CITY CLERK

Clause embodied in Report No. 10 of the Audit Committee, as adopted by the Council of the City of at its meeting held on December 4, 5 and 6, 2001.

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2002 Audit Work Plan

(City Council on December 4, 5 and 6, 2001, adopted this Clause, without amendment.)

The Audit Committee recommends the adoption of the following report (November 1, 2001) from the City Auditor:

Purpose:

To provide a work plan for the utilization of Audit Services resources in 2002.

Financial Implications and Impact Statement:

There are no financial implications resulting from receipt of this report.

Recommendations:

It is recommended that the Audit work plan, as set out in Appendix 1, be approved.

Background:

Each year the City Auditor provides the Audit Committee with a recommended Audit work plan for the coming year. This report provides the audit projects being recommended for completion in 2002.

Comments:

Appendix 1 (attached) is a summary of audit projects to be undertaken during 2002. A brief description of each project is included in Appendix 5 (attached). Detailed terms of reference in relation to these projects will be determined during the initial planning stages of each audit. In addition to the projects listed in the work plan, allowance has been made for ad hoc audit requests received during the year from Council, its Committees or directly from City staff.

Potential audit projects for 2002 were identified through a review of departmental budgets and operations, non-program revenue and expenditures as well as an assessment of significant items in the City’s annual financial statements. The identification exercise also considered specific requests the City Auditor has received from staff and Council. Toronto City Council 2 Audit Committee December 4, 5 and 6, 2001 Report No. 10, Clause No. 1

In addition, input from members of the Audit Committee and the City’s external auditor was taken into account. To further broaden the perspective, data bases containing information relating to audit projects conducted in both Canadian and United States cities were reviewed in order to ensure the “audit universe” was complete.

The listing of potential projects generated from the identification exercise was then evaluated using a number of risk factors. These included:

- magnitude of revenues, expenditures, assets and liabilities; - liquidity of assets; - the audit history of the area; - strength of management; - quality of internal controls; - political/public sensitivity; and - financial risk to the City.

Time estimates were developed for each project and the projects were prioritized and mapped against available resources to derive a preliminary Audit work plan.

The preliminary work plan was presented to the Chief Administrative Officer and department heads for comments. This process allowed for input from senior operational staff in the City and ensured that the Audit work plan considered areas of concern to management in addition to those projects identified by Audit staff.

As in prior years, a significant amount of staff resources will be used for financial statement audits. During 2002, it is expected that approximately 18 percent of available staff time will be devoted to these financial statement audits. This work includes assistance to the external auditors as agreed in their contract with the City, audits of the City’s 18 community centres and arenas, 42 Business Improvement Areas, 10 Homes for the Aged, and other sundry financial statements as outlined in Appendix 4 (attached). In total, the City Auditor is required to provide audit opinions on 88 separate sets of financial statements. The time required to complete this financial statement audit work has been accounted for in developing the 2002 audit work plan.

In addition to the financial statement audits referred to above, our experience has been that unanticipated requests for Audit services will arise from meetings of Council, its Committees or directly from City staff. Based on the level of requests for unanticipated projects in the past three years, the 2002 audit work plan provides for approximately 16 percent of available Audit staff time to meet ad hoc and urgent requests from Council and senior City staff.

Allowing time for special projects affects the number of projects specifically included in our 2002 work plan. Should the actual number of ad hoc requests fall below this level, potential projects that were not included in the work plan, due to time constraints, will be undertaken. Conversely, should special requests exceed this level, it will be necessary to defer certain projects identified in the 2002 work plan to 2003. Toronto City Council 3 Audit Committee December 4, 5 and 6, 2001 Report No. 10, Clause No. 1

In 2000, the City Auditor’s Office was transferred $321,000 from the Toronto Police Service’s budget, reflecting a transfer of audit responsibilities to the City Auditor from the former Policing Standards Review Unit of the Toronto Police Service. As a result of this transfer, the City Auditor provides internal audit services to the Toronto Police Services Board and responds to audit requests from the Chief of Police.

My office is in the process of developing an audit work plan for the Toronto Police Services Board. This work plan will be submitted to the Board for approval in early 2002.

Conclusions:

The audit projects being recommended for completion in 2002 are summarized in Appendix 1 of this report. The work plan allows the City Auditor the flexibility to undertake ad hoc requests from staff and Council, as well as the need for unscheduled audit work pertaining to special investigations. Projects included in this work plan were identified using a risk based approach conducted by the City Auditor, and include requests from senior management staff and Council. These projects will be completed in priority sequence taking into account the relative risks in the areas to be reviewed and Audit staff availability. Projects in the Finance area will be a major priority in 2002. The follow-up of past reports issued by the City Auditor will also be a priority.

The City Auditor also provides internal audit services to the Toronto Police Services Board. A separate work plan is being developed for the approval of the Toronto Police Services Board in early 2002.

Contact:

Jeffrey Griffiths, City Auditor Tel: (416) 392-8461, Fax: (416) 392-3754 E-Mail: [email protected]

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Appendix 1

Summary of 2002 Audit Projects

Financial Audits

Financial Audits of Community Centres and Arenas (Appendix 2) Financial Audits of Business Improvement Areas (Appendix 3) Other Statutory Audits (Appendix 4) External Audit Assistance Investments - Annual Compliance Review

Information and Technology Audits Corporate Services - Oracle Database Environment Transportation Division – Selected Application System Reviews Business Continuity Plan Toronto City Council 4 Audit Committee December 4, 5 and 6, 2001 Report No. 10, Clause No. 1

Operational and Other Audits

Finance – SAP Post-implementation Review Finance – Payroll Function Finance – Water Billings Finance – Tax Appeals Assessment and Refunds Finance – Purchasing Function Corporate Services – Management of Mainframe Operations Corporate Services – Fleet Function Parks and Recreation – Cash Controls – North and South Districts Parks and Recreation – Golf Course Operations Parks and Recreation – Class Registration and Permitting System Works Best Practices Program – On-going Involvement and Quality Assurance Review Public Health – Food Safety Disclosure Program – Post Implementation Review Community and Neighbourhood Services – Children Services Community and Neighbourhood Services – Hostel Services Environmental – Corporate Risk Assessment, Organizational Framework and Selected Audits Urban Development Services – Ambassador Taxi Program CNEA Audit Function Toronto Parking Authority Library Board – Selected Areas Corporate – Review of Major Capital Projects and Contracts Corporate – Review of Inventories (Parts, Equipment and Supplies) Corporate – Review of Petty Cash Procedures Follow-up Reviews of Audits Previously Conducted Follow-up Review of the Investigation of Sexual Assaults – Toronto Police Service

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Appendix 2

Financial Audits of Community Centres and Arenas

Presently the City Auditor is responsible for the following financial and statutory audits:

Community Centres

1. 519 Church Street Community Centre 2. Applegrove Community Complex 3. Cecil Street Community Centre 4. Central Eglinton Community Centre 5. Community Centre 55 6. Eastview Neighbourhood Community Centre 7. Harbourfront Community Centre 8. Ralph Thornton Community Centre 9. Scadding Court Community Centre 10. Swansea Town Hall Community Centre Toronto City Council 5 Audit Committee December 4, 5 and 6, 2001 Report No. 10, Clause No. 1

Arenas

1. McCormick Playground Arena. 2. Forest Hill Memorial Arena. 3. George Bell Arena. 4. Memorial Arena. 5. Arena. 6. Memorial Arena. 7. Ted Reeve Community Arena. 8. William H. Bolton Arena.

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Appendix 3

Financial Audits of Business Improvement Areas

1. Bloor Bathurst Madison 2. Bloor by the Park 3. 4. Bloor Yorkville 5. 6. Bloordale Village 7. 8. Danforth by the Valley 9. Street 10. Dovercourt Village 11. Eglinton Way 12. Forest Hill Village 13. 14. Greektown on the Danforth 15. Harbord Street 16. 17. Junction Gardens 18. Keele-Eglinton 19. Kennedy Road 20. Kingsway 21. Lakeshore Village 22. 23. Little Italy 24. Long Branch 25. by the Lake 26. Mimico Village 27. North Avenue Road 28. Old Cabbagetown 29. 30. Parkdale Village Toronto City Council 6 Audit Committee December 4, 5 and 6, 2001 Report No. 10, Clause No. 1

31. Queen Broadview Village 32. Roncevalles Village 33. St. Clair Gardens 34. St. Clair West 35. St. Lawrence Neighbourhood 36. Upper Village (Toronto) 37. Upper Village (York) 38. Village of Islington 39. Weston 40. Yonge Rosedale Summerhill 41. Yonge Lawrence Village 42. York Eglinton

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Appendix 4

Other Statutory Audits

Subsidies

Homes For the Aged

1. Albion Lodge 2. Acre 3. Carefree Lodge 4. Castleview Wychwood 5. Cummer Lodge 6. Fudger Lodge 7. Kipling Acres 8. Lakeshore 9. Seven Oaks 10. True Davidson

Public Health

1. Healthy Babies, Healthy Children 2. Pre-school and Language

Other

1. Toronto Business Development Centre 2. Toronto Fashion Incubator 3. Toronto Hydro Charity Trust 4. Canadian Association of Zoos and Aquarium 5. Toronto Track and Field Centre 6. LL Sculpture Garden (Lease operating costs) Toronto City Council 7 Audit Committee December 4, 5 and 6, 2001 Report No. 10, Clause No. 1

7. Alderbuds Nursery School 8. 70 Berkley Street 9. Health Care Programs – Mental Health – Annual Settlement 10. Annual Reconciliation Response – supportive Housing and Community Support Program 11. Parking Authority – Lot 161

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Appendix 5

Description of 2002 Audit Projects

Financial Audits

Financial Audits of Community Centres and Arenas

The City Auditor currently performs the audits of the 10 community centres and 8 arenas operating independently within the City. Audit opinions are prepared for each of these entities.

Financial Audits of Business Improvement Areas

The City Auditor currently performs the audits of the 42 Business Improvement Areas operating within the City. Audit opinions are prepared for all 42 Business Improvement Areas.

Other Statutory Audits

Certain divisions of Community and Neighbourhood Services, such as Homes for the Aged, Public Health and Shelter Housing, are required to provide annual audited subsidy claims to the Province. Separate claims are required for each Home for the Aged and for certain specific health programs subsidized by the Province. In addition, the City Auditor conducts the statutory audits of various small entities such as the Toronto Fashion Incubator, the Toronto Business Development Centre and the Toronto Hydro Charity Trust.

External Audit Assistance

In accordance with the contractual agreement with the external auditor, the City Auditor will provide 1,000 hours of audit assistance to the external auditor in connection with the City’s 2001 financial audit. This is consistent with prior years.

Investments - Annual Compliance Review

The Investment Policy and Procedures manual approved by Council in January 1998 requires that the Treasurer of the City shall establish an annual process of independent review by the City’s Auditor. This review provides assurance of compliance with governing legislation and investment policies and procedures established by the Chief Financial Officer and Treasurer of the City. This is an annual review and has been conducted in prior years. Toronto City Council 8 Audit Committee December 4, 5 and 6, 2001 Report No. 10, Clause No. 1

Information and Technology Audits

Corporate Services - Oracle Database Environment

A database is a repository of the data used by many of the new software applications. A lack of security management tools at the data level increases the City’s exposure to internal/external, intentional or accidental, unauthorized modification, destruction, theft or temporary unavailability of mission critical data. This review is designed to evaluate whether the organization is cost effectively implementing, managing, monitoring, and enforcing strong authentication, authorization, and auditing controls at the database level.

Transportation Division – Selected Application System Reviews

The Transportation Division is supported by several systems to manage and administer specific programs, customer service delivery and revenue generated from operations. This project involves the examination of some of these systems. The review is designed to focus on the management of information technology resources required to support these systems and how effective the systems meet the delivery expectations of the clients. It will also examine the effectiveness of access, processing, database management and other system environment controls.

Business Continuity Plan

This review is designed to provide an assessment of current and active Business Continuity Plans in place, such that in the event of a disaster, management has a plan of action to enable the department or division to resume services to its clients with minimal disruption.

Operational and Other Audits

Corporate Services – Management of Mainframe Operations

The review will assess the effectiveness and efficiency of managing contracts and payments for mainframe operations outsourced to third parties. This will include an examination for compliance with contract requirements and administration of payments. In addition, the corporate strategy in this area will be assessed to determine if available opportunities are explored to ensure the most cost effective in an ever-changing technology landscape.

Corporate Services – Fleet Function

The City’s fleet function is comprised of various and significant components. To review the efficiency and effectiveness of all fleet operations would be an extensive process. We therefore plan to review two components of this function during the year 2002. The areas to be reviewed will be subject to further discussion with both management of fleet operations and departmental users of the fleet operations services. However, our preliminary assessment suggests that our 2002 review should focus on the management of maintenance operations, including contracted services, and disposal of vehicles. Additional aspects of fleet operations will be considered for future years work plans. Toronto City Council 9 Audit Committee December 4, 5 and 6, 2001 Report No. 10, Clause No. 1

Finance – SAP Post-implementation Review

Since the middle of 1999, the City has aggressively implemented the SAP Financial Information System. We will review the implementation from two perspectives. First, whether the project has been implemented as approved by Council and within the approved budget. Second, whether the system meets departmental business requirements and produces the information needed by departments in their day-to-day operations. This project is carried forward from our 2001 work plan and, although the review has commenced, it will not be completed by year end.

Finance – Payroll Function

Payroll represents the single largest cost for the City. We will expand on work done by the City’s external auditor and review payroll operations to assess the adequacy of control systems designed to ensure that the City’s payroll expenditures are complete, accurate and authorized.

Finance – Water Billings

Billings for water provided to residents and businesses within the City of Toronto are a significant source of revenue for the City. A review of this function will assess management controls in place to ensure billings are accurate and timely. The review will also consider the procedures in place to ensure receivables are collected on a timely basis.

Finance – Tax Appeals Assessment and Refunds

The City’s financial records indicate that there is a large amount of refunds due to taxpayers for various reasons, most significantly because of appeals of assessments. We will review this function to ensure there are proper controls over amounts recorded and eventually refunded. We will also review the operations to determine if process changes, or additional resources are required to clear the backlog of refunds waiting to be processed.

Finance – Purchasing Function This review was requested by the Administration Committee and will be completed in conjunction with the Chief Administrator’s Office. The review will include, but not be limited to, an examination of the role, responsibility, authority, and reporting structure of the Purchasing and Materials Management Division. Purchasing procedures, as well as quality assurance and internal control measures will be assess and to in terms of their effectiveness in ensuring a fair competitive and cost effective procurement process that meets departmental operational and business requirements. The Purchasing and Financial Control By-laws will also be reviewed.

Parks and Recreation – Cash Controls – North and South Districts

A review of the cash controls in the East and West districts was completed in 2000. Our audit will include a review of selected arenas, recreation centres, indoor pools and other facilities to determine the effectiveness of cash handling and financial procedures at the facility and district level. The review will include an assessment of procedures relating to the control and timely processing of receipts, the adequacy of management information and bank reconciliation procedures and effectiveness of banking arrangements. Toronto City Council 10 Audit Committee December 4, 5 and 6, 2001 Report No. 10, Clause No. 1

Parks and Recreation – Golf Course Operations

The main objective of this audit is to review the adequacy of the system for planning, directing and controlling the golf course operation. The review will identify opportunities to improve financial management, control course maintenance costs and strengthen program management. This will include reviewing and commenting on the business operations, organizational roles and responsibilities, the operating budget system, management information systems, performance measurement and the safeguarding of assets. A review of other cities practices and a comparison to industry data will be done to determine best practices.

Parks and Recreation – Class Registration and Permitting System

This system supports departmental integration, program management, service delivery and revenue administration. This review will assess the effectiveness of the system in supporting customer service with respect to recreation programs. It will also examine the effectiveness of access, processing, database management and other system controls.

Works Best Practices Program – On-going Involvement and Quality Assurance Review

Audit Services will continue to provide ongoing advice to the General Manager, Water and Wastewater Services and the Works Best Practices Project Team. This will include reviewing and commenting on various aspects of the program management, organization and processes, and ensuring that potential issues with respect to controls and value for money are addressed and reported to Council as necessary.

Public Health – Food Safety Disclosure Program – Post Implementation Review

This project will review the new Food Premises Disclosure System administered by the Healthy Environments Division, Toronto Public Health, to ensure the procedures used in carrying out the program are effective and applied consistently across the City. We will also assess the Division’s newly formed Quality Assurance Unit to ensure it is effective in supporting and providing assurance to senior management with respect to the various programs administered by Healthy Environments.

Community and Neighbourhood Services – Children Services

During 2000, the Children’s Services Division underwent a client services review which resulted in various recommendations. To ensure maximum value was obtained from this review, we will assess the extent to which the recommendations have been implemented.

Children’s Services Division has also requested assistance in analyzing administrative charges allocated to child care operations by service providers involved in other operations. The review would identify mechanisms to assist Children’s Services division in ensuring that administrative amounts allocated to child care operations are appropriate. Toronto City Council 11 Audit Committee December 4, 5 and 6, 2001 Report No. 10, Clause No. 1

Community and Neighbourhood Services – Hostel Services

Over the past number of years demand, and funding, for hostel services has increased dramatically. In view of this growth and the attendant increased cost to the City, this project will review the Division's control over costs of both purchased and directly provided services. This will include adequacy of reviews of billings from service providers and steps taken to ensure actual service provided is in accordance with agreements between the City and the service provider.

Environmental – Corporate Risk Assessment, Organizational Framework and Selected Audits

This project involves an initial assessment of environmental risks and opportunities, in consultation with departments, to identify sites, areas and programs that have significant environmental implications. In this regard, we will also review the City’s organizational framework established by the Environmental Plan in order to prioritize areas to be reviewed and to select specific environmental audits to be completed in 2002.

Urban Development Services – Ambassador Taxi Program

This project will review the status of the Ambassador program which, was established by the Task Force to Review the Taxi Industry, and adopted by Council in 1998. The review will examine the efficiency and effectiveness of the training program operated by the Taxi Industry Unit of Urban Development Services and assess the ability of the program to achieve the objectives for the creation of this new Ambassador Taxicab license within the industry.

CNEA Audit Function

During the CNEA Annual Fair, a significant amount of revenue is generated a significant part of which is in cash. In 1999, in order to establish adequate internal controls, the Association, with the guidance and assistance of City Audit Services, expanded its internal audit activities. Presently, the Association is in the process of planning the year 2002 Fair and it is anticipated that the Association will again request the City Auditor to provide Audit Services' staff to conduct or assist in its internal audit program. Similar work was conducted during 2001.

Toronto Parking Authority

Review of the Toronto Parking Authority’s operations, as well as its financial and administrative procedures to ensure existence of effective financial and management controls.

Library Board – Selected Areas

At its meeting of March 26, 2001, the Budget Advisory Committee requested the City Auditor to review certain aspects of the operations of the Toronto Public Library. In response to this request we will be reviewing, end of year spending, fleet maintenance and usage, use of consultants throughout the Library Programs and use of Capital and Operating budgets for maintenance and repair programs Toronto City Council 12 Audit Committee December 4, 5 and 6, 2001 Report No. 10, Clause No. 1

Corporate – Review of Major Capital Projects and Contracts

City departments are responsible for managing numerous contracts and projects throughout the year. A sample of contracts will be selected to ensure compliance with corporate policies and the terms and conditions of the contracts.

Corporate – Review of Inventory of Parts, Supplies and Equipment

The objective of this review is to ensure that these assets are properly protected and that the risk of loss is minimized. The review will examine the adequacy of physical, administrative and financial controls pertaining to the inventory of supplies, parts and equipment at selected departmental locations in the City.

Corporate – Review of Petty Cash Procedures

This review will examine the adequacy of petty cash procedures at various departmental locations in the City.

Follow-up Reviews of Audits Previously Conducted

The City Auditor has issued a significant number of reports during 1999, 2000 and 2001. To determine that appropriate actions have been taken on the recommendations in these reports, follow-up reviews on these audits will be conducted, as appropriate.

Follow-up Review of the Investigation of Sexual Assaults – Toronto Police Service

The October 1999 report on a Review of the Investigation of Sexual Assaults by the Toronto Police Service recommended that the City Auditor be requested to conduct a follow-up audit in regard to the status of recommendations contained in the report. The City Auditor was to report directly to the Toronto Police Service Board in regard to the results of the follow-up audit. This follow-up audit will be commenced in late 2002.