities among current and future resources. 8. A formal performance measurement methodology related to Treasury has not been developed and implemented. This reduces the efficiency and overall effectiveness with which actual performance results can be measured, monitored and reported on to Council. 9. A formal process to periodically review and renew third party agreements on a regular basis to allow the City to take advantage of service offerings that provide best value and meets the City's current needs has not been implemented. In addition to improving the overall agreement, tendering banking services on a regular basis will reduce any perceptions of unfair tendering practices. The City should tender its banking services and require a re- tendering of these services at least every five years. 10. Management has implemented a number of key controls such as reconciliations and approvals to help ensure that transactions are completed in compliance with relevant policies and legislation and to help ensure effectiveness in maximizing returns and minimizing financing. The testing of a sample of controls through this audit identified that evidence of reviews of reconciliations is not maintained in a consistent manner. As such, it is difficult to determine whether management reviewed the reconciliations and are aware of significant reconciling items. 11. Evidence of annual reviews of user access to RBC Express should be retained to support the existence of appropriate segregation of duties. In addition, the City should review its procedures to ensure that the Senior Investment Officer is automatically notified of any departing employees with access to Treasury systems to enable the timely removal of this access. 12. There are opportunities to improve the automation of cash receipts and payments to optimise the City's cashflow forecasting and generate cost savings.

Office of the Auditor General 2012 Annual Report Page 39 Audit of the Treasury Function Recommendations and Management Responses

Recommendation 1 That the City formally assess, measure, and monitor risks of specific relevance to the function on a regular basis.

Management Response Management agrees with this recommendation. All departments will be completing a detailed risk assessment by the end of Q4 2014 as part of a cyclical reporting framework that aligns with the Term of Council. As part of the cycle for the Corporate Risk Profile, departments will be required to complete an assessment of corporate, operational, strategic and project risks. As in the past, Treasury unit risks will be identified and monitored as part of the corporate risk assessment process.

Recommendation 2 That the City continue to develop and implement a mitigation strategy that is aligned with the City’s strategic objectives and reflects the Treasury-specific risks identified through the risk assessment process.

Management Response Management agrees with this recommendation. During the course of the audit, management provided the OAG with a copy of the Treasury-specific risks and mitigation strategies developed during the 2010 corporate-wide risk assessment exercise. Several risks were identified and mitigation plans for each of these were established. Since the time of the audit, management has taken action to address these items. For example, one risk event identified is the failure to secure short-term and long-term financing and to adequately forecast funding requirements. The recommended mitigation plan includes maintaining good liquidity, standby short-term credit facilities, diversifying sources of financing and the ability to hedge interest rates. Management has taken action on these matters; good liquidity was maintained (improving it in 2012), a short-term loan facility was maintained and the City‟s sources of financing were diversified (Infrastructure Ontario, bank financing in addition to capital markets as well as FCM and CMHC and the PPP funding arranged for Light Rail). Another risk event is identified as financial market risks which could lower the return on investments including the two pension funds. The mitigation strategy refers to the regulations governing investments, diversification of investments, controls in the investment process and asset mix required to meet actuarial obligations. Management has now implemented a new Treasury Management System and has engaged external parties to review and advise on our investment

Page 40 Office of the Auditor General 2012 Annual Report Audit of the Treasury Function

policies. Process mapping was also completed with respect to the banking arrangements. Other risk items and mitigation strategies concern pensions. A new pension administration policy manual was developed and approved. Commodity Hedging was also identified as a risk, with a mitigation strategy requiring a more formal structure to approve hedging strategies. Hedging recommendations to the City Treasurer are now formally documented and agreement is sought and documented. The semi-annual risk reporting process implemented by management in 2012 includes the requirement to identify actions and progress made on previously reported risks. The reporting process will be further refined in Q4 2013 with the establishment of a Risk Management Steering Committee that will provide executive oversight of the risk framework; monitor the status of risks and mitigations; provide strategic direction regarding risk-based decision-making, and recommend strategies that reflect the City‟s risk management values and tolerance for risk across the organization.

Recommendation 3 That the City consider incorporating additional elements referenced in legislation in their upcoming revision of the Investment Policy to further strengthen the clarity of defined policies and their consistency with provincial regulations.

Management Response Management agrees with this recommendation and will complete this work by the end of Q4 2014.

Recommendation 4 That the City disclose additional information in the Investment Report to explain the differences with the values and performance reported in the annual financial statements.

Management Response Management agrees with this recommendation. An explanation with respect to the return information used in the financial statements will be provided in the annual investment report scheduled for consideration at Council in June 2013.

Office of the Auditor General 2012 Annual Report Page 41 Audit of the Treasury Function Recommendation 5 That the City develop and implement a performance measurement framework including rate of return information. In addition, the City should identify benchmarks for the evaluation of its investment performance and conduct regular, periodic reviews of actual performance against benchmarks to identify trends and any corrective action that may be required.

Management Response Management agrees with this recommendation. Performance measures and the evaluation framework will be developed and included in the next update of the Investment Policy, which is expected to be completed by the end of Q4 2014.

Recommendation 6 That the City expedite the succession and training planning process to assess its current and future skill requirements and the number of full time resources required and determine the means to fulfill them. This includes identifying opportunities to combine existing duties and responsibilities where applicable.

Management Response Management agrees with this recommendation. The City has committed to developing and implementing succession plans in all departments as part of its overall People Plan. Aligned with this corporate direction, the Finance Department has included succession planning in its 2012- 2014 Strategic Plan. This activity will be completed by the end of Q3 2013. With respect to the suggestion to identify opportunities to combine duties and responsibilities where applicable, this is something management reviews in the normal course once a position becomes vacant. At this time, based on the overall work requirements of the Unit, the continuing complexity of financing and investment alternatives, as well as the audit recommendations to more consistently document risk assessment and risk monitoring practises, implement investment benchmarks and monitor performance against benchmarks, Finance does not see an opportunity to reduce costs by combining positions. Furthermore as indicated in Section 6.4.1 of this audit, an analysis of peer organizations, concluded that “The City’s staff complement, including size, experience and training, was consistent with that of peer municipalities included in our benchmarking exercise.”

Page 42 Office of the Auditor General 2012 Annual Report Audit of the Treasury Function Recommendation 7 That the City update job descriptions for all personnel in the function in conjunction with the development of succession and training plans and review the required number of full time positions given the potential to add new skill sets to the Unit.

Management Response Management agrees with this recommendation. The Senior Investment Officer and Treasury Analyst job descriptions have been reviewed and updated as part of a corporate-wide initiative undertaken with the respective unions, to update and evaluate all positions. The Manager and Capital Financing Analyst job descriptions require updates, which will be completed by the end of Q4 2014. Please refer to the response to Recommendation 6 for additional comments with respect to a review of the number of required full-time positions.

Recommendation 8 That the City go to tender to ensure it is receiving the best value for money for banking services and implement a process requiring the review and renewal of agreements with third party suppliers at least every five years.

Management Response Management agrees with this recommendation. A Request for Proposals for banking services will be completed by the end of Q4 2013. Given the resources required and the potential cost of transition to a new bank (estimated at $160,000), the process to review existing banking arrangements should be undertaken no more frequently than every five years. As indicated in Section 6.5.3 this timing is consistent with peer organizations, wherein a minimum five-year term is in place for four out of five organizations, with the fifth organization selecting 10 years with an indefinite term.

Recommendation 9 That the City retain evidence supporting reviews of reconciliations of treasury related financial systems and reinforce the need for timely and complete authorization of investment trade tickets.

Management Response Management agrees with this recommendation.

Office of the Auditor General 2012 Annual Report Page 43 Audit of the Treasury Function

The City will retain copies of emails sent to the Accounting section and external auditors regarding investment reconciliations. Since the OAG acknowledges that the lack of review and documentation supporting resolution of reconciling items regarding the cash forecast is of low risk, management has determined that no further action is required on this item. Timely and complete authorization of trade tickets is current practice and management will continue to reinforce the need for this to continue.

Recommendation 10 That the City retain evidence of annual user access reviews to RBC express and review its procedures to ensure that the Senior Investment Officer is automatically notified of any departing employees with access to Treasury systems to enable the timely removal of this access.

Management Response Management agrees with this recommendation. The City will retain evidence of annual user access reviews. Procedures will be reviewed by the end of Q4 2013.

Recommendation 11 That the City implement further strategies to increase automation for payments where the potential savings outweigh the potential costs.

Management Response Management agrees with this recommendation. Finance has recognized the need to promote the use of electronic funds transfer (EFTs) where possible, and has already taken action to encourage vendors to switch to EFTs. Beginning in 2012, vendors offering a prompt payment discount have been required to accept payment by EFT. A targeted vendor list will be created periodically based on vendor payment analysis. Each vendor on the list will be contacted and encouraged to switch to electronic payment. This will be an ongoing exercise, the first of which will be completed by the end of 2013. Potential Savings The City still issues a large number of cheques to suppliers. In 2011, the City issued a total of 88,597 cheques. As such there are potential savings in requiring the use of EFT payments to its suppliers, estimated to be over $100,000 annually.

Page 44 Office of the Auditor General 2012 Annual Report Audit of the Treasury Function

As noted in section 6.4.1 of the full audit report, there is an opportunity for management to assess its current and future skills and experience requirements. This could result in potential savings by combining existing duties and responsibilities where applicable. If combining duties results in savings of one FTE based on an average annual salary (including benefits) this would result in savings of $85,400. Conclusion Overall, the audit found that governance and key operational processes have been implemented to help ensure that investment transactions as well as debt issues are completed in compliance with relevant legislation as well as to help ensure that operational processes are effective and efficient in maximising returns and reducing costs. However, we noted opportunities for improvement in the areas of risk management, governance succession planning, monitoring and documentation of controls. The audit also noted potential savings by requiring the use of EFT for payment to suppliers. By eliminating the use of cheques, the City could reach potential total savings of over $100,000 annually. Acknowledgement We wish to express our appreciation for the cooperation and assistance afforded the audit team by management.

Office of the Auditor General 2012 Annual Report Page 45

5.2 Audit of Corporate Credit Cards EXECUTIVE SUMMARY

Introduction The Audit of Corporate Credit Cards was included in the 2012 Audit Plan of the Office of the Auditor General (OAG), approved by City Council on December 14, 2011. Background The Purchasing Card Policy approved by the City Treasurer in November 2011 states that, “a City of Ottawa purchasing card is the preferred method of payment for the procurement of low dollar value goods and services where it is efficient, economical and feasible to do so. In limited circumstances, the Finance Department may authorize purchasing card use for the payment of goods and services with higher dollar values or employee travel and business expenses”.

Card History In January 2001 the newly amalgamated City of Ottawa integrated the various card programs from former municipalities into a Purchasing and Corporate Credit Card Program. Purchasing cards were used to pay for goods and services while Corporate Credit cards were less restrictive and could be used to acquire travel and entertainment related expenses, write cheques as well as carrying out cash advances. In March 2003, pursuant to the findings of the Audit of the Corporate Card and Purchasing Card Program, conducted by the former Audit and Consultant Services Branch (ACS) of the City Manager‟s Office, the City of Ottawa discontinued its Corporate Credit card program only retaining Purchasing cards. In October 2003 a follow-up by the then ACS Branch titled: Credit Card Program: Results of the Three Month Review was presented to Audit Committee and Council. This report presented the results of the cancellation of credit cards (only purchasing card remained) and the implementation of the new procedures. Overall the report concluded that the transactions processed after the program cancellation date were valid and reasonable to the City; and that the overall compliance rate for monthly reconciliation process was 93.6%. As part of the 2005 Audit of the Procurement Process, the OAG performed a follow- up of the implementation of all recommendations from the Audit of the Corporate Card and Purchasing Card Program and included the findings in the audit report. The report concluded that the purchasing cards are generally well managed with a well-defined process in place for the procurement and payment of low dollar value goods and services.

Office of the Auditor General 2012 Annual Report Page 47 Audit of Corporate Credit Cards

Type of Cards The City of Ottawa has the following types of acquisition cards: Purchasing Card – Restricted to the procurement of low dollar value goods and services. A Purchasing Card is issued to employees who commonly purchase goods and services such as construction materials, program supplies, registrations, subscriptions and office products. In keeping with policies and procedures, these exclude such expenditures as travel and entertainment, cash advances, personal purchases, etc. In 2011 there were 928 Purchasing card numbers held by 900 holders. However, no employee had greater than one card at a time. Corporate Credit Card –A Corporate Credit Card is issued to employees who incur travel and business expenses in addition to goods and services normally purchased using a Purchasing card. In 2011 there were 272 Corporate Credit card numbers held by 269 holders (includes CTA): 9 City of Ottawa staff; 244 Ottawa Police Service staff (3 OPS required their card to be replaced during 2011); 10 elected officials and 3 Ottawa Public Library staff. Corporate Credit cards can be used much like any personal credit card. It is our understanding that only Ottawa Police Services continue to be able to perform cash advances using the Corporate Credit cards. However, no employee had greater than one card at a time. . Corporate Travel Account (CTA) is a subset of Corporate Credit cards – Credit account number (pilot project) used by a limited number of City employees intended for travel related expenditures. Although, there is no physical card, for the purpose of this audit, travel account transactions will be treated as a card transaction. Three Corporate Travel Accounts were found to have been used in 2011.

Vehicle Card – For the purchase of fuel at commercial pumps. A Vehicle Card is issued for use with a specific City vehicle or by an organizational unit which is required to purchase fuel out of the City of Ottawa or does not always have access to City fuelling sites. In 2011, 27 vehicle card numbers were used: 13 by OPS and 14 by City staff. U.S. Bank is the City‟s acquisition card purveyor. The billing cycle extends from the 15th day of a month to the 14th day of the following month. Our review extends over a 12 month period, January 1, 2011 to December 31, 2011, regardless of which cycle the transaction is charged against. The City tendered its credit card program in April 2009. US Bank was the successful bidder. A 3 year term with an extension of 3 years was signed and dated by the City on October 30, 2009 and US Bank, November 16, 2009.

Page 48 Office of the Auditor General 2012 Annual Report Audit of Corporate Credit Cards

In March 2011, U.S. Bank, the City‟s acquisition card purveyor, replaced its Access Direct® software with Access® Online software. Management had indicated that this new technology was to provide City employees with timelier, better accounting and reconciling capabilities. Per the City‟s financial system, the City of Ottawa had acquisition card expenditures for 2010 and 2011 totalling $15 million and $16.5 million respectively. As can be noted in Table 1 below, any Corporate Travel account expenditure is captured within the Corporate Credit card category. It should be noted that the OAG mined the data on March 15, 2012 and that any subsequent credit applied against an account would not have been captured. For 2011, acquisition card transaction expenditures were as follows: Table 1: 2011 Total Acquisition Card Expenditures by Card Type and Area

2011 Acquisition Card Type Expenditures (1)

Purchasing Card: City departments 11,417,825 Elected Officials 5,289 Ottawa Police Service 1,374,590 Ottawa Public Library 1,304,361 Campground and Golf Course 14,824 Sub-total: Purchasing Card 14,116,889

Corporate Credit Card: City departments 77,753 Corporate Travel Account 18,331 Elected Officials 48,248 Ottawa Police Service 2,169,619 Ottawa Public Library 98,929 Campground and Golf Course 22,375 Sub-total: Corporate Credit Card 2,435,255

Vehicle Card: Vehicle Card 13,913 Police Vehicle 55 Sub-total: Vehicle Card 13,968 TOTAL 2011 Acquisition Card Transactions 16,566,112

(1) Source: Data mined from U.S. Bank Access® Online on transaction date: January 1 to December 31, 2011

Office of the Auditor General 2012 Annual Report Page 49 Audit of Corporate Credit Cards

Audit Objectives and Scope The audit objectives are to: 1. Confirm the completion of an operational risk assessment for the area to be audited; and, 2. Assess that the City of Ottawa‟s card programs control frameworks are adequate and functioning as intended. The audit scope includes all Purchasing Cards, Corporate Credit cards and Corporate Travel accounts used by City departments. The audit excluded cards used by elected officials and their office staff, Ottawa Police Services, Ottawa Public Library and at arm‟s length entities (i.e., Pine View Municipal Golf Course, Ottawa Municipal Campground). Also excluded from the scope of this audit are all vehicle/fuel cards for the entire City of Ottawa and Ottawa Police Service as this will be considered as part of a future planned audit of Fleet. The audit reviewed key control mechanisms and overall management of the card programs. Transactions were sampled and tested to assess whether cards were issued and controlled properly, payments were made promptly and the accounts were reconciled in keeping with the City of Ottawa‟s policies and procedures. As detailed in table 2, the audit focused on the following $11.5 million or 70% of acquisition card transaction expenditures made during 2011.

Table 2: In-scope 2011 Acquisition Card Expenditures by Card Type and Area

In-Scope 2011 Total 2011 City departments % of In-Scope Acquisition Card Type Expenditures Expenditures Expenditures Purchasing Cards 14,116,889 11,417,825 81% Corporate Credit Cards 2,435,255 96,084 4% TOTAL 2011 Transaction of Acquisition Cards $16,552,144 $11,513,909 70%

Summary of Key Findings 1. The credit card program is well administered and well supported by Finance Department. The City has clear processes; heightened supervision and oversight over reconciliations verification; as well as satisfactory compliance against applicable policies and procedures. Policies and procedures are readily available through Ozone, the City‟s intranet, and are well understood by employees.

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2. Finance Department has not fully documented an operational risk assessment for the credit card program as required by the Corporate Risk Management policy and Corporate Enhanced Risk Management (ERM) Framework approved by Senior Management, Executive Committee and City Council in April 2010. As an operational risk assessment has not been completed for the credit card program, risks may not be fully or properly identified and mitigated. Management advised us that while Finance staff have not formalized the considerations and actions the department has taken to consider risk within the credit card process in a document under a banner of “operational risk assessment”, Finance believes these considerations and actions were the components of an operational risk assessment. 3. We conducted testing on both a judgmental and random sample and found that the error rates were low. 4. Based on this testing, in our opinion controls are functioning as intended. Specifically,

The random sample consisted of 100 reconciliations representing 506 transactions (or 1.3% of in-scope transactions) with a dollar value of $153,736 (or 1.3% of total dollar value of in-scope transactions). For the sample of transactions we reviewed, we noted a 0.3% error rate (22/7,000) which is not significant. Types of errors found included tax coding, missing or inappropriate receipts and reconciliation which could not be provided. We found that controls appeared to be functioning as intended; and, The judgemental sample consisted of 50 reconciliations representing 605 transactions (or 1.6% of in-scope transactions) with a dollar value of $105,453 (or 1% of total dollar value of in-scope transactions). For the sample of transactions reviewed, we noted an error rate of 1.4% (115/8,386) which is slightly higher than the random sample but still low. Types of errors found included travel (expenses against cards restricted to non-travel), tax coding, missing or inappropriate receipts. 5. The City runs dance programs at the Michelle Heights Community Centre and purchased costumes for participants to partake in an end of program recital. Management informed us that a bank account under Fierce Dance Factor was set up and managed by the Specialist, Advanced Sport, a City employee as was everyone working on this program. All reimbursements by parents and fund raising related to the City dance program are deposited to this non-City bank account. The City is then reimbursed at year-end one lump sum cheque for costumes and any other expenditure associated with this program. Although the Cash Handling Procedures does not directly address setting up an account receivable for moneys owed to the City, it does specify that: “These Procedures apply to all City of Ottawa staff, volunteers, students, elected officials,

Office of the Auditor General 2012 Annual Report Page 51 Audit of Corporate Credit Cards

contractors, consultants, boards, agencies, commissions and business partners who accept funds on behalf of the City and whose financial transactions are captured within the City‟s financial systems.... and All cash received must be duly recorded in the appropriate system and a receipt made available.” In our opinion, non-City bank accounts are not in compliance with City policies. 6. We found that 60 City employees used their card to pay for parking instead of submitting a claim for reimbursement (248 transactions totalling more than $1,500). Purchasing Card Procedures indicates travel as a card restriction; however, it does not differentiate between local and out of town travel. It was noted that on April 22, 2013 a Management Bulletin was issued relating to the policy on mileage and parking to improve monitoring and compliance. 7. The Purchasing Card policy does not specifically deal with employees paying for parking on a City credit card. Management stated that in their opinion local transportation (e.g., parking) was not a disallowed expenditure. As such, in our opinion, the City‟s policies and guidelines should be updated to specifically reflect this. 8. We found that the credit cards, of 4 of the 22 employees who had a retirement/termination action in 2011, had not been deactivated/closed as at June 13, 2012 even though the employees had left the City (two in February 2011, one in August 2011 and one in November 2011). Although no activity, after the employee left the City‟s employment, was noted on these cards, these remained open in the US Bank On-line Access system. The Deputy City Treasurer Corporate Finance was provided with the four cardholders‟ names on June 14 for action. 9. By increasing the use of credit cards in lieu of petty cash or cheques, the City could potentially save in the range of $150,000 to $250,000 and could further obtained savings in the form of contract negotiated rebates. These potential savings are calculated based on an average cost for issuing a cheque ranging from $15.00 to $25.00, and an estimated increase in transaction volume of 20% (approximately 10,000 more credit card transactions than 2011 levels). 10. In 2011, 248 card users spent over $237,430 at grocery stores and supermarkets (MCC 5411). Savings could be obtained by having lower level staff perform this additional purchasing; by having Supply Management put to tender larger purchases e.g., grocery stores and supermarkets; by expanding a current agreement for food and groceries; or by approaching individual stores for preferential pricing. A review of 2011 expenditures at Grocery Stores, Supermarkets showed that $125,899 of the $237,430 was spent at Loblaws and Loblaws Superstore, yet no preferential pricing, whether it be in the form of rebate, incentive, etc., has been established with these stores. While Supply Management could not provide us with the dollar amount of the potential

Page 52 Office of the Auditor General 2012 Annual Report Audit of Corporate Credit Cards

saving from tendering groceries, doing so would also improve the controls surrounding the purchase of food and provide more efficient use of staff time. 11. The City could benefit directly by collecting loyalty points for specific suppliers or programs. Previous audit work has noted that Ottawa Police were successful in negotiating an agreement to collect loyalty point at a specific vendor. This further supports the City‟s need to establish a procurement contract for the purchase of food. Recommendations and Management Responses

Recommendation 1 That Finance Department formalize in a document an operational risk assessment for the credit card program as set out in the City’s Enhanced Risk Management Framework.

Management Response Management agrees with this recommendation. The Finance Department will be completing a detailed risk assessment by the end of Q4 2014 as part of a corporate cyclical reporting framework that aligns with the Term of Council. As part of the cycle for the Corporate Risk Profile, departments will be required to complete an assessment of corporate, operational, strategic and project risks. Risks associated with the credit card program will be identified and monitored as part of the corporate risk assessment process.

Recommendation 2 That Finance Department ensure proper and consistent tax coding across reconciliations and that appropriate training is provided to cardholders requiring it.

Management Response Management agrees with this recommendation. The Commodity Tax Unit is responsible for the identification, development and delivery of training related to all commodity tax issues, including tax coding, on an annual basis. The 2013 workplan for that Unit includes an assessment of the effectiveness of that training, and prioritization and delivery strategies for future direction. The assessment and communication of strategies will be completed by the end of Q4 2013. Any updates or changes to existing training materials and approaches will be highlighted and incorporated into future annual training.

Office of the Auditor General 2012 Annual Report Page 53 Audit of Corporate Credit Cards Recommendation 3 That the City ensure that all recoveries/reimbursements be made as per the Cash Handling Policy directly to the City.

Management Response Management agrees with this recommendation. With regard to the reimbursement of expenditures related to dance programs run by the City, the applicable staff member has been given explicit direction with respect to their contravention of the policy and appropriate action has been taken to ensure that this practice does not reoccur. The Recreation Supervisor and the Customer Service Part Time Clerk on site have taken PCI Awareness and Cash Handling Training. In addition, a copy of the Cash Handing Policy has been sent via email by the Program Manager to the staff on site and a printed copy is available at the front desk. In addition, a review of the Cash Handling Policy and Procedures will be provided at the department‟s Finance Training, which is scheduled for Q1 2014.

Recommendation 4 That the City ensure that the practice of setting-up non-City bank account be discontinued and any non-City account be closed immediately.

Management Response Management agrees with the recommendation. Under direction from management, the non-City bank account was closed. A communication was sent to all Parks, Recreation and Cultural Services staff confirming that non-City bank accounts are not to be opened, in accordance with the City‟s Cash Handling Policy.

Recommendation 5 That the City ensure that only itemized receipts are accepted as support for a transaction.

Management Response Management agrees with this recommendation. The Purchasing Card Policy addresses this recommendation by requiring that: “Documentation supporting a purchasing card transaction must be retained for verification and audit purposes and must specify what was purchased and itemize the cost. All cardholders must complete a mandatory review of transactions and submit monthly statement reconciliations.” The Purchasing Card Procedures require the Cardholder to attach all receipts and source documents to the monthly statements, which are reviewed for compliance by the FSU.

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The Purchasing Card Policy and Procedures will be further communicated and reinforced by management by the end of Q4 2013.

Recommendation 6 That the City review the Purchasing Card policy to clarify if local parking is an allowable purchase.

Management Response Management agrees with this recommendation. Local parking is an allowable expense per the Purchasing Card Policy. The Procedures restrict travel expenses, which are defined in the Travel Policy to be travel outside the city. Management will review the policy to ensure the restrictions on the use of the purchasing card for parking expenses are clear. This is expected to be completed by the end of Q4 2013.

Recommendation 7 That the City perform an analysis of grocery requirements (per centre, program, etc.) for all of Community and Social Services and Parks, Recreation and Culture and investigate any opportunity to take advantage of better prices/delivery; and/or undertake a competitive process.

Management Response Management agrees with this recommendation. CSS and PRCS management have performed an analysis of grocery requirements (per centre, program, etc.). CSS have proactively added and will continue to add, many of the larger daycare centres and shelters to the complete purchasing contract where it is financially viable. The process would not, however, be viable for the smaller CSS and PRCS programs/centres due to the minimum order requirements, scheduled delivery dates and delivery charges.

Recommendation 8 Until such time as the City establishes a competitive process for the procurement of groceries, that the both Community and Social Services and Parks, Recreation and Culture assign shopping more cost effectively.

Management Response Management agrees with this recommendation. CSS will monitor monthly and review on a quarterly basis, the use of complete purchasing and limit purchasing groceries beyond the online ordering system. Childcare staff have adapted best practices used in the Long Term Care Branch in menu planning and online food purchasing to maximize efficiency of online ordering and delivery.

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Multiple levels of PRCS staff make purchases – summer camp counsellors, program coordinators, park programmers, facility supervisors, program instructors, etc. PRCS will assign shopping more cost-effectively by implementing a “best practice” within the department‟s Finance Training to identify that the Program Co-ordinator level or lower will complete purchases for program supplies/groceries where possible. PRCS will complete a review of the cardholders at each facility in order to implement this best practice by Q1 2014.

Recommendation 9 That the City establish a policy relating to the collection of all loyalty program points (including store purchases, fuel, etc.).

Management Response Management agrees with this recommendation. A policy will be established by the end of Q1 2014.

Recommendation 10 That the City develop a corporate policy or guideline governing the awarding of cash or near cash prizes including but not limited to: Criteria for awarding prizes; Accounting of prizes; and, Evidentiary documentation of the disbursement; and that the appropriate FSU ensure its enforcement.

Management Response Management agrees with this recommendation. A corporate policy will be developed by the end of Q1 2014.

Recommendation 11 That the City not pay individual memberships or professional fees using purchasing cards as per the Purchasing Card Policy.

Management Response Management agrees with this recommendation. The Purchasing Card Policy and Procedures will be further communicated and reinforced. This is expected to be completed prior to the end of Q4 2013.

Recommendation 12 That the City regularly review any termination of employment and ensure that cards are deactivated at the time an employee leaves the Corporation.

Management Response Management agrees with this recommendation.

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The corporate policy for Termination, Resignation/Retirement Procedures sets out management‟s responsibilities regarding the return of City property. Human Resources will amend the policy to further indicate that managers are responsible for advising Finance to deactivate a purchasing card upon any termination of employment. As an additional measure, Human Resources will begin providing a monthly report to the Finance Department of all terminations for auditing purposes. Finance will be able to compare the list of terminations against all purchasing cardholders to ensure that all cards are deactivated when an employee leaves the corporation. The amendment of the policy and commencement of the monthly report will be implemented by the end of Q3 2013. In addition, the Purchasing Card Policy assigns the responsibility to the manager to “ensure cancellation of the card when the cardholder terminates employment”. The Purchasing Card Policy and Procedures will be further communicated and reinforced by management. This is expected to be completed prior to the end of Q4 2013.

Recommendation 13 That the City consider expanding the use of credit card in lieu of cheques or petty cash and take advantage of savings ranging from $150,000 to $250,000.

Management Response Management agrees with this recommendation. The City will continue to explore opportunities to increase the use of the credit card in lieu of cheques or petty cash. A project to review the expanded use of the credit card was developed in 2012 and started in 2013. The project will include an analysis of vendors and payments to identify transactions that, in the future, could be paid by credit card. This project is expected to be completed by the end of Q2 2014. Finance will continue to communicate the benefits of using the credit card, and encourage City staff to consider this method of payment where feasible. Potential Savings By increasing the use of credit cards in lieu of petty cash or cheques, the City could potentially save in the range of $150,000 to $250,000 and could further obtain savings in the form of contract negotiated rebates. These potential savings are calculated based on an average cost for issuing a cheque ranging from $15.00 to $25.00, and an estimated increase in transaction volume of 20% (approximately 10,000 more credit card transactions than 2011 levels).

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In 2011, over $237,430 was expended at grocery stores without a competitive procurement process being used. While Supply Management could not provide us with the dollar amount of the potential saving from tendering groceries, doing so would also improve the controls surrounding the purchase of food and provide more efficient use of staff time. Until such time as the City establishes a competitive process for the procurement of groceries, savings can be obtained through better management of shopping routines of City employees – specifically, assigning shopping duties more cost effectively. For Parks, Recreation and Cultural Services, we estimated that the City could save approximately $10,000 by having staff at the Program Coordinator or lower level carry out the purchasing instead of more senior level employees. Conclusion Overall, the credit card program is well administered and well supported by Finance Department. Our audit found clear processes; heightened supervision and oversight over reconciliations verification; as well as satisfactory compliance against applicable policies and procedures. Both our judgmental and random samples‟ error rates were not significant. The City has several comprehensive policies and procedures, which continue to be updated and provide suitable direction to credit cardholders. Policies and procedures are readily available and well understood by Financial Services Unit (FSU). Strong adherence to these was noted. In cases of non-compliance, a procedure is in place and we found evidence that it was used in the majority of instances. In comparison to the 2002 audit of credit cards carried out by the former Audit and Consulting Services Branch, there are now significantly better internal controls and clear oversight roles of credit card expenditures by both departments and Finance Department. In our opinion, the City is now in a position to consider expanding the program and taking advantage of additional offerings resulting in potential savings. Acknowledgement We wish to express our appreciation for the cooperation and assistance afforded the audit team by management.

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5.3 Environmental Risk Assessment

This is attached as Appendix E to this report.

Office of the Auditor General 2012 Annual Report Page 59

5.4 Audit of Client Service Centres EXECUTIVE SUMMARY

Introduction The Audit of Client Service Centres was included in the 2012 Audit Plan of the Office of the Auditor General (OAG), approved by City Council on December 14, 2011. Background The Client Service Centres (CSC) assist various departments and branches throughout the City to provide information, support and access to City services in person. The City‟s seven Client Service Centres are listed below: Urban Locations: 1. Ottawa City Hall - Laurier Client Service Centre 2. Kanata Client Service Centre 3. Ben Franklin Place Client Service Centre 4. Orléans Client Service Centre Rural Locations: 5. Metcalfe Client Service Centre 6. West Carleton Client Service Centre 7. North Gower Client Service Centre The four urban Client Service Centres are open Monday to Friday and the three rural centres are open one day per week. Client Services are also partners in two Government Service Centres (Laurier and Kanata) to provide a one-stop service centre for access to information and services for federal and provincial services in addition to municipal government services. The Client Service Centres have approximately 40 Full Time Equivalents (FTEs) representing 33% of the newly created ServiceOttawa department as at December 2011. The Client Service Centres portion of the 2011 adjusted budget was $3.2 million in expenditures including $2.9 million for compensation. There was $1.4 million in budgeted revenues relating to Marriage Licenses and Ceremonies, Death Registrations, Commissioner of Oaths and sales of goods. Management initially estimated the CSC processed approximately 170,000 transactions for 2011 which would include transactions relating to their budgeted revenue as well as transactions processed on behalf of other operational areas. Audit Objectives and Scope The audit objectives were to:

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Confirm the completion of an operational risk assessment for the Client Service Centres; Assess the degree to which the Client Service Centre systems and processes are aligned with strategic priorities including Service Excellence and support efficient and effective service delivery. This would include cash handling and how the City measures client satisfaction; Ensure that the City has maximized the use of non face-to-face interaction for services provided through the Client Service Centres; and, Identify areas of potential savings for the City in the efficient and effective management and operation of the Client Service Centres. The scope of this audit was limited to the review and analysis of the efficiency and effectiveness of the Client Service Centres for fiscal year 2011. Although Laurier and Kanata centres provide access to federal and provincial information and services, this audit only included the services the City provides. This audit also reviewed the key issues identified in the 2002 Audit of Client Service Centres conducted by the former Audit and Consulting Services and the extent that they were addressed by management. This audit did not include the 3-1-1 Contact Centre as this area was audited in 2007 and the follow-up conducted in 2009. Summary of Key Findings 1. The lack of an updated operational risk assessment at the Client Service Centres unit level as required by the April 2010 Council approved Enhanced Risk Management (ERM) Framework and Policy. Management indicated that the department conducted a Departmental Risk Assessment, which they believe met the corporate requirement. However, this would still require an operational risk assessment at the CSC unit level. As part of ServiceOttawa‟s 2013 work plan, management is conducting an in-depth operational risk assessment of the Client Service Centres. 2. ServiceOttawa Department is still in the process of developing the strategic risk register to accompany the ServiceOttawa Strategic Departmental Plan which would identify and classify risks. Although not completed at the time of the audit, management has indicated that they have completed the development of the strategic risk register. ServiceOttawa management indicated there are risks to business continuity in their environment as a result of significant changes to staff, technology, processes and transfer of business lines. 3. Risks of staff capacity and budget were identified as medium rated risks by the former Organizational Development and Performance department at the departmental planning level in January 2011.

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4. CSC Procedural documents are not consistent with the Corporate Administrative Procedures template, do not always clearly articulate the CSC role or the actual process followed, and are not always supported with authorized validation of the process by the business process owner. 5. System accesses used by staff at Client Service Centres are not always appropriate such as accesses not being removed for terminated or transferred employees, delayed removal of accesses for terminated employees, generic user accesses, and more extensive accesses than required for the position‟s functions. We found that for Datasym there were 83 individuals with accesses which is approximately twice the number of positions within the Client Service Centres. A clean-up was performed in the Datasym cash register system in July/August 2012 during the course of this audit to review, update, and delete accesses for cashiers that were no longer working in the area. Management indicated that this clean-up occurred as a result of the Cash Register Replacement Project. Some of these accesses should have been deleted in September 2011. 6. Data provided to Council as performance data for 2011 was incomplete as it was based on manual compilation of cash register transaction volume data which reports strictly raw numerical quantities of transactions representing levels of activities and doesn't measure performance. The report does not provide any sense of the nature of the transaction or service, the level of effort involved, performance information such as time and line measures or radius of delivery or quality information such as customer service. They do not have performance measures or formally adopted standards. The management report also excludes data from other systems for transactions processed by CSC staff such as Vital Statistics for Death Registrations and Class for Program Registrations, Memberships and Bookings and services that don‟t result in payments. 7. Different versions of reports provided by management to us during the course of the audit for 2011 contained different quantities and categories of transactions as there was a lack of understanding of the systems used to report transactions. For instance some reports totalled 170,000 versus 182,265. 8. Analysis of service fees (such as Marriage License, Commission of Oaths, Travel Documents, etc.) was not available to determine whether or not full costs of services were appropriately recovered. Although management indicated that there had been reports provided to Council in 2005 and 2006 relating to Marriage Ceremonies, these have not been updated within the last six years. 9. There are issues impacting the efficiency and effectiveness of cash handling and compliance to the Cash Handling Policy and Procedures. Examples of non- compliance include: Lack of control over items of monetary value assigned to the CSC, segregation of duties issues, CSC staff going directly to the bank for change, lack of indemnity forms for some cashiers, lack of a cash drawer (at

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Laurier) for the separate Class cash register, and risk of not issuing payment card refunds to the same payment card as the original transaction. 10. The report to Committee and Council by Finance department for the new cash register system did not quantify the benefits. 11. The results of the 2011 Client Satisfaction Survey conducted by management during 2011 showed that the Client Satisfaction categories of "Timeliness, Got what I needed, Accessibility (Laurier only) and One-stop satisfaction (Laurier only)" had dissatisfaction ratings greater than 10%. In our opinion, this was a high level of dissatisfaction. These results which were to serve as a baseline were not provided to Committee and Council. 12. The analysis of options to maximize non face to face interactions for service delivery and potential savings of alternative delivery methods was not complete. Transactions processed at the CSCs included 42,708 Tax and Water payments which represented approximately 23% of the total. There are opportunities for further promoting automated Tax and Water payments and discouraging in-person payments. 13. CSC resources are allocated across seven locations with four locations open five days a week and three locations open one day per week creating the potential for downtime at some locations which is not available to be utilized at other locations. As detailed in Section 5.4.1 of the full report, there is an estimated low volume of transactions processed at CSCs. Based on the 2011 daily average transactions ranged from an estimated 11 to 31 per Client Service Representative per day across the seven CSCs. The details are in the following chart:

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2011 Daily Average Transactions Processed by Client Service Representative (CSR)

Ben North Overall Laurier Franklin Orléans Kanata Metcalfe Kinburn Gower Summary Place Total annual number of

transactions 93,245 38,484 25,438 19,354 2,269 1,217 2,257 182,264 Number of days centres open during year 248 248 248 248 54 53 52 1,151

Daily average number of transactions 376 155 103 78 42 23 43 N/A

2011 Actual FTEs - Restated to reflect 2 staff assigned from Ben Franklin, Orléans and Kanata to rurals for one day per week 12.0 7.6 4.6 5.6 2.0 2.0 2.0 31

Daily average transactions processed by

CSR 31 20 22 14 21 11 22 26

14. Management reports to support monitoring capacity and utilization are not always available, and where they are produced, are not always complete, fully understood or validated through a QA process. 15. Based on the OAG analysis using available information from management as detailed in Section 5.4.2 of the full report, CSC resources are not fully utilized. Based on the estimated volume of transactions across all locations, in our opinion there is an estimated 13 FTEs underutilized for a potential savings of $824,000. Cost saving opportunities include considering closing some of the CSCs based on low usage rates. We realize there may be other reasons that the City may wish to consider in evaluating if locations should be closed. There are also opportunities to find efficiencies at Laurier and Ben Franklin Place. 16. The costs recovered for the Government Service Centres did not include the complete cost of salaries, benefits and overhead for greeters in accordance with established agreements with Service Ontario / Service Canada for a potential additional recovery estimated at approximately $35,800.

Office of the Auditor General 2012 Annual Report Page 65 Audit of the Client Service Centres Recommendations and Management Responses

Recommendation 1 That the City implement an operational risk assessment for Client Service Centres.

Management Response Management agrees with this recommendation. Management will complete an operational risk assessment for the Client Service Centres by the end of 2013.

Recommendation 2 That the City complete the implementation plan to address areas of risk relating to Vital Statistics.

Management Response Management agrees with this recommendation. Management has implemented nine of the thirteen recommendations from the 2012 external consultant review of the Vital Statistics Program. The remaining four recommendations are within the purview of the provincial government. The City will continue to work with the provincial government on implementing these outstanding recommendations; however the City does not have the authority to complete them. Therefore, management considers implementation of this recommendation to be complete.

Recommendation 3 That the City validate and authorize procedures by the business process owner; make them consistent with the Corporate Administrative Procedures template; clearly articulate the CSCs role; and, monitor practices against the procedure.

Management Response Management agrees with this recommendation. Management has commenced the process of validating all procedures with the appropriate business process owners and will obtain/track the authorization of all procedural changes as required. ServiceOttawa will develop a template for departmental procedures based on the Corporate Administrative Procedures template, and will update the current internal procedures to ensure consistency. Procedures will also be updated to include the CSC role. This will be completed by the end of Q4 2013 and procedures will be reviewed and updated annually as required.

Page 66 Office of the Auditor General 2012 Annual Report Audit of the Client Service Centres Recommendation 4 That the City review and update system accesses for staff working at Client Service Centres to an appropriate level and remove or revise these as staff change positions or leave the City.

Management Response Management agrees with this recommendation. System accesses will be fully reviewed and updated by the end of Q2 2013. Moving forward, management will conduct an annual review of staff system access. In addition, a departure check-list for staff has been introduced to ensure that accesses are removed or revised appropriately as staff change jobs or leave the City.

Recommendation 5 That the City measure performance to adequately reflect it against strategic priorities and operational objectives to provide adequate information to Council and improve effectiveness.

Management Response Management agrees with this recommendation. Since the time of the audit, management has implemented quality assurance measures at the Client Service Centres in support of Council‟s “Improved Operational Performance” and “Ensure a positive experience for every customer interaction” priorities. Appropriate performance measures supporting operational objectives will be identified through the review of the current service delivery model, currently under development and will be finalized by the end of 2015.

Recommendation 6 That the City develop adequate standards for wait times and quality and monitor actual performance against these standards.

Management Response Management agrees with this recommendation. ServiceOttawa has standards for quality of service provided at the CSCs and a baseline quality score has been established. Management will review and set a target at the beginning of each year to ensure quality standards are being achieved.

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In addition, a new queuing system will be implemented at the Laurier CSC in Q2 2013. The queuing system will provide measures for time-waiting-in-line broken down by transaction type. Management will develop and set a target that will measure acceptable levels of performance, which will also be available by transaction type. These measures will be implemented by the end of Q4 2013.

Recommendation 7 That the City develop complete and accurate reports in order to understand their volumes of transactions for the services provided.

Management Response Management agrees with this recommendation. ServiceOttawa is in the process of reviewing all of the transactions that are processed at the CSCs and is identifying opportunities for automation and integration of transactional data. This initiative will provide a mechanism to generate accurate transaction volumes at the counters by the end of 2014.

Recommendation 8 That the City conduct an analysis of service fees for services provided by the CSC to appropriately recover full costs.

Management Response Management agrees with this recommendation. The City will conduct an analysis of service fees that fall within the mandate of the ServiceOttawa department by the end of Q2 2015 to ensure that appropriate costs are being fully recovered. However, this work will only be undertaken after the refined FTE capacity analysis has been completed (identified in Recommendation 14) and once the new counter service delivery model has been implemented (identified in Recommendation 16). Should the fees require adjustment, ServiceOttawa will recommend the new fees to Council for approval.

Recommendation 9 That the City comply with all aspects of the Cash Handling Policy and Procedures including the Monitoring/Contraventions section.

Page 68 Office of the Auditor General 2012 Annual Report Audit of the Client Service Centres Management Response Management agrees with this recommendation. Process improvements have been made to ensure ongoing compliance with the Cash Handling Policy and Procedures, and compliance requirements have been communicated to staff; these include procedures for coin orders, use of the reconciliation room, and counting cash when changing hands. Slip printing issues have been resolved through the introduction of the new cash register system. A quality assurance program has been introduced and, as part of this program, compliance to departmental and corporate procedures is monitored on a monthly basis to identify where action may be required. Management is conducting a review of segregation of duties and, in accordance with the Cash Handling Policy and Procedures, will be working with the Finance department to further develop mitigation measures when the segregation of duties is not practical. Management will also implement a departmental refund policy which takes into account the varying requirements of the business process owners. By creating a refund policy at the departmental level, the CSCs will be in compliance with this aspect of the Cash Handling Policy & Procedures. The review of segregation of duties and the implementation of a departmental refund policy will be completed and in place by the end of Q4 2013. Lastly, the Finance department has included an annual compliance review of cash handling for selected sites in their work-plan. The last review was completed in the fall of 2012.

Recommendation 10 That the City properly manage inventory items.

Management Response Management agrees with this recommendation. Management has implemented an inventory control tracking sheet to monitor the inventory of marriage licences and parking tokens on a daily basis at each of the CSCs. Management considers implementation of this recommendation to be complete.

Office of the Auditor General 2012 Annual Report Page 69 Audit of the Client Service Centres Recommendation 11 That the City update policies, procedures and processes to maximize the functionality and features of the new cash register system and realize potential operational effectiveness and efficiencies.

Management Response Management agrees with this recommendation. The City‟s Cash Handling Policy and Procedure was updated in January 2013, which included communication to all staff. In addition, CSC staff were trained on the new cash register system when it was deployed in 2012. As the new cash register system project transitions to sustainable mode in 2013, staff will continue to monitor and report on the performance of the new cashiering system. Management considers implementation of this recommendation to be complete.

Recommendation 12 That the City complete the development of a Quality Assurance program for monitoring, assessing and reporting on the quality of services delivered to the public.

Management Response Management agrees with this recommendation. A Quality Assurance Program for Counter Services was implemented in November 2012. The program tracks and monitors the experience clients and residents have with Counter Services through an agent monitoring program, client surveys, a mystery shopper program and point of service surveys. Agents are provided with individual results and are coached on personal improvement opportunities. In addition to individual results, management is provided overall branch results, which inform larger continuous improvement opportunities and training requirements. Management considers implementation of this recommendation to be complete.

Recommendation 13 That the City identify and implement opportunities to increase the use of non face-to-face interaction and alternative service delivery across the City.

Page 70 Office of the Auditor General 2012 Annual Report Audit of the Client Service Centres Management Response Management agrees with this recommendation. ServiceOttawa is conducting a review of services provided at the Client Service Centre counters. The first phase of the project will identify the services that will be automated and migrated to the online channel. This phase will be completed by the end of Q2 2013. The last phase of the project will be the implementation of these counter services to Ottawa.ca. The implementation plan for the migration of these services will be completed by the end of 2014.

Recommendation 14 That the City formalize their staff deployment model to optimize efficient and effective management and operation of the Client Services Centres.

Management Response Management agrees with this recommendation. Management is reviewing and validating capacity at the Client Service Centres. ServiceOttawa will refine the FTE capacity analysis calculation. The FTE calculation will take into consideration 2012 transaction volumes. Management cannot agree with the assertion that there are 13 FTEs of excess capacity (worth approximately $800,000) until the FTE capacity analysis calculation referenced in Recommendation 16 is refined. ServiceOttawa will develop a counter service delivery model that will maximize the efficiency of delivery while maintaining access to City services. The new counter service delivery model will include a review of the services provided and the location of service delivery. Should the new model anticipate significant changes from the existing service delivery model those recommended changes will be sent to Council for approval. This work will be completed by the end of 2014.

Recommendation 15 That the City monitor the level of services provided to the public including the level of effort and knowledge required and assess utilization of staff to identify and realize efficiencies.

Management Response Management agrees with this recommendation. As indicated in the management response to Recommendation 14, management is reviewing and validating capacity at the Client Service Centres and is assessing the utilization of staff as a cross-functional workforce in providing service both on the phone and in person. This review will be completed by the end of 2014.

Office of the Auditor General 2012 Annual Report Page 71 Audit of the Client Service Centres Recommendation 16 That the City refine the FTE Capacity Analysis calculation and rationalize the CSC staffing and locations including consideration of closing some centres.

Management Response Management agrees with this recommendation. As indicated in the management response to Recommendation 14, management is reviewing and validating capacity at the Client Service Centres and will refine the FTE capacity analysis calculation. The FTE calculation will take into consideration 2012 transaction volumes and a number of processes that are required to deliver services to residents, such as: opening and closing procedures, entry of Vital Stats, processing information requests that are timely and do not always result in a cash transaction, etc. ServiceOttawa will develop a counter service delivery model that will maximize the efficiency of delivery while maintaining access to City services. The new counter service delivery model will include a review of the services provided and the location of service delivery. Should the new model anticipate significant changes from the existing service delivery model those recommended changes will be sent to Council for approval. This work will be completed by the end of 2014.

Recommendation 17 That the City fully recover costs relating to the Government Service Centres from the provincial and federal governments in accordance with the established agreements.

Management Response Management agrees with this recommendation. Management is currently negotiating with the provincial and federal governments occupying the shared space in the Government Service Centre at 110 Laurier, to review and update the Memorandum of Understanding and Service Level Agreement currently in place. The City will review all of the costs incurred and will include the Auditor‟s recommendations in the scope of the negotiations with the provincial and federal governments. The updates to the Memorandum of Understanding and Service Level Agreement will be completed and finalized by the end of 2013.

Page 72 Office of the Auditor General 2012 Annual Report Audit of the Client Service Centres Potential Savings Based on information from management for the estimated overall transaction level at the CSCs in 2011, by improving the efficiency of operations, we estimate there is the potential for annual staff savings of $824,000. This would be based on potential savings of 13 FTEs. There would also be other non-compensation operating costs that could be saved for the centres which are closed. This calculation should be further refined by management as part of their FTE Capacity Analysis calculation. There appears to be costs incurred by the City relating to the Government Service Centres that could have been recovered from the federal and provincial governments in accordance with established agreements which we estimate at $35,800. The potential impact of full cost recovery for areas not fully cost recovered has not been quantified. Conclusion The seven Client Service Centres were established at amalgamation. Since that time, the operations of the three rural centres were reduced from being open five days per week to one day per week. This results in CSC resources being allocated across seven locations creating the potential for lost productivity and the risk of not being able to fully support efficient and effective service delivery and service excellence. We believe from reviewing the transaction levels and their nature that there is underutilized capacity. Cost saving opportunities include considering reducing the number of CSC locations. This would be additional to transactions shifted from the CSCs to the Internet or savings arising from other system and process efficiencies. Although we found there were initiatives underway to improve CSC systems and processes and service excellence and increase non face to face interactions, some issues were identified. These included that: an operational risk assessment had not been completed at the Client Service Centre unit level, performance data provided to Council and residents was not complete and accurate, staffing capacity and utilization was not monitored on an ongoing basis to identify and realize potential savings, and non-compliance with the City's Cash Handling Policy and Procedures. The results of the 2011 Client Satisfaction Survey conducted by management during 2011 showed that the Client Satisfaction categories of "Timeliness, Got what I needed, Accessibility (Laurier only) and One-stop satisfaction (Laurier only)" had dissatisfaction ratings greater than 10%. In our opinion, this was a high level of dissatisfaction. Acknowledgement We wish to express our appreciation for the cooperation and assistance afforded the audit team by management.

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5.5 Audit of Construction Supervision EXECUTIVE SUMMARY

Introduction The Audit of Construction Supervision was included in the 2012 Audit Plan of the Office of the Auditor General (OAG), approved by City Council on December 14, 2011. Background Council Members brought nine projects to the attention of the Auditor General, for review. The projects examined were constructed in 2010 and 2011, except for two that were constructed in 2004 and 2006. A sample was selected from the projects completed in 2011 and 2012. Audit Objectives

Audit Objective No. 1 - Examine and evaluate the processes and methodologies pertaining to the Construction Supervision Procedures followed by the City.

Criteria: Review of tender documents Examination of tendering process, including design/build projects Procedures for selection of contractor Review of contract documents Construction administration files Assignment of project manager, project supervisor and inspectors Construction inspection tasks and procedures Procedures for management of change orders and extra work orders Claims process procedures

Audit Objective No. 2 - Determine whether the processes and methodologies are consistent and compliant with all relevant policies, procedures, legislation and regulations.

Criteria: Project management procedures Procedures for transfer of project from design to construction

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Tendering process Procedures for selection of contractor Contract administration process Cost control Management of change and extra work orders Inspection procedures Management of claims by contractor

Audit Objective No. 3 - Examine nine specific projects and specific issues brought to the attention of the Auditor General by Members of Council, to determine if they are consistent with relevant policies, procedures, legislation, and regulations.

Criteria: Review of specific projects and issues indicated by Councillors Selection of type of contract Project management procedures Procedures for transfer of project from design to construction Procedures for selection of contractor Contract administration process Inspection procedures Quality control and quality assurance procedures Claims management Cost control

Audit Objective No. 4 - Examine a sample of ten construction projects completed in 2011 to determine if they are consistent with relevant policies, procedures, legislation, and regulations.

Criteria: Review of ten sample projects Selection of type of contract Project management procedures Procedures for transfer of project from design to construction Procedures for selection of contractor Contract administration process

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Inspection procedures Quality control and quality assurance procedures Claims management Cost control AUDIT SCOPE The audit scope consists of a review the construction supervision process used during construction of capital works projects by the City. The audit examined the following projects that have been brought to the attention of the Auditor General by Councillors. The review focussed on the specific concerns raised by the Councillors, as follows: Transitway – Installation of manhole covers along the travelled lanes and on the path of the bus wheels. Gloucester Hornets Nest – Review of cost compared to the size of the project; review the procurement process. Townline Bridge Replacement, Structure 433080 – Contractor with poor performance was awarded the contract, previous project not completed on time, increase in risk to City. Note that this project was completed in 2004. Cavanagh Bridge (John Shaw Road), Structure 433040 – Contract awarded to same contractor as Structure 433080, the issues are the same. Note that this project was completed in 2006. Dunrobin Road Culvert, Structure 338180 – Culvert was flooded, was rehabilitated, flooded again, and was replaced completely in 2011. King Edward Avenue Reconstruction – Concerns with basement cracks in a number of properties. Woodroffe Avenue Watermain Replacement – Following a watermain break in January 2011, construction did not start until April 2011. The concern is whether the work could have been done in the winter or early spring. Summer construction affected the residents, including water restrictions due to the temporary water service. John Leroux (Stittsville) Arena Upgrades – The roof repairs were delayed until late 2009 because the materials would not fit the curvature of the roof. Work was not completed until 2010. In addition, the use of design-build in comparison to conventional design-tender-build projects to be assessed. Goulbourn Recreation Complex – Ice pad addition was started in 2011 and completed in 2012. There is a concern with quality assurance and control, and how it may affect the project warranty.

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To provide context of the overall process to the review of the projects raised by the Councillors, the following ten projects completed in 2011 and 2012 were examined, representing a total construction value of $123,766,000, which constitute approximately 11% of the total budget value of the projects that were active in the City in 2011. The ten projects include projects of small, medium and large size. The following projects were selected as a representative sample based on these criteria: Figure 1: Selected Projects Reviewed Per Infrastructure Services Department Estimate at Projects Completion Cost ($000s) 1 SW Transitway Extension (North) Stage 1 - Fallowfield to $17,568 Berrigan 2 Woodroffe Ave. Watermain Replacement (Baseline to $4,827 Navaho) 3 Sandridge Rd (Hillsdale Rd to Merriman Ave) - Road, $8,000 Watermain & Sewer 4 Centrepointe Theatre Expansion $11,850 5 West Nepean Collector Sewer - CIPP Rehabilitation $3,800 6 Campeau Dr. Water Pumping Station $3,500 7 Strandherd Dr. (Crestway to Prince of Wales) incl. widening $35,000 of Prince of Wales 8 3W Feedermain Link - Phase 1, Part 1 (Ottawa River Pkwy to $32,000 Moodie) 9 Cave Creek Collector, Phase 1 (Harmer to Faraday) $6,000 10 Prince of Wales Roundabout Reconstruction at Central $1,221 Experimental Farm TOTAL Estimate at Completion Cost of Projects Examined $123,766

Change orders were reviewed in the projects listed in Figure 1 and five of the projects raised by Councillors, where change orders were applicable. In total change orders of 15 projects were reviewed. In all projects, we reviewed the costs in comparison with the authorities. The audit encompassed the following tasks: Review legislative framework;

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Review City‟s policies, procedures, standards and practices; Review industry procedures, standards and practices; Review background data; Obtain and review all files for the project; Conduct interviews with individuals involved in the various projects; Conduct site visits, as required; Prepare draft report for fact verification; Conduct additional interviews for confirmation of issues, as required; and, Submit draft report for management review. Summary of Key Findings

General Findings The findings below are related to Audit Objectives No. 1 - Examine and evaluate the processes and methodologies pertaining to the Construction Supervision Procedures followed by the City; and, Audit Objective No. 2 - Determine whether the processes and methodologies are consistent and compliant with all relevant policies, procedures, legislation and regulations. 1. The City uses a procurement process for construction services that requires public solicitation of bids for the work. The procurement process is carried out by Supply Branch. Bidding opportunities for construction projects are sent to the Ottawa Construction Association (OCA), who publishes them and administers the issue of tender documents for interested contractors. Solicitations are not published in other tender advertising sites unless the project requires highly specialized contractors, in which case the City uses MERX1. 2. Projects posted at the OCA are available for viewing on site or online by members of the OCA. Non-members can purchase the tender documents at a higher cost than members. The City has advised that tenders are published by OCA in Link2Build, a new electronic bid advertisement board that has been in use by OCA since 2012. Link2Build is a website that publishes construction bid opportunities (primarily non-residential) published by local and regional construction associations across Canada. During the audit, the solicitation document process for non-members was tested by registering and downloading the documents for one project. The process was clear and relatively straightforward. 3. Information provided by OCA indicates that approximately 9% of the total Infrastructure Services Department tenders (110 out of 1,271) had tender

1 MERX is a well established and well-known electronic tendering service with Canada-wide scope, which has been in operation since 1997.

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document takers that were from outside of the Ottawa and surrounding area (defined as 50 km from the City‟s boundary). Of these, five tenders were awarded to contractors from outside the Ottawa and surrounding area, comprising less than 1% of the total value of construction contracts awarded by the City ($363,200,000). 4. The concern with the method of tender advertising is that the City only posts tenders with the OCA (who publishes them in Link2Build, as noted above). Consequently, tenders do not get a wide distribution outside of the City of Ottawa. Tenders would receive wider distribution if they are published in more general sites, such as MERX. It can be expected that advertising tenders in a wider area will result in the City getting more bids which could result in lower prices for the City contracts. It is noted that the City uses MERX for other solicitations, including non-construction related request for proposals and request for standing offers. 5. In its annual report to Council, Supply Branch analyzes the Delegation of Authority reports to identify contracts awarded to and/or performed by local companies. According to the annual report, when adjusted to remove goods and services not available locally (e.g., transit buses are not manufactured in Ottawa, nor is winter rock salt mined locally); approximately 94.5% of the City‟s annual purchasing dollar was spent in Ottawa and the surrounding area.

Figure 2: Analysis of Local Purchasing by Quarter Per Supply Branch

Q1: Q2: Q3: Q4: 2011 2011 2011 2011

BEFORE removing purchases not available locally: 69.6% 85.7% 78.9% 80.7%

AFTER removing purchasing not available locally: 91.4% 92.9% 97.6% 93.7%

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Figure 3: Geographical Vendor Breakdown for 2009 to 2011 Contracts Awarded Under Delegation of Authority Per Supply Branch

2011 2010 2009

Region Dollar Value % of Total Dollar Value % of Total Dollar Value % of Total

Ottawa and area $898,901,307 94.5% $754,027,060 94.6% $732,055,748 95.4% Ontario $22,897,121 2.4% $18,187,233 2.3% $24,918,710 3.2% Quebec $10,522,412 1.1% $13,028,587 1.6% $5,796,562 0.8% All Others $18,607,380 2.0% $12,077,843 1.5% $4,805,783 0.6% Total $950,928,220 100.0% $797,320,723 100.0% $767,576,803 100.0%

Supply Branch did a 2011 “buy local” analysis isolating only construction contracts. Based on this analysis, 808 of the total 884 construction contracts awarded in 2011 (91.4%) were awarded to local firms. When considering dollar value, this figure rises to 96.6%. Figure 4: 2011 “Buy Local” of Construction Contracts Per Supply Branch

# of % of Dollar Region Construction Dollar Value Value Contracts Ottawa & Area 808 $397,711,493 96.6% Ontario 50 $11,995,007 2.9% Quebec 21 $1,845,407 0.4% Other 5 $226,940 0.1% Total 884 $411,778,847 100.0%

6. It is our opinion that savings may be achieved by advertising construction project bid opportunities in widely used site that would reach a broader audience outside of Ottawa.

7. The City‟s procedures for assignment of project managers and inspectors are similar to the practice in other Ontario municipalities.

8. Contract administration and inspection tasks are well documented in the Inspection Manual prepared by Infrastructure Services.

9. The projects examined, with one exception, were constructed using a design-tender- construction format of procurement. The Dunrobin Road culvert replacement was constructed using a time-and-materials basis.

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10. The City carries out a bid analysis for all tenders, comparing the cost estimate prepared before tendering with the various bids. This procedure is similar to that used generally by other Ontario municipalities. 11. The City uses formal contract documents for all the construction contracts examined. 12. The Branch Manager and Program Manager assign the project manager to the contract based on his/her experience. Inspectors are assigned from a pool of inspectors, supplemented with consultants as required by workload or expertise. 13. Purchasing By-law No. 50 of 2000 – A By-law of the City of Ottawa Respecting Purchasing of Goods, Services and Construction. As noted on the City‟s website, the Purchasing By-law has the objective of obtaining the best value when purchasing goods, construction and services for the City, while treating suppliers equitably. The guiding principle is that purchases be made using a competitive process that is open, transparent and fair to all suppliers. We examined the application of the By-law to the process of acquiring construction services. 14. The Project Manager Manual (PMM) provides detailed guidance and instruction on requirements for tendering of the projects. Supply Branch coordinates with the Ottawa Construction Association to place the Request for Tenders, and the project manager provides input during the tendering period. 15. The PMM makes provisions for the steps to be taken when the construction administration and inspection is done by a consultant. 16. The PMM contains directions regarding questions during tendering and addendum procedures. 17. Once the tender has closed, the bids are reviewed by the City for clerical errors and compared to estimates and budget. A rationale is provided for any gross inconsistencies in unit prices. 18. The contractor is selected based on the methodology identified in the solicitation. In the case of the projects examined, this was based on lowest responsive bid.

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19. The City does not have a policy and procedures to enable explicit evaluation of the past performance of contractors on previous City contracts when determining the award of a new contract. The City advises that a prequalification process is used in large complex projects, and that the City has the right to request a firm‟s experience in successfully completing projects of similar size and complexity. However, the City does not always use these methods, and past performance does not enter explicitly into the bid evaluation. As a result, contracts are awarded to the lowest bidder meeting the mandatory requirements identified in the solicitation, including bonding and insurance requirements. 20. The City has developed a document for reporting supplier performance during the course of a contract. However, if the contractor completes the contract without default, they are eligible to bid in future City contracts; even if the contract process was fraught with difficulties, delays, and extra costs caused by poor performance. The only penalty considered is if Supply Branch barrs the contractor from bidding on future City projects. A performance evaluation method that is taken into account in the evaluation of future bid opportunities is necessary to distinguish between contractors who perform well from those who do not. 21. Past performance of contractors should be documented and a rating system established to enable the City to take the contractor‟s past performance into account when they are competing for new work. The City currently has a Contractor Performance Appraisal Form to document performance; the form is included in Appendix X-2 of the Project Manager Manual. This form, with some modifications, would be a good basis for contractor performance evaluation, as discussed in the previous point. We note that the Contractor Performance Appraisal Form was found in the project files of only one project (Townline Bridge) and not in other project files reviewed. 22. The contract administration functions are well documented and are followed by the project managers. 23. Review of the change orders in the various projects examined demonstrated that the City has a proper method of checks and balances to confirm the need for the change order, review the amounts proposed by the contractor, and negotiate as required a fair price for the change order amount. 24. In general terms, change orders in large new building projects can be expected to have a value ranging between 2% and 3% of the contract value on very well coordinated projects; however, average values can be as high as 5%. On projects that are additions to other buildings the value of change orders is expected to be higher. For heavy construction projects, such as roads, watermains, sewers, and bridges, acceptable values of change orders range from 5% to 10% of the contract value. The changes are expected to be the result of site conditions. The range of

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generally accepted values were determined based on the experience of a senior architect with more than 20 years of experience, and was used as a typical experience. Construction Delay Claims, B. Bramble & M. Callahan, Construction Law Library, 2005, p. 5-26 states that change orders can range from -5% to +10%. The American Institute of Architects (AIA), The Architect’s Handbook of Professional Practice, 1994 states that the changes could be as high as 7%. AIA Best Practice document, Managing the Contingency Allowance, David Hart, 2007, indicates a value of 5% is commonly used. Columbia University Facilities (http://facilities.columbia.edu) provides a range of 5% to 10%. In addition, the acceptable range of change orders can be supported by the usual range of contingency allowances that are provided in civil construction projects. 25. Review of the change orders for the various projects examined showed that several were the result of design issues or design errors and omissions. Work performed under a change order is generally more costly than if the same work is performed under the original tender bid. The reason for the higher cost is that the contractor will charge full price for labour, materials, and equipment required to carry out the work, since there is no competitive process, plus the contractor is entitled to mark up the cost by 15% in the case of work done by the contractor or 10% for work done by a sub-contractor for overhead and profit. The percentages of mark-up were determined based on the change orders reviewed during this audit. In contrast, contractor‟s overhead and profit are distributed throughout the project items in a bid. 26. In some instances, the cost of the entire change order was the result of consultant‟s errors and omissions. The City paid the entire cost, without requiring the consultant to cover the additional costs. 27. On two of the projects reviewed, the respective project manager classified the change order into categories (e.g., design errors and omissions, coordination, owner request, site conditions, and others). This procedure is important to assist in recording the amounts that could be recovered from the consultants. Not all project managers follow this procedure. This process should be followed by all project managers. 28. Figure 5 summarizes the costs of change orders for the various projects, and the portion of the cost that was due to design errors and omissions by consultants. Details on individual change orders for each project are provided in Appendix A of the full report. 29. The amount of the change orders suggests that there may be issues with this matter. This will be explored further in our 2013 Audit of Infrastructure Services.

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Audit of Construction Supervision

Figure 5: Contract Amounts and Change Orders Project Name Original Change Percentage of Portion of the Contract Order Change Orders Change Order Amount Amount in Relation to Paid by the Original City Relating Contract to Design Amount Errors 1 Gloucester Hornets Nest $298,253 $35,097 11.8% $30,816 Fieldhouse 2 Cavanagh Bridge $751,100 167,918 22.4%

3 Woodroffe Avenue $4,110,700 $1,065,830 25.9% Watermain ISD11-5046 4 John Leroux Arena $493,300 $64,562 13.1% (Stittsville Arena) 5 Goulbourn Twin Ice Pad $6,635,000 $346,501 5.2% $50,562

6 Southwest Transitway $12,457,000 $1,196,238 9.6% $696,881 Extension 7 Woodroffe Watermain $6,327,937 $246,716 3.9% ISB09-6001 8 Sandridge Road $6,878,000 $248,026 3.6% Reconstruction and Hillsdale Road 9 Centrepointe Theatre $9,343,824 $424,159 4.5% $63,292 Expansion 10 West Nepean Collector $3,470,297 $595,180 17.2% Sewer Rehabilitation 11 Campeau Drive Pumping $4,478,000 $379,595 8.5% $198,075 Station 12 Strandherd Drive $14,892,000 $2,064,769 13.9% $660,470 Extension ISB09-5009 13 3W Feedermain Phase 1, $11,867,325 $762,817 6.4% $30,204 Part 1 14 Cave Creek Collector $3,505,330 $367,888 10.5% $70,980 Relocation 15 Prince of Wales $1,191,778 $57,560 4.8% Roundabout TOTAL ALL PROJECTS $86,699,844 $8,022,856 9.3% $1,801,280

Per the above table, the percentage of the change orders due to design errors and omissions is 22% of the change order value. 30. The City does not have a consistent approach to encourage the project managers to recover from the consultant the cost of change orders when these are caused by errors and omissions in the design.

Office of the Auditor General 2012 Annual Report Page 85 Audit of Construction Supervision Projects Raised by Councillors The findings listed below pertain to the nine projects that were brought to the attention of the Auditor General by Councillors. The projects were reviewed in accordance with Audit Objective No. 3 and the associated criteria.

Transitway The “Transitway Design Manual, October 1993” has provisions for the placement of manholes on the Transitway, specifically stating that manholes and other ironwork shall not be placed on the travelled portion of the Transitway. The Sewer Design Guidelines, SDG001, November 2004 states that “attempts should be made to avoid locating manholes in the path of vehicle tires, subject to the location requirements of the Guidelines for the Placement of Utilities in the Right-of-Way", which takes precedence. Review of the provisions show that they are adequate. Spot examination of the Transitway disclosed that its design follows these provisions.

Gloucester Hornets Nest 1. The project was tendered using Supply Branch standard procedures. The bids received ranged from $298,937 to $581,333. The lowest bidder was awarded the contract. 2. Review of the cost of the building shows that the cost per square metre of building was $2,310 ($215 per square foot). Based on average construction cost per unit area of similar buildings, the unit cost for the building is competitive. 3. The cost of change orders due to design errors or omissions was $30,816. Although the work was necessary, when work is done as a change order the cost to the City is higher than if it is included in the original tender. In this particular case, the additional costs calculated based on 15% overhead and profit markup is $4,019 [$30,816*(1-1/1.15)].

Townline Bridge Replacement 1. The issue in this contract is whether the contractor had performed prior work for the City and their performance was not taken into account in awarding them this contract. The audit found that the contractor had completed a smaller culvert replacement, in which they made a major mistake in setting the elevations of the culvert footings. However, the resulting problems were corrected by the contractor at their cost and at no cost to the City. 2. In the bid for the subject bridge contract, the contractor met all the bid requirements, including provision of a bid deposit and agreement to bond, and subsequently met all insurance and bonding requirements. 3. Upon completion of this contract, in July 2004, it could be concluded that the contractor completed the work satisfactorily, but had schedule problems.

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4. The contract work was delayed so the City applied liquidated damages to the contractor and deducted them from the payments. 5. In 2007, the contractor took legal action against the City on the basis of a claim for extras that was rejected by the City. This action is ongoing.

Cavanagh Bridge 1. Contract ISB04-7018 was awarded in April 2005, after the completion of the Townline Bridge Replacement, discussed in Section 4.3.3 of the full report. The contractor work started on July 4, 2005; was substantially completed in January 6, 2006; and, was completed on June 27, 2006. 2. At the start of the contract, the City discussed with the contractor the problems associated with various deficiencies, non-performance and supervisory issues on previous contracts carried out by the contractor. The City and the contractor agreed that their performance would be monitored during the execution of this contract. 3. The City attempted to apply a formal contractor evaluation form for future use, based on a form similar to the Contractor Performance Appraisal Form that is presently included in the Project Manager Manual. 4. Supply Branch working with departments developed a document for recording supplier non-performance, by progressive escalation of contract issues. The document provides general instructions for enforcing the provisions of the contracts, including notice of default and for termination of the contract. However, it is a general document intended to be applied to all City procurement, and is not sufficiently specific to construction. 5. The procedures do not include a method for recording past performance of contractors on City projects. There is no specific method for applying the results of past performance of a contractor to the selection process in future City contracts. 6. The Contractor Performance Appraisal Form included in the Project Manager Manual could form the basis for contractor evaluation. However, we noted that it was not found in the files of the projects that were reviewed during the audit.

Dunrobin Road Culvert 1. The original culvert was a 1.8 m diameter corrugated steel pipe (CSP) culvert, which had corroded substantially. In 2007, the City arranged to rehabilitate it by installing another culvert through the barrel of the CSP culvert to extend its useful life. The process of installing the culvert through an existing culvert is called sliplining.

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2. On August 15, 2010, the road was overtopped at the culvert and part of the road embankment was washed out by the flood. On April 11, 2011, the road was overtopped during another storm, which caused damage to the northbound lane and shoulder, although not to the same extent as in the August 2010 flood. Following the flood, the road was repaired under emergency work procedures and reopened on April 16, 2011. 3. Following the flood, a hydraulic analysis of the culvert showed that the lining done in 2010 had reduced the hydraulic capacity of the culvert. The consultant recommended that the culvert be replaced with a larger one. 4. On June 24, 2011, the road was overtopped a third time in less than one year. On this occasion, the City decided to keep the road closed and to replace the culvert with a new one selected on the basis of the consultant hydraulic recommendations and the pipe that was available from the manufacturer for rapid delivery. 5. The June 2011 work was done on a time and material basis, using the contractor that had been called in to repair the damaged road. 6. The issues with this project are that the initial renewal process, which concluded in the sliplining rehabilitation in 2007, did not follow the formal procedures for evaluation of renewal alternatives of bridges and bridge-culverts. The hydrology and hydraulic calculations were not sufficiently thorough to permit the City to recognize that the hydraulic capacity had been reduced, or the implications of this reduction.

King Edward Avenue Reconstruction 1. The project comprised reconstruction of King Edward Avenue and connecting streets between York Street, Sussex Drive and Macdonald-Cartier Bridge. The work comprised relining the existing collector sanitary and storm sewers; reconstruction of underground utilities; removal of existing road bed, excavation, granular and hot mix asphalt; rehabilitation of the Red Path structures; demolition of one structure and three new landscape wall structures with a stone facing. 2. As part of the process, the City required the contractor to conduct a pre- construction survey of buildings and structures that could potentially be affected by construction activities and vibration. 3. The contractor retained a specialized firm to complete the pre-construction survey. The limits of the pre-construction survey are determined by the contractor, and not the City. This contracting procedure protects the City as the responsibility for damages is the contractor‟s. The procedure is a standard procedure used by practically all project owners, since the project owner (the City in this case) does not have control over the contractor‟s methods and operations.

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4. The specialized firm carried out a pre-construction survey of 100 buildings; of these, 44 were inspected both inside and outside. The remaining 56 were surveyed only on the outside because the owner refused entry to the survey company representatives. 5. The property owners of nine buildings claimed that their buildings had been damaged as a result of construction. Of the nine buildings, four are located outside of the pre-construction survey limits. 6. The property owners discussed the matter with the City‟s project manager, who referred the matter to the contractor. The contractor referred the matter to his insurance company. 7. The issue on this project arose from the fact that the City contract documents transfer the responsibility for damages that occur during construction to the contractor. A number of the property owners brought the matter to the attention of the Mayor, who had the City Solicitor review the contract documents. The City Solicitor advised the property owners that the matter should be pursued with the contractor. 8. The property owners have taken issue with the fact that the City transfers to the contractor the entire responsibility and risk for any damages caused by construction. The reason the City and practically all other project owners in North America pass this responsibility is that, as previously noted, the City does not have control or responsibility for the methods and procedures used by the contractor. 9. We reviewed contract documents issued by several other municipalities and the Ministry of Transportation. In all cases, the Ontario General Conditions of Contract, part of the Ontario Provincial Standard Specifications, which transfer the responsibility for any damages caused by the contractor to the contractor, were used. Public Works Canada in its contracts uses similar language. 10. The City‟s contract provisions meet the current standard for handling of damage claims. As well, the manner in which the project manager addressed construction damage claims was correct.

Woodroffe Avenue Watermain Replacement 1. In 2007, a watermain failure on Woodroffe Avenue south of Hunt Club Road occurred. The City carried out a non-destructive pipeline condition assessment of the watermain from Hunt Club Road southerly to Fallowfield Road in November 2008. The condition assessment found that 18 of 558 pipes inspected (3.2%) had broken prestressing wires. A failure risk analysis of the data collected in the condition assessment was completed to calculate the risk of failure of the prestressed concrete cylinder pipes and the repair priorities for the maximum pressures. The failure risk analysis results, reported in February 2009, indicated that of the 18 pipes with broken prestressing wires, 3 were in Repair

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Priority 1 (immediate action required) and 1 pipe in Repair Priority 2 (replace within 3 years). The other 14 pipes were in Priority 3 and 4 (moderate and low risk for the next 5 years). 2. The 1.2 m diameter watermain on Woodroffe Avenue failed on January 14, 2011 between Medhurst Drive and Hunt Club Road. This section of the watermain was constructed in 1975 and 1976 using concrete prestressed pipe. 3. The section of watermain that failed in January 2011 is located north of Hunt Club Road. It was constructed using the same type of pipe which had a similar failure in the fall of 2007, but about 1 to 2 years earlier. 4. The February 2009 failure risk analysis report states that pipes in Repair Priorities 1 and 2 are in high to moderately high risk of failure. The report recommended that the four pipes in Repair Priorities 1 and 2 be excavated and inspected externally to confirm the level of distress, and to replace the pipes accordingly. 5. The 2009 failure risk analysis report defines Priority 1 projects as those where the maximum pressure in the line exceeds the pressure that produces the ultimate strength with (Priority 1a) and without (Priority 1b) the contribution of soil resistance. The failure can occur at any time. Repair should be performed as soon as practical and in less than 1 year. 6. Accordingly, pipes in Priority 1 should have been replaced, at the latest, before February 2010. 7. The design for the replacement of the four pipes south of Hunt Club Road in Priority 1 and 2 started in December 2009, with the original schedule of construction start date of October 2010, which is 8 months later than the Priority 1 failure risk indicated. The original design schedule was to have the design completed and the tender package ready before June 2010. 8. At a scheduling meeting on January 12, 2010, the City decided to postpone the project, but that the design should be ready for construction in case that an emergency required the work to proceed. This was communicated to the project manager by a senior watermain rehabilitation engineer on May 19, 2010, who indicated that the delay was due to other potentially conflicting demands on the system, that the watermain and transient pressures would be monitored by Operations, and that the design should proceed to completion in case that an emergency repair became necessary. The City has indicated that the decision to delay the repairs was made based on other risks to the water system that would not have been apparent to the consultant doing the inspection at the time of the condition assessment. Drinking Water Services carried out a transient analysis (maximum water pressure analysis) in 2009 to assess the likelihood and magnitude of transients that could affect the pipes. The City has explained that the decision to postpone the repairs in Priority 1 was based on managing overall

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water system risks, and that the contract for the repairs on Woodroffe Avenue were scheduled to proceed after the completion of the 2W/2C watermain, which would provide a third feed into the area. 9. At the time of the January 2011 watermain break, construction of the Zone 2W 2C feedermain was in progress, so the City‟s Design and Construction explored the possibility of extending the contract to include the watermain north of Hunt Club Road. However, Asset Management and Drinking Water Services suggested that a condition assessment of the Woodroffe Avenue watermain be done first to identify areas of concern. The scope of the January/February 2011 condition assessment was broader than the 2008 condition assessment, and included the section from David Drive to Hunt Club Road, in addition to the section done in 2008 (Hunt Club Road to Fallowfield Road). 10. On February 24, 2011, Asset Management provided Design and Construction - West with a Scoping Document based on the findings of the condition assessment. When comparing the 2008 and 2011 conditions assessments, it was found that the number of pipe sections with wire breaks was similar on a per km basis, but a greater number of pipes had more severe deterioration. They did find substantial increase in deterioration in the prestressed concrete pipe watermain from 2008. 11. The project manager was aware that procurement of the pipes could take a substantial length of time and therefore proposed to sole-source the procurement of the pipes from a manufacturer who could deliver the required quantity of pipe within the required schedule, in order to expedite construction. He requested pricing for the replacement pipes from the supplier and received it on February 24, 2011. 12. On March 1, 2011, the project manager informed the pipe supplier that the City would proceed with buying the pipe and appurtenances required from the supplier selected. On March 10, 2011, the project manager sent an Estimated Spending Plan Authority (E-SPA) to Purchasing for the pipe. The project manager indicates in the email that Supply Branch had been kept apprised all along, but review of the files found no documentation to confirm that this was the case. 13. On March 16, Purchasing asked the project manager for the reason for sole sourcing the pipe and for selecting the company. The discussion about sole sourcing the pipe extended to March 30th, at which time the decision was to proceed with a standard tender. 14. The correspondence shows that at the time of the break in January 2011, the City repaired the broken watermain and it scheduled the required replacement of the remaining pipes to tender the project for work in the fall of 2011. However, the condition assessment of the watermain from David Drive to Fallowfield Road

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disclosed that sections of the watermain had deteriorated substantially since 2008 and that there was similar deterioration in the segment north of Hunt Club Road. Based on the results, the City decided to not return to service the section of watermain from Knoxdale Road to Vaan Drive until the required watermain replacement was completed. On this basis, the City decided to carry out the watermain replacement and repair work as soon as possible, instead of returning the watermain to service immediately and risking another break. 15. While the pipe was out of service, supply to the Barrhaven and Riverside South service areas was being provided through a single 406 mm watermain along Merivale Road, supplemented by in-line pumping. The temporary supply met the demand at the time, but hydraulic modelling indicated that it would meet only 75% of the maximum day demand. 16. At the end of February 2011, the results of the condition assessment and the hydraulic modelling showed that construction could not be postponed until the fall, and the project was scheduled for tendering as soon as possible. 17. A number of alternative means of operation and/or repair were examined, including repairs by leaving the pipe in place, such as sliplining or reinforcing the pipe. The analysis concluded that the preferred solution is open cut construction along Woodroffe Avenue. Any of the alternatives would only advance completion by, at most, two weeks and the resulting watermain condition would not be as satisfactory. 18. As a result, it was necessary to impose a complete outdoor water ban in Barrhaven, Riverside South and Manotick until completion of the project, in order to avoid running the system dry and possible boil water advisories and inability to meet firefighting requirements. 19. Review of the change orders for this project found that they were fully documented and were reviewed by the contract administrator and project manager. In general terms, the change orders were necessary to expedite the project. 20. “Police assistance at intersections” item is a concern. Due to the level of traffic congestion on Woodroffe Avenue, it was necessary to have point duty police on a daily basis. The original tender did not anticipate this amount of point duty for the project. The additional cost was $247,637, paid by variation in the tender quantities at the tender price. The total price paid was $313,638. Review of the invoices to the contractor for 1,140.5 hours of police service show that the cost was $214,346 based on $188 per hour. The contractor was paid $99,292 or 46% mark-up on police cost. 21. The project manager should have negotiated the cost of this item, as it clearly was a very significant variation in the quantities, and the general conditions of contract contain provisions for such eventuality. In addition, the manner in

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which the item is paid provides the contractor with a profit on a service provided by one City Service to another. In fact, the profit margin is 46% even if the number of hours in the contract is not exceeded. 22. Rather than include an item with unit prices, the City should provide an allowance for the cost of the services, with only an administration markup for the contractor. A better option would be to have Ottawa Police invoice the City directly for the services.

John Leroux (Stittsville) Arena Roof Replacement 1. The design for the arena upgrades comprised replacing the existing arena roof with a new one. The total fees paid for the design were $6,827. 2. The design drawings showed that the roof had variable slope, ranging from 10º near the apex to 17.4º near the fascia. The specifications required a specific product and model of sheet metal roofing and cladding. During the tender, a second manufacturer requested to be included as an approved alternate, and was in an addendum. 3. After the contract was awarded, the contractor informed the City and the consultant that the roofing manufacturer selected by the contractor (from the approved suppliers provided in the tender documents) had advised that the specified roof replacement could not be installed on the arena roof because of the curvature of the roof. 4. The roofing manufacturer selected by the contractor suggested that an alternate product manufactured by them would be suitable for the site. The City accepted the alternative, which resulted in additional costs due to differences in colour and additional liner. However, the alternate product also could not be installed on the roof. 5. The City, the consultant and the contractor worked several weeks on resolving the matter, including construction of „mock-ups‟ to determine if alternatives would work. The contractor suggested that a roofing membrane would fit the roof configuration. In June 2009, the City accepted that the consultant design would not work and asked the contractor to proceed. However, the arena scheduling conflicted with the contractor‟s work methods. In November 2009, the City rescinded the purchase order. 6. The City considered taking legal action against the consultant, but did not. 7. In February 2010, the City offered the contractor to reinstate the purchase order, and the project was completed in September 2010, using the roof membrane design proposed by the contractor in June 2009. 8. The project was completed in September 2010, using the revised roof design. The total additional cost was $39,314 due to the change of the roof and the delays.

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9. Analysis of the project timeline shows the following issues: The design consultant did not carry out sufficient due diligence to confirm that the roofing system provided in the tender documents would actually work. The design consultant refused to accept that the roofing system proposed would not work until the contractor and the roofing supplier showed that it was not a feasible system for this project. The City considered claiming against the consultant for the additional costs due to the change in roofing system and the delays, but decided against it. The City advised that it received services from the consultant on another project to compensate for the consultant costs to the City on this project. However, the extent of compensatory services is not fully documented.

Goulbourn Recreation Complex 1. The construction of the Twin Ice Pad at the Goulbourn Recreation Complex commenced in January 2011. The Chief Building Official issued a Partial Occupancy Permit on March 29, 2012; the Final Occupancy permit has not been issued. 2. The original schedule for the project in 2010 was for the contract to be completed in January 2012. The schedule provided by the contractor during the initial stages of the project required completion by the end of November 2011. In September 2011, it was obvious to the contractor that the project would not be completed in accordance with the original schedule, and a revised schedule was issued with a planned completion date of January 30, 2012. 3. The main reasons for the setback were the result of delays with the manufacturing, delivery and erection of the structural steel for the project. The manufacturer initially would not start the shop drawings until he received the signed and sealed structural drawing issued for construction. The original schedule was for 25 working days, but the work required 75 days. In addition, the structural steel was delivered to the site before the shop inspection required by the contract documents, and with defects in some of the pieces. The City had the structural steel inspected on site and the defects were corrected by the contractor. 4. The City imposed on the contractor liquidated damages of $117,000 for the delays, by deducting the sums in three payments. 5. Inspection and testing was carried out by the architectural firm and the structural, mechanical, and electrical engineering firms retained by the City, which provided general review of construction. In addition, the City retained an inspection company to inspect the structural steel and welding, and carried out testing of concrete and compaction in accordance to standard practice.

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6. Review of the file showed that all deficiencies found in the building were corrected before final payment. 7. The issues that were found on this project were mainly The structural steel fabricator created an adversarial relationship from the very beginning and did not follow the requirements of the contract. The structural steel was delivered without the required shop inspection and with defects in some pieces (these were corrected on site).

Selected Projects Reviewed The findings below correspond to ten projects that were selected as a sample to provide context of the overall process to the review of the above projects. These projects were reviewed in accordance with Audit Objective No. 4 and the associated criteria.

Southwest Transitway Extension (North), Stage 1 1. This project comprised the construction of the Southwest Transitway Extension from Berrigan Drive to Oriska Way, Highbury Park Drive Underpass Structure, and the Longfield Station. The contract value for the project based on the tender was $12,457,000. The value of change orders was $1,196,238, for a total final contract value of $13,653,238. 2. Several change orders in this project were the result of an error in the storm sewer elevations shown on a record as-built drawing on file at the City. The resulting additional cost was $440,831. 3. The issue in this project is the accuracy of the record drawings and whether the design consultant should have checked the inverts of the storm sewer given that the crossing was critical. It appears that the City has not investigated whether it could recover any costs of this extra work from the respective consultants. 4. During construction of the Highbury Overpass it was found that the rock at the design foundation elevation was not adequate. This finding necessitated additional rock explorations and testing, and re-design of the footing. The total cost of the change orders was $86,132, which could have been saved if the geotechnical investigation had been completed thoroughly. 5. The City publishes Standard Tender Documents for Unit Price Contracts, which include a typical section for the trench for sewer and services (Standard Drawing No. S6). However, the design drawings showed a typical trench width for two sewers instead of using the standard drawing. As a result, a change order was issued for the additional rock excavation required. The total cost of the additional rock excavation was $18,069.

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6. In total, change orders for $696,881 were the result of design errors. Of this, it is estimated that $559,174 can be classified as payments that the City made which could have been avoided during design. There is no indication that the City considered recovering the additional costs from the consultants (prime consultant and geotechnical sub-consultant).

Woodroffe Avenue Watermain Replacement (2009 contract) 1. This project comprised the replacement of a watermain to accommodate the construction of the Transitway on the west side of Woodroffe Avenue south of Baseline Road. The contract value of the project was$6,327,937. 2. This project progressed without major problems. Thirteen change orders were the result of site conditions or requirements of Drinking Water Services; the total value of change orders was $246,716. The largest change order comprised construction of a new valve chamber and installation of the valve as requested by Drinking Water Services ($166,509). A credit of $50,000 was applied for early abandonment of the old watermain.

Sandridge Road (Hillsdale Rd to Merriman Ave.) 1. This project comprised the reconstruction of Sandridge Road, including replacement of the watermain and sewers between Hillsdale Road and Merriman Avenue. The contract value of the project was $6,878,000. 2. This project progressed without major problems. During the project there was a total of $248,026 in change orders that were the result of site conditions or additional requirements of the Operations department. The Hydro Ottawa change orders were reimbursed by the utility.

Centrepointe Theatre Expansion 1. This project comprised construction of the expansion to Centrepointe Theatre. The building addition comprised 2,630 square metres, including a rehearsal studio, dressing rooms, lounge area, volunteer room, workshop, interior loading dock and storage rooms, plus a loading ramp, and landscaping. The total contract value was $9,343,824. 2. A total of 129 change orders were issued for a total value of $424,159, including a credit of $80,995 to close out the cash allowances ($250,000) in the contract. Some changes were required due to design coordination. The largest modifications were due to changes to the roof to match the existing building‟s roof, hydro substation modifications, and specialty items that were required after substantial completion. 3. The value of change orders in this project constituted about 4.5% of the total project value. On that basis, it is concluded that the value of change orders for this project was within the accepted range.

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4. The value of change orders resulting from omissions on the tender documents was $62,949. Although the value is considered to be within the industry- accepted margin of 3%, the fact that they were omissions and not coordination changes should be taken into account. 5. It is noted that the project manager in this contract identified in the change orders the reasons for each change order, and included a classification for them, including design errors and omissions. This is important to identify as it may assist in the potential recovery of costs. 6. The project was constructed without major problems and was completed within budget and on time.

West Nepean Collector Sewer CIPP Rehabilitation 1. The rehabilitation of the West Nepean collector sewer was undertaken under the Federal Stimulus Funding Program for infrastructure projects (Stimulus Program). It was originally scheduled to be completed before the deadline of March 2011, but with the extension of the deadline by the federal government, the project was completed in June 2011. 2. The original contract value was $3,470,297. The project was expanded and the completion date extended when the Federal government extended the Stimulus Program deadline. The final contract value was $3,804,902. 3. A major sewer surcharge caused by the operation of the Real Time Control System for the combined sewers resulted in additional $221,346 costs. The concern with this event is that the sewage by-pass plans prepared by the contractor were reviewed by the project manager and Operations. The contract documents should have included a caution regarding operation of the Real Time Control System and its potential effect on the West Nepean Collector. During the review of the by-pass plan submitted by the contractor, Operations should have noted to the contractor that the tunnel could be flooded during a rainfall event. Although no changes to the by-pass plans may have avoided the back-up of sewage into the subject section of West Nepean Collector, if the contractor had been advised of the possibility of flooding they would have had the opportunity to change procedures to avoid damages to the lining and the by-pass setup that were caused by the flooding.

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4. In one of the by-pass plans, the contractor assumed that the by-pass could use lands owned by NCC. However, the City did not have an easement on those lands and had to obtain a temporary easement from NCC. The time required to obtain the NCC permission resulted in a delay claim by the contractor, plus they used an alternate by-pass route. This situation could have been avoided if the contract documents had the following requirements: The contractor shall use for by-pass only existing right-of-ways and existing easements. The by-pass methods are determined by the contractor, but the by-pass routes are specified by the City. Use of an alternative by-pass route by the contractor is subject to approval by the City. If the alternative is not approved by the City, the contractor shall use the specified routes.

Campeau Drive Water Pumping Station 1. The Campeau Drive Water Pumping Station forms part of the Zone 3 West (3W) Feedermain system. The original contract value was $4,478,000, which was the lowest bid. It is notable that the second and third lowest bids were within $255,000 of the lowest bid, which indicates that the City obtained a reasonable price for the work. 2. Approximately $165,700 of additional cost was the result of changes needed to meet the Building Code requirements or other design issues. The final value of the contract was $4,807,853. 3. Construction of the project proceeded without a major issue until the project was ready to commission. 4. The City‟s Drinking Water Services found that the SCADA (supervisory control and data acquisition) control system installed by the sub-contractor did not meet the City‟s standards. 5. The sub-contractor built and installed the Area Control Panel (ACP) without providing shop drawings or seeking input from Drinking Water Services for the design. Minutes of Deficiencies Meeting No. 1 show that the Factory Acceptance Testing for the ACP was not completed and that the ACP was not CSA certified. Shop drawings were submitted for the components, but not the entire ACP. 6. Resolution of the issues with the ACP took from April 2010 to February 2011 (ten months).

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7. Given that the contractor was able to install the wrong Area Control Panel and that the consultant recommended payment for the work, it can be concluded that there was a gap in the inspection process. It is reasonable to expect that the consultant should have realized that the ACP was being installed without following the required steps, as stipulated in the contract documents. Consequently, the consultant is partly responsible for the delays in completion of the pumping station. 8. As a result, the project was delayed substantially, as it was completed almost 1 ½ years later than scheduled.

Strandherd Dr. (Crestway to Prince of Wales) incl. widening of Prince of Wales 1. The extension of Strandherd Drive from Crestway to Prince of Wales was started in August 2009 and completed in September 2011. The contract value was $14,892,000. Change orders with a value of $2,064,769 were approved and paid, for a final project value of $15,997,123. 2. Based on a review of the change orders, $700,175 were due to changes due to items that were missed in the design of the project. Change orders for work for Hydro Ottawa amounted to $244,654, of which $234,084 was reimbursed to the City by the utility. 3. The City paid a $16,500 change order for installation of seismographs for vibration monitoring of construction activities. This should not have been paid by City. 4. The project was completed on time, within the overall budget. However, there were a considerable number of changes due to omissions in the design.

3W Feedermain Link - Phase 1, Part 1 (Ottawa River Pkwy to Moodie Drive) 1. The 3W Feedermain Link is a major component of the water distribution system for the City of Ottawa. The section included in this project was started on May 20, 2010, with a contract price of $11,867,325. 2. Change orders with a value of $762,817 were approved and paid, for a final contract value of $11,739,514. The reason why the final cost is similar to the initial contract value is that provisional items were estimated to cost $785,000 and only $13,815 of the provisional item budget was spent. 3. The major issue with this project is that a substantial proportion ($297,161) of the changes required during construction was due to design issues. Most of the problems that arose during construction related to unresolved conflicts with existing services and utilities. The largest change order, with a value of $216,000, related to the provisions that were necessary to connect the feedermain to the remainder of the system; this was not a design error, but was the result of a contingency plan requested by the City at the Carlington Heights Pumping Station, which required piping and pump modifications to ensure uninterrupted

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water supply in case of failure of the existing transmission main during the hot tap. This is considered a design issue as the consultant should have made provision for a contingency plan to come into effect for the connection of the new watermain to the system. 4. In the next phase of this project, carried out in subsequent contract designed by the same consultant, the consultant failed to provide for the extensive volumes of groundwater; the cost of which exceeded $1.6 million. As a result, the City has commenced legal action against the design consultant and the geotechnical consultant.

Cave Creek Collector, Phase 1 (Harmer to Faraday) 1. This project comprised construction of the new Cave Creek Collector, Phase 1 on Harmer Avenue and Faraday Road. The contract was awarded on August 18, 2010. The tender documents required that the work be substantially performed by December 21, 2010, with completion by May 15, 2011. 2. The Certificate of Authorization from the Ministry of the Environment was not received until September 14th. The work was further delayed due to work by Bell which was scheduled to leave the site in September 2010 but did not until November 2010. 3. The contract value at the project start was $3,505,330. Change orders for the project amount to $367,888. 4. Approximately $332,000 of the additional costs was the result of the delay in starting construction. 5. The City paid $61,930 for box culvert storm sewer. However, an item, for the supply and installation of the same size culvert, was already in the contract. The City has explained that this particular section could not be paid based on the unit prices because the section of storm sewer replaced was a cast-in-place concrete section; replacement required demolition of the existing concrete sewer, placement of two sections of precast concrete box, installation of dowels to tie into the existing concrete culvert, and construction of a new cast-in-place section.

Prince of Wales Roundabout Reconstruction at Central Experimental Farm 1. This project comprised the reconstruction of an existing traffic circle to configure the intersection based on a roundabout. 2. The Commence Work Order was issued by the City on May 18, 2011. The contract required substantial completion by July 15, 2011 and completion of the work by September 16, 2011. The contract value when work started was $1,191,778.

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3. The cost of change orders was $57,560, of which $36,135 was due to the need to change the connection of catchbasin leads to the existing storm sewer owned by Public Works Canada. The method of connection had been agreed between Public Works and the City, but the agreement was not provided to the designer. As a result, the method of connection shown on the drawings and used in the field did not meet the requirements of Public Works and Government Services Canada (PWGSC). The City instructed the contractor to remove the connections done per the design and to redo them based on the instructions from PWGSC. 4. The issue created by making the wrong connection should have been prevented through coordination between project managers from different departments (Infrastructure Services and Planning & Growth Management). Areas of Potential Savings The following areas of potential savings were identified in this audit: Police assistance at intersections: The City should pay for police assistance at intersections directly to Ottawa Police Service. If the average hourly cost of police assistance is $188 and the unit price in tenders is $275 per hour, the City could save more than $435,000 in contractor mark-up fees based on a total annual utilization of 5,000 hours of police assistance. Recovery of costs from consultants when change orders are the result of errors and omissions in the design: Based on the sample, the average value of change orders was 9% of contract amounts, and the average value of change orders due to design errors and omissions was 22% of the total change orders. The value of the sample projects ($123,766,000) was about 30% of the total value of the projects awarded by the City in 2011 ($412.4 million). Using the average change order values, the change orders in all contracts could amount to $37.1 million. If 22% of these change orders are the result of design errors and omissions, this represents $8.2 million. Even recovering only the 15% contractors‟ overhead and profit markup on the change orders, the savings to the City could be approximately $1.2 million. Recommendations and Management Responses

Recommendation 1 To provide a wider circulation of tenders, that the City, in addition to posting tenders with the Ottawa Construction Association, ensure that all tenders are posted on “Link2Build” and retain documentation of this.

Management Response Management agrees with this recommendation and it has been implemented.

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Supply Branch now retains documentation on the procurement file confirming that the requirement was also posted on “Link2Build”.

Recommendation 2 That the City formalize its relationship with the Ottawa Construction Association and “Link2Build”, including ensuring that the City’s rights to review and audit the processes are documented.

Management Response Management agrees with this recommendation. Supply Branch will formalize the City‟s relationship with the Ottawa Construction Association (OCA) and “Link2Build” including ensuring that the City has the right to review and audit the documented processes, by the end of Q4 2013.

Recommendation 3 That the City develop a policy to require project managers to formally document design errors and omissions found during the construction supervision process. The documentation should include the requirement for project managers to classify change orders into categories, such as design errors and omissions, design issues, site conditions, etc., to facilitate the recovery of costs from the consultants.

Management Response Management agrees with this recommendation. Management will develop a policy and/or procedures to document design errors and omissions found during the construction supervision process by Q2 2014. It should be noted that some categories, (i.e., site conditions) will not result in cost recovery from consultants. (See Management Response to Recommendation 4 with regard to cost recovery).

Recommendation 4 That the City develop a policy and procedures to be followed to recover the costs of construction changes and original engineering costs related to the specific component from the consultants when the additional costs are caused by design errors or omissions.

Management Response Management agrees with this recommendation.

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Management will develop a policy and/or procedures to recover the costs of construction changes and original engineering costs related to a specific contract component when the additional costs are caused by design errors or omissions. This work will be completed by Q2 2014.

Recommendation 5 That the City develop a system to record contractor performance in City contracts, and that the City expand the construction bid evaluation process to include formally the past performance of the bidder in the evaluation and award of contracts, so that contracts are awarded on the basis of past performance, experience, and staffing in addition to lowest cost.

Management Response Management agrees with this recommendation. Currently, City of Ottawa construction bid solicitations include a provision whereby a firm must have experience successfully completing projects of similar size and complexity. Firms that are unable to demonstrate this experience are deemed non-responsive and are not awarded the contract. A project has been initiated within Supply Branch to develop an electronic system to record and act on a Contractor‟s past performance. This system will be implemented by Q4 2014. ISD will be working with Supply Branch on how contractors‟ past performance will be affecting future award of contracts.

Recommendation 6 That the City ensure that for culverts where a reduction in conveyance capacity is being considered, the renewal process includes undertaking the required hydrology and hydraulic design.

Management Response Management agrees with this recommendation and it has been implemented. Since February 2011, the Asset Management Branch has modified its practice to include a hydraulic assessment for culvert renewal options that would result in a reduction in the hydraulic conveyance capacity.

Recommendation 7 That the City undertake a program for inspecting its critical water transmission mains where they are known or suspected to be exposed to corrosive environment, and that it takes action based on the results of the inspection findings.

Management Response Management agrees with this recommendation and it has been implemented.

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In June 2012, Environmental Services presented to Environment Committee a report on a condition assessment program for drinking water transmission mains (ACS2012-COS-ESD-0014). This report outlines a risk-based approach to the inspection and management of water transmission mains.

Recommendation 8 That the City submit to Council as part of the Drinking Water Quality Management System annual report a summary of inspections on critical water transmission mains, including an action plan for correction of pipes identified to be in very poor condition.

Management Response Management agrees with this recommendation. A summary of inspections on critical water transmission mains, including an action plan for correction of pipes identified to be in poor condition, will be reflected in the 2013 Drinking Water Quality Management System (DWQMS) Annual Report to be presented to Council in Q2 2014.

Recommendation 9 That the City modify the payment method for services from other City services so that they do not provide an unwarranted profit to the contractor.

Management Response Management agrees with this recommendation. Management will conduct a review of the requirements that will modify the payment method for City services from other City services so that they do not provide an unwarranted profit to the contractor. Unless specific restrictions are identified, this will be implemented by Q2 2014.

Recommendation 10 That the City ensure that operational constraints such as the operation of the Real Time Control System are fully described in the contract documents and that the risk for monitoring weather forecasts is transferred to the contractor.

Management Response Management agrees with this recommendation. Management will work with staff in the Environmental Services department to ensure that operational constraints are fully described in contract documents and that the risk for monitoring weather forecasts is transferred to the contractor. This will be built into contract standard specifications by Q2 2014.

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Recommendation 11 That the City specify, in sewer renewal projects, the location for sewer by-passes and require the contractor to use by-pass locations on existing right-of-ways or appropriate existing easements. Sewer by-pass plans proposed by the contractor using other locations must be at the contractor’s risk and expense, including the consequences of delays.

Management Response Management agrees with this recommendation. In all future sewer renewal contracts, the City will specify the location for sewer by-passes on existing right-of-ways and appropriate easements. Should the contractor propose other locations, the contract will specify that this will be at the contractor‟s risk and expense, including the consequences of delays. This will be built into contract standard specifications by Q2 2014.

Recommendation 12 That the City modify the Scoping Document so that commitments made by all departments are explicitly discussed in the document.

Management Response Management agrees with this recommendation. Management will amend the scoping document to ensure that commitments made by all departments are explicitly expressed. This work will be complete by Q2 2014.

Recommendation 13 That the City instruct the project managers that the liquidated damages are provided to assist in keeping the contractors on schedule, but are not effective unless the project manager actually charges them to the contractor.

Management Response Management agrees with this recommendation and it has been implemented. In Q3 2013, management issued a directive to ensure that project managers impose liquidated damages on contractors pursuant to the City‟s Standard Tender Documents. Conclusion The City‟s Construction Supervision process is complete and comparable to the process and procedures used by other municipalities and the Ministry of Transportation in Ontario.

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The audit found a substantial amount of cost increase caused by change orders resulting from consultants‟ errors and omissions, which the City is not recovering from the consultants. The City is currently recovering costs resulting from changes required by Hydro Ottawa, and should be able to recover costs for changes required by consultants‟ errors and omissions. Acknowledgement

We wish to express our appreciation for the cooperation and assistance afforded the audit team by management.

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5.6 Audit of Ontario Works Eligibility Assessment Process

EXECUTIVE SUMMARY

Introduction The Audit of Ontario Works Eligibility Assessment Process was included in the 2012 Audit Workplan of the Office of the Auditor General (OAG), approved by City Council on December 14, 2011. It should be noted that in May 2011 a comment was made by an Ontario court judge criticizing the effectiveness of City processes in verifying the employment earnings reported by Ontario Works benefit recipients. Background Ontario Works (OW) is a provincial program that provides income and employment assistance to individuals in temporary financial need and who are unemployed or underemployed. OW income assistance is intended to help eligible applicants with basic living expenses such as food, clothing, personal needs, and shelter. Employment assistance for eligible applicants includes a variety of activities intended to increase their employability and help them obtain employment and become self-reliant. OW is delivered by municipalities including the City of Ottawa. The Ministry of Community and Social Services (the Ministry) pays the majority of this cost, its share going from 81.2% in 2011 to 100% in 2018. In 2012, the City‟s cost-sharing percentage ratio was reduced by 1.6% compared to 2011. As such, in 2012, the provincial and City cost-sharing percentage was 82.8% and 17.2% respectively. The Ministry pays the City a fixed amount of $2,016 per case per year for administrative costs. Table 1 provides a summary of payments and caseload under the OW program in Ottawa.

Table 1 – OW Payments and Caseload (in millions of dollars)

Gross OW Financial Average Provincial Funded by Year Assistance Payment – Monthly Subsidy1 the City Mandatory and Discretionary Caseload 2012 $139.17 $114.69 $24.48 16,073 (82.4%) (17.6%) 2011 $135.48 $110.63 $24.85 15,783 (81.7%) (18.3%)

1 “Provincial Subsidy” does not reflect cost-sharing percentages. The “Gross OW Financial Assistance Payments” include benefits that are 100% covered by the Province.

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In May 2011, while sentencing an OW recipient for underreporting their income, a judge criticized the City‟s system of checks and balances. A Council Member Inquiry was then raised later that month: “What City of Ottawa programs are in place to prevent fraud and ensure that all cases are dealt with in a manner that respects this Council‟s commitment to spend all tax dollars wisely and efficiently.” City staff provided a response which outlined the control framework in place. The individual was eventually discovered by City staff as the employment income was reported to the Canada Revenue Agency through the regular T4 program and then matched by City staff. Therefore, in this case, the City‟s system of checks and balances functioned as designed. The system that the City uses to manage the OW program is Service Delivery Model Technology (SDMT). SDMT is the system that municipalities are mandated to use and, given that it is a provincial system; the City has no ability to alter it to meet specific City needs. The systems of controls that ensure that only eligible individuals received the correct amount of financial assistance are changing. The Ministry has several initiatives under way, such as a new monitoring framework to assist with program oversight and compliance with program requirements, a new IT system, and a new system to prioritize high-risk cases for review to help ensure that only eligible recipients continue to receive assistance. The key processes in place to ensure that only eligible individuals receive OW, and in the correct amount, are: Initial intake review; On-going monthly income verification; Eligibility Verification Process (described below); and, Eligibility Review Program to follow-up on external and internal allegations. Ministry officials previously conducted annual on-site reviews at the City and other delivery organizations. They conducted financial compliance reviews of the City‟s application for monthly subsidy from the Ministry where they examined a sample of transactions selected from one month each year. Ministry officials also conducted annual program compliance reviews over specific program-related activities such as intake, discretionary benefits and participation agreements. Ministry staff informed us that the last of these reviews were conducted in 2010 as they are moving to a new approach. They will be conducting analytical reviews each month on the claims submitted to identify anomalies for follow-up. As well, the Ministry is implementing its new Eligibility Verification Process (EVP) to replace its previous Consolidated Verification Process. Under EVP, changes in external information (primarily Equifax) related to OW recipients trigger more detailed reviews by City staff. EVP was implemented at the City in March 2012.

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Scope and Objectives The audit scope was the current OW Eligibility Assessment Process in all City of Ottawa Social Services Centres. The audit objectives and criteria of this audit were to:

Objective 1: Confirm the completion of an operational risk assessment for the area to be audited. Criterion: Determine if an assessment has been completed and how it has been/is being used.

Objective 2: Assess whether City processes are adequate to appropriately establish initial eligibility for OW assistance. Criteria: Determine if initial eligibility assessments for assistance are in accordance with the Ontario Works Act, Regulations and policy directives; Determine if initial eligibility assessments are supported by the receipt, verification and appropriate analysis of required information and documented accordingly; and, Determine if processes and practices are consistent among all centres.

Objective 3: Assess whether City processes are adequate to ensure on-going eligibility for OW assistance. Criteria: Determine if ongoing eligibility assessments comply with provincially mandated requirements; Determine if ongoing eligibility assessments are supported by the receipt, verification and appropriate analysis of information and documented accordingly; Determine if the Eligibility Review Program is effectively resolving allegations; Determine if processes and practices are consistent among all centres; and, Determine if the City‟s Eligibility Review Program is operating as an effective control to identify and following up on potential ineligible recipients.

Objective 4: Identify areas of potential savings for the City in the efficient and effective management and operations of the eligibility review process. Criterion: Determine if potential savings are possible through more efficient and effective management and operations of the eligibility review process.

Office of the Auditor General 2012 Annual Report Page 109 Audit of Ontario Works Eligibility Assessment Process Approach The following audit approach was taken across all four City of Ottawa Social Services Centres (SSC) and included obtaining information, data analysis; reviewing applicable directives and policies; reviewing results of previous audits; reviewing documentation; and testing of a sample of case files. Specifically, in our testing, we reviewed OW transactions for the period January 1, 2011 to June 30, 2012 (review period) and conducted the following: Obtained the database of clients which have received OW assistance during the review period; Analyzed the database; Selected a random sample of 100 case files, which may not necessarily be statistically valid, (see Appendix A for more details on the Sample Selection Process) distributed across SSCs as follows:

Table 2 – Distribution of Sample Across SSCs

SSC Number of Samples West 25 South 30 Central 19 East 26 Total 100

Tested the sample of case files selected against the above audit criteria. Testing was performed through file review as well as through observing information in the SDMT system through the assistance of the appropriate case worker. Summary of Key Findings

Operational Risk Management The Community and Social Services Department has not completed a risk assessment at either the Department level, or specifically for the Ontario Works program. Management of the Community and Social Services Department do not believe that it is required or cost beneficial to complete a separate, risk assessment specifically for the Ontario Works program. As no risk assessment has been completed at the departmental level either, the Community and Social Services Department is not in compliance with the City‟s Enhanced Risk Management Framework (April 2012) which requires context setting, determining risk impact, establishing likelihood, reaching a risk score prioritizing and finally establishing a plan to mitigate or prevent the risk from occurring.

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While a risk assessment has not been completed, there is evidence that Community and Social Support Branch is applying risk-aware thinking in its day-to-day activities. Risk factors are identified and described during the annual budget process and the Social Services Business Continuity Plan provides a mitigation plan for certain risks. The delivery of the OW program also inherently considers the risk of making ineligible payments. In the absence of a completed risk assessment that is in accordance with the City’s Enhanced Risk Management Framework, OW program risks may not be properly identified and managed.

Initial Eligibility Assessments Overall, initial eligibility assessments for assistance is granted in accordance with the Ontario Works Act, Regulations and policy directives. Processes and practices are generally consistent among all City Social Services Centres (SSCs). For the most part, the receipt, verification and appropriate analysis of required information are documented accordingly for the application process. One area of exception is third party verification with Equifax Canada of eligibility related information such as income, previous employment, assets, liabilities, trends and residence. We observed that initial assessments undertaken or Consolidated Verification Process (CVP) conducted during the period of audit were missing hard copy or electronic versions of Equifax reports on client files in three out of the four SSCs. From our sample of 72 which required the Equifax report, a total of 16 instances were observed where hard copy or electronic versions of the Equifax reports were not maintained on file (22%). Provincial directives require that third party verification (i.e., Equifax report) of eligibility related information (e.g., income and assets) provided by the applicant be completed and documented. Equifax reports are considered to be a key document for verifying assets, liabilities, payment patterns, residence, employment income etc. through third party corroboration. We confirmed with the provincial Ministry of Community and Social Services and they expect that a key document, such as an Equifax report, be maintained on recipients‟ files or that information from Equifax reports and analysis of the information are noted in SDMT Intake/EVP notes. City management explained that, while it is their practice to maintain Equifax reports on recipients‟ files, it is not a mandatory requirement. However, our review of the process indicates that where such reports are not maintained on file, SDMT Intake/EVP notes are not clear enough such as to indicate the information extracted from the Equifax reports and the analysis conducted with this information.

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In addition to missing Equifax reports, the audit identified instances of non- compliance with Provincial Directive 2.1: Application Process. The audit reviewed the documentation requirements for the review period (January 01, 2011 to June 30, 2012) for the sample selected. When the 16 instances of missing Equifax reports are added to the 7 instances of non compliance, there is a total of 23 instances relating to 19 of the 100 cases examined where the application process requirements were not met. The receipt, verification, analysis and documentation of required information in support of the assessment of initial eligibility is important in order to ensure that correct amount of assistance is granted and only where eligibility is met.

Ongoing Eligibility Assessments

Consistency of Processes and Practices Overall, processes and practices are generally consistent among all SSCs in assessing ongoing eligibility. The only exception, as noted in 5.2, of the full report, is the high rate of missing Equifax reports in three out of the four SSCs. Our audit did find that ongoing eligibility assessments do not fully comply with provincially mandated requirements as follows:

Ineligible Payments Within the selected sample representing total payment of $615,629, we found a total of $3,840 in payments of benefits to recipients were ineligible. This represents approximately 0.6% of the population tested. Although the random sample is not necessarily statistically valid, if the 0.6% error rate detailed in the full report, held consistent across the entire population of OW payments, then the dollar amount of total ineligible payments during the period from January 2011 to June 2012 would be approximately $834,000 (0.6% X $139 million).

Monthly Income Reporting Overall, monthly income reporting is updated in SDMT and income assistance is adjusted based on the monthly income reviews. SDMT permits the case worker to indicate that they have verified the accuracy of income amounts reported and entered it into the system. In our sample of 100 recipients, 14 of recipients reported income during the audit period. A total of 33 income reports were received, of which 2 did not have the “Verified” box ticked on SDMT, indicating that the case worker had verified the recipient‟s monthly reported income. By not indicating that the income entered in SDMT was verified to monthly income reporting provided by the recipients, the City risks recording incorrect income amounts in SDMT which can impact the accuracy of benefits amounts paid to recipients.

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Case workers can also waive recipients‟ monthly income reporting requirements. We found that the waiving of monthly income reporting requirements is not well documented on the recipient‟s files as is required by Provincial Directive 5.1 Income and Exemptions. City management interprets this directive differently believing that its practice of minimal documentation on the recipient‟s files is adequate. We verified our understanding and obtained clarification from the Ministry of Community and Social Services. Specifically, the Ministry stated that “there must be some documentation on file to support the waiver...the documentation would need to reflect the information that led the caseworker to apply the waiver. This may be pay-stubs, tax returns, letters, bank statements etc.; basically, documents that indicate why the waiver was applied. The provincial standard is that documentation is always on file to support the decision.” In our view, the City‟s interpretation can result in overpayment of assistance to recipients as a result of monthly assistance not being reduced by eligible earnings.

Documentation of Receipt, Verification and Appropriate Analysis Income assistance provided on a monthly basis also includes an amount for basic needs and shelter (or board and lodging where applicable), and can include Advanced Age Allowance, Special Diet Allowance, Pregnancy/Breast-feeding Nutritional Allowance and Special Boarder Allowance. In addition, OW recipients, spouses and any dependents may be eligible to receive certain mandatory benefits (e.g., health benefits, prescription drug coverage; medical transportation costs $15 and over) and health-related and non-health related discretionary benefits (e.g., dental care for adults; vision care for adults; travel and transportation that is not for health-related purposes; and moving expenses). Provincial directives require that adequate documentation be maintained on file to support the issuance of these benefits. Adequate documentation includes, for example, receipts and proof of purchase to ensure that the amounts provided for assistance are based on actual costs and that the assistance is used for its intended purpose. The audit found that documentation of the verification of payment of benefits relating to provincial directives Community Start-Up and Maintenance (7.5), Employment and Participation Benefits (7.4) and Health Benefits (7.2) is inadequate. Of the 1,462 benefits tested (note: a breakdown of the type of benefit was not provided), 126 or 8.6% of the payments were not supported by the required documentation.

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The Provincial representative from the Ministry of Community and Social Services has indicated to the audit team that the provincial expectation is that receipts be verified to support the amount paid to the recipient and that the funds are utilized for their intended purposes. The provincial expectation is that such verification be documented on the recipient‟s hard copy file or in SDMT. The risk in not verifying receipts and supporting documentation is that excessive benefit amounts are granted to the recipients and/or amounts received by recipients are not used for their intended purposes.

Employment Participation Requirements All Ontario Works applicants, their spouses and any dependent adults included in the benefit unit must complete and sign a Participation Agreement (PA) prior to a determination of eligibility. The PA is an action-oriented plan that identifies the approved employment assistance activities the applicant or participant will undertake in order to prepare for, find and maintain employment. After the initial PA, the agreement is reviewed, updated and signed by the participant every three months, or earlier if his or her circumstances have changed (e.g. completed an employment assistance activity). Participation Agreements were not updated as required by provincial directives in 14 of the 100 cases reviewed. However, the financial assistance still continued. Non-compliance with the employment participation requirements may result in the overall objective of the OW program not being achieved and a continued dependency on financial assistance as a result of not undertaking activities related to obtaining employment.

Eligibility Review Program The Eligibility Review Program (ERP) conducts investigations of complaints of possible OW fraud. Considering both the detective nature of the control and the influence that having such a program has on deterring abuse, the provincially mandated Eligibility Review Program is an important control in identifying and following up on potential ineligible recipients. The program is delivered at all four sites on a consistent basis.

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Management and Operations of the Eligibility Review Process

Changes Underway The City‟s four Social Service Centres are the operational centres that deliver the Community and Social Support Branch programs, including OW. As of February 2013, there were a total of 418 positions at these four SSCs. There are numerous changes planned and underway to the systems and processes used to deliver Community and Social Support Branch programs, including replacing the provincial SDMT system. Management indicated that they do not know at this point the impact in terms of resources that will be required to deliver the program once the changes are complete, although they remain committed to meeting the three FTE reduction target identified in the ServiceOttawa process.

Number of Cases Assigned to Case Workers The City uses an OW caseload ratio of 1:109 (staff to cases). Management uses this ratio of 1:109 as a baseline average used to monitor caseloads and to adjust staffing to meet work requirements within budget constraints and not as a performance target. The figure evolved internally and not via a formal study or benchmarking. The ratio of generic cases per generic case workers is fairly close to 109 at three of the four sites. The West SSC ratio of 96.1 is 13% lower than the average of the other three sites (i.e., average of 110.7 generic cases per generic case worker). When asked about the variance in the West SSC, management responded that normal variation that occurs from time to time.

Reasonableness of the City’s Cases per Case Worker Ratio While we have not undertaken a benchmarking exercise as part of this audit, the City of Hamilton has published reports of its analysis of its own OW Cases per Case Worker ratio2. In November 2011, the City of Hamilton‟s average caseload ratio to case managers was 1:155. Funding was being sought from its Council to hire more employees and bring this ratio down to 1:120. Increasing the City‟s target ratio to a ratio similar to the City of Hamilton‟s target ratio from 1:109 to 1:120 would reduce the number of generic case workers required by 10%, which equate to approximately 13.6 FTEs for a potential saving of $832,796 (excluding benefits and overhead). Decreasing the number of generic case workers to move in line with the OMBI median would result in a staffing reduction of 18.6% or roughly 25.3 FTEs for a potential saving of approximately $1,549,246 in salary (not including benefits and overhead).

2 City of Hamilton 2011-12 Ontario Works Caseload Contingency Plan (CS09021(c))

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Other municipalities were not contacted as part of the audit to request their OW cases per case worker statistics. However the concept that the City's case workers handle fewer cases than those in other Ontario municipalities is consistent with the results of the Ontario Municipal Benchmarking Initiative (OMBI). For 2011, OMBI reported that Ottawa‟s "Monthly Social Assistance Administration Operating Cost per Case" of $253.69 was $39.70 (18.6%) higher than the median. Management informed us that they believe that there are problems with using this measure to identify staffing reductions. The cost per case measure is impacted by variables such as the labour market conditions of the municipality and the cost per case may be lower due to increased case volume resulting from economic factors of the area. It should be noted that higher caseload ratios result in services focused only on crisis management, with little time for planning and preventative actions with recipients. In our opinion however, in the absence of other indicators, using OMBI Cost per Case figures is reasonable. Management informed us that of the several OMBI measures in the Social Assistance area; the only one that relates to process efficiency is the response time measure for determining OW eligibility (number of days). We disagree that this is a measure of efficiency as it does not reflect the level of resources used to achieve this output. As such, we feel that Administration Operating Cost per Case is a better measure of efficiency.

Management of Case Worker Sick Leave Our analysis found that in 2012 case workers took, on average, 19 days per year of sick leave. Given that the 2012 City-wide sick leave figure was 10.99 days, it is our opinion that the OW figure is high. As such, the Department should work with Human Resources in an effort to initially reduce the figure in all centres to, at a minimum, that of the East office (i.e., 16.5 days). Doing so would result in a savings of approximately $167,000.

Streamlining ERP by Reducing the Use of Spreadsheets Potential savings exists for the City through realizing efficiencies in the tracking and reporting of complaints in the Eligibility Review Process. The current process tracks and maintains the status of each complaint (approximately 250 complaints received each month) on both spreadsheets maintained by Verification Specialist in each site, as well as on SDMT. As previously indicated, SDMT is scheduled for replacement by the province in 2013. The specific functionality that will be provided to the City (and other delivery agents) in support of the ERP was not known at the time of the audit. If the replacement system is able to maintain ERP information, similar to that maintained by SDMT, then there is the potential for savings through the reduction of time spent by staff entering information into spreadsheets. We estimate a potential saving of approximately 20% of a FTE equivalent to $11,358 in salary.

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Recommendations and Management Responses

Recommendation 1 That the City complete an operational risk assessment as required by the City’s Enhanced Risk Management Framework.

Management Response Management agrees with this recommendation. The CSS department completed a risk assessment at the department level in 2010 and continues to monitor and report on progress as part of the corporate risk profile reporting requirement. In 2014, all departments will be completing a detailed risk assessment as part of a cyclical reporting framework that aligns with the Term of Council. As part of the cycle for the Corporate Risk Profile, departments will be required to complete an assessment of corporate, operational, strategic and project risks. This exercise is expected to be completed by Q4 2014.

Recommendation 2 That the City ensure that all documentation required to assess eligibility by the provincial directives is on file or noted on SDMT as permitted by the provincial directives.

Management Response Management agrees with this recommendation. Management oversight is an ongoing activity in operations, via policy and procedure memos to staff, policy committees, training, staff meetings, as well as file reviews by supervisors. Although the seven cases identified by the audit were single instances of errors, management will send a policy reminder to staff by Q3 2013 reminding them about the importance of ensuring that eligibility documentation is complete and kept on the hard copy file or documented according to the verification standards in the provincial directives. With respect to Equifax reports, management agrees that if not kept on the hard copy file, that the use of the Equifax report should be clearly noted in the electronic file, therefore staff will be reminded of this requirement, via the same e-mail described above.

Recommendation 3 That the City obtain more detailed information such as case complexity, benefit unit sizes and casework effort per case to assist in monitoring caseload.

Office of the Auditor General 2012 Annual Report Page 117 Audit of Ontario Works Eligibility Assessment Process Management Response Management agrees with this recommendation. Management agrees that detailed case information may be useful in monitoring and balancing caseloads. Following implementation of the new province-wide system (SAMS), which is anticipated to be in place by Q2 2014, CSS will be in a better position to identify available caseload information and assess its value for workload management by Q2 2015.

Recommendation 4 That the City proceed with collecting from recipients ineligible payments, where deemed appropriate.

Management Response Management agrees with this recommendation. Management took immediate corrective action when the cases referenced in the audit were identified, including initiating overpayments to recover any ineligible payments. In addition, to prevent further recurrence of error, supervisors reviewed the relevant policies with staff.

Recommendation 5 That the City review all cheques against the SDMT payment list in order to detect errors prior to sending cheques to recipients.

Management Response Management agrees with this recommendation. Management took immediate corrective action to recover the ineligible payment related to the case referenced in the audit. Management reviewed the case in great detail, including system functionality and, identified to the Province a need for improved controls to prevent data entry from producing a retropayment in error. Management anticipates that enhanced functionality will be in the new province-wide system SAMS, which is planned for release in Q2 2014. In the interim, management agrees that reviewing cheques against the payment list is an effective internal control to detect errors, and therefore will send a reminder to staff by Q3 2013 to continue this important procedure.

Recommendation 6 That the City fully document decisions to override monthly reporting requirements clearly in the recipient’s file, along with the current income at the time of the waiver, how long the override is to be in place, and any supporting documentation that was reviewed.

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Management Response Management agrees with this recommendation. Verifying and documenting decisions regarding income reporting must meet the requirements as per the provincial directives. Management oversight is an ongoing activity in operations, via policy and procedure memos to staff, policy committees, training, staff meetings, as well as file reviews by supervisors. Further to this, a reminder with respect to this procedure will be sent to staff in Q3 2013. This will be supplemented with staff training to clarify requirements for notations to file regarding supporting documents reviewed as part of the decision to waive income reporting, e.g., bank statements and tax returns.

Recommendation 7 That the City verify the amount of benefit expense and that payment of benefits was used for their intended purpose, by verifying receipts when required by the provincial directives.

Management Response Management agrees with this recommendation. Management provides ongoing policy support and oversight to ensure compliance to policy, through memos, training, staff meetings, as well as file reviews by supervisors. Further to this, an e-mail will be sent to staff in Q3 2013 to remind them of the requirement to verify receipts as required and to ensure that verification is documented on file.

Recommendation 8 That City staff document verification on file or note it clearly on SDMT to support the type of benefit issued including (as appropriate) receipts, confirmation from health provider, other documentation and/or verification to support payment for expenses as required by the provincial directives.

Management Response Management agrees with this recommendation. Management took immediate corrective action to ensure follow-up by supervisors and applicable staff when the cases referenced in the audit were identified. Management provides ongoing policy support and oversight to ensure compliance to policy, through memos, training, staff meetings, as well as file reviews by supervisors. In addition to these activities, an e-mail will be sent to staff in Q3 2013 to reinforce the requirement to document verification used to support benefits issued, including confirmation from health providers when required, as prescribed in the provincial directives.

Office of the Auditor General 2012 Annual Report Page 119 Audit of Ontario Works Eligibility Assessment Process Recommendation 9 That the City ensure full compliance with the participation requirements as stipulated in the provincial directives.

Management Response Management agrees with this recommendation. Dates reflecting participation discussions must be kept up to date. Management provides ongoing policy support and oversight to ensure compliance to policy, through memos, training, staff meetings, as well as file reviews by supervisors. To further emphasize policy requirements, an e-mail will be sent to staff in Q3 2013.

Recommendation 10 That the City, when implementing the provincial SDMT replacement system and new model of service delivery, review the potential to use the system to create efficiencies in the delivery of the program and further reducing FTEs.

Management Response Management agrees with this recommendation. In addition to various changes in the department‟s service delivery model, the anticipated implementation of the province-wide system (SAMS) in Q2 2014 will be used as an opportunity to review service delivery processes by Q2 2015 with a view toward becoming more efficient in workload management, including use of resources.

Recommendation 11 That the City conduct an analysis of generic case workers with the goal of: a) Reducing their numbers to be more in line with OMBI median and in so doing review the number of supervisory positions required for this reduced complement of case workers; and, b) Increasing the ratio of OW cases per case worker.

Management Response Management agrees with this recommendation. As indicated in the management response to Recommendation 10, management will review the department‟s service delivery model to identify efficiencies, which will include a workload management review for case workers and supervisors.

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However, the cost per case OMBI measure should not be the only indicator used when assessing resource levels. As noted in the audit, the measure is “impacted by variables such as the labour market conditions of the municipality and the cost per case may be lower due to increased case volume resulting from economic factors of the area” which could affect the results. Furthermore, the measure only includes 12 of the 47 Ontario Works delivery agents. Also, the audit notes “that higher caseload ratios result in services focused only on crisis management, with little time for planning and preventative actions with recipients.” As such, management will undertake a benchmarking exercise with other comparable municipalities to determine an optimal ratio of cases per worker by Q1 2014. Management will ensure that the optimal ratio continues to allow case workers to correctly assess and monitor eligibility, meet verification and documentation requirements, and provide case management plans that help recipients find and maintain employment, housing and childcare supports. Furthermore, the optimal ratio that will be determined will also reflect the staff required for the program‟s detection and control mechanisms, which ensures only eligible recipients receive benefits and that ineligible recipients and fraudulent activities are identified and addressed. However, in the near term, to bring the Ottawa OMBI result closer to the median, management commits to finding efficiency savings of 12 FTEs in 2014, valued at $960,000, with additional savings to be identified in 2015.

Recommendation 12 That the City support the branch by means of the Attendance Management program with the objective of reducing sick leave of generic case workers at a minimum to the rate currently achieved in the East Service Centre (i.e., 16.5 days).

Management Response Management agrees with this recommendation. Management‟s initial review has identified variances between the centres and further analysis is required to determine which factors impact the results. As well, a thorough review will establish any best practices which could be incorporated and applied to the centres. These factors and best practices will help to establish an action plan to identify the organizational changes needed, and will provide supervisors with additional tools and supports to improve absenteeism in their teams. Furthermore, the 18-month cycle of the Attendance Management Program will also provide useful past attendance information for supervisors and managers.

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Management will utilize the Attendance Management Program along with other supports such as the Employee Assistance Program and Employee Health and Wellness to develop, implement and monitor a plan to reduce the amount of sick leave in all four service centres by Q4 2014 to the average reflected in the East Community and Social Support Centre.

Recommendation 13 That the City investigate the possibility of using SDMT information and eliminate the use of spreadsheets to track and report on ERP complaints.

Management Response Management agrees with this recommendation. Management will review SDMT information by Q3 2013 to determine any possibilities to eliminate the use of spreadsheets for tracking and reporting Eligibility Review Program complaints.

Recommendation 14 That when implementing the SDMT replacement system, the City review the potential to use the new system to replace spreadsheets for ERP reporting.

Management Response Management agrees with this recommendation. Management will review the potential of using the new province-wide system (SAMS) to replace spreadsheets for Eligibility Review Program reporting by Q4 2014.

Recommendation 15 That the City identify OW assistance clients in possession of business and trade licenses issued by the City or employed with the City. Such data is to be considered during eligibility review and on an ongoing basis.

Management Response Management agrees with this recommendation. It is noted that the findings of the audit confirm that eligibility and entitlement were correctly assessed and issued for those with business and taxi licences, as there were no overpayments reported in Table 12. Furthermore, CSS was aware of all clients who were employed by the City and that employment was used in determining correct eligibility. The overpayments noted were not a result of lack of awareness of the employment, but were a result of some cases not accurately reporting all earnings.

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CSS will further examine processes involving the verification of income from employment, regardless of employer. Management sent a reminder notice to staff with respect to this procedure in Q3 2013. Further, the risk area is not specific to clients with employment with the City, but to any client with employment earnings. As a result, CSS will conduct a targeted review of files with employment earnings in Q1 2014, to ensure compliance and further assess risk in this area.

Recommendation 16 That, until SDMT flags retroactive changes to benefit months, the City review all transactions retroactively affecting a prior benefit month and ensure that payments issued to participants were eligible.

Management Response Management agrees with this recommendation. As previously stated in the management response to Recommendation 5, management anticipates that enhanced functionality will be in the new province- wide system SAMS, which is planned for release in Q2 2014. In the interim, management agrees that reviewing cheques against the payment list is an effective internal control to detect errors and as such, sent a reminder notice to staff in Q3 2013. The notice included clear direction to review payments that retroactively affect a prior benefit month.

Recommendation 17 That the City verify the accuracy and completeness with Payroll of the pay information submitted by OW recipients.

Management Response Management agrees with this recommendation. Management agrees with verifying the accuracy and completeness of pay information submitted by OW recipients with their employer. In the cases identified in this audit, verification was not as complete as required. Corrective action was taken immediately and overpayments are in the process of being recovered. A reminder notice has been sent to staff in Q3 2013 emphasizing the importance of fully and accurately verifying all employment earnings by using the methods that are already available (e.g. reviewing pay stubs, reviewing third-party information such as Equifax reports, etc.). Furthermore, as outlined in Recommendation 16, a targeted review of files with employment earnings from any employer will be conducted in Q1 2014 to ensure compliance and to further assess risk in income verification processes.

Office of the Auditor General 2012 Annual Report Page 123 Audit of Ontario Works Eligibility Assessment Process Recommendation 18 That the City develop a tool describing the financial information which an administrator requires to obtain/review to assess the eligibility to EA and that this be documented in each file for each application.

Management Response Management agrees with this recommendation. Currently, staff conducts a line of enquiry in order to correctly assess an applicant‟s eligibility for Emergency Assistance. However, notation on file does not document all of the assessment of questions and answers with regard to confirming that no other financial resources were available to deal with the financial emergency. Management anticipates that enhanced functionality will be available in the new province-wide system SAMS, which is planned for release in Q2 2104. The enhanced functionality will improve documentation regarding the line of enquiry in the application process for Emergency Assistance (EA). In the interim, management will develop and implement, by Q4 2013, a tool for staff to use to improve documentation of the Emergency Assistance assessment. Potential Savings As detailed below, during the course of this audit, we have identified potential savings ranging from $1,851,488 to $2,567,938.

Ineligible OW Payments Although the sample is not necessarily statistically valid, if the error rate observed while testing the audit sample held consistent across the entire population of OW payments, then the dollar amount of total ineligible payments from January 2011 to June 2012 would be approximately $834,000 (0.6% X $139 million).

Number of Generic Case Workers To be more in line with an OMBI median, the number of generic case workers could be reduced by 10.0% to 18.6%. This would be equivalent to a decrease of 13.6 to 25.3 positions equivalent to approximately $832,796 to $1,549,246 in salary (not including benefits and overhead).

Sick Leave Management Improved sick leave management could reduce staffing requirements and improve client service. While the average sick leave for the City was 10.99 days in 2012, reducing sick leave days, at a minimum to 16.5, which is the average in SSC East, would result in a savings of approximately $167,000.

Page 124 Office of the Auditor General 2012 Annual Report Audit of Ontario Works Eligibility Assessment Process

Tracking and Reporting of ERP complaints Efficiencies can be realized in the tracking and reporting of complaints in the Eligibility Review Process. Our preliminary estimate is that approximately 20% of a full-time equivalent employee or approximately $11,358 in salary (not including benefits and overhead) could be saved.

Comparison of City Databases to Ontario Works Recipient As detailed in Section 5.6.3 of the full report, our sample of 50 OW recipients also employed by the City resulted in the identification of nine overpayments totalling $6,149. Two additional overpayments totalling $185 were identified but C&SS informed us they are not recoverable. Conclusion We found a high rate of missing Equifax reports in three out of the four SSCs. Our audit did find instances where ongoing eligibility assessments did not fully comply with provincially mandated requirements. The audit also found a total of $3,840 (0.6%) of ineligible payments made to recipients was identified as being ineligible, several instances where documentation, verification and appropriate analysis was not documented as required by provincial directives. Potential savings exists for the City through: Stopping ineligible OW payments; Increasing the cases per case worker ratio; Improving the management of sick leave; Realizing efficiencies in the tracking and reporting of complaints in the ERP; Comparing City databases (such as payroll information) to Ontario Works Recipients; and, Verify the pay information of City employees applying for OW programs. Overall, initial eligibility assessments for assistance is granted in accordance with the Ontario Works Act, Regulations and policy directives. Room for improvement exists in ensuring that all documentation required by the provincial directives is on file or noted on SDMT as permitted by the provincial directives. Community and Social Services department does not currently compare City of Ottawa databases (e.g., payroll information, business licenses, taxi licenses, etc.) to verify that OW recipients‟ income is fully declared. We reviewed 50 of the 246 City employee matches and found overpayments with 11 of these:

Office of the Auditor General 2012 Annual Report Page 125 Audit of Ontario Works Eligibility Assessment Process

Six cases underreport income - overpayments totalling $10,046 of which $4,852 was found during the audit (Community and Social Services informed us that they had identified $5,195 of the $6,397 overpayment in 2011 and that the case is now under consideration to be referred to the Ottawa Police due to the misrepresentation.); Two cases ERE transportation were issued twice for the same benefit month unrecoverable overpayment totalling $185; and, Three cases, SSC confirmed that a cheque was issued in error overpayment totalling $1,297. In addition, there was inadequate information on file to demonstrate that the applicant met the criteria for emergency assistance for 15 samples we reviewed. As such, we could not determine from the files documentation that the applicant had made reasonable efforts to access all other available resources; or that the applicant did not have enough money or assets, and was unable to obtain credit to meet the basic needs and shelter needs of his or her benefit unit. In short, we could not determine if the applicants we reviewed met the criteria for emergency assistance. For the 15 emergency assistance cases of our sample, we extended our review to the previous five years to determine frequency or pattern. In 10 of the 15 cases we reviewed, the applicant had applied and been granted emergency assistance more than once. The issues raised in this audit could be addressed by completing a risk assessment, as per City policy, at either the department level, or specifically for the Ontario Works program. Acknowledgement We wish to express our appreciation for the cooperation and assistance afforded the audit team by management. We also appreciate the time taken by provincial staff at the Ministry of Community and Social Services to meet with us provide clarification.

Page 126 Office of the Auditor General 2012 Annual Report

6 2012 ANNUAL REPORT ON THE FRAUD AND WASTE HOTLINE

6.1 Description of the Hotline The City‟s Fraud and Waste Hotline was launched on November 1, 2005 in order to facilitate the reporting of suspected fraud or waste by employees. Council also made the Hotline available to the public in May 2009. The Hotline is a confidential and anonymous service that allows any employee or member of the public to report incidents 24 hours a day, 7 days a week. The Hotline is operated independently by a third party and is accessible either by phone or the Internet. 6.2 Hotline Statistics In 2012, 143 reports were made to the Hotline. There were 82 reports submitted by members of the public and 61 reports were submitted by employees of the City of Ottawa. Based on the number of reports received from members of the public, it would appear the public is interested in using the service.

Reports by Reporter Type Reporter Type Number of Reports Percentage Public 82 57% Employee 61 43% Total 143 100%

Reports by Method of Submission Method of Submission Number of Reports Percentage Internet 103 72% Phone 40 28% Total 143 100%

The Fraud and Waste Hotline has the functionality to facilitate anonymous two- way communication. This feature allows the reporter to submit additional information, track the progress of the case, respond to any follow-up questions and receive an update on the outcome of their report. In 2012, 79 reporters, representing 55% of all reports, reviewed their report after submission of the original report and the other 64 reporters did not review their report. Given that 55% of reporters used the two-way communication, this would appear to indicate that reporters are interested in submitting additional information, tracking the progress of the report and/or reviewing the outcome of the reports.

Office of the Auditor General 2012 Annual Report Page 127

Reporters Who Used Two-way Communication Reviewed Report Number of Reports Percentage Yes 79 55% No 64 45% Total 143 100%

6.3 Summary of 2012 Hotline Reports The table below summarizes the reports received by the Hotline to December 31, 2012 by report category since its inception in 2005.

Fraud and Waste Hotline Reports as at December 31, 2012 Report Category1 2005 - 2008 2009 2010 2011 2012 Total Harm to People or Potential Harm to People 0 0 0 2 3 5 Health and Safety, Environment 12 6 4 2 4 28 Alcohol or Drug Use or Other Substance Abuse 8 1 2 1 4 16 Theft, Embezzlement, Fraud 90 28 16 7 9 150 Unauthorized Use or Misuse of City Property, Information, or Time 120 40 41 35 25 261 Manipulation or Falsification of Any Data 11 8 1 2 2 24 Unethical Conduct or Conflict of Interest 40 20 31 36 7 134 Violation of Laws, Regulations, Policies, Procedures 42 14 52 11 33 152 Financial Reporting and Accounting 2 2 2 0 2 8 Management/Supervisor 10 0 5 0 7 22 Suggestions for Improvement 109 14 18 33 19 193 Suggested Areas for Audit 32 20 16 16 12 96 Other 37 12 27 37 16 129 Total 513 165 215 182 143 1,218

1 See Appendix C for the definition of each category.

Page 128 Office of the Auditor General 2012 Annual Report

6.4 2012 Issues Arising from the Hotline This section includes the summaries, approved by the Mayor and Chair of the Audit Sub-Committee, of examples of Hotline reports which were addressed in 2012 but were not the subject of specific audits. Where reports are found to be substantiated, any disciplinary action taken is the responsibility of management. Where management has taken action, the outcomes are noted below.

1. Employee Qualifications As a result of a supervisor being unable to pass the certification exam, management and Labour Relations met with the employee to notify them that the position has been temporarily reclassified. The employee has been placed in a position that does not require the certification and the employee‟s salary has been reduced accordingly. The employee has been given six months to pass the exam. If the employee passes, he/she will be re-instated in the position. If they do not pass, the position will be posted and filled through a competition.

2. Internet Users IT Services analyzed the usage of 56 employees and found 6 employees, who in IT‟s opinion appeared to have high non-business related Internet use. These were further reviewed and the following actions taken: One employee received written discipline; Two employees received a letter of expectation; Two employees received a verbal warning; and, For one employee, the manager directed the employee to close the browser when not in use, so as not to generate excess Internet traffic.

3. Unofficial Day Off A supervisor was found to have given employees an unofficial day off as a way of thanking employees for their hard work. The supervisor was advised that permitting time off outside the CUPE 503 Agreement is not allowed nor authorized by the City. A letter of expectation outlining this mistake will be issued and placed in the Supervisor‟s personnel file. In addition, all employees who were given the “day off” were advised that management is replacing the “day off” with leave earned (i.e., time off in lieu or annual leave). A total of 14 employees had their time reversed/changed.

4. Property Improperly Classified in Tax System A property, being used as a commercial business, was improperly classified as a residence in the City‟s tax system. The Revenue Branch will be appealing the classification so that 2013 and future property taxes will be appropriately charged at a higher rate.

Office of the Auditor General 2012 Annual Report Page 129

5. Employee Tampering with their Water Meter An employee of Environmental Services Department was found to have tampered with the water meter at their residence. The tampering resulted in unpaid water usage estimated to be $3,158. Furthermore, the replacement cost of the damaged water meter was $320. The employee was terminated and served charges for violations of the City‟s Water By-law. The Office of the Auditor General also received the results of investigations conducted by Corporate Security relating to six reports which did not originate from the Fraud and Waste Hotline, but were reported directly to Corporate Security. In three cases the allegations were substantiated and management took action including one termination. One of the cases related to drug use, another case related to a theft, and the third case related to an individual wanted by police in another jurisdiction.

7 POTENTIAL SAVINGS Council has requested that audits undertaken by the OAG include an analysis of potential savings where possible. We have identified $5,092,250 in potential savings in 2012 for a total of $51,092,914 since 2005. This data is contained in Appendix B.

8 2013 AUDIT WORK PLAN

8.1 Methodology The methodology used to develop our audit plans includes the following key steps: Meetings with Councillors and Senior Managers; Review of budget documentation; Review of former audits conducted at the City; Review of audit plans from other municipalities; Input from Auditor General‟s staff; Meetings with external auditors and review of management letters; and, Assessment of programs and services against selection criteria and risk analysis. Several specific selection criteria were used to identify potential projects and select the audits outlined in the plan, including: Program/Service has direct impact on citizens; Risk/Impact of service disruption on public safety, convenience, financial exposure; Discussions with Council, Senior Management;

Page 130 Office of the Auditor General 2012 Annual Report

Budget size (including number of staff); Last time audited; and, Fraud and Waste Hotline reports received. 8.2 2013 Audit Work Plan The following projects, approved by Council on October 10, 2012, are included in the 2013 Audit Plan: 1. Fleet Services – NAPA Contract Several Hotline reports have been received raising concerns regarding this contract. City of Toronto has received similar complaints and is considering pursuing the matter further. Audit will examine compliance to the contract terms and conditions, value- for-money and potential savings. 2. Ethics Per adopted audit standard 2110.A1 – The audit activity must evaluate the design, implementation, and effectiveness of the City‟s ethics-related objectives, programs, and activities. Audit will include an examination of all policies related to employee conduct including the disclosure of information, the Code of Conduct, Responsible Computing Policy, etc. Council‟s members will not be included in this audit. 3. IT Governance Per adopted audit standard 2110.A2 – The audit activity must assess whether the information technology governance of the City supports the City‟s strategies and objectives. Audit was identified by Councillor Tierney and will include an examination of potential savings. 4. OC Transpo Business Strategic Planning Processes Adequacy of management‟s processes in determining business strategies. Audit was identified by Councillor Blais prior to the change in leadership at OC Transpo and will include an examination of potential savings. Will include a review of three specific planning processes, i.e., fleet, facility utilization and the planning process for cancelling bus trips (identified by Councillor Egli).

Office of the Auditor General 2012 Annual Report Page 131

5. Environmental Legislated Approval Processes Adopted standards required the completion of a risk assessment. As identified in the risk assessment, an audit will be undertaken in an area viewed to be of highest risk. Audit will include an examination of value-for money and of potential savings. Recommending to proceed with an audit of Environmental Legislated Approval Processes. 6. Infrastructure Services Department Requested by City Council on October 10, 2012. 7. Follow-up of previous audits, including: a) Audit of the Management of Vacant Positions; b) Audit of Corporate Communications Function; c) Audit of Procurement Practices – General; d) Audit of Procurement Practices - Hedging Activities; e) Audit of Performance Measurement; f) Audit of Occupational Health and Safety; g) Audit of the Human Resources Master Plan; h) Audit of Budgeting for Growth Funding; i) OC Transpo Scheduling Process for Bus Operators; and, j) OC Transpo Communication of Cancelled Bus Trips. 8.3 2014 Audit Work Plan It has been my Office‟s practice to include a three year risk based audit plan, for Council‟s approval, in each of my eight previous Annual Reports. The risk based approach to auditing we set out in each of the previous annual reports, ensured that the systems, functions and processes we felt had higher risk exposure were scrutinised. Due to the timing and arrival of my successor, this annual report does not put forth an audit work plan beyond that of 2013. This is done intentionally to allow the new Auditor General to propose his own risk based audit plan and seek Audit Committee and Council‟s approval of the plan.

Page 132 Office of the Auditor General 2012 Annual Report

9 AUDITOR GENERAL’S FINAL REPORT The 2013 Annual Report marks the final one of the current AG‟s mandate. The City‟s OAG is well established and functions effectively. Since 2005, the Office has completed 122 separate audits, representing over 1,700 recommendations. As was mentioned earlier, there has been significant progress in implementing these recommendations and the audits have identified significant potential savings. The Auditor General wishes to express his thanks to the City Manager, Mr. Kirkpatrick, for his continued support and cooperation since 2005. Without this collaboration, the OAG‟s success would have been significantly diminished. Finally, the Auditor General wishes to express his appreciation for the hard work and dedication displayed by all current and former OAG staff. Their efforts have been instrumental for the success of the Office.

Office of the Auditor General 2012 Annual Report Page 133 Appendix A: Recommendations to be Raised to the Attention of the Audit Sub-Committee

APPENDIX A: RECOMMENDATIONS TO BE RAISED TO THE ATTENTION OF THE AUDIT SUB-COMMITTEE

Management Disagrees Raised to 2012 Annual Report Total Management Audit Sub- Recommendation Audits Recommendations Agrees Committee Number

Treasury Function 11 11 0 N/A

Corporate Credit Card 13 13 0 N/A

Client Service Centres 17 17 0 N/A Ontario Works Eligibility Assessment Process 18 18 0 N/A Construction Supervision 13 13 0 N/A Total 2012 Recommendations - Annual Report 72 72 0 N/A

Office of the Auditor General 2012 Annual Report Page 134

APPENDIX B: POTENTIAL SAVINGS IDENTIFIED IN 2005-2012 AUDITS SAVINGS Total of One time and YEAR AUDIT One time Annual Annual Savings HOW Lack of employee training at Fire Services Branch (2008 2005 Overtime $86,300 actual overtime dollars earned by the only two staff

performing hose and ladder repair). In 2004, 954 large meters were not changed out as scheduled, with management estimating potential lost 2005 Drinking Water Services $317,000 annual revenue of $316,537 (based on a combined 2004

water/sewer rate of $1.58/m3). The cost to repair these meters would be approximately $240,000. Two summer students monitor flusher hydrant use to ensure permit holders report the water taken; however a test study on one flusher hydrant was performed to help identify underreported consumption by the permit holders. 2005 Drinking Water Services $150,000 It was found that approximately 50% of consumption was unreported. Although the test was conducted on only one flusher hydrant, if this is representative, the foregone revenue may amount to $150,000 per year. $580,000 on sample of 12 contracts totalling $5M. Projection not in the report but as discussed with 2005 Procurement Process $4,000,000 management at the time of the report, $4M could

potentially be saved ($40M x 10%) if a higher price requirement was used for engineering consultants. 2005 Sub-total $4,553,300

2006 Surface Operations $165,000 Change in shift as oppose to OT.

2006 Surface Operations $200,000 Reduction in OT.

Represents the full dollar value of vehicle misuse - 2006 Fleet Services $900,000 potential savings would have been less. 2006 Fleet Services $459,000 Enforcing fuelling at City fuelling stations.

Medium size truck - Performance maintenance 2006 Fleet Services $574,000 improvement. Estimate not in audit report. For the purpose of 2006 Fleet Services $1,200,000 quantifying savings, $6M in untendered contracts x 20%,

which we believe is reasonable result in potential savings

Office of the Auditor General 2012 Annual Report Page 135

Appendix B

SAVINGS Total of One time and YEAR AUDIT One time Annual Annual Savings HOW of $1.2M.

OC Transpo and Para-Transpo Cash, 2006 $470,000 Refund of Non-refundable fares. Ticket and Pass Revenue Processes

2006 Financial Control Environment $291,000 Foregone interest revenue from paying invoices too soon.

Uncertified sick leave over allowable limits with medical 2006 Financial Control Environment $1,094,000 certificates. Liability accumulated from not paying-out annual leave 2006 Financial Control Environment $340,000 over the collective agreement allowances ($6.8M x 5%

increase (COLA + step increases). 2006 Sub-total $5,693,000

2007 Procurement Fax Machine $182,000 Buying fax machines rather than renting.

2007 Development Review Process $4,300,000 Raise development fees to realize full cost recovery.

2007 Ottawa Police Service Fleet $95,000 Improve management & control of the fuel card program.

2007 Sub-total $4,577,000

Based on previous budget increases and response time impacts in Ottawa and Niagara, we estimate that an additional $5M per year over the next five years would 2008 Ottawa Paramedic Service $24,000,000 likely be required (all other performance factors being

stable) to generate the 2 minutes response time improvement associated with AMPDS and its supporting software framework. 2008 Sub-total $24,000,000

Incremental Cost of the Transit Strike City paid approx. $855k as a penalty for fuel for which it 2009 $855,000 2008-2009 could not accept delivery during the strike. (Sample, not projected on stage‟s 207 lots). Charge all Eight Specific Building Code Services 2009 $5,000 developers the refundable inspection fees where Files contractor's not ready for inspection.

Page 136 Office of the Auditor General 2012 Annual Report Appendix B

SAVINGS Total of One time and YEAR AUDIT One time Annual Annual Savings HOW

Specific Contracts at the Nepean Approx. from not charging full fee for two week event for 2009 $10,000 National Equestrian Park three years (in additional to $10,000 grant).

2009 Sub-total $870,000

Potential annual cost savings of $106,000 were identified in the audit, with an additional $240,000 in liabilities related to taxable benefit reporting that could be avoided. "The 2010 Use of City Vehicles and Mileage $346,200 qualitative findings of this audit suggest that additional costs savings would be found given systematic analysis and monitoring." City's Role Regarding a Canada Day Diesel spill (2009) with clean-up costs of $57,000 that the 2010 $57,000 Event City should recover. Fraud and Waste cases closed during 2010 (Paramedic 2010 Fraud & Waste Hotline $147,400 employee being on-call for providing IT services $56,168

and Combination of 31 other cases $91,208). 2010 Sub-total $550,600

Currently, Finance has limited input in assessing affordability of the growth capital projects identified in the City‟s Growth Management Plans. The involvement of Finance in a greater capacity at an earlier stage of the Potential master planning process, along with an overall financial 2011 Budgeting for Growth Funding savings not evaluation, will result in more informed stakeholder quantified discussions on affordability upfront and will improve the efficiency of budgeting process for growth capital projects as a whole, resulting in potential saving in time and resources downstream.

Office of the Auditor General 2012 Annual Report Page 137

Appendix B

SAVINGS Total of One time and YEAR AUDIT One time Annual Annual Savings HOW At the time of the audit, Corporate Communications had 51 FTEs and a total budget of $4.4 million. In addition, management identified another 11 positions within various departments whose duties are 100% dedicated to communications and another 10 whose duties are 5-90% communications related. The prorated salary cost of these positions is $1.05 million. Management has indicated that the 11 positions do not duplicate the efforts or overlap the services of Corporate Communications. These positions Potential are responsible for activities that are outside of Corporate 2011 Corporate Communications Function savings not Communications‟ mandate. Examples of activities include

quantified creating internal departmental communications and liaising with departmental content experts in the preliminary development of communication products. Until the City clarifies the overall mandate, role and responsibilities for CC, it is difficult to determine the true level of resources required to deliver communications support and services. However, based on the level of communications resources scattered throughout the City, it is reasonable to assume that there is the potential for savings in streamlining the current structure. 2011 Human Resources Master Plan No Potential Savings.

In our view, savings will result from the elimination of long term vacant FTE positions. As presented in Table 1, and using the definition of a true vacancy as described in Motion 82/27, approximately 21 budgeted FTE positions vacant greater than 24 months were identified. Under the 2011 Management of Vacant Positions $1,800,000 provisions of the motion, these positions could be deleted and the funding for them removed from departmental budgets. Based on an average annual salary (including benefits) of $85,400, this represents a potential savings of $1.8 million. Scheduling Process for Bus 2011 No Potential Savings. Operators OC Transpo Communication of 2011 No Potential Savings. Cancelled Bus Trips

Page 138 Office of the Auditor General 2012 Annual Report Appendix B

SAVINGS Total of One time and YEAR AUDIT One time Annual Annual Savings HOW By introducing improvements to address the recommendations identified in our report, we believe the City could achieve significant reductions in workplace injuries and illnesses. In so doing, we estimate that the City could achieve reductions in its WSIB costs of up to $721,000 2011 Occupational Health and Safety $721,000 per year (see full report for more detail and Appendix B of

full report for estimates). This does not factor in other related savings that we could not quantify, including non- economic loss awards, overtime costs for replacement workers, training costs for replacement workers, and lost productivity. Over past decade, the City has devoted significant resources, particularly human resources, to various performance measurement initiatives. Unfortunately, there is little evidence to suggest that these measures have been Potential used to inform budget and operational decision-making. 2011 Performance Measurement savings not As such, the cost-benefit of these activities has been

quantified questionable. It will be important for management to monitor the usefulness of the new Balanced Scorecard program to prevent this from occurring again. In our view, if these activities are not generating the anticipated benefits there is the potential for savings by discontinuing them. 2011 Procurement Practices

Initiating a competitive tender process for suppliers to provide dump trucks for snow removal and general haulage has the potential to save the City $640,000 a) General $800,000 annually; and, purchase of entry level vehicles without consideration of trade in allowances has the potential to save the City $160,000 annually. b) Hedging Activities $2,100,000 Savings from no longer hedging natural gas.

c) Springhill Landfill No potential savings.

Follow-up of Specific Contracts at The termination of leasing arrangements with the NNC for 2011 $320,658 NNEP the NNEP resulted in annual savings of $320,658. 2011 Fraud and Waste Hotline $15,106 Combined savings from various cases closed in 2011.

2011 Sub-total $5,756,764

Office of the Auditor General 2012 Annual Report Page 139

Appendix B

SAVINGS Total of One time and YEAR AUDIT One time Annual Annual Savings HOW 2012 Treasury Function $100,000 Increase use of EFT payments to City suppliers 2012 Treasury Function $85,400 Combination of duties resulting in reduction of one FTE 2012 Corporate Credit Cards $250,000 Increase use of credit cards in lieu of petty cash or cheques Having purchasing of groceries done by Program 2012 Corporate Credit Cards $10,000 Coordinator or lower level employees as opposed to more senior staff Paying Ottawa Police Services directly for Police assistance 2012 Construction Supervision $435 000 at intersections 2012 Construction Supervision $1,200,000 Change orders cost recovery 2012 Client Service Centres $824,000 Decreased FTEs 2012 Client Service Centres $35,800 Recoveries from federal/provincial governments Ontario Works Eligibility Assessment 2012 $834,000 Ineligible payment recovery Process Ontario Works Eligibility Assessment 2012 $1,549,200 Reduced number of generic case workers Process Ontario Works Eligibility Assessment 2012 $167,000 Sick leave management Process Ontario Works Eligibility Assessment 2012 $11,400 Tracking and Reporting of ERP complaints Process Ontario Works Eligibility Assessment 2012 $6,150 Comparison of City databases to OW recipients Process

2012 Fraud and Waste Hotline $19,300 Combined savings from various cases closed in 2012 2012 Sub-total $5,092,250

GRAND TOTAL $25,637,006 $25,455,908 $51,092,914

Page 140 Office of the Auditor General 2012 Annual Report

APPENDIX C: FRAUD AND WASTE HOTLINE REPORTING CATEGORIES Harm to People or Potential Harm to Concerns related to physical or mental harm or potential harm to employees or People others relating to violence, threat, discrimination, or harassment. Items related to the safety of people and the protection of the environment in Health and Safety, Environment which they work and live. Alcohol or Drug Use or Other Issues related to alcohol or drug use or other substance abuse. Substance Abuse Any act of stealing from an organization or individual, by whatever means, and Theft, Embezzlement, Fraud attempts to conceal it. Items related to the unauthorized use or misuse of City property, equipment, Unauthorized Use or Misuse of City materials, records, internet or harm or threat of harm to City property, equipment, Property, Information, or Time materials, or internet. This would also include abuse of work time or fraudulent use of sick leave. Changes (unauthorized or authorized) made to any data, information, records, Manipulation or Falsification of Any reports, contracts, or payment documents possibly to cover mistakes or fraud, Data improve financial / operating / statistical results or to gain financial advantage or unfair advantage in a contract. Unethical or dishonest conduct by any person at any level of the organization and Unethical Conduct and Conflict of any situation or action of an employee that puts them in conflict, or could be Interest perceived as putting them in conflict, with the interests of the organization. Violation of Laws, Regulations, Violation of any law, rule, or policy set down by an organization, regulatory Policies, Procedures authority including securities commissions, or any level of government. Items related to the accuracy and completeness of financial statements and other financial reporting to the Board of Directors, Board of Governors, or other Financial Reporting and Accounting governing body, and to regulatory bodies or the public (e.g. securities regulators, tax authorities, government departments, annual public reports). Any issues, concerns or comments related to the level of support received through Management/Supervisor the actions or inactions of your direct managers and/or supervisors. Suggestions to improve any aspect of the organization including ideas, concerns, or comments related to Municipal Services and Products, Customer Service, and Suggestions for Improvement any other suggestions, to aid the attainment of its objectives, or to manage its risks. Suggested Areas for Audit Any suggestion to audit any area of the organization.

Office of the Auditor General 2012 Annual Report Page 141

APPENDIX D: BY-LAW 2009-323

Office of the Auditor General 2012 Annual Report Page 142 Appendix D

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Appendix D

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Appendix D

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Appendix D

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Office of the Auditor General 2012 Annual Report Page 149 Appendix D BY-LAW NO. 2013-234

A by-law of the City of Ottawa amending By-law No. 2009-323 respecting the Auditor General of the City of Ottawa.

The Council of the City of Ottawa enacts as follows:

1. By-law No. 2009-323 entitled "A by-law of the City of Ottawa to establish the position and duties of Auditor General of the City of Ottawa, including statutory powers, and to repeal By- law No. 2005-84, as amended", as amended, is amended by repealing subsection 6(1) and substituting the following subsection in its place:

(1) Subject to and in accordance with the provisions of this By-law, the Auditor General shall be responsible for assisting City Council in holding itself and its administrators accountable for the quality of stewardship over public funds and for the achievement of value for money in municipal operations.

2. The said By-law 2009-323 is further amended by repealing subsection 6(5) and substituting the following subsection in its place:

(5) The audit work plan shall be approved by Council. Approved audits shall be conducted at such time and to the extent that the Auditor General considers appropriate, and the Auditor General shall establish such protocols and procedures that are necessary for the conduct of such audits, consistent with the City of Ottawa Audit Stanclarcfs (modified from the Standards For The Professional Practice of Auditing), as approved by City Council on June 13, 2012.

3. The said By-law 2009-323 is further amended by repealing subsection 14(1) and by substituting the following subsection in its place

(1) The annual budget for the Office of the Auditor General shall be in accordance with the budget strategy for the Term of Council.

ENACTED AND PASSED this 17th day of July, 2013.

Office of the Auditor General 2012 Annual Report Page 151

Appendix D

BY-LAW NO. 2013-234

-o-o-o-o-o-o-o-o-o-o-o-o-o-o-o-o-

o-o-o-o-o-o- A by-law of the

City of Ottawa amending By-law No. 2009-323 respecting the Auditor General of the City of Ottawa.

-0-o-o-o-o-o-o-o-o-o-o-o-o-o-o-o-

o-o-o-o-o-o- Enacted by City

Council at its meeting of July 17, 2013.

-0-o-o-o-o-o-o-o-o-o-o-o-o-o-o-o-

o-o-o-o-o-o- LEGAL SERVICES VB mm- G04-01-STAT AG

COUNCIL AUTHORITY: City Council- November 30, 2011 Motion 26/13 & City Council- June 13,2012 FEDC Report 21. Item 2

Page 152 Office of the Auditor General 2012 Annual Report Appendix E to the OAG 2012 Annual Report Environmental Risk Assessment

1 INTRODUCTION The Office of the Auditor General (OAG) is conducting an Environmental Risk Assessment. This risk assessment is part of the 2012 audit work plan received by City Council on December 14, 2011. 1.1 BACKGROUND The City of Ottawa ("the City") is subject to numerous environmental sustainability regulations and has made a number of commitments to improve its performance. In a context where issues related to the environment and sustainable development are becoming increasingly important and may present a compliance risk for the City, our office is conducting an Environmental Risk Assessment. 2 SCOPE, OBJECTIVE AND APPROACH

2.1 Objective The objective was to conduct a high level Environmental Risk Assessment for the City of Ottawa during June and July 2012. The risks examined pertained to environmental and sustainable development issues associated with regulatory non- compliance, failure to meet public commitments and negative media relations. The resulting key risks were used to develop a five year audit plan. The purpose of this report is to: 1. Summarize the activities undertaken to identify and assess high-level key risks for the City of Ottawa; 2. Report on the results of the risk assessment and highlight key risks; and, 3. Present a five year strategic audit plan based on the key risks identified. 2.2 Scope The scope of the environmental risk assessment focused on the activities of the following City departments and functions: City Manager; Real Estate Partnership and Development Office; Public Works Department; Emergency & Protective Services Department; Environmental Services Department; Human Resources Department;

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Legal Department; Procurement Department; Planning & Growth Management Department; and, Transit Services Department. The subsequent sections describe the approach taken in identifying and evaluating risks related to the environmental and sustainable development, summarizing the results of the analysis, and presenting the resulting audit plan. 3 OBSERVATIONS

3.1 STEP 1: Identification and Assessment of Environmental and Sustainable Development Risks

3.1.1 Scope of Risks Assessed The scope of the risk assessment performed examined risks specific to the corporation of the City of Ottawa applies to most departments. Risks to the broader municipality, such as those presented by Hydro Ottawa, were not included in the scope of this assessment. Additionally, only systems, programs and controls currently in place were used to assess the mitigation of risk to the City. Environmental and sustainable development risks assessed included those risks which could prevent the City from complying with regulations, meeting its public commitments, or maintaining a positive brand image in the media. In step 1 the following activities were completed: 1.1 Identification of key environmental sustainable development issues and risks; and, 1.2 Assessment of key environmental risks.

3.1.1.1 Step 1.1: Identification of Key Environmental Risks Key issues and risks to the City of Ottawa were identified through the following methods: Regulatory research; Online media searches; Interviews with multiple representatives from 10 City departments; and, Review of documentation provided by the departments. The following sources were reviewed as part of this engagement: Canada-wide Strategy for the Management of Wastewater Effluent; Ontario‟s Clean Water Act;

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Ontario Discriminatory Business Practices Act; Ontario Emergency Management and Civil Protection Act; Ontario Endangered Species Act; Ontario Environmental Protection Act; Ontario Green Energy Act; Ontario Municipal Act; Ontario Municipal Board Planning Act; Ontario Occupational Health and Safety Act; Ontario Planning Act; Ontario Waste Diversion Act; Ontario Drive Clean Program; List of potential environmental effects from the Guide 4th edition, used by the Auditor General of Canada (Integral to considerations in environmental missions verification management, December 2005, Office of the Auditor General of Canada); Federation of Canadian Municipalities sustainable development guides; Term of Council Priorities of the City of Ottawa (source: website of the City); ISO 26000 - Guidelines for social responsibility; and, GRI public sector supplement. Issues have been structured into 11 categories: Air, Water, Soil, Energy, Waste, Transport, Land Use, Procurement, Social responsibility, Economic responsibility, and Governance and compliance. The sub-categories are listed in Table 1.

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Table 1 – List of environmental and sustainable development issues considered in the analysis

Categories Sub-categories A. Air A1: Greenhouse gas (GHG) emissions: emission measurement, emission reduction, adaptation to climate change A2: Air quality for citizens (e.g., smog, odours and criteria air contaminants) B. Water B1: Water consumption (e.g., resource sustainability, reduction of consumption) B2: Quality of drinking water B3: Wastewater and storm water management B4: Snow removal management C. Soil C1: Contaminated soil management C2: Accounting for liabilities associated with contaminated soil (e.g., remediation costs) D. Energy D1: Energy management (e.g., consumption reduction, renewable energy) D2: City of Ottawa's property income management E. Waste E1: Collection and waste disposal E2: Resource recovery E3: Hazardous waste management F. Transport F1 : Transit and transportation F2: City of Ottawa's motorized equipment G. Land Use G1: Urban sprawl G2: Natural habitats and biodiversity G3: Agricultural territories H. Procurement H1: Sustainable procurement (e.g., consideration of environmental and social criteria when procuring goods/services) I. Social responsibility I1: Public health and safety (e.g., emergency preparedness plan) I2: Workplace health and safety (e.g., City of Ottawa employees) J. Economic J1: Municipal economic development planning responsibility J2: Effectiveness and efficiency of municipal administration, policies and programs K. Governance and K1: Compliance with environmental and sustainable development regulations (e.g., City's compliance compliance with federal and provincial laws, followed by the application of municipal regulations) K2: Regulatory and strategic monitoring K3: Statements on sustainable development K4: Consideration of environmental and sustainable development into decision making (e.g., In planning of new projects, policies and programs) K5 : Stakeholder consultation K6: Eco-taxation (e.g., taxation programs to encourage environmentally sustainable behaviour) K7: Complaint management K8: Ethical anti-corruption practices K9: Organization of sustainable development management (e.g., Roles and responsibilities for the management of sustainable development within the City of Ottawa) K10: Education and awareness raising for sustainable development (e.g., Employees, citizens, stakeholders) K11: Accountability (e.g., clear objectives and targets, and achievement)

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3.1.1.2 Step 1.2: Assessment of Key Environmental Risks Issues were evaluated against two criteria: impact and vulnerability. The impact assessment aims to evaluate the City‟s exposure level to each of the identified issues, while the vulnerability assessment evaluates the level of control exercised over those issues. Three categories were used to evaluate the impact of the issue on the City: 1. Regulatory context (risks of non-compliance, up grading costs); 2. Public commitments (risk of non-compliance or implementation in effectiveness); and, 3. Social or environmental sensitivity (potential environmental damage, social concern, media coverage). Two categories were selected to evaluate the City‟s vulnerability: 1. Systems and programs in place to manage and to reduce the City‟s exposure to the issue; and, 2. City‟s level of control over the risk (e.g., level of control of other stakeholders). It is important to note that ratings were established to guide planning on the five year high level audit plan. Therefore, the main goal was not to have a precise absolute assessment of impact and vulnerability to the City for each environmental and sustainable development risk, but to have a general understanding of the greatest relative risks. While environmental regulations were examined, a complete review of environmental regulations did not occur for this mandate. This report does not constitute a legal compliance review. Risk assessment results are presented in the „Summary of risk assessment results‟ section below. Tables 2 and 3 set out the evaluation criteria used. Criteria were ranked on a scale of 1 to 4 as defined in Table 2.

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Table 2 – Impact assessment criteria

Impact Rating Regulatory context Public commitments Environmental or social sensitivity Significant Non-compliance would lead to Failure to meet public Significant social and/or 4 significant fines and have a commitments would significantly environment sensitivity negative impact on the City at the impair the City’s reputation Provincial level High Non-compliance would have a high Failure to meet public High social and/or environmental 3 negative impact on the City at the commitments would have a high sensitivity regional level negative impact on the City’s reputation

Moderate Non-compliance would have a Failure to meet public Moderate social and/or 2 moderate negative impact on the commitments would have a environmental sensitivity City moderate impact on the City’s reputation Low Non-compliance would have a low Failure to meet public Low social and/or environmental 1 negative impact on the City. Also commitments would have a low sensitivity used if there is no regulation in impact on the City’s reputation. place Also used if the City has no public commitments

Table 3 – Vulnerability assessment criteria

Exposure Rating System and programs Level of control

Significant No system or program in place The level of control is weak 4

High Systems and programs that are not The level of control is limited 3 clearly defined or adhoc are in place

Moderate Systems and programs are partially The level of control is fair 2 implemented and/or partially defined Low Systems and programs are clearly The level of control is good 1 defined within the organization

The impact rating was calculated as an average of the three ratings: regulatory context, public commitments and social or environmental sensitivity. The vulnerability rating was calculated as the average of the two ratings: system and programs, and level of control. The overall risk rating was calculated by multiplying the impact rating and the vulnerability rating. Table 4 shows an example of a risk assessment for „greenhouse gas emissions.‟

Page 158 Office of the Auditor General 2012 Annual Report Appendix E – Environmental Risk Assessment Table 4 – Example of an environmental risk assessment (Greenhouse gas emissions) Sub-category: A1: Greenhouse gas emissions Risk Statements: A1.1: Lack of a systematic and comprehensive climate change adaptation plan may result in impairment to municipal infrastructure and services due to extreme weather. This could then result in potential legal action due to sustained property damage. Risk’s Impact Assessment Vulnerability Assessment Evaluation Description RC PC S Impact Description SP C Vul Risk Rating Regulatory context: - Provincial: Emergency Management and Systems and programs: Civil Protection Act (requires emergency - The Air Quality and Climate Change Management Plan, dated preparedness plan be in place). November 2004, outlined a risk assessment and mitigation plan Public commitments: to be undertaken in phase II (scheduled to occur in 2005-06), - The "Air Quality and Climate Change but no progress was made in this area. Management Plan", published by the City in - In 2008, Council approved the commencement of a climate late 2004, focused on the mitigation of climate change adaptation plan; however, this does not appear to have change with some adhoc recommendations for been completed as volume 1 section 2.4 of the Official Plan for adaptive measures. The report stated that the city was amended in July 2011 to include the completion a adaptation would be addressed more 1 3 3 2.3 climate change adaptation strategy. 3 3 3.0 7.0 comprehensively as one of the Plan’s work - Conversations with city employees indicated there is currently plan items. no comprehensive climate change adaptation strategy/plan in - Additional commitments were made in 2008 place, but that adhoc initiatives have been undertaken. and 2011 to complete climate change - Lack of an assessment of the impact of climate change to adaptation plans and strategies, respectively. waste water infrastructure will exacerbate risks noted in that Environmental or social sensitivity: area as well. - Moderate media coverage of climate change Level of control: by the media. - The level of control over adapting to climate change is not well - Citizen concern with climate change has been controlled as no ownership has been identified and attention to increasing in recent years. adaptation requirements is sporadic.

Legend (rating 1 to 4) Calculation method Impact Impact = average (RC, PE, S)

RC: regulatory context Vulnerability = average (SP, C)

PC: public commitments Risk = Impact x Vulnerability

S: environmental and social sensitivity

Vulnerability

SP: systems and programs

C: level of control of the City

The impact vulnerability assessment for each of the 17 identified risks (ratings and justifications) is shown in Appendix A.

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3.1.1.3 Map of Environmental and Sustainable Development Issues The graph1 shows issues according to their impact and vulnerability. For example, the upper right square describes issues with highest impact and vulnerability on the City.

Graph 1: Map of Environmental and Sustainable Development Issues

The list of risk statements associated with each point on the graph is located in Appendix A.

1 It should be noted that the background graph display of four quadrants is to facilitate the reading of the graph (spreading the "scatter" in four areas of equal size). It is not intended to establish a threshold of significance or impact of the vulnerability.

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The diverse range of top ranking issues in the chart reflects the heterogeneity of risks experienced by the City. On some issues, the City has well established management practices; while on others, the City appears exposed to risks. A preliminary evaluation of residual risks2 for the City demonstrated that residual risks were ranked as high with respect to: Management of wastewater and rain runoff management; Compliance with regulations; GHG emissions (climate change adaptation); Natural habitats and biodiversity; Organization of sustainable development management; and, Resources recovery. It is important to note that the work conducted in this environmental risk assessment does not constitute an audit. The residual risks as well as the effectiveness of programs and internal controls can only be assessed during an audit. To clarify decision making for future audit projects, the following graph3 shows ranking by issue categories.

2 Residual risk is the risk which remains after mitigating efforts have been considered. 3 The impact and vulnerability for each category was determined by calculating the average risk ranking of the highest three risks in that category.

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Graph 2: Ranking of Issue Categories

This graph illustrates the priority issue areas where attention may be warranted, in particular: air, governance and compliance, land use, water and procurement. However, while the overall risk for procurement was considered high, the individual risk within procurement did not rank in the top five risks, as there were two governance and compliance risks that were rated higher. Consequently, it was not considered a high priority for the five year audit plan. 3.2 Step 2: Development of audit plan to assess environment and sustainable development risks

3.2.1 Objectives Based on the results of Step 1 (environmental and sustainable development risk assessment), priorities for the risk-based audit plan were developed. This plan aims to ensure that the City of Ottawa adequately addresses the environmental and sustainable development risks it faces. Specifically, the audit projects are intended to assess areas where gaps in the following areas were noted Effectiveness of programs; Internal controls in place; Residual risk gaps; Program performance; and,

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Compliance with laws and regulations.

3.2.2 Audit project list Table 6 describes five priority audit projects which are being proposed to address the highest risks identified. In developing a list of potential audit projects, we considered the following: Risk Level: Audit project must be one of the high risks identified in this analysis. Auditability: Audit project must be on an auditable (verifiable) subject.

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Table 6: Potential Audit Projects List

# Project Objectives

P1 Wastewater and Ensure that the City of Ottawa has implemented sufficient controls to manage risks associated with rain run-off the transport and treatment of wastewater and rain run-off to reduce the risks to an acceptable level.

management In this context the audit could: Determine if the City has control mechanisms enabling it to comply with various standards, rules and relevant legislation (both provincial and municipal); Determine if the City has control mechanisms for the monitoring of discharges during the various stages of wastewater transport and the wastewater treatment process; and, Determine if the City has sufficient and appropriate infrastructure, human resources and competencies in their treatment of wastewater. P2 Management of Ensure that the City of Ottawa has implemented sufficient controls to manage environmental review environmental and permitting processes sought by the City staff to reduce the risks to an acceptable level. review and In this context, the audit could have the objective to assess the extent to which: permitting The City has developed efficient processes with respect to planning and overseeing environmental processes reviews and environmental permits to ensure timeliness of processing with due regards to economy, efficiency and effectiveness; Determine if the City uses adequate tools to track timeliness of applications for environmental reviews and priority permits; and, Adequacy of governance at the City to oversee environmental review process (i.e., interface between the City and the government agencies). P3 Management of Ensure the City of Ottawa has implemented sufficient controls to identify and manage the risks climate change associated with the impacts of climate change to the City of Ottawa to reduce the key risks to an acceptable level.

impacts In this context the audit could:

Determine if the City has assessed the key risks of a changing climate in a systematic manner across all applicable departments and involved appropriate personnel; and, Determine if the City has developed an adaptation strategy which addresses the key climate change risks identified. P4 Management of Ensure the City of Ottawa has implemented sufficient controls to monitor and protect ecologically natural habitats sensitive areas and biodiversity (e.g., endangered species) through appropriate programs

and biodiversity In this context the audit could: Determine if the City has control mechanisms which enable it to identify ecologically sensitive areas; Determine if the City has programs in place to monitor or protect identified areas; Determine if the City has control mechanisms enabling it to comply with the ESA during new infrastructure or development projects; and, Determine if the City has sufficient human resources and competencies with regards to the management of natural habitats and biodiversity. P5 Management of Ensure that the City of Ottawa has defined accountability for the management of sustainable sustainable development within projects and programs.

development In this context the audit could: Determine if roles and responsibilities have been appropriately defined around the incorporation of sustainability strategic goals into projects and programs throughout the various departments; and, Determine if reporting mechanisms are in place to ensure accountability and transparency around the achievement of those goals. P6 Resource The purpose of the assignment is to conduct a preliminary assessment of the deal with Plasco Energy recovery Group. The objective is not to question or review the City Council decision but to ensure that City staff role was appropriate in the assessment of the project.

Page 164 Office of the Auditor General 2012 Annual Report P4 Gestion de l‟eau potable

P6 Gestion de l‟air P2 Gestion des eaux usées P3 Gestion des matières résiduelles

P1 Gestion des sols contaminés

Appendix E to the OAG 2012 Annual Report Environmental Risk Assessment

These projects cover the top priority environmental and sustainable development risks identified during the risks assessment. The following section describes each project in greater detail. The audits are listed in descending order of risk should the City decide to address the highest risks first.

3.2.3 Potential Audit Project Description

3.2.3.1 P1 – Wastewater and rain run-off management Description

Objective Ensure that the City of Ottawa has implemented sufficient controls to manage risks associated with the transport and treatment of wastewater and rain run-off to reduce the risks to an acceptable level. In this context, the audit could: Determine if the City has control mechanisms enabling it to comply with various standards, rules and relevant legislation (both provincial and municipal); Determine if the City has control mechanisms for the monitoring of discharges during the various stages of wastewater transport and the wastewater treatment process; and, Determine if the City has sufficient human resources and competencies in their treatment of wastewater.

Scope This project will focus on the audit the Environmental Services branch, particularly the Wastewater Services Branch and the Surface Water Management Services Branch.

Activities This audit project would consist of an audit of systems and practices of the City's wastewater management using evaluation criteria derived from various sources, including the following: Relevant internal documentation regarding the treatment of wastewater the City: Review of laws / regulations and relevant reports; A set of recognized sound management practices; and, Meetings with relevant City branches to deepen our understanding of control mechanisms in place to manage wastewater. Particular attention would be given to the following themes: Compliance: The City consistently complies with the broad guidelines, standards and federal and provincial regulations;

Wastewater releases into the natural environment: monitoring and correcting leaks and reversed connections on the sewer system, improvement of sewage treatment, monitoring the quality of natural environments affected and level of collaboration between management and engineering, etc.; and,

Monitoring: Monitoring of discharges during water purification.

Risks covered B3.1: Sewage overflows and aging wastewater infrastructure could cause contamination of the natural environment resulting from overflows/leaks of waste water.

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3.2.3.2 P2 – Management of environmental review and permitting processes Description Context The processes for environmental reviews and environmental permitting are often multilayered and can involve a number of government agencies. While the environmental review process is ongoing, the City may not start the proposed project and government agencies may not issue permits for those projects during that time. Processing time can cause project delays and lead to additional costs. Hence, it is important for the City to have strong controls mechanisms to monitor the environmental review process. Objective Ensure that the City of Ottawa has implemented sufficient controls to manage environmental review and permitting processes to reduce the risks to an acceptable level. In this context, the audit could have the objective to assess the extent to which: The City has developed efficient processes with respect to planning and overseeing environmental reviews and environmental permits to ensure timeliness of processing with due regards to economy, efficiency and effectiveness; Determine if the City uses adequate tools to track timeliness of applications for environmental reviews and priority permits; and, Adequacy of governance at the City to oversee environmental review process (i.e., interface between the City and the government agencies). Scope This project will mainly would apply to the following departments: Environmental Services Department; Public Works Department; Infrastructure Services Department; and Planning and Growth Department; . Activities This audit project would consist of an audit of systems and practices using evaluation criteria derived from various sources, including the following: Relevant internal documentation regarding environmental reviews and permitting; Review of laws / regulations and relevant reports; A set of recognized sound management practices; and, Meetings with relevant City branches to deepen our understanding of control mechanisms in place to manage and track environmental review applications and permits. Risks covered K1.2: Delays in the environmental review process emanating from the submission of incomplete data which may lead to project delays and additional costs. K1.3: Lack of ongoing monitoring of timeliness of applications hinders the City’s ability to respond to questions or requests for information. K1.4: Inadequate governance to plan and oversee environmental review process leading to delays.

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3.2.3.3 P3 – Management of climate change impacts Description Objective Ensure the City of Ottawa has implemented sufficient controls to identify and manage the risks associated with the impacts of climate change to the City of Ottawa to reduce the key risks to an acceptable level.

In this context the audit could: Determine if the City has assessed the key risks of a changing climate in a systematic manner across all applicable departments and involved appropriate personnel; and, Determine if the City has developed an adaptation strategy which addresses the key climate change risks identified. Scope This project would apply to most departments, particularly Emergency and Protective Services, Environmental Services, Planning & Growth Management, Infrastructure Services Department and Public Works Department. Activities This audit would focus on the City’s identification of risks associated with climate change and any subsequent adaptation plans. It would include the following activities: Interviews with key personnel from each department to determine whether efforts have been made to identify and address climate change risks to their department; Review of applicable documents prepared by the departments; and, Evaluation of completeness and scoping of the risk assessment and subsequent adaptation plans. Risks A1.1: Lack of a systematic and comprehensive climate change adaptation plan may result in impairment to covered municipal infrastructure and services due to extreme weather. This could then result in potential legal action due to sustained property damage.

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3.2.3.4 P4 – Management of natural habitats and biodiversity Description Objective Ensure the City of Ottawa has implemented sufficient controls to monitor and protect ecologically sensitive areas and biodiversity (e.g., endangered species) through appropriate programs.

In this context the audit could: Determine if the City has control mechanisms which enable it to identify ecologically sensitive areas; Determine if the City has programs in place to monitor or protect identified areas; Determine if the City has control mechanisms enabling it to comply with the ESA during new infrastructure or development projects; and, Determine if the City has sufficient human resources and competencies with regards to the management of natural habitats and biodiversity. Scope This project will mainly audit the Planning and Growth Management department and the Infrastructure Services Department.

Activities This audit project would consist of an examination of the City’s identification of ecologically sensitive areas and any corresponding programs to monitor or protect the habitat and biodiversity. Evaluation criteria would be derived from various sources, including the following: Interviews with key personnel from the Planning and Growth Management department to determine whether efforts have been made to identify and subsequently monitor and protect ecologically sensitive areas and biodiversity; Relevant internal documentation regarding processes to ensure compliance with ESA; Any management practices in place; and, Meetings with relevant City branches to deepen our understanding of control mechanisms in place to ensure compliance with ESA. Risk covered G2.1: Potential deterioration of the natural system and biodiversity due to the inability to monitor, track and protect sensitive ecological areas through appropriate programs. G4.1: Lack of established and communicated procedures to ensure compliance with the Endangered Species Act, including on-boarding training of external consultants, could result in non-compliance with the Act.

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3.2.3.5 P5 – Management of sustainable development Description Objective Ensure that the City of Ottawa has defined accountability for the management of sustainable development within projects and programs. In this context the audit could: Determine if roles and responsibilities have been appropriately defined around the incorporation of sustainability strategic goals into projects and programs throughout the various departments; and, Determine if reporting mechanisms are in place to ensure accountability and transparency around the achievement of those goals.

Scope This project would apply to most departments, particularly Environmental Services, Planning & Growth Management and Infrastructure Services Department. Activities This audit would focus on the governance of managing sustainable development at the project and program level. It would include the following activities: Interviews with key personnel from the various department to determine whether roles and responsibilities for sustainable development have been appropriately defined; Review of applicable documents prepared by the department; and, Evaluation of any reporting mechanisms in place to ensure accountability and transparency around the achievement of strategic development goals. Risks covered K9.1: Lack of defined roles and responsibilities for the management of sustainable development within projects and programs could result in overall sustainability goals not being met.

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3.2.3.6 P6 – Resource recovery Description Context Ottawa city council approved a 20-year garbage processing deal with Plasco Energy Group. The deal calls for Plasco to take on 300 tonnes a day of residential waste at a cost of $83.25 per tonne to local taxpayers. The deal is contingent on Plasco completing construction of its waste-processing plant by 2016 and securing financing by 2013.

Objective The purpose of the assignment is to conduct a preliminary assessment of the deal with Plasco Energy Group. The objective is not to question or review the City Council decision but to ensure that City staff role was appropriate when assessing the project. Additional explanation: Assessing the due-diligence process (performed by City staff) in order to ensure that the service provider and the deal were thoroughly evaluated. Can the deal be shown to be sound and cost-effective, socially, environmentally and economically, on a cradle-to-grave life-cycle basis?

Scope This project will mainly would apply to the Environmental Services Department but would also include the Legal Services and the City Manager’s Office.

Activities This audit project would consist of an audit of systems and practices using evaluation criteria derived from various sources, including the following: Relevant internal documentation regarding the relationship between the City and Plasco Energy Group; A set of recognized sound management practices; and, Meetings with relevant City branches to deepen our understanding of control mechanisms and due diligence process performed to assess the deal with Plasco Energy Group. Risk E2.1: Reputational risk for the City resulting from an inadequate due-diligence process by the City. covered

4 ACKNOWLEDGEMENT We wish to express our appreciation for the cooperation and assistance afforded the audit team by management.

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Appendix A - Impact and Vulnerability Assessment Details

Environmental and sustainable Risk Impact Assessment (level of Vulnerability assessment (level of control development categories Identification exposure of the City) of the city)

Potential Risk's Risk's

Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects Regulatory context: Systems and programs: - Provincial: Emergency - The Air Quality and Climate Change Management and Civil Management Plan, dated November 2004, Protection Act (requires A1.1: Lack of outlined a risk assessment and mitigation emergency preparedness plan a systematic plan to be undertaken in phase II (scheduled be in place). and to occur in 2005-06), but no progress was Public commitments: comprehensiv made in this area. - The "Air Quality and Climate e climate - In 2008, Council approved the Change Management Plan", change commencement of a climate change published by the City in late adaptation adaptation plan; however, this does not 2004, focused on the mitigation A1: plan may appear to have been completed as volume 1 of climate change with some Greenhouse result in section 2.4 of the Official Plan for the city adhoc recommendations for gas emissions impairment to was amended in July 2011 to include the adaptive measures. The report (measuring municipal completion a climate change adaptation stated that adaptation would be A. Air emissions, infrastructure 1 3 3 2.3 strategy. 3 3 3.0 7.0 P3 addressed more reducing and services - Conversations with city employees comprehensively as one of the emissions, due to indicated there is currently no Plan’s work plan items. adapting to extreme comprehensive climate change adaptation - Additional commitments were climate change) weather. This strategy/plan in place, but that adhoc made in 2008 and 2011 to could then initiatives have been undertaken. complete climate change result in - Lack of an assessment of the impact of adaptation plans and strategies, potential legal climate change to waste water infrastructure respectively. action due to will exacerbate risks noted in that area as Environmental or social sustained well. sensitivity: property Level of control: - Moderate media coverage of damage. - The level of control over adapting to climate change by the media. climate change is not well controlled as no - Citizen concern with climate ownership has been identified and attention change has been increasing in to adaptation requirements are sporadic. recent years.

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Environmental Risk Assessment

Environmental and sustainable Risk Impact Assessment (level of Vulnerability assessment (level of control development categories Identification exposure of the City) of the city)

Potential Risk's Risk's

Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects Systems and programs: - GHG reduction targets were set for the community (20% reduction by 2012 of Regulatory context: 1990's levels) and the municipal corporation - Environmental Protection Act - (30% reduction by 2012 of 1990s levels). Ontario Regulation 452/09 - New reduction targets are to be set beyond Standards for mandatory A1.2: Absence 2012. The municipal target was originally set reporting on the atmospheric of a new GHG at 24%, but was increased to 30% in 2009 emission of some greenhouse emissions when it was found that the 24% target had gases. Additionally, verification target could been met. is required where emissions lead to - There is a well established GHG reduction, exceed 25,000 tonnes annually. 2. concerns 1 2 1.7 monitoring and reporting program in place 2 2 2.0 3.3 Public commitments: 0 around the that has been refined over the years. - Committed to reducing green City’s - An Emissions Reduction Strategy was house gas emissions through commitment created in which several initiatives were internal practices. to reducing introduced to reduce emissions in the areas Environmental or social GHG of buildings and fleet, including the Green sensitivity: emissions. Fleet Plan. - Moderate media coverage of Level of control: green house gas emissions by - The level of control over inventory of GHG the media. is high. The level of control over municipal corporation GHG reduction targets being achieved is high. Regulatory context: - Canada-wide Standards Systems and programs: A2.1: Lack of including the emission of - Air Quality Plan was completed in 2005 a current Air particles and ozone (Particles: and discrete areas of plan have been Quality Plan 30 ig/m3, average over 24 hours addressed since then. Targets and action beyond 2012 by 2010. Ozone: 65 ppb, were set for a 2012 deadline and have not A2: Air quality could lead to averaged over 8 h, by 2010). been fully revisited since 2005. for citizens community Public commitments: 2 2 2 2.0 - Two mobile air monitors are in place and 2 3 2.5 5.0 (SMOG, odors) concern -Committed to maintaining high only five smog days were reported last year. around the air quality in Ottawa. Level of control: future air Environmental and social - The level of control limited as a clearly quality in sensitivity: defined plan was in place, but is coming to a Ottawa. - Growing concern of citizens close and no new plan has been developed around the effects of smog and and other actions are discrete. poor air quality on health.

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Environmental Risk Assessment

Environmental and sustainable Risk Impact Assessment (level of Vulnerability assessment (level of control development categories Identification exposure of the City) of the city)

Potential Risk's Risk's

Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects Systems and programs: - Water Efficiency Strategy adopted in 2006 Regulatory context: with two phases. Phase 1 had both a - Restrictions for water taking residential and corporate side of program imposed by the Ontario Water with rebates and educational campaigns and Conservation Authority during has been completed. Phase 2 has been droughts. reassessed and higher targets B1: Water No significant Public commitments: recommended to Council for approval. consumption risk identified - No commitments around water 1 1 3 1.7 - Water efficiency programs continued during 2 1 1.5 2.5 (lasting quantity in this conservation. the Woodroffe water main break to focus on of the resource) analysis. Environmental and social areas with the greatest need. Restrictions sensitivity: on water consumption were experienced in - Citizen concern for water parts of the City. consumption moderate, but Level of control: restrictions on water - The level of control is good as active consumption well publicized. monitoring and reassessment is taking place at key milestones. Systems and programs: - To ensure compliance with Ontario's Clean Water Act the City of Ottawa has Regulatory context: implemented the City of Ottawa's Rural - Ontario Safe Water Drinking Clean Water Grants Program to improve Act species the standards water quality in local rivers, streams, creeks, B. Water around the quality of drinking and groundwater reserves by reducing non- water. point source pollution from seeping into the - Ontario’s Clean Water Act soil and running off the land. The plan offers requires municipalities to assess grants and technical assistance for projects existing and potential threats to like manure storage, septic system repairs, their source water and buffer strips and erosion protection to protect implement the actions needed to surface water and/or groundwater quality. No significant reduce or eliminate these risks. - The City of Ottawa operates two treatment B2: Quality of risk identified Public Commitments: plants to supply drinking water: Lemieux 1 1 3 1.7 1 1 1.0 1.7 drinking water in this - Committed to working with Island Water Purification Plant and Britannia analysis. local Source Water Protection Water Purification Plant. Committees, Mississippi-Rideau - Water treatment is performed by the and Raisin-South Nation, to following steps: coagulation (alum and develop plans for protecting our sulphuric acid), flocculation (activated silica local rivers and groundwater and as a coagulant aid), sedimentation, filtration providing quality drinking water (sand/anthracite), primary disinfection to citizens. (sodium hypochlorite), pH correction (sodium Environmental and social hydroxide), secondary disinfection sensitivity: (chloramine), and fluoridation (HFS). - High social sensitivity for the - The City of Ottawa tests drinking water on maintenance of water quality. a frequent basis for physical, microbiological, chemical, & radiological irregularities. Approximately 125,000 water-quality tests are performed annually in municipal,

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Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects provincial, federal, private and university laboratories. - The water quality drinking water management system is periodically audited to ensure that controls are in place and effective. - Upgrading to an automated water quality monitoring system to be completed in 2013. Level of control: - The level of control is good. There have been no boil water advisories in recent years and the City is in compliance with regulatory requirements.

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Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects Systems and programs: - Ottawa has one waste water system and one storm water collection system with five combined sewer regulators that can overflow Regulatory context: into the Ottawa River. Real time flow - Federal: Canada-wide Strategy monitoring equipment and automatic for the management of samplers were installed in October 2011 in wastewater effluent sets out the regulators to monitor volumes and standards for permissible quality of effluents.- Annual compliance concentrations of contaminants. reviews are performed internally as well as B3.1: Sewage - Provincial: Ontario Water annual MOE inspections. No exceedances overflows and Resources Act prohibits the of effluent limits were reported throughout aging discharge of polluting materials 2011. While improvements have been made, wastewater into water, but allows for the 2011 MOE inspection listed three infrastructure regulation of discharge of overflow events at the pumping station. B3: Wastewater could cause sewage into water. - Ottawa River Action Plan submitted to and rain runoff contamination 2 3 4 3.0 3 3 3.0 9.0 P1 Public commitments: Council which specifies the goal of having management of the natural - Commitment made to reduce zero combined sewer overflow in an average environment combined sewage overflows and year to be achieved through 17 projects resulting from storm water impacts and costing $251.64 million. We understand that overflows/leak improving wastewater treatment. all but one of the projects has been initiated s of waste Environmental and social and five projects have been completed to water. sensitivity: date. - High sensitivity. Sewage Level of control: overflows from drains during - The level of control is limited as the heavy rains are covered by wastewater and rain runoff management media extensively and is subject system was investigated after flooding and of public concern. sewer backflows in 2009. An infrastructure plan spanning 2010-2012 was developed and has been in progress to prevent future overflows, spills, etc. however overflows are still occurring. Systems and programs: - 90% of City snow removal goes to Engineered Snow Disposal Facilities (SDF) Regulatory context: which is City owned land. Treatment of melt - Ontario Clean Water Act water via sedimentation ponds. Melt water regulates the application of salt monitoring program in place for SDFs. No significant B4: Waste to roadways. - Program in place to monitor environmental risk identified Snow Public commitments: 1 1 1 1.0 effects in the creeks, storm sewers, and 1 1 1.0 1.0 in this management - None associated surface runoff from a number of analysis. Environmental and social its snow disposal facilities. sensitivity: - Salt management plan in place to minimize - Not a high concern for citizens. the use of salt on roadways. Level of control: - The level of control is good as active monitoring and management plans are in

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Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects place.

Systems and programs: - Well established Centre of Expertise which handles environmental matters pertaining to Regulatory context: real estate. - Provincial: The Environmental - Robust inventory taken of old city landfills Protection Act prohibits the and subsequent appropriate management of release of contaminates into the them. environment at specified - Robust underground storage tanks quantities and provides inventory taken and remediation plan well provisions with dealing for underway. contamination. There are - Funding has been adequate to remediate C1: No significant extensive detailed regulations sites as scheduled. Contaminated risk identified C. Soil which clarify the broader 2 2 2 2.0 - Off-site Management Agreements 1 1 1.0 2.0 soil in this requirements of the EPA. developed to indemnify the City for any management analysis. Public commitments: impacts stemming from third party - Committed to minimizing environmental contamination actions. environmental impacts. Level of control: Environmental and social - High level of control in place as an sensitivity: inventory of the most significant - Media covering public contaminated sites has been performed. As contaminated lands and City well, there are active and well established plans for brownfields. programs are in place to reduce risk and monitor and remediate the sites as appropriate with adequate funding in place to perform work as scheduled.

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Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects Regulatory context: - CICA Standards for accounting for environmental liabilities in the C2: Accounting financial statements of general Risk was not for liabilities government (will take effect in assessed as associated with 2014, but early adoption is selected contaminated encouraged). See sections N/ Selected interviewees were not able to N/ interviewees N/A N/A 0.0 N/A N/A 0.0 soils 3300, 3270, 3260 of the CICA A comment on this issue. A were not able (Costs of Handbook. to comment decontamination Public commitments: on this issue. ) - None. Environmental and social sensitivity: - Not a high concern for citizens. Systems and programs: - Provides support for EnviroCentre, a not- for-profit organization that specializes in home energy efficiency, conservation and sustainable transportation. EnviroCentre projects include programs for low income Regulatory context: homeowners, safe cycling education and the - Provincial: O. Reg. 397/11 Kill-A-Watt Meter program. Energy Conservation and - Additionally, the City endorses Hydro Demand Management Plan. Ottawa consumption reduction initiatives for Requires municipalities to citizens such as: examine existing and forecasted • Summer Savings program gives hydro D1: Energy demands for energy and plans users who reduce their electrical use by 10% management No significant to reduce energy consumption. this summer a credit on their electricity bill. (consumption risk identified The First report, which details D. Energy 2 1 2 1.7 • The Great Refrigerator Round Up picks up 1 2 1.5 2.5 reduction, in this energy consumption, but not old, inefficient second fridges free of charge renewable analysis. energy reduction targets is due for disposal in an environmentally energy) on July 1, 2013 for 2011 data. responsible fashion (Hydro Ottawa in - Feed in Tariff Program partnership with Ontario Power Authority). Public commitments: • The Peaksaver program permits Hydro - No public commitments. Ottawa to remotely turn down central air Environmental and social conditioners when the electricity system is sensitivity: under strain on the hottest days of summer - Moderate concerns for citizens. (a voluntary program for Hydro customers). - Currently the City of Ottawa is on track to provide the first report by July 1, 2013. Level of control: - The level of control is fair. Established programs are well underway by third parties.

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Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects Systems and programs: - Green Building Policy approved which states that LEED standards must be adopted Regulatory context:- None. for all new buildings. Public commitments: - In year 3 of 5 of Smart Energy Program - Committed to greening ($14 million program designed to save costs practices associated with and reduce energy and water use by the buildings and energy City). Annual savings from reduction in D2: City of No significant consumption. electrical, natural gas and water Ottawa's risk identified - Commitments to reduce GHG consumption are forecasted to be property 1 2 2 1.7 1 1 1.0 1.7 in this emissions from city $2,510,000 in 2015. Initiatives include income analysis. infrastructure. energy retrofits, implementing an integrated management Environmental and social building automation system, and sensitivity: implementing solar panels). - Moderate interest by citizens in - Street Lighting (Traffic Light) Program greening practices around underway (193 signal devices have been buildings. converted to LED technology). Level of control:- The level of control is good. Established programs are well underway.

Systems and programs: - The City owns two landfill sites which are predominately residential waste. Both have Regulatory context: extensive monitoring programs. Risks are - Provincial: Section 27 of known and steps are taken to mitigate them. Environmental Protection Act - Green bin and recycling programs are in regulates landfills. place. - Regulation 347 (standards for - Ottawa Waste Plan being developed to No significant waste disposal sites and waste manage Ottawa’s waste over the next 30 E1: Collection risk identified management systems). years, during which time Ottawa's population E. Waste and Waste 2 2 3 2.3 1 1 1.0 2.3 in this Public commitments: is expected to grow by 300,000. The Disposal analysis. - City is committed to objective of the plan is also to guide responsible collection and progress towards achieving the National disposal of waste. Capital area’s vision of zero waste. Phase Environmental and social One to establish vision, goals and targets sensitivity: was completed in the fall of 2011, with Moderate concerns for citizens. approval of all three phases expected in April 2013. Level of control: - The level of control is good.

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Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects Systems and programs: - Waste Diversion 2015 Strategy has a target of 60% diversion of the industrial, construction and institutional waste stream, based on 2007 quantities, from disposal by 2015. The approach was included in the strategy document. - The City has a monitoring system in place to track diversion rates from the landfills. This information is included the quarterly Regulatory context: Environmental Services report to Council. - None. - Program in place for spring street sweeping Public commitments: E2.1: to recover abrasive materials put down over - City is committed to diversion Reputational winter months to see if they can be reused. of waste from landfills through risk for the Currently trying to schedule a waste audit of recycling and composting City resulting what they actually pull off the road to see E2: Resource programs. from an 1 2 4 2.3 what percentage can be reused. 2 3 2.5 5.8 P6 recovery Environmental and social inadequate - Take it Back program facilitated by the City sensitivity: due-diligence to publish which retailers will take back their - City of Ottawa support for process by the products/packaging such as garden Plasco Waste Energy Group has City staff. supplies, automotive fluids, medical been followed in the media. equipment, electronics and household There are ongoing concerns products. around gasification technology. - City is leasing land and has negotiated terms for residential waste diversion with Plasco Energy Group. The land leased to Plasco Waste Energy Group is closely monitored as Plasco is required to report to the City on any spills and remediation actions taken. Level of control: - The level of control is fair based on programs in place and plans to come. Regulatory context: Systems and programs: - Provincial: Environmental - There are 10 households hazardous waste Protection Act. depots with opportunity for citizens to bring - Waste Diversion Act. their household hazardous waste for free to Public commitments: depots twice annually (May 27 and June 10). No significant E3: Hazardous - Holding hazardous waste - Procedures and practices are in place for risk identified waste collections days. 1 1 2 1.3 management of automotive fuels handled by 1 2 1.5 2.0 in this management Environmental and social transit departments. analysis. sensitivity: - As per our interviews, these programs are - Media coverage of trend of operating in compliance with all applicable increased responsibility of regulations. extended producer responsibility Level of control: for household hazardous waste. - The level of control is fair.

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Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects Systems and programs: - Currently public transit is serviced by buses and the O-train. - Procedures are in place for the safe reclaim of all fluids such as anti-freeze, oils, transmission fluids, etc. A program is in place to return these fluids to a vendor certified under the MOE to recycle them. Spill procedures are also in place and documented to ensure the appropriate Regulatory context: measures are taken. - Provincial: Ontario Drive Clean - A tire refurbishment program is also in Program (requires emissions place. Tires with low tread are recapped and testing on cars/trucks at thus their useful life is extended. specified intervals). - Upon being decommissioned, OC Transpo Public commitments: buses parts are recycled to highest extent - Commitment to improving possible. No significant cycling infrastructure. - A light rail transit is in development and is F1: Transit and risk identified F. Transport - Commitment to improving 1 1 3 1.7 expected to better transit while being more 2 1 1.5 2.5 Transportation in this public transit including environmental responsible. analysis. construction of a light rail tunnel. - The City has committed to purchasing Environmental and social hybrid vehicles. There are currently 177 sensitivity: hybrid buses in service. - High media coverage and - Alternative fuels are also being interest in Ottawa transit, investigated. particularly the Light Rail Transit - Fuel efficiency monitoring is in place for project. each unit and is reported on daily. - All OC Transpo buses must adhere to the Ontario Drive Clean program in order to be licensed for Ontario roads. Inspections are tracked in the M5 maintenance system and complete as per Ministry standards. - Cycling infrastructure plan and public education/awareness raising of cycling, including cycling toolkits distribution. Level of control: - The level of control is good.

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Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects

Regulatory context:- Ontario Systems and programs:Policies in place to Drive Clean Program (requires decrease emissions from vehicles:- Anti- emissions testing on cars/trucks Idling Policy;- Eco Drive Policy; and,- F2: City of No significant at specified intervals).Public Green Fleet Plan address procurement of Ottawa's risk identified commitments:- Committed to electric and hybrid vehicles as well as 1 1 1 1.0 1 1 1.0 1.0 motorized in this updating fleets to more efficient alternative fuels.- Fleet Emission Reduction equipment analysis. vehicles.Environmental and Strategy also in place.Level of control:- social sensitivity:- Moderate The level of control is good. Established coverage of City of Ottawa's policies and strategies are in place around internal fleet management. the environmental management of fleet.

Systems and programs: - Target set for 45% of development to take place within the current boundaries (understood that planning has provided the correct figures). Target set for intensification to account for a rising percentage of all new housing, from 40% between 2011 and 2021, to 44% in 2013. This target may rise in the upcoming new Official Plan. Regulatory context: - In order to monitor and report to Council on - None. progress, the Planning and Growth Public commitments: Management department tracks every No significant - Commitment to reduce urban building permit that is issued and report on G1: Urban risk identified sprawl by intensification of G. Land use 1 1 2 1.3 the percentage of single families, multi-units, 2 1 1.5 2.0 Sprawl in this downtown core. country lot subdivisions and percentage of analysis. Environmental and social in-fill that takes place. They have green sensitivity: fields in areas that are being developed. - Moderate citizen concern and Currently, they are on track with their media coverage. targets. - As part of infill development they have densification targets which were included in the 2003 and 2008 reports. As well, intensification is planned along the Confederation Line and other rapid transit corridors. Level of control: - The level of control is good.

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Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects Systems and programs: G2.1: - No inventory of quantity or quality of Potential woodlots or wetlands and so cannot say with deterioration any confidence whether woodlots or of the natural wetlands have increased or decreased system and Regulatory context: (improved or degenerated) in the past few biodiversity - Endangered Species Act years. due to the requires municipalities to have a - Environmentally Resource Area Acquisition inability to plan in place to identify Reserve Fund in place to purchase land monitor, track endangered species and ensure which requires protection; however, without and protect they are protected. proper monitoring and tracking methods it sensitive Public commitments: will be challenging to determine which ecological - City has committed to an purchases of land are most appropriate. areas through G2: Natural increase of $1.4 million to the - Without a Tree Conservation By-law appropriate habitats and Environmentally Sensitive Land 3 2 2 2.3 applicable to the general rural area, and 3 3 3.0 7.0 P4 programs. biodiversity Fund for additional land without a Site Alternation By-law, the City

purchases. cannot prevent landowners seeking G2.2: Environmental and social development approvals from clearing their Potential sensitivity: properties of natural vegetation and habitats deterioration - Sensitivity increasingly prior to submission of a planning. of the natural important for citizens. Urban Application. The City is working on a Site system and sprawl contributes to deteriorate Alteration By-law which is scheduled to go biodiversity the surrounding forests and forward in 2013. . due to the farmlands. Level of control: inability to -The level of control is limited. While funds restrict tree are in place, there is no ability to monitor the cutting on trends in woodlots or wetlands and thus, use country state the funds to maximize protection of sensitive lots. lands.

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Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects Regulatory context: - Provincial policy requires municipalities to protect and designate Prime Agricultural Areas in their Official Plans. Prime Agricultural Area is defined in the provincial Agricultural Land Policy Statement 'as being an area Systems and programs: where Prime Agricultural Land - The City has undertaken a Land Evaluation predominates. Prime Agricultural and Area Review (LEAR) developed and Land is defined as Canada Land approved by OMAFRA that serves as a No significant Inventory classes1, 2 and 3 model for municipalities to assist in the G3: risk identified agricultural soils. The policy identification of Prime Agricultural Land. Agricultural 1 2 1 1.3 2 1 1.5 2.0 in this statement also states that From there the City has taken steps to Territories analysis. municipalities may identify Prime ensure that these parcels of land are Agricultural Areas through a land designated as agricultural and cannot be evaluation system that is rezoned. approved by the Ontario Ministry Level of control: of Agriculture, Food and Rural - The level of control is good. Affairs. Public commitments: - Committed to proper management and governance of agricultural lands. Environmental and social sensitivity: - Low media coverage.

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Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects Systems and programs: - City projects are reviewed for species at risk issues, but this process is sometimes G4.1: Lack of performed by third party established consultant/contractor who often are not Regulatory context: and aware of the Endangered Species Act or the - Endangered Species Act (ESA) communicated latest update to the list of species at risk, requires municipalities to have a procedures to particularly if they are strictly an engineering plan in place to identify ensure company. endangered species and ensure compliance - No one at the operational level is they are protected. with the responsible for ensuring that project Public commitments: G4: Species at Endangered managers understand the requirements of - City is committed to complying 3 3 2 2.7 3 3 3.0 8.0 P4 Risk Species Act, the Endangered Species Act. with environmental and including on- - Adhoc processes are in place within the sustainable development boarding Land Use and Natural Systems group to regulations. training of provide this information to consultants; Environmental and social external however, the group is not held responsible sensitivity: consultants, for this task nor do they have the resources - Moderate interest from citizens could result in to ensure that the information is always and media. non- provided to other departments. compliance Level of control: with the Act. The level of control is limited as systems are not in place to ensure compliance and non- compliance is handled on an ad-hoc basis.

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Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects Systems and programs: - The City is a member of the Municipal Collaboration for Sustainable Purchasing Regulatory context:- and so gleans best practices from other Provincial: Discriminatory municipalities across Canada. Business Practices Act - States - Ethical Purchasing Policy is in effect. that certain factors, such as - Sustainable Procurement Policy is being geographic location, cannot be drafted and will be tabled to Council in the discriminated against. This Fall of 2012. H1.1: significantly limits the - Procurement department works in H1: Sustainable Procured effectiveness of the City of collaboration with other departments and procurement services or Ottawa’s policy to locally source guides them to comply with policies and (Consideration goods may their purchase.Public public commitments; however, they cannot of environmental not be in H. Procurement commitments:- Committed to 2 2 2 2.0 force the departments to comply with draft 2 2 2.0 4.0 and social compliance greening their procurement sustainable procurement practices are they criteria in with the draft practices.- Committed to ethical are guidelines only. Interdepartmental purchasing Sustainable sourcing and consideration of relationships are considered strong though decisions) Procurement socio-economic factors.- and the procurement department is careful Policy. Committed to building local to comply with provincial regulation while economy through their meeting public commitments. procurement Level of control: practices.Environmental and - The level of control is fair as the social sensitivity:- Moderate procurement department guides media coverage. procurement practices, to help departments ensure that all departmental purchases align with green purchasing practices and comply with legislation.

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Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects Systems and programs: - System in place to conduct vulnerability assessment of potential emergencies to the City with input received from departments across the City. - Well established emergency preparedness plan in place for a variety of standard emergencies and areas of highest risk. - Emergency Management Duty Officers in place for each department to address emergency situations as they arise. - Emergency Management Information Regulatory context: System (EMIS) in place to facilitate Provincial: Emergency emergency communications between Management and Civil Emergency Management Duty Officers as I1: Public Protection Act (requires well as automated reverse 911 call system health and No significant emergency preparedness plan to provide instructions to citizens in case of I. Social safety risk identified be in place). an emergency such as a severe storm, 1 1 1 1.0 2 2 2.0 2.0 responsibility (Emergency in this Public commitments: flood, etc. preparedness analysis. - Committed to public health and - City initiating Emergency Management plan) safety. Accreditation Program Standard Overview to Environmental and social assess City's readiness to handle sensitivity: emergency situations. - Important to citizens. Level of control: - The level of control is fair. Controls are currently in place with a five year strategic plan developed in 2003. An updated five year strategic plan is currently being developed. The existing emergency preparedness plan is reviewed and practiced on a regular basis with all departments (not just Emergency Services). A dashboard is maintained to track the status of specific components of the plan. It was noted that there are a number of areas where planned goals have not yet been achieved.

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Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects Systems and programs: - Ongoing training programs for emergency Regulatory context: service providers (e.g. fire services) and I2.1: Lack of - Provincial: Ontario protective equipment provided. annual review Occupational Health and Safety - Training results are analyzed and of health and Act requires that employers corrective action taken to eliminate any gaps safety risks to prepare and review at least in training. employees, annually a written occupational - In 2003, each department had a committee identified in health and safety policy and and identified their risks for employee H&S I2: Health and 2003, may develop and maintain a program which were used to develop safety programs Safety (City of result in non- to implement that policy. 2 1 1 1.3 to address. Overall risks have not been 2 2 2.0 2.7 Ottawa's compliance Public commitments: reviewed since that time. employees) with Ontario - Committed to providing a safe - HR department tracks key employees Occupational workplace. statistics (e.g. injuries) and provides monthly Health and Social or environmental report to managers to monitor H&S of Safety Act and coverage: employees. unaddressed - Low media coverage of Level of control: risks to employees outside of the - The level of control is fair. Risk assessment employees. municipal administration. to employee safety has not been performed since 2003, but H&S is monitored and reported closely. Regulatory context: Provincial: - Environmental Protection Act - OMB Planning Act Public commitments: - Term of Council Priorities. Systems and programs: - "Choosing Our Future" Vision. - One of the seven Terms of Council - Green Express Lanes to Priorities pertains to economic prosperity. All J1: Municipal No significant expedite housing, buildings and departmental plans are aligned to Term of J. Economic economic risk identified renovations which meet the n/ 1 1 1 1.0 Council Priorities and sustainability is 1 1.0 1.0 Responsibility development in this standards (e.g. expedited a integrated into the priorities. planning analysis. permits for homeowner Level of control: installation of solar panels, solar - The level of control could not be assessed water heaters, gray water reuse through the interviews conducted. systems, etc.). Environmental and social sensitivity: - Low citizen and media interest in economic development plans for the City.

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Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects

Regulatory context: Systems and programs: - Municipal Act J2: : Departmental plans, programs and initiatives Public commitments: Effectiveness are well tied into the Term of Council No significant - General commitment made by and efficiency Priorities and the "Choosing Our Future" 50 risk identified the City. of municipal 1 1 3 1.7 year vision for the City of Ottawa. 1 1 1.0 1.7 in this Environmental and social administration, Level of control: analysis. sensitivity: policies and - The level of control is good as the - Low citizen coverage for programs departmental plans are well integrated with municipal administration of City priorities and visions. policies and programs.

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Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects K1.1: Lack of established and communicated procedures to ensure compliance with the regulations could result in Systems and programs: non- compliance - All departments receive notice of new with the regulations, as well as changes to existing regulations. regulations. From there, compliance (E.g., lack of programs are developed within each training/commu department to ensure each requirement of nication of the regulation is met. requirements of - Compliance programs generally appear to K1: City's Endangered be robust and is a matter taken seriously by compliance Species Act all departments interviewed. One potential with provided to Regulatory context:- All source of non-compliance with the environmental external regulations applicable to Endangered Species Act was noted in the and SD consultants to municipalities.Public on-boarding of external consultants. See regulations ensure City commitments:- City is indicator G4 for further details. K. Governance compliance (City's committed to complying with - The processes for environmental reviews and with the 3 3 2 2.7 2 3 2.5 6.7 P2 compliance with environmental and sustainable and environmental permitting are often Compliance Act.)K1.2: federal and Delays in the development multilayered and can involve a number of provincial laws, environmental regulations.Environmental and government agencies. While the followed by the review process social sensitivity:- Moderate environmental review process is ongoing, application of emanating from interest from citizens and media. the City may not start the proposed project municipal the submission and government agencies may not issue regulations) of incomplete permits for those projects during that time. data which may Processing time can cause project delays lead to project and lead to additional costs. Hence, it is delays and important for the City to have strong controls additional mechanisms to monitor the environmental costs.K1.3: review process. Lack of Level of control: ongoing - The level of control for compliance is monitoring of limited. timeliness of applications hinders the City’s ability to respond to questions or requests for information.K1. 4: Inadequate governance to

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Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects plan and oversee environmental review process leading to delays.

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Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects

Regulatory context: Systems and programs: - None. K2: Regulatory - Legal personnel are specialized and Public commitments: and strategic No significant monitor their applicable regulations for - City is committed to complying monitoring risk identified updates on a weekly basis. Updates are with all environmental regulation. 2 2 1 1.7 1 1 1.0 1.7 (Active in this then provided to applicable departments. Social or environmental monitoring of analysis. Level of control: coverage: new regulations) - The City has a fairly good control of - Low coverage by media and regulatory monitoring. citizens.

Systems and programs: Regulatory context: - Clear integration of sustainable -None. development within key priorities set by Public commitments: K3: Statements Council. No significant - Committed to sustainable on SD (SD - Sustainability well defined in Choosing our risk identified development and environmental definition, 1 1 1 1.0 Future vision and associated plans. 1 1 1.0 1.0 in this strategy. glossary, - Departmental planning and policies driven analysis. Environmental and social policies) by Choosing our Future and Term of Council sensitivity: Priorities. - Low coverage by media and Level of control: citizens. - The level of control is good. Regulatory context: - None. Public commitments: - Committed to protecting the K4: Integration environment and reducing its Systems and programs: of environment carbon footprint wherever - While SD has been integrated into Term of and SD into No significant possible. Council Priorities, there are no systems or decision risk identified - Established Green Teams to programs in place to ensure that SD is making (e.g.. 1 2 3 2.0 3 3 3.0 6.0 in this manage solid waste, water, integrated into the planning of new projects, When planning analysis. sewers, etc. policies or programs. new projects, Environmental and social Level of control: policies and sensitivity: - The level of control of the city is poor. programs) - Media coverage and sensitivity is high for the environmental impact of projects on the environment.

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Environmental and sustainable Risk Impact Assessment (level of Vulnerability assessment (level of control development categories Identification exposure of the City) of the city)

Potential Risk's Risk's

Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects Systems and programs: - The procurement process may not engage Regulatory context:- Many all required stakeholders in the evaluation of government approvals and service contract options. Results of the environmental assessment K5.1: procurement of the service contracts for processes require some form of Inappropriate source separated organics indicated that public consultation. Consultation procurement management team members were not requirements can range from a of service directly involved in the Charter did not review single notice on the K5: contracts and formally approve major milestones as Environmental Registry to Stakeholder without proper required. mandatory notices in various consultation stakeholder - The City of Ottawa website provides media and multiple public (Consultation of engagement notices for public consultations on a variety consultation sessions.Public 1 2 2 1.7 2 3 2.5 4.2 all applicable could result in of plans and projects including commitments:- Commitment to departments in the environmental considerations such as obtaining public opinion.- making key procurement Ottawa's 30 year waste plan, Pinecrest Inclusion of public members on decisions) of services Creek/Westboro Storm water Management transit contracts Retrofit Study, LRT Station Area Transit- committee.Environmental and which do not Oriented Development (TOD) Studies and social sensitivity:- High fully meet the the Ottawa River Action Plan. sensitivity and media coverage City's needs. Level of control: of public consultation on Light - The level of control appears limited given Rail Transit and Lansdowne the weaknesses noted with respect to Park development projects. internal stakeholder consultation in the OAG report on source separated organics.

K6: Regulatory context: Ecotaxation - None. (taxation No significant Public commitments: programs to risk identified - None. N/ Selected interviewees were not able to N/ N/A N/A N/A N/A N/A 0.0 encourage in this Environmental and social A comment on this issue. A environmentally analysis. sensitivity: sustainable - Little concern or media behaviour) coverage.

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Potential Risk's Risk's

Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects

Systems and programs: - All citizens can call the City of Ottawa with a complaint. If the citizen is not sure who to Regulatory context: call, they can dial the general line and be - None. directed to the appropriate person. Public commitments: - The environmental nature of the complaint No significant - Citizen have the opportunity to would dictate who would handle the K7: Complaint risk identified file complaints to the City of 1 1 2 1.3 complaint (e.g. Environmental Services, 2 2 2.0 2.7 management in this Ottawa. Public Works, etc.). analysis. Environmental and social - The general public can also report sensitivity: suspected or witnessed instances of fraud to - Environmental complaints are the Fraud and Waste Hotline. The hotline is likely to be covered by media. confidential and anonymous. Level of control: - The level of control is fair.

Systems and programs: - City has an Integrity Commissioner dedicated to ensuring ethical standards are Regulatory context: met. - None. - Code of Conduct specifies that employees Public commitments: perform their work with transparency, - Committed to being open and No significant impartiality, respect and accountability. K8: Ethical transparent in their procurement risk identified - City Council initiated and approved a fraud anti-corruption process. 1 1 2 1.3 2 2 2.0 2.7 in this policy in July 2005, including the practices Environmental and social analysis. establishment of a Fraud and Waste Hotline sensitivity: that is managed by a third party. Auditor - Moderate coverage of open General reviews each reported case. and transparent decision Level of control: making. - The level of control is fair with an established and confidential method for citizens to report any unethical behaviour.

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Environmental and sustainable Risk Impact Assessment (level of Vulnerability assessment (level of control development categories Identification exposure of the City) of the city)

Potential Risk's Risk's

Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects K9.1: Lack of defined roles Regulatory context: and - None. K9: responsibilitie Public commitments: Systems and programs: Organization s for the - Committed to protecting the - City-wide vision "Choosing Our Future" for SD management environment and reducing its incorporates sustainability into the overall management of sustainable carbon footprint wherever vision for the City and influence the Term of (roles and development possible. Council Priorities; however roles and 1 3 2 2.0 3 4 3.5 7.0 P5 responsibilities within projects - Established Green Teams to responsibilities for SD management have not for the and programs manage solid waste, water, been defined within specific projects or management of could result in sewers, etc. programs. SD within the overall Environmental and social Level of control: City of Ottawa) sustainability sensitivity: - The level of control is fair. goals not - Moderate coverage by being met. citizens/media.

Regulatory context:- Systems and programs: None.Public commitments:- - Eco-driving training policy is in place and City committed to raising training provided for city employees. awareness of citizens regarding - Procurement groups works to assist other efforts required to achieve SD departments of sustainable procurement K10: Education objectives (e.g. not draining policies. and awareness No significant chlorinated water into storm - City website used to educate citizens on raising for SD risk identified sewers, recycling and importance of using green bins, emergency 1 2 1 1.3 2 2 2.0 2.7 (employees, in this composting, tree protection, preparedness, tree protection, etc. citizens, analysis. etc.).- City is committed to - Promotional campaigns to raise awareness stakeholders) training employees appropriately were orchestrated for a variety of initiatives to perform their jobs in line with (e.g. cycling toolkit, financial incentives for standards and energy retrofits and reducing energy regulations.Environmental and consumption). social sensitivity:- Low Level of control: coverage by citizens/media. - The level of control is fair.

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Potential Risk's Risk's

Risk Impact Audit evaluation Category Sub-category statement Description RC PC S Description SP C Vulnerability Projects

K11: Lack of accountability Regulatory context: Systems and programs: for the - None. - City-wide vision "Choosing Our Future" management Public commitments: available to public and communicated across K11: of SD within - No accountability for SD has all departments. High level plans were Accountability the projects been formally defined by the developed to guide how the vision will be (clear objectives 1 3 1 1.7 3 4 3.5 5.8 and programs city. achieved during Council's four year term. and targets, and could result in Environmental and social - Accountability for SD has not been defined achievement) overall sensitivity: within specific projects or programs. sustainability - Low coverage by Level of control: goals not citizens/media. - The level of control is poor. being met.

Legend (rating 1 to 4): Impact: - RC: Regulatory context (nonconformities, costs) - PC: Public Commitments (non compliance, non effective in implementation) - S: Environmental and social sensitivity (environmental damages, social issues, media coverage) Vulnerability: - SP: Systems and programs - C: Level of control of the City (sites concerned, stakeholders involved)

Calculation method: Impact = medium (RC, PE, S) Vulnerability = medium (SP, C) Risk = Impact x Vulnerability

Audit projects: P1 – Wastewater and rain runoff management P2 – City's compliance with Species at Risk Act P3 – Management of climate change impacts P4 – Management of natural habitats and biodiversity P5 – Organization for management of sustainable development P6 – Resource recovery

Note: shaded boxes refer to highest risk

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