July 6, 1999
To:Policy and Finance Committee
From:Chief Administrative Officer and Chief Financial Officer and Treasurer
Subject:Financial Control Protocols within the Revised Council-Committee Structure
Purpose:
This report sets out the roles, responsibilities, relationships and related financial control protocols for Council's new
committee structure.
Impact Statement:
The relationships, protocols and processes outlined in this report require no additional resources. However, the processes
and relationships are designed to enhance the efficiency, accountability and overall quality of the City's budget process and
financial management systems.
Recommendations:
It is recommended that:
(1)the roles and relationships described in the section of this report headed "Framework of Roles and Responsibilities for
the Planning, Management and Expending of Resources within the City of Toronto" be adopted;
(2)the decision-making protocol set out in the section of this report headed "Guidelines for Routing of Committee
Reports with Financial Implications", table 1 and Appendix A be adopted;
(3)in order to ensure that information on the financial implications of recommendations is available to standing
committees, community councils and City Council:
(a)all staff reports be required to identify clearly, at the beginning of the report, any financial implications including:
(i)the amount of expenditures and revenues;
(ii)the source of revenues;
(iii)any in-year financial implications beyond the approved budget; and
(iv)future year financial impacts;
and, when there are financial implications, include a statement indicating that the Chief Financial Officer and Treasurer has
reviewed and concurs with the financial implications; and
(b)standing committee and community council recommendations to Council and Notices of Motion introduced at
Council, which have financial implications beyond the approved annual budget, be accompanied by staff identification,
including review by the CFO and Treasurer, of any financial implications during consideration of the items by Council.;
and
(4)the appropriate City Officials be authorized and directed to take the necessary action to give effect thereto.
Council Reference:
On February 2, 3 and 4, 1999, Council adopted as amended Clause No. 1 of Report No. 1 of the Special Committee to
Review the Final Report of the Toronto Transition Team, entitled "Revisions to the Council-Committee Structure". In
adopting the clause, Council directed the CAO and the Chief Financial Officer and Treasurer to submit a joint report
fleshing out the budget-setting process for the year 2000 budget and related financial control protocols, including:
(i)the relationship between in-year policy development by standing committees and the annual budget process;
(ii)the process to be used by the Policy and Finance Committee and Council in setting budgets for the whole range of
City programs;
(iii)the role of standing committees and community councils in the annual budget-setting process; and
(iv)guidelines for the in-year financial monitoring and management of specific program areas within standing
committees' portfolios.
Subsequently, on March 2, 3 and 4, 1999, Council adopted, as amended, a motion by the Mayor, seconded by the Deputy
Mayor, which defined the role of a Budget Advisory Committee:
(i)to assist the Policy and Finance Committee with the preparation of the annual operating and capital estimates; and
(ii)to consider items, referred to it by the Policy and Finance Committee, that have a significant impact on a future
budget.
Council incorporated into the motion a memorandum dated February 22, 1999 from the CAO and CFO and Treasurer
entitled "Clarification of Planning and Financial Management Responsibilities".
On June 9, 10 and 11, 1999 Council struck out and referred to the Administration Committee for further consideration
Corporate Services Committee Report 6 (4). The following two recommendations were incorporated in the clause:
"all staff reports be required to clearly identify any financial implications including:
(i)the source of funding;
(ii)the amount of expenditures and revenues; and
(iii)any in-year financial implications beyond the approved budget or future year financial impacts;
and that financial/budgetary reports clearly identify any policy implications and the relevant committee approval received
or required for the policy change; and that these requirements be incorporated into the new staff report guidelines currently
in preparation by the City Clerk and the Chief Administrative Officer; [and]
[staff] develop a protocol¼.for dealing with staff reports, Standing Committee and Community Council recommendations
to City Council, and Notices of Motions introduced at City Council, which have financial implications, beyond the
approved annual budget or legal implications, such that staff can identify any financial or legal implications and bring such
information to the attention of Committee or Council for its consideration."
This report responds to Councils directive of February 2, 3 and 4, 1999, builds on the above-mentioned Council action of
March 2, 3 and 4, 1999, and takes into consideration the recommendations embodied in Corporate Services Report No. 6
(4).
Discussion:
Context:
The report on "Revisions to the Council-Committee Structure" included the following comments, which reflect the
underlying premise of the processes and relationships described in the present report:
"[Clear and rigorous financial control procedures] are necessary to ensure that budgets are developed in a coordinated and
consistent manner, allocations within budgets reflect Council's relative priorities and financial means, and allocations and,
therefore, priorities are not undermined by ad hoc and piecemeal in-year changes. Financial control procedures are
necessary, too, to hold staff accountable for the service levels that Council establishes through the budget process¼
"As a general rule, the budget should be considered a service level contract. From the point when Council adopts the
budget, staff will be held accountable for delivering on the budget contract and service levels contained therein. The budget
setting process for the following year must be undertaken with all competing priorities on the table together. This approach
should not leave room for ad hoc in-year changes."
Framework of Roles and Responsibilities for the Planning,
Management and Expending of Resources within the City of Toronto:
Within the context of the above comments and the decisions made by Council on February 2, 3 and 4 and March 2, 3 and
4, 1999, the following description of roles and responsibilities provides the framework for the specific budget-setting
process for 2000, which is set out later in this report.
(a)Role of Policy & Finance Committee:
The Policy and Finance Committee has clear responsibility for recommending the budget. This committee sets the financial
priorities and recommends the rules of the game (via Financial Control By-laws, etc.). Once Council has approved the
budget, requests for in-year changes should only occur on a very exceptional basis and be made through this committee.
Policy and Finance is the finance committee of Council. The Policy and Finance Committee monitors in-year performance
of the City's programs through its regular review of budget variance reports.
(b)Role of the Council's Policy Committees and Community Councils:
Council's Committees each have services, which they oversee. Standing committees monitor the ongoing delivery of
programs and emergence of issues within their jurisdiction. They recommend program changes and develop policies. In
general their recommendations should not result in any in-year budget changes. Recommended program changes form part
of the mix of priorities to be taken into consideration in the preparation of future budgets.
(c)Role of the Budget Advisory Committee:
The Budget Advisory Committee assists the Policy and Finance Committee in developing the annual capital and operating
budgets. It engages in the detailed, intensive political review of the program budget requests before providing advice to the
Policy and Finance Committee on the budget submission to Council. The Budget Advisory Committee functions like a
focused working group. It need only meet regularly for the duration of the budget preparation process as determined by the
Policy and Finance Committee. It is expected that the Budget Advisory Committee will meet on a regular basis between
October and March.
During the other six months of the year, staff are gathering new information to present to the Budget Advisory Committee
in the next year's cycle. This time is also used to implement the directions taken as part of the last budget. It is therefore
unnecessary for the Budget Advisory Committee to meet regularly during this period. The Budget Advisory Committee
does not monitor in-year programs and operations. These are the responsibilities of the Policy and Finance and other
standing committees respectively.
The importance of the Budget Advisory Committee lies in weighing the priorities and submissions from all departments
and agencies during the budget process and making the necessary trade-offs to achieve particular fiscal goals.
(d)Role of the Audit Committee:
The Audit Committee assures Council that funds have actually been spent on the basis of program appropriations that were
approved by Council and ensures that financial controls are operating in an appropriate fashion.
(e)Role of the CAO and Commissioners:
The Chief Administrative Officer is responsible for the general control and management of the administration of all
departments in the City; effective and efficient delivery of services; and for providing effective advice to the Mayor and
Council in developing and implementing policies, plans and programs.
The Chief Administrative Officer and the commissioners are authorized to implement the delivery of programs and
services consistent with Council's plans and direction. Staff's primary role is to implement Council's directives and
policies and manage the day to day operations in a professional manner on an ongoing basis. Adequate administrative
structures and accountability mechanisms have been established and approved by Council to ensure that the Standing
Committees and Council are advised on the actual accomplishments and results on a regular basis.
The CAO is held accountable by the Policy and Finance Committee for ensuring that proper planning and financial
management structures and processes are in place, and for delivering on the approved budget. The Commissioners are held
accountable by the standing committees for program delivery within their areas of responsibility. In addition, the
performance management process requires commissioners to deliver on the budget contract.
(f)Role of the CFO and Treasurer:
The Chief Financial Officer and Treasurer, among other responsibilities, has a statutory responsibility to maintain proper
books of accounts for the corporation, ensure that appropriate financial controls, checks and balances are built into the
system. The CFO must ensure that the City has a budget, which can be used to set the mill rate.
(g)Role of the Auditor:
The Auditor is accountable to the Audit Committee for reviewing and assessing programs on a regular basis to ensure that
expenditures are consistent with Council-approved objectives, by-laws and procedures. The Auditor also reports to the
Audit Committee on any system control problems and any program reviews, which suggest ways to improve on
performance.
(h)Delegated Authorities:
Once the budget is approved, it represents a financial plan to which the departmental program management is to be held
accountable. As part of the corporate management framework, and under existing By-law 7-1998, senior managers and
staff have been delegated authorities to take appropriate actions consistent with the approved financial plan (budget). The
CAO, through the CFO, ensures that an appropriate delegation of financial and program authorities document has been
formally established, authorized and implemented.
Further appropriate internal controls have been established in the assignment of staff duties and responsibilities so that
decisions made by one person are automatically reviewed by another and, responsibilities are divided so that more than one
person is involved in any given transaction.
(i)Policies and Systems:
The CAO, through the CFO and Treasurer, ensures that effective financial management, business planning and asset
management policies, processes and systems are in place through the establishment and assurance of:
-an effective financial accounting system for the recording and reporting of expenditures, revenues, assets and liabilities;
-a well designed management reporting and budget process for departmental programs which provides timely
information to facilitate the assessment of operational results in relation to plans and performance;
-established financial policies in relation to the account code structure, activity based costing, accrual accounting,
recognition of non-cash expenditures, asset management and administration costs, financial reporting and performance
assessment;
-clearly defined functional and organizational roles and mandates of the key positions within the Finance Department;
and
-the development of an effective establishment control system.
The CAO, through the commissioners, ensures that effective business planning and management systems are in place
through:
-the implementation of a multi year business planning process which focuses on core programs, goals, objectives,
expected outcomes, resource requirements and performance measures;
-the development and establishment of relevant performance measures for City programs and services; and
-the development and implementation of performance review and management systems.
Guidelines for Routing of Committee Reports with Financial Implications:
The intent of the revised Council-committee structure is to limit, to the extent possible, the routing of reports through more
than one standing committee. A major issue in the previous committee structure was the duplication and bottlenecks
arising from routinely sending reports to standing committee, then Budget Committee, then SPPC. The fact that a matter
before a standing committee has financial implications is insufficient reason in and of itself to refer the matter to the Policy
and Finance Committee. Most items have financial implications to some degree. The question should be whether or not the
financial impact is within the approved budget. Carefully applied criteria, based on approved committee mandates, need to
guide referrals to Policy and Finance Committee in order to prevent the inefficiencies and duplication that bogged down
the previous structure.
Within the revised Council-committee structure, the Policy and Finance Committee has responsibility for recommending
Council approval of expenditures not included in the approved budget. Responsibility for policy and program review and
development lies with the relevant standing committees. The following table summarizes the criteria that will be used to
determine when the financial implications of reports and recommendations at standing committees require referral of the
recommendations to the Policy and Finance Committee. It is important to reiterate that a key assumption underlying the
approval process is that in-year budget changes will only be recommended in exceptional circumstances.
Table 1: Approval Process for in-Year Budget Changes
These scenarios for in-year budget changes arising at Standing Committees have also been summarized in a decision tree in Appendix A.
A listing of items dealing with future financial issues referred by Standing Committees to the Chief Financial Officer will be maintained for inclusion in the next year's budget deliberations. This list, categorized by originating Committee, can be included in the Standing Committees' outstanding items lists to provide Committee members with some assurance that the items have not been overlooked and will be considered as part of the next year's budget process.
Clear financial information must be included in standing committee reports in order to apply the decision-making protocol described in table 1 above. The financial reporting requirements contemplated in Corporate Services Committee Report No. 6 (4) provide a basis for appropriate guidelines. These guidelines should also apply to standing committee and community council recommendations to Council and Notices of Motion introduced at Council, which have financial implications beyond the approved annual budget. Therefore, it is recommended that:
(a)all staff reports be required to identify clearly in a financial impact statement, at the beginning of the report, any financial implications including:
and, when there are financial implications, include a statement indicating that the Chief Financial Officer and Treasurer has reviewed and concurs with the financial impact statement; and
(b)standing committee and community council recommendations to Council and Notices of Motion introduced at Council, which have financial implications beyond the approved annual budget, be accompanied by staff identification, including review by the CFO and Treasurer, of any financial implications during consideration of the items by Council.
The roles, responsibilities and protocols outlined in this report provide a framework for the operating and capital budget setting processes for the year 2000.
The proposed schedule for preparing the year 2000 operating budget is set out in Table 2 below. The development of initial forecasts will take place over the summer. The Policy and Finance Committee will kick off the political process on September 16, 1999 when it considers a detailed report from the Chief Financial Officer and Treasurer on the timetable, process and guidelines for the year 2000 operating budget. The Policy and Finance committee will consider an overview of the operating budget forecast in October. During October and November, standing committees and community councils will be briefed by program staff on service levels and standards. Departments and agencies will submit their operating budget estimates at the beginning of November for review by the CAO, CFO and Finance Department during November and December. The Strategic Plan will have provided broad City direction late in the fall to assist with priority setting.
Committee review and public consultation will take place from January through the end of March 2000. Council approval of the operating budget is targeted for April 17 and 18, 2000.
The proposed capital budget process and timetable are recommended in a separate report from the Chief Financial Officer and Treasurer entitled "2000-2004 Capital Program and 10-Year Capital Plan". The proposed schedule for the capital budget process is set out in Table 3 below. Preparatory work to develop the 2000-2004 capital program has commenced at the staff level. Departmental and agency preparation of their capital budgets will occur during the summer with CAO and CFO review of departmental and agency submissions taking place late summer and early fall. Political review of the capital budget will commence in mid-October when the Policy and Finance Committee considers an overview of the Capital Works Program and related issues. Preliminary review of the capital budget by the Budget
Advisory Committee will take place in October. The Budget Advisory Committee will review the capital budget again in November following public deputations and consideration at standing committees and community councils. Council approval of the budget document is anticipated by the end of 1999.
This report sets out a framework of financial control roles, responsibilities and reporting relationships for Council, committees and staff. These protocols build on Council's decisions, earlier this year, regarding the revised Council-committee structure and a role for the Budget Advisory Committee, which focuses on assisting the Policy and Finance Committee to develop the capital and operating budgets. The report also summarizes the process and schedules for the preparation of the year 2000 operating and capital budgets.
The recommendations in this report are intended to clarify decision-making mandates and roles, avoid duplication, enhance accountability for financial decisions and reinforce the rigour of the budget process. As the Council of the new City of Toronto enters its third budget cycle, these recommendations reflect the emergence, over the pat year and a half, of more stable, mature, made-in-Toronto decision-making structures and processes.
Michael R. GarrettWanda Liczyk
Decision Tree for Disposition of Items Requiring In-Year Budget Changes at Standing Committees
