April 21, 1999

To:Audit Committee

From:City Auditor

Subject:2008 Olympic Bid

Review of the Bid Company's Administrative and Financial Policies

Purpose:

To provide the Audit Committee and the Olympic Task Force with an interim report relating to the review of the 2008 Olympic Bid Committee rules, regulations and administrative and financial practices.

Recommendation:

It is recommended that this report be received for information and that it be forwarded to the Olympic Task Force.

Background:

At its meeting of April 13, 14 and 15, 1999, Council approved the recommendations of the Olympic Task Force regarding the Toronto Bid for the 2008 Olympic Games. The recommendations included the following:

"The City Auditor be requested to review the current Bid Company's rules, regulations and administrative and financial practices, and submit a report thereon to the City Audit Committee and the Olympic Task Force."

Comments:

In February 1999 the Chief Administrative Office forwarded to the City Auditor a copy of a draft document dated February 4, 1999, entitled "Olympic 2008 - Toronto, Toronto 2008 Financial Policies and Procedures Manual, 1999." The Chief Administrative Officer requested the City Auditor to review and provide comments on this document. On February 11, 1999, the City Auditor replied in detail to the Chief Administrative Officer outlining a wide range of issues which should be considered in the finalization of the document. These comments were as follows:

1. The composition of the Audit Committee of BidCo should be expanded from three to at least five members. The members should have a basic understanding of the audit process as well as an ability to analyze and review financial statements. The Board of Directors include a number of Chartered Accountants who probably should be members of the Committee.
2. The role of the Audit Committee should be expanded so that it is in a position to provide regular reports to the City of Toronto, the Canadian Olympic Association and to the Board of Directors.
3. The role of the Audit Committee, as outlined in the document, is "to report to the full Board at least annually on the assessment of effectiveness of, and compliance with, the Code of Conduct and Conflict of Interest policy." There is a need to include under this area the Audit Committee's responsibility to report and deal with violations of the Code of Conduct or Conflict of Interest policy immediately. This is not provided for in the manual nor is there any indication as to how the Audit Committee is to do this.
4. The Audit Committee should have a role in the selection and appointment of the External Auditor.
5. The Audit Committee should be able to direct that the annual financial audit include a review of specific areas (these areas may be immaterial to the financial statement audit). For example, travel and expense claims, use of corporate credit cards, employment of consultants, donations in kind, etc., which may not be addressed during a normal financial audit process.
6. One issue that requires careful consideration relates to the control of donated services, particularly air line passes. There needs to be a process in place to:

a) account for such passes in the accounting records;

b) account for their use;

c) the control of such passes; and

d) the recording of such items in financial statements.

Similar controls should be in existence for all donated services including a process to value donations in kind.

1. The manual makes reference to an employee held corporate credit card. The manual does not specifically identify policies relating to the control, issue, custody, approvals, etc., of such cards.
2. Once job responsibilities are finalized, careful consideration needs to be given to an appropriate segregation of employee duties. For example, based on the description of the accounts payable process in the manual, internal controls appear to be inadequate, due to the fact that the accounting clerk matches invoices to purchase orders, processes accounts payable transaction, adds new vendors to the system, prints cheques and performs bank reconciliations. These are incompatible duties from an internal control perspective and should be segregated.
3. There is no indication in the manual as to how any surplus is to be distributed or how potential deficits are to be financed.
4. The Chief Financial Officer/Controller should perform periodic counts of the petty cash fund and this individual should also monitor the use of petty cash to ensure that it is being used appropriately. The Petty Cash Request form should include a provision for a supervisor's approval.
5. The Chief Financial Officer/Controller should evidence his review of all account reconciliations including bank reconciliations by initialling and dating all documents.
6. Travel advances should be settled within ten days of completion of the travel and such advances not be granted to anyone with a previously outstanding travel advance.

These comments were forwarded to the Executive of Toronto 2008 by the Chief Administrative Officer for their consideration.

On March 5, 1999, I received a telephone call from a senior partner with the accounting firm of Ernst & Young in relation to the above comments. Ernst & Young have been hired to provide accounting and financial advice in relation to the administration of the Toronto 2008 Bid. Ernst & Young indicated that the comments in connection with the policy manual were "appreciated, completely appropriate and excellent, and most of them, if not all, will be incorporated into the final document." At the present time a final manual is not available.

Conclusions:

The initial draft document entitled "Olympic 2008 - Toronto, Toronto 2008 Financial Policies and Procedures Manual, 1999" is comprehensive and includes significant information relating to the policies of the 2008 Olympic Bid Committee. Ernst & Young have indicated that this document has received wide spread circulation in an attempt to solicit suggestions and advice prior to the document being finalized. I have been informed that this document will be available by early June 1999. Once this document has been received, a further review will be conducted by my staff.

Contact Name and Telephone Number:

Jeffrey Griffiths, City Auditor, 392-8461

Jeff Griffiths

City Auditor