January 6, 2003
To: Audit Committee
From: Auditor General
Subject: Audit Work Plan - 2003
Purpose:
To provide City Council with details of the Auditor General's work plan for the year ended December 31 2003.
Financial Implications and Impact Statement:
There are no financial implications resulting from the receipt of this report. Recommendation:
It is recommended that the 2003 work plan for the Auditor General’s Office, as set out in this report, be received for information.
Background:
At its meeting of May 21, 22 and 23, 2002, City Council approved Clause No. (1) of Report No. (7) of the Policy and Finance Committee establishing the Office of the Auditor General and transferring the internal audit function of the City Auditor to the Chief Administrative Officer, as recommended in the report of Mr. Denis Desautels, the former Auditor General of Canada. The report also recommended that the Chief Administrative Officer, working with the Auditor General, in consultation with the City Solicitor and the Commissioner of Corporate Services, report back on specific implementation actions.
A report dated November 4, 2002, entitled “Implementation of the Auditor General and Internal Audit Functions” was approved by City Council on November 26, 27 and 28, 2002. Included in the recommendations approved by Council was a draft by-law setting out provisions for the Auditor General’s responsibilities, term of office, selection, compensation, annual audit plan, and other matters as required to implement the Auditor General function.
The Auditor General reports directly to City Council through the Audit Committee and has the mandate to conduct compliance, value for money, and financial (excluding attest) audits of all programs, activities and functions of departments and agencies, boards and commissions. The Auditor General is also responsible for the oversight of the work of the external attest auditors. This report addresses the Auditor General's annual audit work plan for 2003.
Included in the by-law passed by City Council, establishing the office of the Auditor General are the following provisions relating to the annual audit work plan.
The Auditor General shall:
- Have full carriage and control of and be fully responsible for the conduct of the Auditor General's Office.
- Be responsible for carrying out financial (excluding attest), compliance and performance audits of all programs, activities and functions of all City departments, agencies, boards, and commissions, and the offices of the Mayor and members of Council.
- The Auditor General shall submit an annual audit plan to Council.
- No deletions or amendments to the annual audit plan shall be made except by the Auditor General, however, Council may add to the annual audit plan by a two-third’s majority vote.
In addition to the above the following specific responsibilities of the Auditor General were approved by City Council:
The Auditor General shall:
- conduct or cause to be conducted, audits on behalf of City Council in the areas of compliance, financial (excluding attest) program or value for money, information technology infrastructure, environment and sustainability and other audits as appropriate; - undertake forensic investigations including suspected fraudulent activities;
- oversee the work of external auditors performing financial statement/attest audits;
- examine problems and carry out assignments identified by the Auditor General, or approved by two-third’s majority resolution of Council;
- provide assurance that the information technology infrastructure contains adequate controls and security by ensuring the existence of such controls in existing systems, assessing overall computer security including business continuity (emergency) planning;
- coordinate audit activities with internal auditors and any contracted work to ensure efficient and effective use of audit resources; and
- manage the fraud hotline; refer issues to departmental management and the Internal Audit Division as appropriate.
Comments:
The Work Plan of the Auditor General for 2003 consists of the following: - Attest or Financial Audits
- Audit Projects Requested by City Council - Audit Projects Identified by the Auditor General - Annual Recurring Audits
- Follow-up Audits
- Fraud or Fraud Related Investigations
- Coordination and Oversight of the City’s External Attest Audit Attest or Financial Audits
The year 2003 is a transitional year for the newly established Auditor General’s Office. Attest audits for the year ended December 31, 2002, for Community Centres, Arenas and Business Improvement Areas are being conducted during 2003, and will likely continue until the end of the year. This has previously been reported to the Audit Committee and City Council. Details of these financial audits are included in Appendices 1, 2 and 3.
The Auditor General’s Office (previously the City Auditors office) has been conducting attest audits of Community Centres, Arenas and Business Improvement Areas since amalgamation. In addition the Auditor General’s Office has also been conducting attest audits on a wide range of provincial subsidy claims relating to various programmes such as Homes for the Aged and Public Health.
Attest audits, for these entities for years subsequent to 2002 fiscal year ends, will be the responsibility of external public accounting firms as was previously approved by City Council. The reason for this is two fold:
a) The new Municipal Act in subsection 296 (4) in relation to attest audits, provides that for years ending subsequent to December 31 2002:
“ the auditor of a municipality shall not be an employee of the municipality or of a local board of the municipality.” Consequently, this subsection clearly precludes the Auditor General, an employee of the City, from performing attest audits in the future.
b) In creating the Auditor General function in the City, and in accordance with the recommendations of Mr. Denis Desautels, Council specifically excluded attest audits from the Auditor General’s responsibilities.
As a result of the foregoing, the Auditor General’s Office, for fiscal year ends subsequent to December 31 2002, will no longer conduct any attest audits for the City or any of its Agencies, Boards, Commissions or Special Purpose Bodies. The transition of these audits from an “internal” to “external” is currently in process.
In accordance with the contractual arrangement with the external auditors, the Auditor General will provide 1,000 hours of audit assistance to the external auditor in connection with the City’s 2002 financial audit. This is consistent with prior years. This assistance will not be provided for fiscal years subsequent to December 31, 2002.
Audit Projects Requested by Council
Included in the Auditor General’s 2003 work plan are projects previously requested by City Council and which remain outstanding. The majority of these projects are either currently in progress or are in the preliminary planning stage. These projects are as follows:
a) Review of the Investigation of Sexual Assaults – Toronto Police Service
One of the recommendations contained in the City Auditors report relating to the “Jane Doe” audit was a requirement that “the City Auditor be requested to conduct a follow-up audit in regard to the status of the recommendations contained in the report, the timing of such audit to be consistent with the time frame outlined in the report of the Chief of Police. The City Auditor be required to report directly to the Toronto Police Services Board in regard to the results of the follow-up audit”.
This audit is in progress and is scheduled for completion in mid 2003.
b) Performance Audit – The Public Complaints Process, Toronto Police Services
The Auditor General conducted a Performance Audit on the Toronto Public Complaints process and issued a report to the Police Services Board dated August 2002. The Police Services Board requested that the Auditor General conduct an annual audit on the complaints process and report directly to the Board. While the 2002 audit was a detailed performance audit, future annual audits will be compliance in nature only.
c) Access and Equity Audit
In December 1999, City Council adopted the recommendations of the Final Report of the Task Force on Community Access and Equity which required that, “once in each term of Council, the City Auditor oversee an internal audit of the performance by the Corporation as a whole in achieving its access, equity and human rights goals”.
A detailed Terms of Reference have been developed and the Auditor General has participated in a number of Community Meetings in regard to this project. It is anticipated that this project will be submitted to Audit Committee at either its July or September 2003 meeting.
d) Review of Race Relations Practices of the Toronto Police Services
City Council directed the “City Auditor, within his mandate to the Toronto Police Services Board, to undertake an updated audit of Police policies, procedures, programs and practices that impact on racial minorities similar to that undertaken by the former Metro Auditor, Allan Andrews, in 1992, including an audit of the implementation of recommendations made at that time, and report back to Council of the City of Toronto, through the Policy and Finance Committee, on its findings and request the Board’s co-operation in this audit.”
e) Various Investigations
The Auditor General has contracted with two external forensic accounting firms to conduct work on two specific projects requested by Council. This work is underway with a reporting deadline likely for July 2003. These projects were as follows:
- An investigation into “what prompted the decision for the sale of the City’s telephone system and its replacement by the Centrex Phone System”;
- An investigation into two specific contracts addressing the following issues: - “the process that was followed for selection of the firms;
- whether these firms were in a position to hire other consultants; - whether the firms met the terms of reference;
- the number of contracts awarded to these firms in the past five years; - the special expertise offered by these firms to the City of Toronto; - whether this expertise was available within the City’s staff;
- whether food/hotel accommodation was included in initial terms, and if not whether the dollar amount was specifically identified with a maximum amount allowed; and
- whether any efficiencies resulted from these contracts.”
The external forensic auditors responsible for this work are reporting directly to the Auditor General’s Office.
Audit Projects Identified by the Auditor General
In the past, projects identified by the Auditor General and appearing on the annual audit work plan were based on the results of a risk assessment exercise completed at the time of amalgamation. This risk assessment exercise was supplemented by input from Council members, Audit Committee members and depending on the circumstances, by audit and management staff. However, now with a more stable environment, an accumulated knowledge of client operations and the transition to the Auditor General’s Office, it has been determined that this is an opportune time to revisit refine and implement a more formal risk assessment methodology to further identify those high priority audits. This approach to planning audits and prioritising audits is considered a “best practice” within the audit profession and is specifically
referred to in the standards promoted by international auditing organizations such the Institute of Internal Auditors and the Information Systems Audit and Control Association and Foundation. Specifically, the risk analysis process begins by establishing the audit universe and continues with a ranking exercise by applying predefined risk factors against each audit unit. After examining approximately 70 possibilities, the following risk factors (in alphabetical order) were selected by the Auditor General and the Directors of Audits on the basis of relevance with respect to the nature and objectives of our reviews and the political and reporting environment in which we operate.
1. Adequacy of Policies and Procedures
2. Competence/Integrity of Management and Staff 3. Complexity of Operations
4. Dollar Impact/Materiality 5. Existence of a Business Plan 6. Liquidity of Assets
7. Major System Change
8. Political Exposure/Adverse Publicity 9. Potential for Liability (penalties, litigation) 10. Quality of Internal Control System
Applying a consistent scoring system across the entire City-wide organization ensures that audit resources will be focused on those areas with the highest risk. A quantitative approach to prioritize potential audits, which pose the greatest risk and liability to the City, increases our ability to allocate scarce audit resources more effectively. As well, it will indicate, given the current staff complement, the time required for the office to cycle through all the audit units. We recognize there are inherent risks and limitations associated with any method or system of prioritizing audits. The risk factors and scoring process will be periodically evaluated and modified, if necessary, in order to improve the audit plan. While the above process is standard generally accepted audit practice, we intend validating this methodology with the City’s external auditors.
The annual work plan for 2003 has identified the following projects as being priority audits. Certain of these audits are either in progress or are in the early planning stage.
- Review of Procurement Processes at the City of Toronto
- SAP Financial and Human Resources/Payroll Information Systems – Post Implementation Review
- Fleet Operations Review (two separate phases) - Hostel Services Review
- Recreation Program- CLASS Registration and Permitting System Application Review - Review of City Environmental Liabilities
- Outstanding Property Taxes Receivable Review - Parks and Recreation – Cost Controls
- Review of Mainframe Operations
- Corporate Services – Oracle Database Environment Annual Recurring Audits
The Investment Policy and Procedures approved by City 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 policy will provide assurance of compliance with governing legislation, this investment policy and procedures established by the Treasurer of the City.”
This audit is done on an annual basis by the Auditor General’s Office Follow-up Audits
A normal part of any audit process is the follow-up of audits previously completed. Follow-up audits are conducted to ensure that issues identified in audit reports have been addressed. It is anticipated that the following follow-up audits will be conducted in 2003.
- Police Services – Controls Relating to Overtime and Premium Pay (Audit originally conducted in January 2000)
- Parking Enforcement Unit Review (Audit originally conducted in January 2000)
- Community Services Grants Program Review (Audit originally conducted in February 2001)
- Tipping Fees Review – Solid Waste Management Review (Audit originally conducted in February 2001)
Fraud or Fraud Related Investigations
The Fraud and Waste Hotline program is an ongoing initiative administered and operated by the Auditor General’s Office. Following a Hotline six-month pilot project, City Council established the Fraud and Waste Hotline as a permanent program in the City of Toronto.
Our work plan for 2003 includes the administration of complaint intake, electronic tracking of complaints and disposition of complaints received, which in turn may result in no action, referrals to departments or investigations being conducted.
Currently, complaints may be received anonymously through the telephone on the Fraud and Waste Hotline or forwarded by written letter. The program is currently being expanded to permit the reporting of complaints on-line.
The extent of work in this area is unpredictable and essentially relates to the volume of calls received on the fraud hotline. In addition, fraud investigations can be initiated by the Auditor
General’s Office either as a result of issues identified by staff from the Auditor General’s Office or by concerns raised by departmental management or Council members.
Coordination and Oversight of the City’s External Attest Audit
The responsibilities of the Auditor General include the coordination and oversight of the City’s external audit. This is a new responsibility for the Auditor General’s office and in this context it is important for Council to understand that the Auditor General does not have the authority to direct the work of the external auditor. The Auditor General can request that certain additional work be conducted in specific areas but he can not direct that certain work not be conducted. The work of the external auditor forms the basis of an independent audit opinion on the City’s financial statements and as such the work that they do must satisfy this objective.
The major coordination role essentially relates to a number of areas such as:
- the timing of the audits for the City, as well as its Agencies, Boards and Commissions; - the identification of problem areas which may require the resources of the Auditor
General’s Office;
- the issue of management letters and the resolution of matters contained in the various management letters; and
- the coordination and preparation of reports for Audit Committee and Council.
The relationship of the Auditor General’s Office and the external auditors office is important particularly in the context of ensuring that high risk areas are addressed as well as ensuring that there is no duplication of audit work being conducted by either party. In many respects, the working relationship between both parties is essentially a continuation of the present arrangement.
Conclusions:
The year 2003 is a transitional year for the office of the Auditor General. Attest audits will continue to be conducted for much of 2003. The Auditor General will likely issue in excess of 80 individual audit opinions on various City financial statements. In many cases these financial statement audits will likely necessitate the issue of a management letter on internal control related issues.
In addition to encompassing certain high priority and high risk projects, the work plan as presented also allows the Auditor General the flexibility to undertake ad hoc requests from Council as well as the need for unscheduled audit work pertaining to special reviews and fraud related investigations.
Contact:
Jeffrey Griffiths, Auditor General
Tel: (416) 392-8461, Fax: (416) 392-3754 E-Mail: [email protected] Jeffrey Griffiths Auditor General dl/cg List of Attachments:
Appendix 1: Financial Audits of Community Centres and Arenas Appendix 2: Financial Audits of Business Improvement Areas Appendix 3: Other Statutory Audits
Appendix 1 Auditor General’s Office 2003 Work Plan
FINANCIAL AUDITS OF
COMMUNITY CENTRES AND ARENAS
Presently, the Auditor General 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 Arenas
1. McCormick Playground Arena. 2. Forest Hill Memorial Arena. 3. George Bell Arena.
4. Leaside Memorial Arena. 5. Moss Park Arena.
6. North Toronto Memorial Arena. 7. Ted Reeve Community Arena. 8. William H. Bolton Arena.
Appendix 2 Auditor General’s Office 2003 Work Plan
FINANCIAL AUDITS OF BUSINESS IMPROVEMENT AREAS
1. Bloor Annex
2. Bloor by the Park
3. Bloor West Village
4. Bloor Yorkville
5. Bloorcourt Village
6. Bloordale Village
7. Corso Italia
8. Danforth by the Valley
9. Downtown Yonge Street
10. Dovercourt Village
11. Eglinton Way
12. Forest Hill Village
13. Gerrard India Bazaar
14. Greektown on the Danforth
15. Harbord Street 16. Hillcrest Village 17. Junction Gardens 18. Keele-Eglinton 19. Kennedy Road 20. Kingsway 21. Lakeshore Village 22. Liberty Village 23. Little Italy 24. Long Branch
25. Mimico by the Lake
26. Mimico Village
27. North Avenue Road
28. Old Cabbagetown
29. Pape Village
30. Parkdale Village
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
Appendix 3 Auditor General’s Office 2003 Work Plan
OTHER STATUTORY AUDITS Subsidies
Homes For the Aged 1. Albion Lodge 2. Bendale 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. L.L. Sculpture Garden (lease operating costs) 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
