TABLE OF CONTENTS

REPORTS OF THE STANDING COMMITTEES

AND OTHER COMMITTEES

As Considered by

The Council of the City of Toronto

on March 2, 3 and 4, 1999

AUDIT COMMITTEE

REPORT No. 2

11999 Audit Workplan

2Review of Staff, Councillors' and Mayor's Office Expenses

3Transfer of Parking Operations from the Forme rMunicipalities to the Toronto Parking Authority 2.1486

4Year 2000 Project Update

5Ferrous Chloride Contract

6Chemical Pricing

7Consolidation of City Audit Activities

8Other Items Considered by the Committee

City of Toronto

REPORT No. 2

OF THE AUDIT COMMITTEE

(from its meeting on March 1, 1999,

submitted by Councillor Doug Mahood, Chair)

As Considered by

The Council of the City of Toronto

on March 2, 3 and 4, 1999

1

1999 Audit Workplan

(City Council on March 2, 3 and 4, 1999, amended this Clause by amending Appendix 2 to the report dated February 8, 1999, from the City Auditor, entitled "Details for Project List Submitted to November 3, 1998 Audit Committee Meeting", by:

(1)deleting from Project No. (18) the word "Limousines" and inserting in lieu thereof the word "Cars", so that such project shall now read as follows:

"18.Use of Corporate Cars:

We will review the policies, practices and procedures in relation to the use of the corporate cars. We will also determine the relative costs of alternative service delivery models."; and

(2)referring Project No. (46) back to the Audit Committee, with a request that the City Auditor submit a report to the Board of Health, through the Audit Committee, providing more details on the intention of this project, viz.:

"46.Public Health:

A review will be undertaken of all Public Health programs in terms of defining the extent of mandatory/discretionary programs.")

The Audit Committee recommends the adoption of the following report (February 8, 1999) from the City Auditor:

Recommendation:

It is recommended that the audit workplan set out below be approved.

Background:

At its meeting of November 3, 1998, the Audit Committee approved the workplan of the City Auditor for the period ending April 30, 1999 and requested the City Auditor to report back to the Audit Committee with his workplan for the balance of 1999 at the first meeting of the Audit Committee in 1999.

Comments:

The projects listed in Appendix 1 are either in progress or planned during the period from March 1, 1999 to December 31, 1999. A brief description of each project is included in Appendix 2.

The project selection process was based on an updating of the procedures undertaken in 1998. In that process various factors were considered in the identification and prioritization of specific audit projects. In terms of the identification of audit projects, a detailed analysis of the City's 1998 budget document, as well as the 1997 financial statements of each of the amalgamated municipalities was conducted in order to ensure that all significant revenue, expenditure and balance sheet items were listed as potential audit projects. Senior Audit staff met on a number of occasions to review and discuss potential audit projects. Further, input has been received from the City's executive management staff to ensure that all significant risk items have been identified. To even further broaden the perspective, data bases containing information relating to audit projects conducted in both Canadian and United States cities were reviewed in order to ensure that the "audit universe" was as complete as possible. This process resulted in the preliminary identification of some 350 audit projects.

Subsequent to the identification of the projects, a risk ranking exercise was conducted in order to prioritize the 350 projects. Various factors were considered during this evaluation process and included the following:

(i)Total Expenditure;

(ii)Total Revenues;

(iii)Value of Assets;

(iv)Extent of Liabilities;

(v)Complexity of Operations;

(vi)Management and Internal Controls;

(vii)Legislative Requirements;

(viii)Previous Audit History;

(ix)Extent and Complexity of Computerization;

(x)Changes to Operations and Organizational Structure;

(xi)Political Sensitivity; and

(xii)Public Sensitivity.

The use of the above factors to prioritize audit projects was validated with other internal audit organizations, both public and private.

Certain projects ranked as high priority were eliminated from the preliminary listing of projects due to the fact that they are being addressed elsewhere in the Corporation. Those projects include a fleet management review, various site location studies (e.g. Fire Department), property inventories, property lease inventories, etc.

Included in the listing of the audit projects identified by the Department are additional projects relating to requests made by City Council or the Audit Committee. In addition, the City Auditor is committed to providing audit assistance to the Corporation's External Auditor in connection with their audit of the 1998 financial statements. In fact, this assistance and other financial audit commitments of the City Auditor will consume approximately ninety percent of the Department's resources during the months of March and April.

It should be noted that the workplan is still dominated by audits dictated by the current status of the City's operations. That is, many departments are still undergoing significant change and the audits will ensure that appropriate controls are in place to safeguard the assets and resources of the City. As such, most of the projects will not serve as complete operational reviews of the activities identified. It is hoped that by the year 2000 the City will have reached a more stable state to allow for more detailed operational reviews of key functions/services within the City.

The Departments proposed workplan from March 1, 1999 to December 31, 1999 is attached as Appendix 1.

Appendix 3 presents the workplan in chart format showing the elapsed time for each project.

Conclusion:

Given the significant change the City is still experiencing, it is suggested that the City Auditor report back to the Audit Committee in November of 1999 with his workplan for the year 2000. Ultimately, it is proposed that the City Auditor operate on the basis of a three year workplan which would be reviewed and updated annually. In view of the significant and ongoing changes taking place at the new City it is suggested that the compilation of a three year workplan may, at the present time, be premature.

The audit projects planned and currently underway represent a mix of departmental requests, political requests, and projects identified as high risk through the risk ranking process conducted by the City Auditor. The completion of these projects by December 31, 1999 is contingent upon minimal additional, higher priority requests for audits.

Contact Name and Telephone No.:

Jerry Shaubel, Director of Audit 392-8462

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Appendix 1

No.ProjectDepartment

1Financial Information System (FIS)Finance

2Property Tax ReviewFinance

3External Audit Assistance - 1998 AuditsFinance

4Financial Audits of BIA's (37)Finance

5Financial Audits of Community Centres/Arenas (17)Finance

6Children's Services ProjectCommunity Services

7HFA / Health SubsidyCommunity Services

8York University Track and FieldEconomic Development

9Year 2000 Review (Y2K)Corporate Services

10Client Identification and Benefits System (CIBS)Community Services

11Sheppard SubwayWorks & Emergency Services

12Parking EnforcementWorks & Emergency Services

13Parks & Recreation - Selected Recreation Centre AuditsEconomic Development

14Toronto Hydro - Control Over BillingsFinance

15Municipal GrantsAll

16Real Estate FunctionCorporate Services

17Service Review Team Reports - Savings EvaluationAll

18Use of Corporate LimousinesWorks & Emergency Services

19Review of Budget Process Finance

20Toronto Fashion IncubatorEconomic Development

21BIA - Operational ReviewEconomic Development

22Permit / Lottery Licences ControlsCorporate Services

23Vehicle Safety ComplianceCorporate Services

24Collision Reporting Centres Works & Emergency Services

25Toronto Housing Company - Capital ReportsCommunity Services

26Toronto New Business CentreEconomic Development

27AbsenteeismAll

28By-Law EnforcementUrban Planning

29Quality Assurance FunctionCommunity Services

30Contract ComplianceAll

31Children's Services - Intake EligibilityCommunity Services

32Purchasing Division - Operational ReviewFinance

33Business Continuity PlanCorporate Services

34Reserves and Reserve FundsFinance

35"Squeegee Kids" ProjectCommunity Services

36Water Supply - Controls over BillingsFinance

37Toronto Parking AuthorityWorks & Emergency Services

38Computer Security FrameworkCorporate Services

39Economic DevelopmentEconomic Development

40Libraries - Operational ReviewCommunity Services

41Major Capital ProjectsWorks & Emergency Services

42Shelter, Housing CompanyCommunity Services

43Taxi Industry ReviewUrban Planning

44Fire / Ambulance TrainingWorks & Emergency Services

45External Audit Assistance - 1999 Audits *Finance

46Public HealthCommunity Services

47InvestmentsFinance

* The Request for Proposal for the City's external audit considered that these audits would be performed by staff of the City Auditor's office.

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Appendix 2

Details for Project List Submitted

To November 3, 1998 Audit Committee Meeting

RefProject

1.Financial Information System (FIS):

City Council has approved the purchase of SAP as a new system for financial and human resource information processing. The Audit Department has requested to be included on the design/implementation team both to gain knowledge of the system and to ensure that adequate controls are designed into the system. In addition, Audit would review testing procedures and results prior to implementation and would subsequently review the adequacy of the conversion to the new system.

2.Property Tax Review:

Revenue from property taxes is the City's major source of income. The implementation of an actual value assessment base along with the restructuring of the new City of Toronto has resulted in significant changes in systems, procedures and controls in the Property Tax functions. Audit resources will be used to verify the accuracy of the assessment base as received from the Province, review the property tax collection operations, the magnitude of assessment deficiencies and controls over them and the value of, and controls over, tax collection write-offs.

3.External Audit Assistance:

The request for proposal for the external audit of the City proposed that the City Auditor would provide 1,000 staff hours in assistance to the successful proponent. The details of the assistance to be provided is by agreement between the External Auditor and the City Auditor.

4.Financial Audits of BIA's (37):

The request for proposal for the external financial audit of the City proposed that the City Auditor would perform the detailed audit work required for the audit of the 37 Business Improvement Areas operating within the City.

5.Financial Audits of Community Centres/Arenas (17):

The request for proposal for the external audit of the City proposed that the City Auditor would perform the detailed audit work required for the audit of the 17 Community Centres and Arenas operating within the City.

6.Children Services Project:

As a result of provincial downloading of responsibilities, over 300 new programs will have contractual and financial agreements with the City of Toronto. The Audit Department will assist in establishing controls over these programs by undertaking to describe the financial and cost elements of each downloaded service, outline agency requirements and accountability processes and develop criteria for funding allocation. Financial accountability and fee assessment practices differ in many of the programs and will need to be harmonized to ensure public funds are expended in a manner consistent with approved program guidelines.

7.Homes for the Aged and Public Health Unit Subsidies:

The Homes for the Aged and the Public Health Divisions of the Community and Neighbourhood Services are required to provide annual audited subsidy claims to the Province. Separate claims are required for each Home for the Aged and for certain specific health programs subsidized by the Province. Once the required claim forms are completed by the Divisions an audit will be performed.

8.York University Track and Field Centre:

By agreement, the City shares the costs of operating the York University Track and Field Centre with York University. As part of the agreement an audit is required of the expenses incurred in the operation of the Centre.

9.Year 2000 Review (Y2K):

The Year 2000 problem may be the most significant business issue facing the City at this time. A Y2K Program Office has been established to co-ordinate activity to remedy the problem. In addition to our consulting role as a member of the Y2K project teams, we will monitor the project against pre-defined criteria designed to measure the progress and success of the project.

10.Client Identification and Benefits System (CIBS):

CIBS is an automated system which offers enhanced access to benefits for general welfare assistance clients. The system also improves client identification through the use of biometrics. The Audit Department is a member of the CIBS Security Team which is tasked with ensuring the assets of the City and the information assets acquired and/or maintained in the CIBS environment are properly and adequately safeguarded.

11.Sheppard Subway:

The Audit Committee requested the City Auditor to review the management process relating to the Sheppard Subway and report in particular on the agreement with Cadillac Fairview, the land acquisition process, the building approval process and the status of development levies.

12.Parking Enforcement Review:

This review will assess the operations of the Parking Enforcement Operation of Toronto Police Services. The review will examine the mandate of this Unit and determine how effective this mandate is being carried out. The reasonableness of performance indicators being used (if any) will be assessed and compared, if possible, to other comparable jurisdictions. The adequacy of policies, procedures and systems will be evaluated and any applicable budgetary and organizational issues addressed.

13.Parks and Recreation - Selected Recreation Centre Audits:

An assessment of the current policies, procedures and practices that exist within recreation centres with respect to: effective control over the generation of revenue, the control of and timely processing of cash receipts, the appropriateness and controls over banking arrangements, the appropriateness of procedures for requisition of materials and supplies, and the adequacy of management and control over payroll administration.

14.Toronto Hydro - Control Over Billings:

This review will examine the effectiveness of controls over the billing and collection processes at Toronto Hydro, including the rationalization of systems and processes from the former municipalities.

15.Municipal Grants:

All seven of the amalgamated municipalities provide a variety of grants to community, cultural and multicultural agencies and organizations for a variety of different purposes. A review is to be conducted to assess whether grants are properly approved and processed, that grants are spent by the recipients for the purposes for which they were provided and that a satisfactory process is in place to measure and report on the effectiveness of the grants in meeting their objectives. The review will also consider whether adequate policies and procedures are established to monitor the use of grants by agencies and organizations and whether existing criteria for grant funding are appropriate.

16.Real Estate Functions:

The City is contemplating significant changes to its real estate holdings. In advance of these changes it is important to ensure that the Real Estate Services Unit's policies, procedures, and practices are appropriate to optimize the benefits the City can realize from the changes which are underway.

17.Service Review Team Reports - Savings Evaluations:

As part of the amalgamation process, the Toronto Transition Team received reports on the anticipated changes in all areas of the City's operations. Our review will consist of determining the progress which has been made on implementing the identified changes and realization of related cost savings.

18.Use of Corporate Limousines:

We will review the policies, practices and procedures in relation to the use of the corporate limousines. We will also determine the relative costs of alternative service delivery models.

19.Review of Budget Process:

The City's budget is generally approved in April of the year being budgeted. Ideally, the budget should be finalized by January 1 of each year. While a completion of January 1 may not be possible, there may be an opportunity to advance the budget completion date. This review will look for methods of streamlining the budget process to allow for a more timely completion of each years budget.

20.Toronto Fashion Incubator:

The organization is a small business incubator project to promote new fashion entrepreneurs for which funding is provided through the Toronto Economic Development Corporation. The organization is not consolidated with the City and the annual financial audit is to be performed by staff of the City Auditors office in accordance with the request for proposal for external audit services.

21.Business Improvement Area (BIA) - Operational Review:

The amalgamated City includes the operations of some 37 BIA's. Most of these organizations are managed by volunteers with varying degrees of experience. Accordingly, the management practices, policies and procedures and financial administration of many of these organizations are inconsistent and/or below acceptable good business practices. This audit will examine the operations of these BIA's and make appropriate recommendations with respect to their managerial and financial practices. This will include the reporting relationship and responsibilities with the City and appropriateness of expenditures under existing operating guidelines for BIA Boards of Management, in accordance with by laws under Chapter 20 of the Municipal Act and provincial enabling legislation.

22.Permit /Lottery License Review:

This review focuses on an assessment of the policies and procedures over the issuance and control of all permits and lottery licences within the domain of the City Clerks Department. The review will include an assessment of adherence to legislative requirements and test the effectiveness of internal controls and management reporting mechanisms.

23.Vehicle Safety Compliance:

The objective of this review is to ensure that applicable staff are aware of the requirements under the Highway Traffic Act with respect to commercial vehicles, and that procedures are in place in all City Departments and local Boards to ensure compliance with legislation. This review will focus on the City's commercial vehicle fleet and will evaluate procedures with respect to registration of vehicles, maintenance, inspection, training, transportation of dangerous goods and other related issues and requirements. Compliance with applicable legislation and effective training, maintenance and inspection procedures are important in ensuring the safety of our drivers and the public at large.

24.Collision Reporting Centres:

Pursuant to a special request from the Emergency and Protective Services Committee, Audit will undertake an independent customer survey to corroborate previously reported levels of customer satisfaction and acceptance of the Collision Reporting Centre program.

25.Toronto Housing Company - Capital Reports:

Pursuant to the completion of two capital development projects, the Housing Company is required to submit an audited "Statement of Capital Costs" to satisfy Provincial requirements.

26.Toronto New Business Centre:

The organization is a small business incubator project to promote new business ventures for which funding is provided through the Toronto Economic Development Corporation. The organization is not consolidated with the City and the annual financial audit is to be performed by staff of the City Auditors office in accordance with the request for proposal for external audit services.

27.Absenteeism Review:

This review will examine absenteeism in the Corporation. The review will determine the existence and effectiveness of programs to manage absenteeism. In addition, it will address the availability of appropriate systems and information to assist management in effectively carrying out their responsibilities in this regard.

28.By -Law Enforcement:

The amalgamation of by-law enforcement functions requires review to ensure the combination of staff and office locations has or is being accomplished with: harmonization of appropriate policies and procedures; efficient deployment of inspectors and by-law officers; full adherence to legislative requirements with due regard to management and internal controls, and in a second phase with consideration to the development and implementation of appropriate program performance metrics for evaluation of efficiency and effectiveness.

29.Review of Quality Assurance Functions:

The Social Services Division of Community and Neighbourhood Services includes a Quality Review and Improvement Unit. The responsibilities of this Unit include conducting audits to ensure the effective administration of client accounts, compliance with policies and procedures and the identification and investigation of client or caseworker fraud. Due to the amount of expenditure passing through the Social Services Division and the many changes accompanying the provincial downloading of social programs, an efficient and effective Quality Review and Improvement Unit is important to the operations of the Division. Audit Services will review current policies, procedures, work load, audit approach and training programs and make recommendations where appropriate.

30.Contract Compliance:

The various departments of the City are executing and monitoring numerous contracts throughout the year. A sample of corporate contracts will be selected to ensure compliance with Corporate policies and the terms and conditions of the contracts.

31.Children's Services - Intake Eligibility:

The Children's Services Division of Community and Neighbourhood Services provides day care services through 34 directly operated and numerous purchase of service agreements throughout the City. Our review will assess whether adequate internal controls are in place to ensure that only eligible children are allowed subsidies, whether monitoring of subsidy requirements is ongoing and that applications are processed efficiently and in compliance with corporate policies. We will also review the compliance with the contract provisions established for the purchase of services by the Division and the cost of providing services through directly operated versus purchase of service agreements.

32.Review of Purchasing and Materials Management Division:

This review will examine the operations of the City's Purchasing Division. The review will assess how well the Division is carrying out its mandate, including reviewing the adequacy of policies and procedures and determining the extent of compliance with these policies. It will assess how effective the procurement process is in ensuring fair market competition and in obtaining quality goods and services for City departments at the best price. The reasonableness of performance indicators will also be evaluated and compared, if possible, to other comparable organizations.

33.Business Continuity Plan:

This project will review the plans which exist to ensure the continuous operation of the City's computing centre. Among other things, we will examine the systems in place to ensure continuous power supply, systems and data backup routines and procedures, and results of any tests of the continuity plan.

34.Reserves and Reserve Fund:

The City has in the range of two hundred separate Reserves and Reserve Funds. Staff of the Finance Department, with Council's approval, are in the process of consolidating these Reserves and Reserve Funds with the expectation that the final number of individual Funds will be about sixty. The total value of these Funds, as reported to Council in April of 1998, was $915 million. The purpose of an Audit review of these Funds at this time is to ensure that the expenditures being made from each significant Fund are appropriate, consistent with the Fund's stated purpose, and consistent with Councils approval.

35.Squeegee Diversion Strategy for Street-Involved Homeless Youth:

In November 1998, Council approved funds to develop and support an integrated service model for a subgroup of homeless youth who are not currently served by the existing service system. This service model will provide a single point of access for homeless street-involved youth and create a new employment training program specifically targeted to this group to divert them from squeegeeing and panhandling. All existing and new programs such as pre-employment training and specialized employment training initiatives will be combined into one overall program. Council asked the City Auditor to audit this model and assess its value after twelve months.

36.Water Supply:

This review will examine the effectiveness of controls over the billing and collection processes for water and hydro in the City, including the rationalization of systems and processes from the former municipalities.

37.Toronto Parking Authority:

In 1998 the former municipal parking operations were amalgamated into the Toronto Parking Authority. We have collected some baseline information on the pre-amalgamation operating results. Once the amalgamated entity has had a sufficient period of operations, a comparison will be made to determine if the amalgamation of the operations is proving to be a net benefit for the City.

38.Computer Security Framework:

Adequate computer security for the City requires the establishment, communication, and enforcement of precise security policies and procedures. The audit will review the City's policies and procedures compared with current industry best practices. We will also review how the security statements have been communicated to City staff and what monitoring/enforcement mechanisms are in place.

39.Economic Development - Best Practices Review:

This review will focus on the organizational and operational practices established within the various business segments of Economic Development. The review will draw on comparisons with other large municipal organizations and report on best practices and benchmarking which will assist management in developing the most effective economic strategies for the City of Toronto.

40.Toronto Public Library Board:

The Toronto Public Library Board consists of 97 branches and two Research and Reference Libraries. The total operating expenditure is approximately $122 million. A review is to be undertaken to assess the adequacy of the Board's accounting records and related procedures including whether a fully integrated library information system has been implemented. This review will assess the adequacy of controls over operating expenditures and payroll transactions and determine whether such expenditures are being made in accordance with the policies and procedures of the Board. The review will also assess the system of controls over physical and other assets, and determine the effectiveness of controls over revenues.

41.Major Capital Projects - Works and Emergency Services:

This review will examine the effectiveness of control and monitoring procedures with respect to major capital projects in the Works and Emergency Services Department. The review will assess the adequacy and effectiveness of processes to ensure projects are completed on time and on budget and meet the pre-determined project deliverables. The review will also examine the administration of these projects/contracts to ensure the necessary procedures exist to protect the City's interest.

42.Toronto Housing Company:

The Toronto Housing Company provides subsidized housing to senior citizens and non-profit family housing in the Toronto area. The Company is operating over 190 buildings located throughout the City. In addition, the Central Maintenance Unit of the Company provides ongoing repairs and maintenance and 24 hour emergency maintenance services to the Company and to other divisions of the Community and Neighbourhood Services. This review will determine whether an adequate system of controls exist over the processing of applications for housing, waiting lists, physical assets, operating expenditures, revenue and payroll transactions. The review will also assess whether the best practices are applied at all decentralized locations, that preventative maintenance programs are in place and that the Central Maintenance Division is providing services efficiently and effectively at a reasonable cost.

43.Review of Taxi Industry:

The Report of the Task Force to Review the Taxi Industry contained numerous recommendations adopted by Council including the issuance of 100 new Ambassador Taxicab licenses commencing in 1999. Council recommended an annual review of this issue be conducted by appropriate City staff and the City Auditor prior to any further issuance or "second allotment" of Ambassador licences. This review will report on the status of the recommendations as approved by Council including the implementation of these licences.

44.Fire and Ambulance Services - Training:

This review will focus on the adequacy of training programs in both Fire and Ambulance Services to ensure the training provided to staff is effective in assisting these emergency program areas to carry out their respective mandates, and is in compliance with all relevant legislative requirements.

45.External Audit Assistance:

In accordance with the agreement with the external auditor, the City Auditor will be providing 1,000 hours of audit resources to the External Auditor in connection with the City's 1999 audit. It is anticipated that some of this assistance will be provided in late 1999.

46.Public Health:

A review will be undertaken of all Public Health programs in terms of defining the extent of mandatory/discretionary programs.

47.Investments - Annual Compliance Review:

The Investment Policy and Procedures manual approved by 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 review provides assurance of compliance with governing legislation and investment policies and procedures established by the Treasurer of the City.

Insert Table/Map No. 1

Appendix 3 - Audit Workplan

2

Review of Staff, Councillors' and Mayor's Office Expenses

(City Council on March 2, 3 and 4, 1999, deferred consideration of this Clause to the next regular meeting of City Council to be held on April 13, 1999.)

The Audit Committee recommends that:

(1)the following report (January 15, 1999) from the City Auditor be adopted;

(2)staff, Members of Council and the Mayor's Office be requested to refund all monies which they have received for expense claims for which proper supporting documentation was not submitted, or for matters which do not comply with Council's policy and accepted business practices;

(3)the City Clerk, in the outline of the purpose of the global office budget requested in Recommendation No. 3(d) of the report (January 15, 1999) from the City Auditor, clarify in a detailed manner what is permitted and what is not, particularly, whether a Councillor paying for City pins and T-Shirts for community groups promoting the City, or a Councillor paying for the costs of advertising activities done by local groups, would be permitted;

(4)the City Auditor, in consultation with the Chief Administrative Officer and the City Solicitor, report to the Audit Committee on a policy on the receipt of donations of cash, goods, services and other benefits by Members of Council; and

(5)a charge-back fee be established immediately for the City's limousine service;

(6)Council request that the City of Toronto Act, 1997 be amended to delete the provision that Members of Toronto City Council receive a third of their salary tax-free;

(7)the Commissioner of Corporate Services, in her expected report on charge-back for all office space, base the report on a policy of full-cost accounting for such space for all Members of Council.

The Audit Committee reports, for the information of Council, having:

(1)requested the City Auditor to:

(a)report to the Audit Committee on whether the cost of design, lay-out and printing of Councillors' newsletters being done by the City Clerk is on a full cost recovery charge-back basis;

(b)report to the Audit Committee on the establishment of a charge-back policy for those Councillors who use civic space for second offices;

(c)clarify that senior staff cannot receive a car allowance and a full mileage allowance, and report thereon to the Audit Committee, at its meeting to be held on April 7, 1999;

(2)directed that the Audit Committee receive:

(a)a detailed breakdown of each individual Councillor's office expenses, including the Mayor's office and staff;

(b)a list of remuneration and expenses received by each individual Councillor for activities in their duties as a Member of a local Agency, Board or Commission; and

(3)referred the following motion by Councillor Lindsay Luby to the Budget Committee for consideration:

"That the global office budget for Councillors be $40,000, such monies to include the charge-back of all office expenses."

The Audit Committee submits the following report (January 15, 1999) from the City Auditor:

Background:

On March 17, 1998, the Chief Administrative Officer issued an expense claim policy for staff. This policy pertains to all City departments and covers the requirements with respect to attendance at conferences/seminars, business trips, meterage claims for use of personal auto, meal allowances, business meetings, etc.

A separate policy, entitled "Office Administration and Expenses for Members of Council", adopted by City Council on June 3, 1998, established the requirements with respect to the office, travel and other expenses of Members of Council.

Comments:

As part of our on-going evaluation of internal controls across the Corporation, a review of staff expense claims, as well as expenditures relating to Members of Council and the Office of the Mayor was completed.

The objective of this review was to ensure awareness of and compliance with the expense policies, and to identify any areas where clarification or corrective action was required.

The review included an examination of records and documents for the period January to October 1998, interviews with applicable staff and the testing of transactions on a sample basis.

Recommendations:

It is recommended that:

(1)To increase awareness of and ensure compliance with the expense claim policy, the Chief Administrative Officer:

(i)ensure all staff and Councillors are aware of the new City's expense claim and related policies;

(ii)in consultation with the Chief Financial Officer and Treasurer and the City Auditor, formalize policies and procedures governing expenditures in the Office of the Mayor, specifically the administrative and approval requirements with respect to the purchase of goods and services, business meetings, travel, etc., as well as appropriate expenditure control procedures;

(iii)advise all staff, Members of Council and the Mayor's Office that business meeting expense claims must be supported by original restaurant receipts, with the names of the attendees and the purpose of the meeting documented, and that payment will be withheld if the required supporting documentation is not provided;

(iv)advise all staff that business lunch and dinner meetings involving City staff should be kept to a minimum and should only occur when time schedules do not permit such a meeting during normal working hours;

(v)reiterate to department heads that all staff travel outside of Canada requires the Chief Administrative Officer's written pre-approval;

(vi)advise all staff, Councillors and the Mayor's Office that it is their responsibility to abide by all parking and traffic regulations, even when on City business, and that fines and penalties relating to violations of such regulations will not be reimbursed; and

(vii)advise staff that meal allowances should not be claimed when visiting another Civic Centre, and request the Executive Director of Human Resources to formulate a mileage reimbursement policy for staff who have been re-located to a new location. Costs related to travel to and from permanent work places is considered a taxable benefit by Revenue Canada;

(2)To ensure that costs are encumbered against Councillors' global budgets and that management reports are accurate, complete and provide a proper audit trail:

(a)the City Clerk advise Councillors that all their expenses, including any requests for services (ie. printing, postage, distribution) be processed directly through Council Services, Clerks Division, and all payments be made directly to suppliers;

(b)Finance Department ensure that all Councillors' expenses, which have been processed through their former municipalities, are allocated to the proper accounts on a timely basis. In order to improve controls, Councillors' expenses should not be processed through their former municipalities;

(c)Clerks Division staff review with Finance Department staff, system deficiencies with respect to the timely reporting of Councillors' staff salary costs, for appropriate corrective action; and

(d)Finance staff advise all departments/divisions that all business meeting expenses, cellular phone charges and kilometres reimbursements be charged to specific accounts, established for these types of expenses;

(3)With respect to the "Office Administration and Expenses for Members of Council" policy, the City Clerk:

(a)advise Councillors that any additional work performed by Councillors' staff be remunerated in the form of lieu time or paid overtime and not through the Accounts Payable system as payment for consulting services or an honorarium;

(b)reiterate to Councillors the policy requirements with respect to consulting services, and advise that payment will be withheld if proper supporting documentation (ie. nature of services provided, per diem or hourly rate) is not provided;

(c)prepare a policy with respect to expenditures incurred by Members of Council in their capacities as members of local boards, including whether such expenditures should be charged to the Councillors global office budget; and

(d) clearly outline to Councillors and their staff the purpose of the global office budget and that payments to community organizations, including sports teams, in the form

of sponsorships, donations, etc. are not permitted;

(4)To ensure the necessary supporting documentation is provided for expense approval and reimbursement and to promote consistency across the Corporation, the Chief Financial Officer and Treasurer:

(a)advise all staff, Councillors and the Mayor's office that travel expense reimbursements must be accompanied by a properly completed and approved Request for Travel form;

(b)develop a standard kilometres claim form for the Corporation and advise all staff, Councillors and the Mayor's office that when submitting kilometres claims, appropriate supporting detail must be provided for each trip, specifically, the destination and purpose of the trip and the number of kilometres travelled; and

(c)advise all staff, Councillors and the Mayor' s Office that reimbursement of expenses, whether processed through petty cash, payroll or accounts payable, must be supported by original receipts indicating what was purchased and be approved by the individual's immediate supervisor, in accordance with the department's delegation of financial signing authority;

(5)Due to the delay in settling travel claims, and the fact that many expenses (ie. air fare, registration fees) relating to travel can be paid directly by the Corporation:

(a)the Chief Financial Officer and Treasurer consider eliminating travel advances; and

(b)Accounting staff follow up on all advances currently outstanding for more than 30 days, to either recover any unspent funds or to settle the advance, and that any travel advance still outstanding after follow up by Accounting, be escalated to the respective department head for appropriate action;

(6)With respect to cellular telephones:

(a)the Telecommunications Division, Corporate Services, in consultation with Departments, Agencies and Commissions, develop a policy covering the criteria and authorization for purchase and issuance of cellular telephones, guidelines for business and personal use, and procedures for the reassignment and return of these telephones;

(b)a complete inventory of all cellular telephones be undertaken by each department, and a listing indicating the staff member assigned each telephone be forwarded to the Telecommunications Division, Corporate Services;

(c)all future purchases of cellular telephones be made through the Telecommunications Division, Corporate Services, which will also maintain an inventory of cellular telephones for the Corporation; and

(d)cellular telephone bills be reviewed and approved by the appropriate departmental staff and any personal calls reimbursed to the City;

(7)To ensure that travel arrangements are made at the lowest possible cost, more than one quote be obtained and documented for all travel by Councillors and the Mayor's Office, including a quote from the corporate travel agent; and

(8)In view of the fact the majority of Councillors' expenses will be well below the $70,000.00 allocated to each Councillor for office expenses in 1998, the Councillors' global office budget should be reviewed.

Conclusions:

The new City is comprised of staff and Councillors from former municipalities, each of whom had its own culture, policies and practices with respect to general expense claims. Consequently, what may have been an appropriate expenditure in one municipality may have not been permitted in another. The level of supporting documentation and approvals also differed, to a certain extent, from municipality to municipality. The policies approved by City Council in 1998, for both staff and Councillors, have helped to standardize the administrative requirements (approval and supporting documentation) for various types of expenditures as well as defining, to the extent possible, what are considered to be permitted expenditures. It is difficult, however, to have a policy that covers every situation and consequently, good judgement must be exercised in terms of the types of expenditures incurred. In this regard, all expenses incurred by staff and elected officials in the City must be able to withstand scrutiny by an outside third party.

Our review noted a general lack of awareness of the current policies, as well as instances of non-compliance on the part of some staff, Councillors and the Mayor's office with respect to proper approval and adequacy of supporting documentation for business meeting expenses, meal allowances, consultants, travel advances and other general expenses. The City's purchasing policy was also not followed by some Councillors with respect to general purchases made for their respective offices. These problems were especially prevalent prior to the introduction of the policies, although in some situations, they continued to persist even after the policies were established. While the dollar value of each individual transaction is not significant, many of these items are of a sensitive nature. It is therefore essential that all staff and elected officials comply with the policies.

Considering we are in the first year of the amalgamated City and the fact that standard policies were not developed until mid 1998, this report focuses on the corrective action required to remedy the problems identified during our review. My office will be performing a follow-up review in the third quarter of this year and will report any continuing or new problems to the Audit Committee and Council.

Finally, it should be noted that our review also included an analysis of the Councillors' $70,000.00 global office budget. Preliminary year end expenditures indicate that approximately 65 percent of all Councillors will spend less than $50,000.00 in 1998, with an average and median spending of approximately $40,000.00. With the benefit of one years spending experience, a lower global office budget in the range of $40,000.00 to $50,000.00 would result in a savings of between $1.1 and $1.7 million for the Corporation.

Contact Name and Telephone Number:

Tony Veneziano, Senior Audit Manager, 392-8353

3

Transfer of Parking Operations from the Former

Municipalities to the Toronto Parking Authority

(City Council on March 2, 3 and 4, 1999, adopted this Clause, without amendment.)

The Audit Committee recommends the adoption of the following report (December 15, 1998) from the City Auditor:

The Audit Committee reports, for the information of Council, having requested the City Auditor to review with appropriate parties, the issue of loss of revenue because of theft from parking meters, and report thereon to the Audit Committee.

The Audit Committee submits the following report (December 15, 1998) from the City Auditor:

Recommendations:

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 ..."

(i)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;

(ii)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

(iii)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 $2,000,000.00 or 50 percent of net operating income earned from off-street parking facilities, and

(b)the greater of $6,000,000.00 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:

(i)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.;

(ii)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;

(iii)Identified cost, revenue and other performance factors which should be determined for each of the predecessor bodies and the TPA;

(iv)Reviewed the audit working papers and Permanent Audit File of the former Auditor of the TPA to collect background information;

(v)Obtained for analysis detailed monthly financial, statistical and other operating data covering the period January 1, 1997 to August 31, 1998; and

(vi)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:

(i)Reviewed data collected for obvious errors or omissions;

(ii)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;

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

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

(a)number of meters in service;

(b)number of spaces in lots;

(c)average revenue per metered space;

(d)average revenue per lot space;

(e)weighted average rates per hour - meters;

(f)weighted average rates per hour - lot spaces; and

(g)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:

(i)costs were not separated between off-street lots and meters;

(ii)meter revenue counting and banking was sub-contracted out; and

(iii)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:

(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.

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

4

Year 2000 Project Update

(City Council on March 2, 3 and 4, 1999, adopted this Clause, without amendment.)

The Audit Committee recommends the adoption of the following report (February 10, 1999) from the City Auditor:

Recommendations:

It is recommended that:

(1)The Chief Financial Officer and Treasurer develop a contingency plan to provide a backup location for the SAP project office;

(2)The SAP Steering Committee closely monitor the progress of the Human Resource and Payroll project and effect a process to facilitate the removal of roadblocks which may compromise delivery; and

(3)The role and responsibility of the Quality Assurance Manager be redefined to ensure the benefits derived from a quality assurance function are not lost.

Background:

On February 16, 1998, we issued a report to the Commissioner of Corporate Services expressing our concern regarding the City's progress in addressing the management and technical challenge brought about by the Year 2000 date processing problem. This report was subsequently forwarded to the Audit Committee and then to Council. Since that date considerable effort and resources have been and continue to be allocated to implement a strategy and approach to mitigate the adverse impact of this problem.

In addition to an advisory role to the Project Office we are providing, independent of the Project Office, an on-going review of both the process and progress. This effort began with the creation of an audit guideline for due diligence. Areas covered in this guideline included the establishment and role of the steering committee, the project office, the departmental program, the problem identification process, appropriate resourcing and funding, the creation of project plans and schedules, project execution, testing and contingency planning.

The Chief Administrative Officer and the Director of the Year 2000 Project have also requested the City Auditor and Chief Financial Officer and Treasurer ensure due diligence, adequate spending controls and appropriate checks and balances are in place in the administration of the Year 2000 Project Office.

This represents our first report on this project and covers the period February 1998 to December 1998. We have discussed this report with the Project Director, Year 2000 Project and the Chief Financial Officer and Treasurer. Their responses to our recommendations have been included in the body of this report.

Comments:

During the time frame highlighted above the project moved through three phases; the initiation phase, inventory phase, and the assessment phase. Our main focus throughout this period was to ensure an effective Program and Project Management structure was put into place. This includes assurance that executive level support and sponsorship exists, a Year 2000 team (with appropriate roles and responsibilities) is in place, an overall strategy for addressing the issue is in effect, and that there is universal awareness of this business issue.

The Program and Project Management structure includes the following components:

(i)a Steering Committee compromised of senior staff and a councillor;

(ii)issuance of reports to Council and Committee;

(iii)establishment of a Project Management Office (PMO);

(iv)creation and distribution of Project Standards and Guidelines, etc., and

(v)is consistent with acceptable management practices for projects of this nature.

At the next level we examined the process implemented to identify core business areas and processes, inventory and analyze systems supporting core business areas and prioritize their conversion. Again this was a review of the reasonableness of the system in place to generate the desired deliverables. No attempt was made to critique individual selections which make up the six citywide corporate initiatives, two initiatives relating to the PMO and administration and seventy-nine priority one systems requiring remedial action.

The next two phases; the Remediation Phase scheduled for January 1998 - April 1999 and the Testing Phase May 1999 - June 1999 are critical to the City's ability to resolve the Year 2000 challenge in time. Over the next few months it is our objective, on a test basis, to examine in detail the reasonableness of individual project plans, measure progress and report the results.

Although we are satisfied with the overall strategy undertaken there are some specific areas that require careful management. The following paragraphs deal with these concerns.

As approved by City Council, the Year 2000 Office is charged with responsibility to ensure that Year 2000 issues are dealt with by Agencies, Boards and Commissions. This includes the co-ordination of the Police Services Board, the Toronto Transit Commission and the Toronto Hydro Commission year 2000 action plans. Interaction with Agencies, Boards and Commissions ranges from full support for the smaller agencies, boards and commissions to notification to authorities with which the City has a special relationship.

We expressed to the Director of the Year 2000 Project the need for clarification as to the delineation of responsibility by the Project Management Office and the various Agencies, Boards and Commissions to avoid a gap in expectations by either party. This will further ensure that items do not fall between the cracks. We also conveyed our concern over the ability of the Project Management Office, as currently resourced, to effectively monitor the activities of the Toronto Transit Commission, the Police Services Board and the Toronto Hydro Commission. Periodic validation of progress reports from these entities is considered to be a prudent step.

The Director of the Year 2000 Project has recognized this weakness and has taken action by hiring an individual in the capacity of a Project Manger to clarify the priorities, monitor the status, and escalate Agencies, Boards and Commissions issues. This individual will have a continued presence within the Agencies, Boards and Commissions.

Contingency plans are the outcome of managing risks, either perceived or real. The remedial action for the Human Resource and Payroll system is to implement the SAP financial system. The SAP project schedule, as approved by Council in December 1998, calls for implementation of the new payroll system for all former Scarborough and Metro employees in various stages beginning in August with a critical milestone occurring in November 1999. In the Year 2000 readiness context this represents only a five week cushion for the project.

In our view the risk of failing to meet the scheduled SAP implementation date is high. In addition to factors of risk inherent in the management of projects, the Human Resource and Payroll system is being developed in an organization still occupied with amalgamation issues, in a year in which negotiations for unionized staff will take place, where key employees are at a premium, etc. As well, it is our understanding that the contract for maintenance staff of the Board of Education has expired and will be the subject of negotiations, the outcome of which are currently not known. Since the project team is housed in the Board of Education building in North York, a location contingency plan is required.

Recommendation:

(1)The Chief Financial Officer and Treasurer develop a contingency plan to provide a backup location for the SAP project office.

Response:

An alternate site to be readied by SAP for both the City's and School Board's project teams has been secured.

We understand that, subject to the Chief Financial Officer and Treasurer's approval, the recommended contingency plan is to rerun the last pay run of the year for the required period of time if the November 1999 milestone slips. Although this saves the City the cost of making the current Cyborg payroll system Year 2000 ready (approximately $1.3 million) it does have a downside. Payments may be inaccurate in terms of required deductions, the remuneration for services provided may prove to be inaccurate (hourly employees), etc, and requires close monitoring to ensure, for example "final" payments are not released a second time. The administrative effort to rectify exceptions increases exponentially should such a procedure be required for any extended length of time.

The City will also need to be prepared for the possibility of employee dissatisfaction and the effect this may have on the City's public image. It is paramount that progress of the SAP project be closely scrutinized. Within the formal project structure this role falls upon the Steering Committee. The City Auditor will also review progress made on a regular basis.

Recommendation:

(2)The SAP Steering Committee closely monitor the progress of the Human Resource and Payroll project and effect a process to facilitate the removal of roadblocks which may compromise delivery.

Response:

The entire SAP project team is committed to the milestones of performance set out in the December report to Council on the project. To date, we have met the delivery of the first two project milestones on both the FIS and HR/Payroll projects on time.

Monthly Steering Committee meetings are set to deal with project monitoring. Weekly Advisory Committee meetings occur to deal with project issues on an expedited basis.

The contingency plan has been prepared and submitted to the Y2K Team. It calls for the retention of current business processes in data entry of hours worked including overtime, shift and other nonstandard payments to an already Y2K ready front end time entry system. If the final SAP milestone is not met, this electronic capture of "extra" data will be stored and will be processed immediately upon cutover to SAP. All employees will receive base paycheques based on a standard work week until SAP cutover. Finance will work closely with Corporate Communications to advise employees if this contingency plan will be activated. Appropriate procedures and policies will be developed to deal with special extraordinary situations where the employee circumstances require attention in the intervening period.

From a financial perspective we performed a preliminary review of the process for approving invoices and issuing cheques for services provided for this project. A centralized process exists. In other words all invoices funnel through the Director of the Year 2000 Office for approval. As well all disbursements related to the Y2K project are counter signed by the Director of Accounting Services.

The organization of the Year 2000 Project includes a Quality Assurance Manager (IBM personnel) for each of the six major departments plus one manager for corporate projects to work with the Project Managers. As the name implies the role of this position is to ensure an acceptable level of quality exists in efforts extended and deliverables presented.

We observed that Quality Assurance Managers in some instances were becoming "doers" at the expense of their consulting review role. Although we admire the willingness to get involved and get the job done it also has a negative element. Foremost it becomes increasingly difficult to objectively provide a quality assurance role if you are part of the creation. Furthermore, it creates an environment in which the Business Unit is less likely to take ownership. Reliance on the efforts of the Quality Assurance Manager to do tasks that should be performed by staff in the Business Unit becomes the norm rather than the exception.

In a recent meeting with the Director of the Year 2000 Project we were informed that independent arm of IBM conducted its own review of the project. They reached a similar conclusion in this area. As a result action is to be taken to redefine the role and responsibility of the Quality Assurance Manager. The goal is to shift back to the intended role of this position.

Recommendation:

(3)The role and responsibility of the Quality Assurance Manager be redefined to ensure the benefits derived from a quality assurance function are not lost.

Response:

Agreed. We have already taken steps to reconfirm the definition of the role with the Quality Assurance Managers and with the teams.

Some recent events unfolding at the time of this report are:

(i)the hiring of legal resources by the City Solicitor to provide support in the area of contracts;

(ii)the use of the firm Environics for proactive public communication and reporting on the City's Year 2000 readiness and for integration of the emergency preparedness planning communication;

(iii)obtaining a signed letter of intent/contract with EDS our significant "mainframe" provider; and

(iv)priority two and three business cases are being developed.

Conclusion:

The City has made significant progress since forming the Project Management Office. The PMO continues to be proactive in its attempts to identify problem situations. For example, bi-weekly risk assessment evaluations are performed and on a similar frequency, a review by a Contingency Planning Team is conducted of priority one initiatives.

A major challenge is the competition for resources within the business unit. In addition to the Year 2000 effort other initiatives such as the SAP project reduce the human resource pool.

Although significant progress has been made within a limited time frame the City can ill afford to take a pause. The Year 2000 effort continues to be a formidable challenge. It is our intent over the months ahead to increase our presence on this project. This will be from both an independent review perspective as well as in our role as project consultant.

Contact Name and Telephone Number:

Jerry Shaubel, Director of Audits, 392-8462

5

Ferrous Chloride Contract

(City Council on March 2, 3 and 4, 1999, adopted this Clause, without amendment.)

The Audit Committee recommends the adoption of the confidential report (February 15, 1999) from the City Auditor, which has been forwarded to Members of Council under separate cover.

(City Council on March 2, 3 and 4, 1999, had before it, during consideration of the foregoing Clause, a confidential report (February 15, 1999) from the City Auditor, such report to remain confidential in accordance with the provisions of the Municipal Act, save and except the recommendations embodied therein.

(Extract from the confidential report

dated February 15, 1999, from the City Auditor.)

Recommendations:

It is recommended that:

(1)the Chief Administrative Officer advise all Department Heads that their respective Divisions involve the Purchasing and Materials Management Division in all their procurement activities, to ensure a proper and competitive process is followed;

(2)the Purchasing and Materials Management Division take the necessary action to ensure that all procurement decisions in the Corporation are made in accordance with corporate policies and by-laws; and

(3)this report be forwarded to the Works and Utilities Committee for information.)

6

Chemical Pricing

(City Council on March 2, 3 and 4, 1999, adopted this Clause, without amendment.)

The Audit Committee recommends that:

(1)Council receive the confidential report (February 19, 1999) from the City Auditor, which has been forwarded to Members of Council under separate cover; and

(2)the Mayor write to the Minister of Industry Canada requesting him to investigate this matter and to give the investigation a high priority.

(City Council on March 2, 3 and 4, 1999, had before it, during consideration of the foregoing Clause, a confidential report (February 19, 1999) from the City Auditor, such report to remain confidential in accordance with the provisions of the Municipal Act, save and except the recommendation embodied therein.

(Extract from the confidential report

dated February 19, 1999, from the City Auditor.)

Recommendation:

It is recommended that this report be received for information.)

7

Consolidation of City Audit Activities

(City Council on March 2, 3 and 4, 1999, deferred consideration of this Clause o the next regular meeting of City Council to be held on April 13, 1999.)

The Audit Committee recommends the adoption of the following report (February 17, 1999) from the City Auditor:

Recommendations:

It is recommended that:

(1)The Chief Administrative Officer request the firm of Ernst & Young, the City's External Auditors to evaluate the efficiency and effectiveness of the City Auditor's Office, the Internal Audit and Program Review Unit of the Police Services Board, and the Internal Audit Unit of the Toronto Transit Commission and report to the Audit Committee by May 31, 1999. This evaluation should be done as part of the 1998 financial audit. Such evaluation to include, but not be limited to:

(i)Potential for Consolidation and Streamlining;

(ii)Reporting Relationships;

(iii)Staff Requirements;

(iv)Staff Qualifications;

(v)Audit Workload;

(vi)Efficiency and Effectiveness Measures; and

(vii)Potential Cost Savings.

(2)Additional external audit costs, if any, in relation to this review be shared equally by the City Auditor's Department, the Police Services and the Toronto Transit Commission;

(3)The Chief Administrative Officer request the firm of Ernst & Young to evaluate the merits of establishing a separate internal audit unit at the Toronto Housing Company. Additional external audit costs, if any, be borne by the Toronto Housing Company;

(4)The City Auditor be requested to follow up his review of the efficiency and effectiveness of the Quality Control and Assurance Group of the Social Services Division, and

(5)The hiring of audit staff by any of these Units be discontinued until such study is complete.

Background:

The City Audit Committee, in correspondence dated February 3, 1999, addressed to the City Auditor, requested the City Auditor "to report to the next Audit Committee on the possibility of consolidating all audit related activities currently in existence at all Agencies, Boards and Commissions into the City Audit Department. Your report should include, but not be limited to, the audit functions of the Police Services Board, the Toronto Transit Commission, the Toronto Housing Company and Toronto Hydro Commission."

Comments:

During 1998 the City hired the firm of Ernst & Young to conduct the statutory audit of the City's financial statements. An important component in the planning of the audit by Ernst & Young is an evaluation of the work conducted by the various internal audit groups in the City. This evaluation includes the following:

(a)Organizational Status:

The organizational status of the internal audit function indicates the extent to which the function is independent of the matters subject to audit. Ernst & Young would consider whether the results of internal audit work are reported to senior management and the Audit Committee, and whether internal audit recommendations are acted upon. Ernst & Young would also consider whether the internal audit function has any operating responsibilities and whether the head of the internal audit function is free to communicate directly with the Audit Committee and Council.

(b)Scope of the Function:

The scope of the internal audit function affects the ability of internal audit to act independently in performing its work and in reporting. Ernst & Young would consider whether there are constraints placed on the internal audit function's ability to gain access to important systems, units or activities of the entity, or to the information or key personnel relevant to specific internal audit work.

(c)Knowledge and Competence:

The knowledge and competence of internal audit staff assigned to specific internal audits affect the quality of those audits. Ernst & Young would consider whether internal audit work is performed by persons who collectively possess adequate technical training and competence as internal auditors, and knowledge of the matters subject to audit. Ernst & Young would also consider the policies for hiring, training and assigning internal audit staff to specific internal audits, the experience of the internal audit staff and their professional qualifications.

(d)Due Care:

Due care exercised by internal audit staff in carrying out the audits affects the quality of the work. Ernst & Young would consider the existence and content of internal audit manuals, working papers and reports for evidence of adequate planning, supervision, performance and documentation of internal audit work.

Ernst & Young is therefore in an ideal and unique position to assess the internal audit functions at the City and determine whether or not there are efficiencies available in relation to the consolidation of such activities. In this regard it is suggested that the CAO request Ernst & Young to review this matter and report to the Audit Committee appropriately.

This review could be conducted by any major public accounting firm although as this process is a part of the financial audit, a significant portion of the work has already been completed by Ernst & Young. In these circumstances it would not be appropriate to contract with a professional accounting firm other than Ernst & Young to do this work.

In performing this review, Ernst & Young should address all audit functions within the City.

The estimated 1999 budget, number of staff and reporting responsibilities of each of these audit divisions is as follows:

Entity1999 BudgetStaffReport to

City Auditor1,836,100 21Audit Committee/Council

Toronto Police Services Board1,580,200 22Deputy Chief of Police

Toronto Transit Commission1,172,000 17Chief General Manager

Community and Neighbourhood Services 1,818,000 31Commissioner

Parking Authority 172,000 4Director, Finance

Toronto Housing Company 194,000 3 Chief Executive Officer

Totals $6,772,300 98

We are not aware of any other audit related function in the City.

The roles and responsibilities of each of these are as follows:

City Auditor:

The mandate of the City Auditor approved by Council in 1998 is as follows:

The City Auditor shall have authority to conduct financial, operational and other special reviews of all Departments, Agencies, Offices, Boards and Commissions. Such authority empowers the City Auditor:

(a)to conduct or cause to be conducted operational audits, defined as evaluating the management of public funds and resources from a standpoint of economy, efficiency and effectiveness, and making recommendations on operating improvements;

(b)to examine and evaluate the adequacy of the City's systems of internal control, both financial and operational;

(c)to evaluate the procedures used by management to measure and report on program effectiveness. A review of the results of such programs or activities will include an evaluation relating to the results or benefits achieved, and whether the programs or activities are meeting established objectives;

(d)to examine problem areas brought to the attention of the City Auditor by Council and senior management. To act as an ongoing resource to senior management;

(e)to carry out special assignments ranging from consulting work to investigating suspected fraud or wrongdoing;

(f)to determine whether or not applicable sections of by-laws, regulations and management directives, etc., have been complied with, as well as applicable federal and provincial legislation;

(g)to co-ordinate the financial internal audit activities with the External Auditors of the City to ensure the efficient and economical use of audit resources, and

(h)to conduct attest financial audits as appropriate.

The City Auditor has a staff complement of 21 (19 professional staff and 2 administrative support) and reports to Council through an Audit Committee. Audit projects are selected by the City Auditor based on his assessment of audit risks and issues identified on a corporate-wide basis. The assessment of audit risk is based on a risk ranking exercise and includes the following factors:

(i)Total Expenditure;

(ii)Total Revenues;

(iii)Value of Assets;

(iv)Extent of Liabilities;

(v)Complexity of Operations;

(vi)Management and Internal Controls:

(vii)Legislative Requirements;

(viii)Previous Audit History;

(ix)Extent and Complexity of Computerization;

(x)Changes to Operations and Organizational Structure;

(xi)Political Sensitivity; and

(xii)Public Sensitivity.

In addition, included in the listing of audit projects identified are additional projects relating to requests made by City Council, the Audit Committee and in some cases Senior Management. There may also be external factors which influence the selection of audit projects, e.g. fraud related issues identified by an outside third party.

During 1999 it is anticipated that in excess of 55 different audits will be conducted as well as financial audits of 37 Business Improvement Areas and 17 Community Centres and Arenas.

The City Auditor is also committed to providing 1,000 hours of audit assistance to the external auditors.

In terms of management controls of these audits, each project is the subject of a detailed planning process and is assigned a specific time budget. Time budgets are monitored through a bi-weekly time reporting process and staff are accountable for complying with budgets.

The Department evolved from the amalgamation of the former Audit Departments of the Metropolitan Corporation, the City of Toronto and the City of Scarborough. The amalgamation of the audit process also involved the consolidation of the activities of the Internal Control Unit of the former Metropolitan Corporation into the current structure. Of the 19 professional staff, 17 (89 percent) have professional accounting and auditing qualifications including the following designations:

(i)Chartered Accountant;

(ii)Certified General Accountant;

(iii)Certified Management Accountant;

(iv)Certified Internal Auditor;

(v)Certified Fraud Examiner; and

(vi)Certified Information Systems Auditor.

Toronto Police Services Board:

The purpose of the Internal Audit and Program Review Unit is to provide an independent evaluation of the activities and operations of the Police Service and to assist the Board, the Chief of Police and all levels of management in the discharge of their responsibilities. The Unit ensures that all risks have been identified and are controlled to an acceptable level as set out by management and that compliance exists with respect to predetermined policies, procedures and directives through operational audits and reviews.

The Internal Audit and Program Review Unit consists of 22 staff. The Unit is segregated into two separate and distinct audit components, each of which reports to the same Deputy Chief. One of the Units consists of 16 police officers, while the other Unit consists of 8 civilians.

Based on discussions with the Unit, audit priorities are determined by the Executive Review Committee which consist of the Chief and the Deputies. Audit work consists of "mandatory reviews" and "general reviews". Mandatory reviews are those audits identified by the Executive Review Committee required to be conducted on an ongoing cyclical basis (e.g. audits of the Drug Repository, the Firearms Unit, etc.). These audits are generally conducted by the police officer complement of the Audit Unit. General reviews are those identified on an ongoing basis in response to concerns at the Command level. These audits are generally "one off" and are usually conducted by Police staff unless the issues are financial in nature at which point they are conducted by civilian staff.

In a report dated December 15, 1998, the Police Services Board was advised that "internal audits are not assigned on a yearly basis but are assigned on the basis of staff availability. This is done to ensure that the quality of the reports is the prime factor as opposed to the quantity of reports." The Board was advised that most reviews take from 12 to 18 months to complete.

The Police Services Board was also advised that audit requests are "evaluated by the Command at the Executive Review Committee meeting against the following criteria:

(1)Risk to the Service;

(2)The need for evaluation for Unit/Program performance;

(3)Rotation of review among Commands;

(4)The ability of the Internal Audit and Program Review Unit (IAPR) to perform the review; and

(5)The present workload of the IAPR."

Of the 22 staff 8 (36 percent) have professional accounting qualifications.

Toronto Transit Commission:

The Internal Audit Unit of the TTC consists of 17 staff with an annual budget of approximately $1,172,000.00 and reports directly to the Chief General Manager. Audit reports are forwarded to the Commission on a regular basis.

The internal audit process at the TTC independently evaluates the various operations and systems of control within the organization to determine whether acceptable policies and procedures are followed, established standards are met, resources are used efficiently and economically, planned goals are accomplished effectively and the organization's objectives are being addressed. Audits are selected on a similar basis to that used by the City Auditor.

Of the 17 staff 12 (70 percent) have professional accounting and other qualifications.

Community and Neighbourhood Services:

Included in the Quality Control and Assurance Group of the Social Services Division are two audit related Units. These units are the Performance Improvement Unit which consists of 17 staff and the Fraud Control Unit which consists of 14 staff. The Performance Improvement Unit conducts a "management audit process for the Division" which includes the evaluation of performance measures, internal controls, compliance, economy, efficiency and effectiveness.

The Fraud Control Unit acts as a centralized support to the Social Services Division and is mandated to screen cases suspected of social assistance abuse.

The Department has one qualified accountant.

Parking Authority:

The Parking Authority employs three internal audit staff and are currently reviewing the need for a fourth. The focus of the group is to ensure that revenue controls are adequate. In addition, the group reviews the adherence by attendants to operating procedures, as well as the review of the appearance of facilities and equipment maintenance.

Toronto Housing Company:

The Toronto Housing Company currently has a staff complement of three in its internal audit unit. This Unit is currently being restructured and new hirings are taking place. The Company is reviewing staff requirements and a work plan. The major responsibilities of the Unit are to:

(a)conduct operational and financial reviews to ensure adherence to policies and regulations. Prepare reports on findings, recommending appropriate corrective measures when necessary;

(b)review and analyze management and financial procedures in the Company to ensure the integrity of internal controls. Prepare reports on findings, recommending appropriate corrective measures where necessary;

(c)provide technical advice, as required, to operating management within the Toronto Housing Company;

(d)manage investigations in response to complaints about business practices or alleged fraud. Document findings and recommend changes in systems, practices and policies, and

(e)lead the continuing development and implementation of an internal control program.

Potential for Consolidation of Audit Activities:

The potential for consolidation of audit activities has been the subject of discussion for a number of years particularly at the Metro level where the Metropolitan Audit Department, the Metro Finance Internal Control Unit, the Police Services Board and the Toronto Transit Commission each operated separate audit activities. Prior to the creation of the new City of Toronto, the consolidation of these entities was not pursued, mainly because the role of the Metropolitan Auditor differed from those of the other entities. The Metropolitan Auditor's role was as the statutory financial attest auditor, a role which has now been assumed by Ernst & Young.

Since amalgamation however, the role of the City Auditor has changed and is now consistent with the role of all other audit entities in the City including its Agencies, Boards and Commissions. Recognizing this, the City Auditor in early 1998, in consultation with the Chief Financial Officer and Treasurer, rolled into the City Audit Office the former Metro Finance Internal Control Unit. The Internal Control unit is now a part of the City Auditor's Office.

The City Auditor's Office has effectively been in existence for approximately eight months. Consequently, it would seem appropriate that the issue of the consolidating all audit activities should be considered.

The consolidation of the audit process has a number of advantages including the following:

(i)A more efficient co-ordination of audits across the City;

(ii)Emphasis on audit activities across the City where priorities may be greater than audit activities at the Police Service or TTC for example. Broader audit coverage;

(iii)Sharing of resources e.g. administrative, training, etc. with a potential for reduced costs;

(iv)Increased independence particularly for those audit entities which report to management;

(v)Consistent audit standards; and

(vi)Greater flexibility in terms of skills and staff resources available.

Consolidation - Police Services:

The Chief of Police, in response to the City Budget Committee, reported to the Police Services Board on April 23, 1998, in connection with the amalgamation of the Civilian Audit Unit into the City Auditor's Office. The Chief recommended that amalgamation not be considered. The Police Services Board approved the Chiefs recommendation. A number of reasons for not amalgamating the audit functions were contained in the report to the Board. The review by Ernst & Young should evaluate the appropriateness of these reasons.

The report also indicated that the Board "advise Toronto City Council that Council does not have the authority to recommend staffing reductions and draw their attention to section 40 of the Police Services Act which directs that terminations of employment for the purpose of abolishing the police force or reducing its size can only be initiated by the Board and has to have the consent of the Ontario Civilian Commission on Police Services."

Consolidation - Toronto Transit Commission:

While the Chief General Manager of the TTC has not been asked to report on the potential of amalgamating his audit function, he has indicated on many occasions that he regards his Audit group as an invaluable resource to his office. Many of the projects undertaken by the group are technical in nature and require the expertise of staff familiar with specific transit related issues such as safety, maintenance, signal operations, etc. Audit staff at the TTC, for example, include a number of engineers.

Consolidation - Community and Neighbourhood Services:

During the 1997 financial audit of community and Neighbourhood Services we identified a number of issues relating to the Quality Control and Assurance Unit. These matters were communicated to management in a report dated June 15, 1998, which was also forwarded to the Audit Committee. One of the issues identified related to the effectiveness of the Unit. As a result of these issues, we have included a further review of this area in our 1999 work plan. The intent of the review is to measure the effectiveness and efficiency of the Unit and provide management with recommendations pertaining to the audit process. Consequently, it is recommended that no further action be contemplated in regards to this matter until the audit review is completed.

Consolidation - Parking Authority:

The internal audit group at the Parking Authority generally performs revenue audits. Due to the extent of cash in existence at the Authority there is probably merit in retaining this function. It may be appropriate however, that the City Auditor review the work of the auditors at the Authority in order to determine its adequacy and appropriateness.

Consolidation - Toronto Housing Company:

The audit function at the Housing Company is presently being established. It is suggested that this process be deferred until a review of the audit function at the City is completed.

Conclusion:

The Chief of Police and the General Manager of the Toronto Transit Commission both wish to retain the audit functions which currently exist in their operations.

In order to independently evaluate the potential of amalgamating all audit units into the office of the City Auditor, it is suggested that the Chief Administrative Officer request the City's attest auditors, Ernst & Young, to review this matter at the conclusion of the annual financial audit.

By the end of April 1999, the audit firm of Ernst & Young will have completed its first annual financial audit of the City. Included in the audit will be a general evaluation of the activities of all audit units. This evaluation is an extremely valuable component of the audit process particularly in the context of determining whether the external auditors can rely on the work of the internal audit staff. By the time the audit process is complete Ernst & Young will have familiarized themselves with the internal audit process at the City including its Agencies, Boards and Commissions. In addition, they will probably be in a position to identify any shortcomings, weaknesses and other issues that require addressing. An internal audit process is complementary to the external financial audit and it will inevitably be in the best interest of Ernst & Young to ensure that the internal audit process is an effective and efficient one.

Contact Name and Telephone Number:

Jeff Griffiths, 392-8461

8

Other Items Considered by the Committee

(City Council on March 2, 3 and 4, 1999, received this Clause, for information.)

(a)Chemical Procurement.

The Audit Committee reports having received the following report for information:

(February 15, 1999) from the City Auditor respecting Chemical Procurement, and recommending that the report be received for information.

(b)Audit Projects Update.

The Audit Committee reports having received the following report for information:

(February 9, 1999) from the City Auditor respecting Audit Projects Update, and recommending that the report be received for information.

(c)Audit Services 1999 Operating Plan and Budget.

The Audit Committee reports having approved the Audit Services 1999 Operating Plan and Budget and forwarded same to the Budget Committee:

(February 12, 1999) from the City Auditor respecting Audit Services 1999 Operating Plan and Budget and recommending that the 1999 Operating Plan and Budget be approved by the Audit Committee and forwarded to the Budget Committee.

(d)Toronto Civic Employee's Pension Fund and Toronto Fire Department Superannuation and Benefit Fund Review of Data Conversion.

The Audit Committee reports having received the report entitled, "Toronto Civic Employee's Pension Fund and Toronto Fire Department Superannuation and Benefit Fund Review of Data Conversion", dated February 4, 1999, for information:

(February 19, 1999) from the City Auditor respecting Toronto Civic Employee's Pension Fund and Toronto Fire Department Superannuation and Benefit Fund Review of Data Conversion and recommending that the report entitled, "Toronto Civic Employee's Pension Fund and Toronto Fire Department Superannuation and Benefit Fund Review of Data Conversion, dated February 4, 1999, be received for information.

(e)Update on the 1998 External Audit.

The Audit Committee reports having received the following communication (February 22, 1999) from Ernst & Young as an update on the progress of the audit of the 1998 financial statements:

(February 22, 1999) from Ernst & Young respecting Update on the 1998 External Audit, and recommending that the Audit Committee receive the memo (February 22, 1999) from Ernst & Young as an update on the progress of the audit of the 1998 financial statements.

(f)Review of Parking Tag Operations.

The Audit Committee reports having recommended to the Corporate Services Committee the adoption of the following report (December 23, 1998) from the City Auditor:

(December 23, 1998) from the City Auditor respecting Review of Parking Tag Operations, and recommending that:

(1)in preparing the 1998 financial statements, management should provide an additional allowance for doubtful accounts of $6.4 million relating to parking tag receivables. In addition, a projected final collection rate of 78 percent should be used for accrual purposes at 1998 year end;

(2)Parking Tag Operations (PTO) staff review its current arrangement with the Ministry of Transportation (TO) relating to the administration of plate denial and enter into a formal agreement with TO which outlines the administrative responsibilities of the respective parties regarding the collection of parking fines at plate denial;

(3)priority be given to the reconciliation of PTO records with TO records to ensure that all tags filed for plate denial are in fact awaiting collection at plate denial. This reconciliation should be done at least annually;

(4)PTO staff perform an analysis of the tags outstanding at plate denial, investigate the reasons for the delay of their collection and assess their current collectability. In addition, management should evaluate TO's collection procedures and take appropriate action to ensure that reliance can be placed on the Ministry's processes for the collection of outstanding fines at plate denial;

(5)the Chief Financial Officer and Treasurer and the City Solicitor report to the Corporate Services Committee on the changes required to the current provincial legislation and regulations, to enable the City to collect outstanding fines at any stage, as well as to use private collection agencies in this regard;

(6)PTO staff work with the Ministry to actively pursue collection of the old outstanding fines at plate denial, specifically those individuals or companies identified as owing more than $5,000;

(7)the Chief Financial Officer and Treasurer meet with the appropriate senior Ministry officials to expedite the resolution of the issues relating to the plate denial process in order to improve the collection of outstanding fines at plate denial;

(8)in view of the loss of revenue from parking tags issued to out-of-province vehicles, management pursue with the Province of Ontario the extension of reciprocal agreements with other Canadian provinces and United States cities, to parking violations. Consideration should also be given to assigning the outstanding fines relating to out-of-province vehicles to a private collection agency;

(9)in consultation with the City Solicitor, management request an appropriate change in legislation to provide an alternative means of serving parking tags to drove-away vehicles, which could include mailing the notice of infraction;

(10)the Parking Enforcement Unit of the Toronto Police Services report to the Corporate Services Committee on the reasons for the increase in the number of spoiled tags and the action that will be taken to keep this number to a minimum;

(11)the current report from the Chief Financial Officer and Treasurer relating to parking tags be modified to include additional management information such as the total number of tags written, spoiled, available for collection, withdrawn, status of outstanding fines, including those that are issued to out-of-province vehicles, as well as an analysis of any significant trends or problem areas; and that this report be submitted to the Corporate Services Committee on a quarterly basis, rather than monthly;

(12)PTO management establish key indicators to monitor the activity with respect to the issuance and processing of parking tags. This should include monitoring the number of spoiled tags, withdrawn tags, illegible tags, etc. In this regard, management should designate an individual the responsibility for this function as well as for the analysis of trends and the provision of relevant reports to management;

(13)PTO management utilize other available tools and resources within the City to generate customized reports to facilitate the review and monitoring of activity within PTO and discontinue the need to manually re-input data;

(14)the monthly reconciliation of the Parking Tag Management System (PTMS) to the general ledger be reviewed and approved by the Manager of PTO;

(15)PTO management make arrangements for the First Appearance Facilities to deposit all monies directly to the nearest financial institution, having a banking arrangement with the City;

(16)a transaction report showing the details of all tags withdrawn be provided to all First Appearance Facilities locations. To help ensure compliance with the guidelines, the respective supervisors should scan the transaction report and, on a test basis, examine the supporting documentation of tag withdrawals. Evidence of such review should be documented in writing;

(17)priority be given to acquiring the required computer server for the Parking Tag Management System and making the necessary arrangements with the appropriate provincial ministries and financial institutions to ensure that all computer systems related to parking tag operations are Year 2000 compliant by September 1999, as planned;

(18)PTO management develop an action plan with specific time lines to implement the recommendations contained in this report; and

(19)that this report be forwarded to the Corporate Services Committee for consideration.

(g)Investment Policy Compliance.

The Audit Committee reports having deferred consideration of the following report until its meeting to be held on April 7, 1999 and having requested the Chief Financial Officer and Treasurer to respond to the issues raised by the City Auditor:

(February 1, 1999) from the City Auditor respecting Investment Policy Compliance, and recommending that:

(1)monthly reporting procedures be put in place by City Finance staff relating to the investing of City Funds. Such reporting procedures to include details of all investments held and maturity dates of such investments. The review of monthly reports be conducted by staff independent of the investment function and include an analysis as to whether or not the City's investment policies and procedures are complied with. Evidence of the review be documented in writing. Immediate and appropriate action be taken for all instances of non compliance;

(2)City Finance staff seek legal advice and clarification relating to the scope of the Council approved policy entitled "Investment Policy and Procedures" and determine whether or not such policy applies to Agencies, Boards and Commissions. If it is determined that the policy does apply to these entities, management of the City Finance Department forward the policy to staff of all Agencies, Boards and Commissions for which the policy is deemed to be applicable. All applicable Agencies, Boards and Commissions be advised that they are required to comply with such policy;

(3)where practical, consideration be given to the consolidation of Agencies, Boards and Commissions investing activities by the City Finance staff. In addition, the decision on whether to consolidate should consider whether or not the services of outside professional investment managers are utilized, the practicality based on dollar amounts and the average length of terms investments are held, the types of investments allowed under legislation and the degree of control exercised by the City over the Agencies, Boards and Commissions;

(4)a reporting procedure be put in place by City Finance staff relating to the investing activities of those Agencies, Boards and Commissions for which the policy is deemed applicable. The reporting procedure be consistent with those recommendations as outlined under Recommendation 1;

(5)consolidated financial reporting of all City investments be reported to Council on a more regular basis than once a year;

(6)Management take immediate action to ensure compliance with policy limits on maximum amounts and durations of specific investments;

(7)the document approved by Council entitled "Investment Policy and Procedures" be finalized, particularly in terms of addressing key management administrative procedures;

(8)performance benchmarks for investment returns be set for those funds administered by the City without an established performance benchmark;

(9)the investment policy and procedures manual be amended and updated to include the York Employees' Pension and Benefit Fund. Clarification be sought in regards to the responsibility for the investment of the assets of this fund; and

(10)appropriate staff be requested to provide a complete and updated reconciliation of all investment balances at the City. This information be submitted to senior staff for their review and approval. Evidence of approval be documented in writing. Specific deadlines be set for the preparation of such reconciliations. Reconciliation of the investment portfolio to the general ledger be performed on a monthly basis for all investment funds.

(h) External Firms Retained For Insurance Claim Defence.

The Audit Committee reports having deferred consideration of the following communication until its meeting to be held on April 7, 1999:

(February 17, 1999) from the City Clerk, Corporate Services Committee respecting External Firms Retained for Insurance Claim Defence and referring the following motions to the Audit Committee for report thereon to the Corporate Services Committee:

Moved by Councillor Lindsay Luby:

(1)That any future reports regarding the outsourcing of legal work, determine the cost effectiveness of work undertaken inside vis-a-vis outside and particularly when specific expertise is needed; and that this cost-benefit analysis be undertaken by the City's External Auditor.

Moved by Councillor Rae:

(2)That the foregoing motion by Councillor Lindsay Luby be referred to the Chief Financial Officer and Treasurer for report thereon to the next meeting of the Corporate Services Committee respecting the cost of the City employing an External Auditor.

Respectfully submitted,

DOUG MAHOOD

Chair

Toronto, March 1, 1999

(Report No. 2 of The Audit Committee, including additions thereto, was adopted, as amended, by City Council on March 2, 3 and 4, 1999.)