August 28, 1998

To:Audit Committee

From:City Auditor

Subject:Corso Italia Business Improvement Area (BIA)

Recommendations:

It is recommended that:

(i)this report be forwarded to the Corso Italia Board of Management and that the administrative improvements outlined in the report be implemented;

(ii)the City Auditor conduct a review, in consultation with the Commissioner of Economic Development, Tourism and Culture, with respect to the administration of Business Improvement Areas, such review to include the handling of surpluses/deficits, accounting, preparation of financial statements and other related issues, to ensure proper business practices and procedures are followed by all BIA's across the City; and

(iii)this report be forwarded to the Budget Committee for information.

Background:

The Budget Committee on May 26, 1998, received a communication from Bobrowski Textiles, requesting release from their tax obligation with respect to the business improvement area governing Corso Italia, and that an accounting of this Business Improvement Area be conducted in order to assure that all funds are ethically distributed.

The Committee referred this matter to the City Auditor for his consideration.

Comments:

We have completed a review of the Corso Italia BIA. The review focussed on the financial records of the organization for the period January 1997 to May 1998 and consisted of evaluating, on a sample basis, the appropriateness of the expenditures incurred and the adequacy of the supporting documentation. The review also considered the issue surrounding the release of taxpayers from the payment of BIA levies.

Release from Tax Obligations under BIA Legislation:

Current provincial legislation does not allow a municipality to release an individual taxpayer from a BIA levy, as this levy is considered a tax and any relief would be deemed to be a bonus to the respective business. The legislation does however give City Council the authority to repeal both the designating and enabling by-laws of a BIA. In order for a BIA's by-laws to be repealed, Council policy requires that BIA members circulate a petition to that effect amongst its membership. The intent of this policy is to ensure that all BIA members are fully informed about the proposal, and have the opportunity to make their views known. If the majority of members agree to propose abolishing the BIA, a request is then forwarded to City Council for its consideration.

Financial Records & Distribution of Funds:

Business Improvement Areas are non-profit organizations operated by voluntary boards of management under the auspices of the City of Toronto. An annual operating budget is prepared by the Board of Management of each BIA, presented and approved by the general membership and then submitted to and approved by City Council. Corso Italia BIA's annual budget for 1997 totalled $160,000. Actual expenditures as per the 1997 financial statements were $178,000.

Our review of the financial records for the year ended December 31, 1997, found that, for the most part, expenditures were reasonable and adequately supported by appropriate documentation. Transactions for the period January 1998 to May 1998 were also reviewed on a sample basis. Financial record keeping and procedures during this period require improvement. Instances were noted where payments were made without invoices and other supporting documentation being provided. Bank statements in respect of 2 months transactions could not be located.

In addition, several cheques were signed by only one authorized signing officer, including a cheque for services rendered, payable to a business in which the signing officer is a principal. BIA regulations require that all cheques be signed by at least two officers of the board. The signing officer acknowledged the requirement for 2 signatures, but indicated that due to the Treasurer's position being vacant, he was the only one authorized to sign cheques.

During 1998, Corso Italia BIA held and sponsored various social events within the local community. The practice of Corso Italia BIA, when considering the sponsorship of an event, was to have the matter considered by the board and the amount of the sponsorship voted on at a board meeting. In reviewing transactions in this regard, the following was noted.

- Festa Della Republica: The organizer of this event operates a business within the Corso Italia BIA and is a board member of the BIA. Payment with regard to sponsorship of this event was made directly to the board member without supporting documentation being provided. An invoice was subsequently provided upon our request.

- Italian-Canadian Immigrant Monument Project: Payment of sponsorship money for this project was made directly to a board member of the Corso Italia BIA, who is also chair of the Italian-Canadian Immigrant Monument Association (ICIMA), which is overseeing the project. This payment was not handled in an appropriate manner. The sponsorship should have been paid directly to the ICIMA.

- World Dance Summerfest '98: The promoter for this event operates a business within the Corso Italia BIA. Our review noted that full sponsorship ($33,600) was requested in respect of this event. Minutes from the meeting where this matter was considered showed the board decided to cover only half the amount requested. The Chair subsequently advised that at another meeting the board reversed this decision and full sponsorship was approved. This later decision and the reasons therefor were not minuted.

It is our understanding that the organizer of the Festa Della Republica and Italian Canadian Immigration Monument project voted on the requests for sponsorship for these undertakings. In order to avoid any perceived or apparent conflict of interest in matters before the board, members should declare any financial interest which they may have in such matters and refrain from participating in any discussion or voting on that particular matter, as required under the Municipal Conflict of Interest Act. In addition, complete and adequate supporting documentation should be provided to the board in support of all sponsorship requests. The organizer/promoter of the event should also provide a full accounting of all actual revenues and expenditures to the first board meeting following the event, as well as information relating to the benefits and impact of the event on the BIA.

Our review of the minutes of Board of Management meetings indicated that, in many cases the minutes did not adequately document the subject matter under consideration, financial implications, decisions taken and the results of any voting which occurred, as evidenced by the World Dance Summerfest '98 event outlined above.

The Chair of Corso Italia BIA board of management advised that the board underwent a number of changes in membership over the 1997/98 period. In particular the position of Treasurer has changed 3 times over the last twelve months and was vacant at the time of our review. As a result, the board experienced some degree of difficulty in maintaining proper and adequate financial records. The Chair has advised that a board member has recently been appointed to the Treasurer position.

Financial Statements:

Staff of the Audit Department of the (former) City of Toronto prepared financial statements in respect of the year ended December 31, 1997. These statements were reported on by the (former) City of Toronto Auditor to City Council and the Board of Management for the Corso Italia BIA, in February, 1998.

In our review of the financial statements for 1997, we noted that expenditures in excess of $13,000 incurred in 1997 were not recorded and that GST refunds were not accounted for in accordance with generally accepted accounting principles.

To maintain a proper level of independence, the City Auditor's Office should no longer be responsible for the preparation of financial statements.

Budgetary Issues:

The BIA legislation as it relates to surplus accumulations is similar in intent to legislation governing municipal surpluses, that is, any surplus available at the end of a financial year must generally be utilized to reduce the subsequent years levy. The Budget Review Group at the (former) City of Toronto interpreted the BIA legislation to allow some surplus to be carried forward from one financial year to the next, for uncompleted capital projects jointly funded with the City. It is recommended that this practice be reviewed to ensure that procedures are in compliance with the legislation , and at the same time facilitate the financing of both operating and capital requirements.

The Corso Italia BIA was overspent by $31,000 ($18,000 per financial statements plus $13,000 in unrecorded expenses) in relation to its 1997 approved budget. In order for the Board of Management to make informed decisions and to facilitate budgetary control, it would be appropriate that financial information be provided to the board on a monthly basis.

Improvements Recommended:

Based on our review it is recommended that:

- payments for goods, services and sponsorship only be made upon receipt of invoices and appropriate supporting documentation;

- financial transactions be recorded in a timely and proper manner, and bank reconciliations be prepared monthly;

- actual expenditures and revenues, as well information with respect to the value/benefits relating to social events held, be provided to the board of management;

- all cheques be signed by two signing officers who have no financial interest in the transaction under review;

- minutes of board meetings be properly documented;

- members of the Board of Management refrain from participating in any discussion or voting on any matter in which they may have a financial interest, and that conflicts of interest be declared and minuted;

- financial statements be prepared independent of the City Auditors office;

- a summary of the BIA's operating expenditures (for the respective month and cumulative) be prepared and presented to the Board on a monthly basis, and expenditures be closely monitored to prevent an over expenditure; and

- BIA operating guidelines be provided to all members of the Corso Italia Board of Management.

Conclusion:

The expenditures incurred in respect of individual BIAs are not material in the context of the City of Toronto finances. Nevertheless, entrusting the disbursement of tax levies to voluntary boards of management, who are acting as custodians of taxpayer dollars, requires that financial records be maintained in a manner which will meet the test of scrutiny of any outside party. It is therefore important that BIAs have adequate financial procedures in place to ensure proper accountability.

For this reason a review of the procedures with respect to the maintenance of financial records, preparation of financial statements and other related matters, should be undertaken to ensure appropriate standards and consistency are maintained throughout all BIAs operating within the City.

The Commissioner of Economic Development, Culture and Tourism has agreed to forward these recommendations for improved practices to all BIA's, emphasizing the importance of financial management and accountability.

Contact Name and Telephone No.:

Tony Veneziano, Senior Audit Manager 392-8353

Jeff Griffiths

City Auditor

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