December 15, 1998

To:Audit Committee

From:City Auditor

Subject:Transfer of Parking Operations from the Former Municipalities to the Toronto Parking Authority

Recommendation:

It is recommended that:

1.The Toronto Parking Authority should ensure all receipts are promptly deposited to the bank;

2.The Toronto Parking Authority should change the accounting policies and practices of the former municipal parking operations to ensure they are appropriate and consistently applied;

3.the Chief Financial Officer and Treasurer should ensure that the five former municipalities expedite the closing of all accounts related to parking operations and transfer same to the Toronto Parking Authority in accordance with the requests of Council;

4.the Chief Financial Officer and Treasurer should ensure the Toronto Parking Authority remits progress payments on a monthly basis as specified in the Council minutes, and

5.the City Auditor be requested to report back to Council through the Audit Committee on the operating results of the transferred parking operations both before and after the transfer to the Toronto Parking Authority.

Background:

City Council, at its meeting of July 29, 30 and 31, 1998 (Clause 38) adopted the joint report from the Commissioner of Works and Emergency Services and the President, Toronto Parking Authority, as amended, to provide among other matters that:

"City Council delegate to the Toronto Parking Authority the maintenance, operation and management of all City off-street municipal and on-street metered parking facilities ..."

• the transfer of parking operations be approved on a two year trial basis, and that the transfer occur on the condition that all meter operations be a direct operation of the Toronto Parking Authority, including installation of meters;

• the City retain the right to resume the on-street parking operations at any time with assets to be transferred back to the City without penalty, and

• prior to the transfer of the Toronto Parking Authority, the City Auditor conduct a review of the operations of both the present City meter collection system and the Toronto Parking Authority, and submit recommendations thereon to Council through the Corporate Services Committee.

City Council, at its meeting of June 3, 4 and 5 had earlier adopted a three year Income Sharing Arrangement with the Toronto Parking Authority (TPA) which took effect as of January 1, 1998, and provided for the City to receive annually (paid on a monthly progress payment basis for a three year period) from the Parking Authority:

a) the greater of $2,000,000 or 50 percent of net operating income earned from off-street parking facilities, and

b)the greater of $6,000,000 or 100 percent of net operating income from on-street meter operations.

Comments:

The objective of this project was to review and document various costs, revenues and other performance factors of the parking operations of the former municipalities in order to facilitate benchmarking to the Toronto Parking Authority at a future date.

A secondary objective was to identify other issues and opportunities for efficiencies and improvements in the operations of the TPA which became evident during the review.

The review consisted of the following activities:

• Reviewed the Joint Report 'Moving Forward' prepared jointly by the TPA and the Parking Authority of North York and the supporting working papers, tables, etc.

• Interviewed staff from all former municipalities of the City of Toronto and the newly created Toronto Parking Authority with responsibility for or knowledge of the operations of the metered and off-street parking in the respective municipalities. Collected and tabulated cost, revenue and operating data relating to each municipality's parking operations.

• Identified cost, revenue and other performance factors which should be determined for each of the predecessor bodies and the TPA.

• Reviewed the audit working papers and Permanent Audit File of the former Auditor of the TPA to collect background information.

• Obtained for analysis detailed monthly financial, statistical and other operating data covering the period January 1, 1997 to August 31, 1998.

• Reviewed various Council reports on the transfer of municipal parking operations to the TPA.

The most significant component of this work was compiling data from the seven former operations. The data compilation, validation and analysis consisted of the following activities:

• Reviewed data collected for obvious errors or omissions.

• Obtained or developed spreadsheet analyses containing revenue, cost data and performance factors of each of the predecessor organizations for the 20 months ended August 31, 1998.

• Validated data by comparison to individual financial statements, management reports, transaction documents and the 'Moving Forward' report. Followed up any differences.

• Developed comparative tables for key data elements, cost and revenue factors, e.g.:

• number of meters in service
• number of spaces in lots
• average revenue per metered space
• average revenue per lot space
• weighted average rates per hour - meters
• weighted average rates per hour - lot spaces
• average annual costs and profit per space

Findings

General

There were significant differences in the policies, procedures, operations, cost accounting and reporting of the various municipalities, for example, in one or more instances:

• costs were not separated between off-street lots and meters
• meter revenue counting and banking was sub-contracted out
• revenues and expenses for lots and meters were recorded separately in some former municipalities but costs were not properly separated in others

The types of differences noted above, while complicating this benchmarking exercise, have been eliminated with the transfer of operations to the Toronto Parking Authority.

Revenues

Parking revenue is a function of rates per hour, hours of operation and volume of usage. There was a wide variability in the rates within municipalities and from one municipality to another. Any benchmarking exercise will necessarily be based on weighted averages and the model developed will be able to gauge revenue increases due in part to changes in per hour parking rates.

Policies

The revenue collection and deposit policies and procedures of some municipalities ensured the same day deposit of that day's meter collections. In other municipalities there were significant cash flow bottlenecks or delays, e.g., in one case the delay between collection and deposit averaged three days. In another the municipality received a cheque from its collection sub-contractor at month end for that month's collections. These treasury management procedures resulted in lost interest income to the respective municipalities. To rectify these shortcomings the Parking Authority is negotiating new agreements with its counting and depositing subcontractors.

Recommendation:

1.The Parking Authority should ensure that all receipts are promptly deposited to the bank.

Accounting Records

We did not conduct an audit of the data provided. However, we did trace the cost and revenue data to the general ledgers of the respective municipalities and the Parking Authority and used other techniques for validation and analysis, including reference to source documents in some cases. We did note that in certain instances accounting appeared to be done on a cash rather than the accrual basis. This is inappropriate. We also noted differences between municipalities in the procedures used for the charging of municipal taxes to their parking operations. These differences will have to be resolved to allow valid comparisons in the future.

Recommendation:

2.The Toronto Parking Authority should ensure that the accounting policies and practices of the former municipal parking operations are changed to ensure they are appropriate and consistently applied.

Taxes

At the time of writing, 1998 taxes for all off-street parking lots were under appeal. Therefore, the Parking Authority is not yet in a position to accurately accrue its 1998 taxes on those parking lots transferred to it from the former municipalities. The result of these appeals will impact future comparisons.

Cost and Revenue Transfer

Staff of the former municipalities were authorized "to transfer all costs and revenues incurred during 1998 for off-street municipal parking facilities and on-street metered parking ... to the Toronto Parking Authority for recording in the Authority's books, ... and that the operations in the City's accounts be closed effective October 31, 1998." At the date of writing, only one of the six transfers has actually taken place. The Finance Department should facilitate the final accounting entries in the five 'outstanding' municipalities to permit the comparison of operating results before and after the transfer. A review of the six 'final' transfers will be undertaken by the Audit Department prior to the finalization of the benchmarking data.

Recommendation:

1. The Chief Financial Officer and Treasurer should ensure that the five former municipalities expedite the closing of all accounts related to parking operations and transfer same to the Toronto Parking Authority in accordance with the requests of Council.

Income Sharing

As noted earlier in this report an agreement has been established under which TPA is to make monthly remittances to the City. To date, the remittances have not been made.

Recommendation:

4.The Chief Financial Officer and Treasurer should ensure the Toronto Parking Authority remits progress payments on a monthly basis as specified in the Council minutes.

Numbers of Parking Spaces

Differences were noted between the number of spaces reported by the former municipalities and those reported by the Authority. TPA officials are currently reconciling these differences, which are crucial to the finalization of comparative operating statistics. Audit staff will review these reconciliations once they are completed.

Comparison of Operating Results

The first step of the process in comparing the results of the parking operations before and after amalgamation is the gathering of information on the parking operations of the former municipalities. While much of this information has been compiled there remains a number of accounting entries to be made by the former parking operations which will impact the final cost and revenue calculations. Once all accounting information has been transferred to the TPA we will be able to finalize the benchmarking data which will be used in the performance comparison to be prepared by the City Auditor in 1999.

Recommendation:

5.The City Auditor be requested to report back to Council through the Audit Committee on the operating results of the transferred parking operations both before and after the transfer to the Toronto Parking Authority.

Conclusion:

The primary purpose of this review was to gather baseline information to allow a future comparison of the results of parking operations both before and after their consolidation into the Toronto Parking Authority. Although we have been unable to complete this exercise to date, year end accounting procedures will provide the information necessary to finalize the baseline data. Comparisons of operations will then be possible, and have been included in my work plan, in late 1999.

Contact Name and Telephone Number:

Jerry Shaubel, Director of Audits, 392-8462

Jeffrey Griffiths

City Auditor