1 Investment Policy Compliance

2 Results of the City of Toronto Audit on the Toronto Police Service Metropolis Project and Response

3 Auditor's Report and Financial Statements of the Toronto Atmospheric Fund for the year ended December 31, 1998

4 Standing Committee Requests - Project Update

5 Other Items Considered by the Committee

(City Council on June 9, 10 and 11, 1999, adopted this Clause, without amendment.)

The Audit Committee recommends that:

(1) monthly reporting procedures be put in place by the Chief Financial Officer and Treasurer, or her designate, 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 the Chief Financial Officer and Treasurer, or her designate, 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) the Chief Financial Officer and Treasurer, or her designate, 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, the Chief Financial Officer and Treasurer, or her designate, 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 Chief Financial Officer and Treasurer, or her designate. 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 the Chief Financial Officer and Treasurer, or her designate, 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 quarterly basis;

(6) the Chief Financial Officer and Treasurer, or her designate, 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) the Chief Financial Officer and Treasurer, or her designate, 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.

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

(1) requested the City Auditor to report to the Audit Committee on any comments he may have with respect to the performance benchmarks, as set out in Recommendation No. (8) above;

(2) requested that the report from the City Solicitor requested in Recommendation No. (2) be submitted to the Audit Committee and the A.B.C. Reduction Task Force as soon as possible;

(3) subject to the opinion of the City Solicitor, requested the City Auditor to report to the Audit Committee on the status of the Agencies, Boards and Commissions with respect to Investment Policy Compliance; and

(4) forwarded the reports (February 1, 1999) from the City Auditor and (March 31, 1999) from the Chief Financial Officer and Treasurer to the A.B.C. Reduction Task Force for information.

The Audit Committee submits the following report (February 1, 1999) from the City Auditor:

Recommendations:

It is recommended 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.

Background:

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 will provide assurance of compliance with governing legislation, this investment policy and procedures established by the Treasurer of the City."

This report complies with the direction of Council and includes other observations noted during the course of the review.

Comments:

This review has been conducted as of December 31, 1998 in order to coincide with the final year end of the City.

As at December 31, 1998 the City's investment portfolio being managed by the City's Finance Department, consisted of approximately $2,498,000,000. The composition of the portfolio is included as Appendix I, attached to this report.

Investments managed externally by Agencies, Boards and Commissions amounting to a further $365,000,000 are included on the attached Appendix 2.

In addition to those issues relating to compliance, our review also noted certain accounting deficiencies. We have included our observations and recommendations relating to these deficiencies in our report.

1. A monthly summary of the investment portfolios is not produced on a regular basis. Such a report be prepared and forwarded to the Treasurer or her designate for review and approval. As part of the review process, procedures be initiated to determine compliance with the investment policy approved by Council. Explanations be obtained for any investments which are not in accordance with the policy and appropriate action taken to ensure compliance.

2. The investment policy approved by Council outlines the specific scope of the policy. The policy indicates that it "applies to all investments made on behalf of the City and its Boards, Agencies and Commissions including but not limited to operating funds, reserves, reserve funds, trust funds, sinking funds and any new fund created by the City unless specifically exempted."

The policy, as stated, does not specifically include the investing activities of the Agencies, Boards and Commissions. The policy in fact applies only to investments which the City is handling for these entities and does not include investments being made independently by local Boards. This particular issue requires clarification and should be addressed immediately.

3. Many of the City's Agencies, Boards and Commissions invest their own surplus funds. Certain of these Agencies, Boards and Commissions engage the services of outside professional investment management and have formalized investment policies or guidelines defined under specific legislation. In order to maximize interest earnings, management consider the consolidation of the investing activity for Agencies, Boards and Commissions. The decision 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. There is no reporting process in place relating to the review of the investment portfolios of Agencies, Boards and Commissions. If it is determined that the Treasurer of the City is responsible for investment portfolios of Agencies, Boards and Commissions, City Finance Department is not in a position to determine whether these investment portfolios are in accordance with the Council approved policy. A mandatory regular reporting process be initiated and controlled by the City Finance Department. Where applicable all reports be reviewed and approved by City Finance staff in order to ensure that Agencies, Boards and Commissions are in compliance with the Council approved policy. Immediate and appropriate action be taken for all instances of non-compliance.

5. The latest internal report on the market evaluation and performance of the investment portfolio was performed as of June 1998. A regulation under the Municipal Act requires that the Treasurer of the municipality is to prepare and provide to Council each year or more frequently if specified by Council, an investment report. The regulation outlines the minimum requirements of the content of the report. It is our understanding that the Treasury and Financial Services Division plan to provide such a report to Council in March 1999.

The Government Finance Officers Association sample investment policy outlines a number of recommended best practices related to reporting and in particular, recommends that an investment report be prepared quarterly. We suggest that at least in the short term, management consider the preparation of such a report on a more regular basis than just once a year.

In accordance with the Municipal Act the investment report to Council "shall contain:

- a statement about the performance of the portfolio of investments of the municipality during the period covered by the report;

- a description of the estimated proportion of the total investments that are invested in its own long-term and short-term securities to the total investments of the municipality and a description of the change, if any, in that estimated proportion since the previous year's report;

- a statement by the Treasurer as to whether or not, in her opinion, all investments were made in accordance with the investment policies and goals adopted by the municipality;

- a record of the date of each transaction in or disposal of its own securities, including a statement of the purchase and sale price of each security; and

- such other information that the Council may require or that, in the opinion of the Treasurer, should be included."

6. The investment policy and procedures document specifically itemizes approved investments for both internally and externally managed funds. The policy lists both the maximum amount that can be invested in a specific investment as well as specific limits on the duration of the investment. Our review of documentation indicated non compliance with these policies. For example:

- Metro Pension, Homes for the Aged

Federal Guarantees: Policy maximum = 10% Actual = 25%

- Metro Pension

Schedule 1 Banks: Policy maximum = 15% Actual = 25%

- Toronto Group

Ontario Hydro: Policy term limit 10 years Actual 20 years

Canadian Municipalities

rated A: Policy maximum = 1% Actual = 5%

Management should take immediate action in regards to the above to ensure compliance with the policy.

7. The Investment Policy document is incomplete. Section 5 of the Policy entitled "Investment Procedures" includes a narrative that such procedures are "to be formulated." This particular section should address key aspects of the investment management process including such areas as:

- quarterly and year end reporting procedures;

- review and approval procedures;

- interest allocation procedures;

- procedures on the control and management of computerized systems, and

- procedures governing the use of on-line market databases.

It is important that these policies be completed as soon as possible.

8. The investment policy and procedures document makes reference to performance measurement criteria for each of its individual investment funds. However, no performance benchmark has been determined for the City of Toronto Atmospheric Funds, the Keele Valley Post Site Closure Trust Fund and the balance of other trust funds administered by the City of Toronto. This matter should be addressed as soon as possible.

9. The investment policy includes a listing of all investment funds under the jurisdiction of the City. Absent from the listing is the York Employees' Pension and Benefit Fund. As of December 31, 1997 this Fund had in excess of $70,000,000 in investments and over $12,000,000 in investment income. There is uncertainty regarding responsibility for the investment of these funds.

10. A regular and complete monthly reconciliation of investments held by the City to the City's accounting records is not being conducted. For certain reconciliations we have identified a number of unreconciled differences, one of which is in excess of $5 million. The resolution of this item has been an issue since early 1998. Management should set as a priority the reconciliation of all investment funds. We have discussed this matter with staff throughout the year and we have been informed that staff have recently reconciled the difference. As of the date of this report, we have not been provided with this reconciliation.

Conclusion:

Our review indicated a number of concerns that require immediate action. In particular, there is uncertainty by staff at both the City and the Agencies, Boards and Commissions as to whether or not the Council approved policy applies to the Agencies, Boards and Commissions. This issue requires clarification, although in our view, we see no reason why the policy should not apply to most, if not all, City owned and controlled entities.

Regular reconciliation processes are also not being conducted for all investment accounts. In order to ensure the accuracy of the accounting records, as well as the accuracy of third party information, this matter requires urgent attention.

Contact Name and Telephone Number:

Steve Harris, Senior Audit Manager, 392-8460

City of Toronto

Investment Portfolio

Investments Managed by City Finance Staff

December 31, 1998

City's Own Funds $1,625,065,000

Toronto Transit Commission 2,821,000

Metro Pension Funds 20,704,000

Police Benefit Fund 6,345,000

Sinking Funds 808,611,000

City of Toronto Atmospheric Funds 16,530,000

Toronto Trust Funds 9,011,000

Homes for the Aged 6,600,000

Scarborough Trust Funds 1,800,000

Public Utilities Commission 250,000

______________

$2,497,737,000

______________

City of Toronto

Investment Portfolio

Investments Managed Externally

December 31, 1998

City of Toronto Parking Authority $39,354,000

Toronto Economic Development Corporation 21,870,000

Cityhome / Metro Housing 77,100,000

Hummingbird Centre 2,500,000

St. Lawrence Centre for the Arts 1,467,000

City of Toronto Library Board 2,370,000

City of Toronto Historical Board 546,000

Toronto Hydro Electrical Commission 218,000,000

Community Centres and Arenas 1,275,000

BIA's and Other ABC's (estimated) 1,000,000

______________

$365,482,000

______________

The Toronto Community Council also submits the following report (March 31, 1999) from the Chief Financial Officer and Treasurer:

Purpose:

To respond to the issues and the recommendations contained in the report "Investment Policy Compliance", from the City Auditor, dated February 1, 1999.

Funding Sources, Financial Implications and Impact Statement:

N/A

Recommendation:

It is recommended that this report be considered with the City Auditor's report and received as information.

Council Reference/Background/History:

N/A

Comments and/or Discussion and/or Justification:

Staff from the Finance and Audit Departments met on February 9, 1999 to receive and discuss a draft of the "Investment Policy Report". The Finance Department's response to the recommendations contained in the report is being presented to the Audit Committee so that they can be considered with the City Auditor's "Investment Policy Report".

The City's cash management and investment program was one of the first functions to be amalgamated on January 1, 1998 and has been successful in achieving its performance objectives by combining seven investment portfolios to manage the City's capital market operations and funding obligations. The Finance Department continues to manage a combined investment portfolio in excess of $2.5 billion and generating combined investment income of $150 million, including the City's sinking funds. Various improvements and efficiencies has resulted in estimated annual savings of $2 million by eliminating the requirement of some of the former municipalities to issue promissory notes to fund temporary cash shortfalls.

Presented below are the Finance Department's comments that correspond to the recommendations contained in the City Auditor's report:

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;

Monthly reporting procedures have been implemented as of February 1999. Treasury Section staff prepare these reports on a daily basis in order to ensure compliance with the investment polices and to provide guidance when transactions are executed. The Treasury Manager and Senior Investment Analyst review these reports on a daily basis.

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 entitles, 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;

A legal opinion from the City Solicitor has recently been requested to interpret the relevant legislation as it relates to the application of the City's investment policy to the ABC's. The Council adopted investment policy states that it should apply to the ABC's but it should be understood that the City's investment of their excess funds is being performed on a voluntary basis when an ABC has requested this service. It has not been imposed on any ABC who may have established alternative arrangements and it was not assumed that the City's investment policy would apply to independent investment managers.

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;

Based upon the outcome of the legal opinion, consideration will be given to the consolidation of the investments of those ABC's not currently covered. However, it should be recognized that the ABC's can generally operate under the Trustees' Act which is more permissive than the Municipal Act. Therefore, they can choose to be more aggressive in their investment activities as they may also have different objectives, time horizons and risk tolerance than the City is allowed under the Municipal Act.

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;

Reports are prepared daily to monitor the investment portfolios of the ABC's who have placed their funds with the City. Otherwise, it is not considered appropriate for the ABC's who have external managers to report their activities to the City unless it is demonstrated that the City Treasurer has the legal authority to request these reports.

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

Ontario Regulation 438-97 under the Municipal Act requires an annual report unless Council requests a more frequent report. A shorter time horizon for a report on performance measurement would, in our opinion, not be meaningful to Council. Therefore, we would not recommend more frequent reporting to Council.

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

While the approved investment policy sets limits and parameters, it should be understood that the Investment Manager must have the ability to manage the funds by being able to exercise some judgement and discretion when it is deemed to be warranted. It states in the Investment Policies and Procedures report that the Treasurer may deviate from the requirement to match maturities to forecasted liabilities if there is a reasonable basis for this action.

It also states that the maximum amounts and maximum percentages of the portfolio for each issuer and sector may be established from time to time by the Treasurer. For example, if we identify an opportunity to invest with one of the five major banks for a short period and receive an additional return but the transaction places us over the limit for a few days, it is expected that the Investment Manager would exercise his or her judgement and assess the relative risk of this decision. Otherwise, the investment process could become so mechanical and unresponsive to financial market conditions that opportunities to enhance investment returns with minimal risk would be foregone.

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

This item is in progress and will be completed by the end of April 1999.

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

Since these funds are being invested on behalf the various groups, the performance objectives should be established in conjunction with these groups who would have their own investment objectives and targets.

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;

The York Employees' Pension and Benefit Fund retains an external investment manager and the City does not invest funds on their behalf. We will be entering into discussions with the Trustees of the Fund to assess the benefits of having the City assist them in their investment program. Although the other City Pension Funds (Toronto Civic Employees, Firefighters, Metro Civic Employees and Police) employ external investment managers, the City invests their short-term cash positions according to the approved investment policy and their instructions pertaining to term-to-maturity.

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.

The reconciliation process is being performed on a monthly basis since the issue has been resolved between the Accounting and Treasury and Financial Services Divisions. Although there was a difference in the balances during 1998 due to the amalgamation of 7 investment portfolios, this has been eliminated in January 1999.

Contact Names:

Len Brittain, Director, Treasury and Financial Services Division, 392-5380

E-mail: lbrittai@toronto.ca

Martin Willschick, Manager, Treasury, 392-8072

(City Council on June 9, 10 and 11, 1999, amended this Clause by adding thereto the following:

"It is further recommended that the Toronto Police Services Board be requested to:

(1) apply the recommendations of the City Auditor regarding Metropolis, to the 'Occurrence Re-engineering Project' and other information technology investments; and

(2) submit a report to the Policy and Finance Committee on performance measurements that properly document costs and savings.")

The Audit Committee reports having received the following reports (April 26, 1999) from the Chairman, Toronto Police Services Board and (May 10, 1999) from the City Auditor and having directed that said reports be forwarded to Council for information.

The Audit Committee reports having requested the Toronto Police Services Board to submit a copy of the business plan for the marketing of the Metropolis Project to the next regular meeting of the Audit Committee, and having requested that a member of the police service attend the next regular meeting of the Audit Committee.

The Audit Committee submits the report (April 26, 1999) from the Chairman, Toronto Police Services Board:

Recommendations:

It is recommended that:

(1) the City of Toronto Audit Committee receive the following report for information; and

(2) the City of Toronto Audit Committee forward this report to the next meeting of Council for information.

Council Reference/Background History:

At its meeting on March 26, 1999, the Toronto Police Services Board was in receipt of the following report March 1, 1999 from Jeffrey Griffiths, City Auditor, City of Toronto:

Subject: Review of Metropolis Project

Recommendation:

It is recommended that:

(1) Project benefits calculations/projections be reviewed by Police Services management for validity and reasonableness prior to incorporation into any report submitted to the Board and/or Council;

(2) Where projects and related benefits span several years, the cost savings recognized in prior years be reviewed annually to ensure that such benefits may still appropriately be included in any cumulative annualized benefits calculations;

(3) Clear parameters be established at the beginning of each project, identifying its scope and the benchmarks to be used in evaluating the success of the project. Such benchmarks must be relevant, objective and measurable;

(4) Where projects are approved on the basis of efficiency savings, a plan should be established outlining how staff redeployments will be achieved, and a reporting process be developed to identify such redeployments so that they may be properly reflected in future operating budgets. In the event that the efficiency savings will be absorbed by increases in service levels or demands, these increases should be clearly identified;

(5) The City of Toronto, Budget Division, clarify to all Departments, Agencies, Boards and Commissions that the Impact on the Operating Budget section of capital budget submissions be restricted to actual budget reductions;

(6) Future submissions to the Toronto Police Services Board and Council clearly identify the types of benefits to be realized (i.e. actual dollars vs efficiency savings);

(7) Police Service staff investigate the possibility of incorporating project accounting capabilities into any future financial systems; and

(8) Any cost/benefit analysis performed in support of projects should include both external as well as internal costs.

Background:

In 1991 the Metropolis (Metropolitan Toronto Police Information System) strategy was conceived to develop an integrated computing environment to improve the efficiency, flexibility and effectiveness of the Police Service's business systems in support of its Beyond 2000 policing strategy. A critical component of the Beyond 2000 strategy was Community Policing, which in general terms involved the movement of police officers out of cars and offices onto the streets. Prior to Metropolis the Police still had many manually intensive processes including significant use of typewriters and manual paper files. The Service identified that a major technology initiative was required to improve the level of Police services in the City of Toronto. Metropolis was the name given to this initiative.

Metropolis involved the development of hardware and software architectures which allow for an extremely high degree of compatibility and interconnectivity across the Service. It also encompassed the development of a number of operational systems in a broad spectrum of police operations. Data previously collected and stored in various forms, plus other data considered pertinent to operations, is now captured and stored electronically.

Between 1992 and 1997, the former Metro Council approved capital funding for Metropolis of approximately $60 million with the expectation that the project would deliver a cumulative net benefit in excess of $90 million by the end of the year 2002. For the Police Service the primary benefit was to allow for an improvement in services to the citizens of Toronto funded through the efficiency gains to be delivered by the Metropolis initiatives.

Comments:

At its meeting of May 21, 1998, the Toronto Police Services Board requested the City Auditor to perform a value for money audit of the expenditures incurred with respect to the Metropolis project.

The objective of this review was to determine, to the extent possible, whether the benefits realized from the Metropolis project justified the expenditures incurred.

The review included interviews with various staff from the Police Services and an examination of relevant records and documents covering the period 1992 to 1998, including:

- meeting minutes of the former Metro Council, Police Services Board, Metropolis Advisory Council and Project Review Committee;

- operating and capital budget submissions;

- internal cost records relating to Metropolis maintained by the Service;

- purchase orders and accounts payable vouchers;

- benefits calculations and user sign off's;

- budgets and workplans of specific projects;

- previous audit reports.

Metropolis Benefits

The former Metro Council approved the Metropolis project in 1992 on the basis of operational savings that were projected to be realized from the implementation of Metropolis.

The Computing and Telecommunications Unit of the Police (C&T) in conjunction with user departments performed annual studies, (referred to as Metropolis Benefits Studies), to determine the benefits realized from the Metropolis project. The benefits were classified into three categories: actual dollar savings; cost avoidances and productivity gains, (grouped together as efficiency savings below). A dollar value was calculated for every benefit. The following table summarizes the benefits identified by Police Services for the years 1993 to 1997:

Cumulative

Actual Efficiency Total Gross Annual

Year Dollar Savings Savings Savings Savings

1993 $42,500 $1,699,500 $1,742,000 $ 1,742,000

1994 3,361,500 16,208,500 19,570,000 21,312,000

1995 107,000 7,748,000 7,855,000 29,167,000

1996 328,000 10,343,000 10,671,000 39,838,000

1997 100,000 7,695,000 7,795,000 47,633,000

Total $3,939,000 $43,694,000 $47,633,000 $139,692,000

According to these internal studies, the Service has realized cumulative net benefits totaling approximately $80 million ($139.7 million benefits less $60 million in costs) as of the end of 1997, and will realize from 1998 onwards annual benefits of $47.6 million. This is well ahead of their initial projections of $90 million in cumulative net benefits by the year 2002.

As previously noted, the savings listed in the table above represent amounts identified by staff of the Police Services. The vast majority of the savings arise from increased efficiencies which have been attributed dollar values based on various estimates and assumptions. To accurately measure efficiency savings it is necessary to assess how work is performed both before and after any change. However, this type of bench marking exercise was not undertaken prior to project implementation and it is difficult, if not impossible, to verify the claimed savings. Our review of these savings indicated that there was no conclusive evidence that the actual dollar savings were actually achieved. Having said that, however, there is evidence that there were efficiency savings which either enabled or assisted the Police Service to endure budget reductions during the five-year period noted above.

During that period the operating budget of the Police Service declined from $560 million in 1993 to $495 million in 1997, a decrease of $65 million. In addition, during the same time frame there was a reduction of 513 in the number of staff at the Service.

Following are our comments on various components of the savings listed above and suggestions for improvements to future major capital projects which should improve the ability to measure savings realized.

Actual Dollar Savings

Of the $47.6 million annual benefits, $3.9 million (8%) represents actual dollar savings and $43.7 million (92%) represents efficiency savings and productivity gains. The majority of the actual dollar savings of $3.9 million is attributed to the implementation of Court Scheduling System (CASC).

The objective of the CASC system is to improve the scheduling of police officers appearing in court for non-criminal cases by supplying officer available dates to the Ministry of the Attorney General's Office (MAG). These dates are supplied so that cases will not be scheduled when an officer is off duty, thus reducing officer overtime for court attendance. However, the supplied dates are used solely at the discretion of MAG and the Police Court Services Unit has no control in ensuring that MAG uses the CASC supplied available dates. A review of court appearance statistics supplied by Court Services indicate that historically, the usage rate of CASC supplied dates is only approximately 35 percent.

The 1994 Metropolis Benefits Study reported that the CASC system was directly responsible for a $3.25 million permanent reduction in non criminal court overtime cost with an additional $135,000 being saved in other miscellaneous areas. This was based on the fact that the budget for premium pay was reduced by $12 million from 1992 to 1994. In reviewing the 1994 budget requirements, the Police Service determined that it did not require the funding commitment of previous years due to various programs it had implemented, Metropolis being one of them. Therefore, Police staff considered it reasonable that almost 25 percent ($3.25 million) of the overall budget reduction in premium pay could be attributed to the Metropolis implementation.

While the $3.25 million estimate noted above may be reasonable it is highly unlikely that these savings were all actual dollar savings. A review of the general ledger accounting records noted that although the budget for total premium pay was reduced by $12 million from 1992 to 1994, actual premium pay dropped by only $3.6 million over the same period. By claiming that $3.25 million, (90%), of this reduction is related to non criminal court overtime versus other forms of overtime costs, may be overstating the savings attributed to the CASC system given other initiatives that were underway to reduce overall premium pay within the Service. Further, in an internal memo dated April 22, 1996, the Court Services Office estimated savings with respect to non criminal court costs to be $1.2 million per year as opposed to the $3.25 million.

In addition, other factors may have also contributed to the decrease in court overtime costs. For example, during this period when premium pay expenses were decreasing, the number of uniform officers and enforcement figures were also showing a steady decline. On a per capita basis, the amount of premium pay per officer has remained relatively constant since 1992. This could mean two things in terms of the Metropolis project. First, Metropolis initiatives allowed the Service to reduce staff and still provide an adequate level of policing to the City. Or alternatively, the reduction in Policing costs was purely due to a reduction in the number of officers on the street and the concomitant reduced level of police service provided in the City. Again, there is little hard evidence to support either of these theories although the magnitude of the budget reductions during this period does suggest that efficiency savings allowed the Service to absorb the budget cuts without significant reductions in service.

Although not significant in the overall analysis of the Metropolis project, our review of the actual dollar savings as identified by the Service noted a flaw in the calculations presented in the 1996 Metropolis Benefits Study. The 1996 Study attributed to CASC a further reduction reflected in the Police budget of $298,000 in non criminal court overtime costs. This was based on a comparison of actual court overtime costs in the first quarter of 1995 compared to the first quarter of 1996 and projecting the savings for an entire year. What does not appear to have been considered is that in early 1996, an OPSEU strike put a number of court cases on hold, which may have accounted for the reduction in court overtime costs in the first quarter of 1996. Our review of court overtime costs for the entire 1996 year indicated that expenses actually increased by $120,000 over 1995 and it is therefore very difficult to justify the claimed actual annual savings of $298,000.

In our examination of court overtime costs as reflected in the general ledger, it was noted that since 1995, court overtime costs have shown a steady increase and that these costs have consistently exceeded budget. However, the Police accounting system does not accurately identify court or overtime costs. As such it is almost impossible to verify that savings were actually achieved from these initiatives.

Information for inclusion in the benefits studies came from various Units within the Service. A more rigorous review by management of the information included in the benefits studies may have recognized the deficiencies we have identified in these studies. If these deficiencies had been identified by management further analysis could have been conducted.

Finally, there is a potential for the marketing to other Police Services of the Metropolis technology. This has been an issue raised by the City Auditor previously. We understand that the Police have recently initiated a marketing strategy pertaining to Metropolis. To date the Service has made recoveries of approximately $150,000 on sale of technology related to Metropolis. The sale of Metropolis technology has the potential to recover some of the up-front investment associated with the project.

Recommendations:

It is recommended that:

(1) Project benefits calculations/projections be reviewed by Police Services management for validity and reasonableness prior to incorporation into any report submitted to the Board and/or Council; and

(2) Where projects and related benefits span several years, the cost savings recognized in prior years be reviewed annually to ensure that such benefits may still appropriately be included in any cumulative annualized benefits calculations.

Efficiency Savings and Productivity Gains

The Metropolis Advisory Council (MAC) consisting of industry experts, Toronto Police staff and Metropolitan Officials was formed to provide an independent assessment of the technology strategy, approach and architecture of Metropolis. In its inaugural meeting on October 9, 1992, it was pointed out that the benefits to be derived from the Metropolis project were likely to be time-savings rather than actual dollar savings.

The quantification of time savings was for the purposes of performing a cost/benefit analysis for project justification and was not meant to be interpreted as actual budget reductions. The time savings calculations were based on intuitive estimates versus a formal study. A dollar amount was assigned by multiplying the time savings by the number of working days and the annual average salary/benefits cost for Uniform and Civilian staff.

Our analysis of the efficiency benefits calculations indicated that the three projects realizing the largest efficiency benefits were the Office Tools, Alternate Response Unit and Voice Mail projects, accounting for $23.8 million (54%) of the $43.7 million of total annual efficiency savings.

It was noted that the savings attributed to the Office Tools and Voice Mail projects were in small increments of 5 to 15 minutes per day extrapolated across the Service. The time savings appear reasonable, however, multiplying the time savings by the labour costs may overstate their value as time savings in such small quantities would generally not be re-deployable. A more relevant benchmark would have been to identify specific redeployments of staff associated with each Metropolis project, indicating where resources were moved to. However, no process was established to track staff reductions/redeployments and as such it is impossible to ascertain how many, if any of the positions eliminated were attributed to Metropolis versus other factors/initiatives (restructuring, delayering, civilianisation of positions, etc.)

Because the quantification/valuation of efficiency benefits is so subjective and the fact that appropriate, relevant and measurable benchmarks were not established at the beginning of the project to allow for a proper evaluation, it was impossible to substantiate the efficiency benefits reported. This is not to say that all benefits should be quantified in financial terms. There may be instances where quantification of benefits in finite dollar terms becomes so subjective as to negate the value of the quantification exercise. In these circumstances it may be necessary to enumerate the benefits without assigning a specific dollar value to them using instead a different, non financial, measure to determine how project success will be evaluated. It then becomes a matter of judgement as to whether or not the initiative giving rise to the benefit should be undertaken. The key is there must be a defined benefit that will be achieved by the project and there must also be a method of measuring success.

Recommendations:

It is recommended that:

(3) Clear parameters be established at the beginning of each project, identifying its scope and the benchmarks to be used in evaluating the success of the project. Such benchmarks must be relevant, objective and measurable; and

(4) Where projects are approved on the basis of efficiency savings, a plan should be established outlining how staff redeployments will be achieved, and a reporting process be developed to identify such redeployments so that they may be properly reflected in future operating budgets. In the event that the efficiency savings will be absorbed by increases in service levels or demands, these increases should be clearly identified.

Capital Budget Submissions

The Metropolis project required annual approval from the Toronto Police Services Board and Metro Council. Capital budget submissions were made each year, detailing the progress and benefits accumulated to date and approval sought for the following year's plans and capital funding requirements.

The capital budget submission provided detailed financial data on each capital project including the estimated impact on future operating budgets (i.e. additional staff to support and maintain systems, elimination of positions, reduced overtime costs, etc.).

An examination of the Service's capital budget submissions, which appear to have been in accordance with practice at the time, indicated that efficiency savings and productivity gains were included in the Impact on the Operating Budget section of the capital budget submission even though these efficiencies were not necessarily expected to translate into actual budget reductions.

The initial approval of the Metropolis project was done on the basis of anticipated efficiency savings and improvements to the effectiveness of policing in the City. However, with the changes in the composition of the Toronto Police Services Board and Metro Council since the initial approval of the project, the inclusion of these efficiency savings in the operating budget impact may have led Metro Council and Toronto Police Services Board members to interpret this as opportunities for actual budget reductions, especially if read in isolation from other information presented (i.e., benefits studies, presentations by Metropolis project team, Metropolis status reports, etc.)

Recommendations:

It is recommended that:

(5) The City of Toronto, Budget Division, clarify to all Departments, Agencies, Boards and Commissions that the Impact on the Operating Budget section of capital budget submissions be restricted to actual budget changes; and

(6) Future submissions to the Toronto Police Services Board and Council clearly identify the types of benefits to be realized (i.e. actual dollars vs efficiency savings).

Metropolis Project Costs Records

The Services' current financial accounting system does not have the capability to provide for detailed monitoring of budgeted costs by project. In order to adequately monitor the project, detailed manual records had to be maintained by C&T. Our sample review of C&T's manual records indicated that individual project cost information was well documented and properly supported. While this method of monitoring the project costs worked in this instance such "shadow" accounting systems generally represent an inefficient method of achieving their goal. The Service would be better served by an accounting system which tracked project costs for the various Units of the Service.

Recommendation:

It is recommended that:

(7) Police Service staff investigate the possibility of incorporating project accounting capabilities into any future financial systems.

Control of Individual Project Costs/Budget

Metropolis was approved as one large project by Metro Council and although it was made up of over 100 sub projects there was no requirement to report on each individual project. The $60 million project budget was monitored on a global basis. Each year, the remaining funds available for the Metropolis project were reviewed and allocated to the various individual projects as prioritized by the Priorities Review Committee, consisting of the Chief, Deputy Chiefs, Director of IT and the CAO, Policing.

Individual budgets expressed in dollars and person hours were developed for certain projects. However, there was a general lack of control in determining whether individual projects were on budget.

Systems development was performed utilizing a mix of internal staff and consultants. Salaries of internal staff were treated as a fixed cost and were not charged directly to individual projects. As a result, the cost of a project was largely dependent upon whether internal staff or consultants were used. Since internal staff time was not tracked there was no mechanism to monitor and control the true costs of individual projects.

In a report to the Chief of Police dated January 28, 1992, the former Metropolitan Auditor made a number of suggestions with respect to the administration and control of the Metropolis project. Included was a recommendation that the budgetary approval process for system development provide for full costing and that project costs should include internal as well as external costs. Although the original Metropolis submission included internal costs, these were removed from subsequent submissions. Because internal staff costs were not captured, the total cost of the projects are not accurately reflected.

In our analysis of project costs and benefits, it was noted that 11 projects accounting for 36 percent of the total efficiency savings were funded out of the operating budget using internal staff and assigned zero cost. Nearly all of the actual dollar savings (90%) was attributed to the CASC Court Scheduling system, which was also funded out of the operating budget and assigned a zero cost.

To truly compare the costs of Metropolis to the benefits received, adjustments must be made to either the costs or the benefits. If the benefits were adjusted, the table on page 3 would show a reduction in the total annual benefits in excess of $20 million. Thus the ongoing annual benefits would be $27.1 million rather than the stated $47.6 million. Such an adjustment would also reduce the cumulative savings identified in the table above by approximately $54 million for a revised total cumulative savings of about $85.8 million. Alternatively, the internal costs could be added to the $60 million stated cost of Metropolis for comparison against the benefits listed on page 3. An internal report prepared by the Service estimates that contributions from internal resources towards systems development is approximately $15 million. This however, is a very rough estimate since there were no accurate records indicating staff time per project.

Recommendation:

It is recommended that:

(8) Any cost/benefit analysis performed should include both external as well as internal costs.

Conclusion:

Prior to the Metropolis project, the Toronto Police Service's information technology environment consisted mainly of mainframe computers and terminals with limited applications supporting policing functions. Metropolis expenditures were largely comprised of a city-wide data communications network, server hardware, desk top computers and third party commercial software.

These hardware and software purchases accounted for approximately 65 percent ($40 million) of total expenditures. The remaining $20 million were comprised of $9 million for infrastructure items such as training, maintenance/support, security and disaster recovery and $11 million for application development and consulting.

With the exception of the claimed $3.25 million reduction in court overtime expenses, the $60 million Metropolis investment had limited impact on the operating budget in terms of actual dollar savings and/or budget reductions. It should, however, be noted that the Metropolis project was initially approved on the basis of time savings and productivity gains. The fact that these efficiency savings were quantified and expressed in monetary terms may have confused the issue and may have led Metro Council and Toronto Police Services Board members in believing that the project would result in potential budget reductions. This is more of a problem in how such savings are quantified and reported rather than a problem with the Metropolis project itself.

Metropolis initiatives have helped streamline various labour intensive processes resulting in efficiency savings and productivity gains. The value of these savings, however, is dependent upon how resources have been redeployed. Because appropriate, relevant and measurable benchmarks were not established at the beginning of the project to track resource redeployments, the valuation of the efficiency benefits as provided by the Toronto Police Service could not be substantiated.

From a technology standpoint, the project successfully upgraded the Service's outdated technology. In addition, applications such as case processing, mugshot and finger printing systems developed to improve policing functions, while not necessarily resulting in budget reductions, nevertheless have value with respect to the effectiveness and credibility of the Police Service.

Contact Name:

Jerry Shaubel, Director of Audits, 392-8462

The Board was also in receipt of the following report (March 10, 1999) from Chief David J. Boothby, Chief of Police:

Subject: Management Response - City Auditor's Review of the Metropolis Project

Recommendation: That the Board Receive this Report for Information Purposes.

Background:

The Police Services Board, at its meeting to be held March 26, 1999, will consider a report dated March 1, 1999 from the City Auditor relative to a review of the Service's Metropolis project.

The $60M Metropolis investment has been a critical and essential component over the last several years in terms of the Service's ability to sustain and improve services to its Public, while reducing overall operating costs and staffing levels. The benefits to the Police and the City have been significant, and include examples such as the Alternate Response Unit process, streamlined criminal information processing, enhanced and streamlined forensic identification services, efficient communication systems, and many, many others. Without this investment, the Service would not have achieved current service levels in its delivery of community policing services. It is essential that the Service sustain this investment in a state of good repair in order to continue its service delivery at current performance levels. It is in this context that the Command Officers have reviewed the City Auditor's report, and the Command supports the forward-looking nature of the recommendations. My comments on each of the Auditor's eight (8) recommendations are as follows:

Recommendation 1

Project benefits calculations / projections be reviewed by Police Services management for validity and reasonableness prior to incorporation into any report submitted to the Board and / or Council;

The Service agrees. The Service recognizes the difficulty of estimating benefits - in that over time the actual benefits achieved may be influenced by the continual changing of both internal and external factors. In the specific cases referenced, the Service does view the benefit estimates as reasonable, however, validating this would require extensive and complex efforts, and may still be subjective. For future projects the Service will more clearly document the rationale for all benefit estimates, and ensure additional scrutiny of same by senior management.

Recommendation 2

Where projects and related benefits span several years, the cost savings recognized in prior years be reviewed annually to ensure that such benefits may still appropriately be included in any cumulative annualized benefits calculations;

The Service agrees and will be so guided in future. The Service does believe, however, that the overall benefit estimates remain reasonable.

Recommendation 3

Clear parameters be established at the beginning of each project, identifying its scope and the benchmarks to be used in evaluating the success of the project. Such benchmarks must be relevant, objective, and measurable;

The Service agrees. Some projects (as is the case with many components of Metropolis) do require considerable management judgement in accepting whether efficiency estimates are reasonable. For example, performing extensive time and motion studies before and after the implementation of a Service wide electronic mail system may not produce any more reliable estimates than management intuition. Where appropriate, the Service will establish measurable benchmarks, along with a process to manage benefits. For instance, in the Occurrence Reengineering project, the plan for achieving labour savings is very specific and measurable; with projects such as "Y2K" however, the benefits (benchmarks) are accepted as intuitive (operational systems in time for 2000).

Recommendation 4

Where projects are approved on the basis of efficiency savings, a plan should be established outlining how staff redeployments will be achieved, and a reporting process be developed to identify such redeployments so that they may be properly reflected in future operating budgets. In the event that the efficiency savings will be absorbed by increases in service levels or demands, these increases should be clearly identified;

The Service agrees to this in principle and will adhere to City guidelines. Note that in both the public and private sector it is commonplace to cope with major work force reductions through Executive Management strategies such as restructuring, reengineering, and retooling. The Service has employed each of these in its organizational changes during the past 10 years.

Recommendation 5

The City of Toronto, Budget Division, clarify to all Departments, Agencies, Boards and Commissions that the Impact on the Operating Budget section of capital budget submissions be restricted to actual budget changes;

The Service will adhere to the Budget Division guidelines for capital budget submissions.

Recommendation 6

Future submissions to the Toronto Police Services Board and Council clearly identify the types of benefits to be realized (i.e. actual dollars vs efficiency savings);

This has been the practice in the Service for Metropolis reports and other project reporting and will continue to be so.

Recommendation 7

Police Service staff investigate the possibility of incorporating project accounting capabilities into any future financial systems;

The Service has already investigated this item and has identified project accounting as a mandatory requirement. It is our understanding that the SAP system acquired by the City can meet this requirement.

Recommendation 8

Any cost / benefit analysis performed in support of projects should include both external as well as internal costs.

The Service agrees and will comply with guidelines provided by the City. The internal process for approving and prioritizing projects (the Project Review Committee process) takes into consideration internal operating (staffing) costs in addition to any Capital (external/consulting) costs. It is the Service's understanding that our budget submissions have complied with City guidelines in effect at that time.

Messrs. Larry Stinson, Director, Information Technology Services (8-7550) and Frank Chen, Director, Finance and Administration (8-7877) will be present at the Board meeting on March 26, 1999 to respond to any questions regarding the foregoing."

Conclusion:

The Board received the foregoing and approved the following Motion:

That the Board send copies of the foregoing reports to the City of Toronto Audit Committee for information along with a request that they be forwarded to City Council for information.

Contact Name and Telephone Number:

Larry Stinson, Director, Information Technology Services, telephone 808-7550.

The Audit Committee also submits the report (May 10, 1999) from the City Auditor:

Attached is my One Page Report on Audit Services's recently completed report titled, "Review of the Metropolis Project."

Subject: Review of the Metropolis Project - February 1999

Program Area Manager:

Larry Stinson

Director, Computing/Telecommunications

Audit Team:

Jerry Shaubel

Gifford Chu

Area of Responsibility:

Computing & Telecommunications

Toronto Police Services

General Information/Highlights:

In 1991, the Metropolis (Metropolitan Toronto Police Information System) strategy was conceived to develop an integrated computing environment to improve the efficiency, flexibility and effectiveness of the Service's business systems in support of its Beyond 2000 policing strategy. Between 1992 and 1997, the former Metro Council approved capital funding of approximately $60 million with the expectation that the project would deliver a cumulative net benefit in excess of $90 million by the end of the year 2002.

Objectives and Scope:

The objective of this review was to determine, to the extent possible, whether the benefits realized from the Metropolis project justified the expenditures incurred. The review included interviews with various staff from Toronto Police Services and an examination of relevant records and documents covering the period 1992 to 1998.

Significant Issues:

- The audit could not definitively verify whether the benefits realized from the Metropolis project justified the expenditures incurred.

- There is evidence that efficiency savings achieved through the Metropolis initiatives assisted the Police in absorbing reductions in their annual budget of $65 million between 1993 and 1997.

- The benchmarks initially established did not allow for a proper evaluation of the project. Thus there is no conclusive evidence that claimed actual dollar savings were actually achieved and, the stated value of efficiency benefits appear overstated.

- Costs for internal resources were not reflected in the Metropolis cost/benefit analysis.

- The accepted method of presenting efficiency savings in the Capital Budget Submissions may have led Council and the Board members to interpret such savings as opportunities for actual budget reductions.

Significant Audit Recommendations:

- Clear parameters be established at the beginning of each project, identifying the benchmarks to be used in evaluating the success of the project.

- Any cost/benefit analysis performed in support of projects include both external as well as internal costs.

- Where projects are approved on the basis of efficiency savings, a plan be established outlining how staff redeployments will be achieved, and a reporting process be developed to identify such redeployments.

- City of Toronto Budget Division clarify to all Departments, Agencies, Boards & Commissions, that the Impact on the Operating Budget section of the capital budget submissions be restricted to actual budget reductions.

- Future submissions to Council and the Board clearly identify the types of benefits to be realized (i.e., actual dollars vs. efficiency savings).

Management Response:

Generally concurs

Disagrees

Follow-up Review Date by

Audit Services: November 1999

(City Council on June 9, 10 and 11, 1999, adopted this Clause, without amendment.)

The Audit Committee recommends that:

(1) the City Auditor consider the following issues with respect to the Toronto Atmospheric Fund, and report thereon to the Audit Committee:

(a) the issuance of grants;

(b) consulting fees;

(c) legal costs;

and any other identified concerns, including whether the Toronto Atmospheric Fund can be considered an agency, board or commission for these purposes;

(2) the City Solicitor report to the Audit Committee on the legal status of the Toronto Atmospheric Fund and its relationship to the City, particularly with respect to the Fund's $24 million in assets and the City's obligations and abilities to make decisions respecting the fund.

The Audit Committee submits the following report (March 30, 1999) from the Committee Secretary, Toronto Atmospheric Fund:

Recommendation:

That City Council receive the Auditor's Report (March 11, 1998) and the Financial Statements of the Toronto Atmospheric Fund for the year ended December 31, 1998.

Background

Sections 7 and 8 of Bill Pr45 (December, 1992), An Act to incorporate the Toronto Atmospheric Fund and the Toronto Atmospheric Fund Foundation, read as follows:

"7. (1) The board of directors shall ensure that the books and records of the Fund are audited each fiscal year.

(2) The audit shall include an examination of all assets held by the Fund or by the treasurer of the City on its behalf.

(3) The auditor is entitled to inspect all records, books, documents, transactions, vouchers, minutes and accounts of the Fund at any time.

(4) The auditor shall provide a report to the City and to the Fund as soon as possible after completing the audit. The report must describe in detail the purposes for which income has been used and expenses incurred.

(5) The fiscal year of the Fund ends on the 31st day of December.

8. (1) The board of directors of the Fund shall make an annual financial report for each fiscal year of the Fund to the City in such form and containing such information as the City requires.

(2) The board of directors shall provide the annual report to the City within three months after the end of each fiscal year of the Fund.

(3) The board of directors shall send a copy of each annual report to the treasurer of the City and to the auditor of the Fund.

(4) The City may require the board of directors to provide additional financial reports to the City for such other periods and within such other times as the City requires."

In addition, By-law No. 1 of the Fund requires, inter alia, that an Annual Meeting be held each year for the purpose of "hearing and receiving the annual financial report and statements and audit report as required by the Toronto Atmospheric Fund Act, 1992."

Comment

In compliance with all of the above, the Toronto Atmospheric Fund, at its Annual Meeting held on March 23, 1999, approved the attached Financial Statements for the year ended December 31, 1998, and tabled a copy of same, together with the Auditor's Report (March 11, 1999), with the City Clerk on March 23, 1999.

(A copy of the Financial Statements of Toronto Atmospheric Fund for the year ended December 31, 1998, referred to in the foregoing report has been forwarded to Members of Council under separate cover).

(City Council on June 9, 10 and 11, 1999, adopted this Clause, without amendment.)

The Audit Committee recommends that it advise all Committees that, in accordance with Council policy, all requests for Audits will be forwarded to the Audit Committee for consideration, so that the Audit Committee can prioritize such requests, giving regard to the Audit Workplan approved by Council:

The Audit Committee reports, for in the information of Council and in accordance with the recommendation above, having:

(1) authorized Projects 1, 7 and 8 set out in the report (March 29, 1999) from the City Auditor;

(2) requested 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;

as previously requested by the Audit Committee, at its meeting held on March 1, 1999; and

(3) received Projects 2-6 set out in the report (March 29, 1999) from the City Auditor.

The Audit Committee submits the following report (March 29, 1999) from the City Auditor:

Recommendation:

It is recommended that this report be received for information.

Comments:

In order to ensure that the Committee is appraised of all audit projects requested by various Standing Committees, the following is provided for information purposes:

1. Project: Parking Meters

Requested by: Audit Committee

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

2. Project: Arena Boards of Management

Requested by: Budget Committee

The City Auditor be requested to review the revenues and expenditures of those arenas with large deficits, and report back to the Budget Committee with recommendations on how those deficits may be reduced.

3. Project: Public Health

Requested by: Budget Committee

(a) The City Auditor be requested:

(i) to report back to the Budget Committee on a system of control for the eligibility of clients requesting dental services; and

(ii) review the dental services that are now in operation and report back to the Board of Health prior to the Year 2000 budget deliberations.

4. Project: Audit

Requested by: Budget Committee

City Auditor be requested to report back to the back to the Budget Committee on the following:

(a) the Department's recommendations of the suggested comments that should be made on the various Agencies, Boards and Commissions audits, and the costs, if there is one, to the Department to provide that service; and

(b) prior to the City embarking on the purchase and implementation of the new radio system, provide a review of same.

5. Project: Toronto Police Services

Requested by: Budget Committee

(a) The City Auditor and the City Solicitor be requested to report back to the Budget Committee on the possibility of the City conducting the internal audit of the Police Department.

(b) Referred the report (September 28, 1998) from the Chair, Toronto Police Services Board, regarding outstanding audit recommendations to the City Auditor for a report back to the Budget Committee in that regard.

6. Project: Parking Tag Operation Program

Requested by: Budget Committee

The City Auditor be requested to report back to the Budget Committee on the following:

(a) review of Parking Enforcement Unit operations prior to the Year 2000 budget deliberations; and

(b) whether the definition of absenteeism that the Parking Enforcement Unit is using is comparable to other Agencies, Boards and Commissions, and a comparison of the Parking Enforcement Unit's absenteeism rate to other Agencies, Boards and Commissions, specifically the Toronto Transit Commission.

7. Project: Review of Staff, Councillors' and Mayor's Office Expenses

Requested by: Audit Committee

(a) 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.

(b) City Auditor to:

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

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

(iii) 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.

8. Project: Works Best Practices Program

Requested by: Council

The City Auditor be requested to report to Council through the Audit Committee on the advisability of performing a value for money audit on the consultants for the Works Best Practices Program and the anticipated costs of performing the audit.

Conclusions:

The preparation of the above reports are in addition to the work outlined in the City Auditor's workplan approved by the Audit Committee dated March 1, 1999. This workplan was designed to accommodate a certain number of special projects. However, the Department's capability to meet these requests, as well as address its workplan, is becoming more difficult.

A report is currently being prepared in relation to the amalgamation of all City Audit activities. If a recommendation to amalgamate in this regard is made then the Department will be in a better position to address the above. If, however, resources are inadequate, a further report will be prepared for the consideration of the Audit Committee.

Contact Name and Telephone Number:

Jeffrey Griffiths, 392-8461.

(City Council on June 9, 10 and 11, 1999, received this Clause, for information.)

(a) Follow-up of 1997 Management Letters of the Former Municipalities.

The Audit Committee reports having:

(1) directed that the implementation date for the completion of Recommendation Nos. (1) and (2) of the former Municipality of Metropolitan Toronto, respecting Environmental Liabilities, as set out in Attachment 1 of the report (April 26, 1999) from the City Auditor, be the first quarter of the year 2000;

(2) directed that the implementation date for the completion of Recommendation No. (33) respecting Revenue from Fines to be recorded on an accrual basis, as set out in Attachment 1 of the report (April 26, 1999) from the City Auditor, be December, 2000;

(3) forwarded Recommendation No. (38) contained in Attachment 1 of the report (April 26, 1999) from the City Auditor, to the A.B.C. Reduction Task Force; and

(4) adopted the following report (April 26, 1999) from the City Auditor, as amended by Recommendation Nos. (1) and (2):

(i) (April 26, 1999) City Auditor respecting Follow-Up of 1997 Management Letters of the Former Municipalities, and recommending that:

(1) for those recommendations, contained in the 1997 management letters of the former municipalities which have not yet been implemented, as outlined in Attachment I, the Chief Financial Officer and Treasurer:

(a) submit to the Audit Committee an action plan with specific time lines and staff responsibility for implementation; and

(b) report to the Audit Committee on the status of the implementation process prior to December 31, 1999.

(ii) (a) (May 13, 1999) from the Chief Financial Officer and Treasurer respecting 1997 Management Letter Follow-up and recommending that this report be received for information and that the Chief Financial Officer and Treasurer report to the Audit Committee on the status of the implementation process in December 31, 1999.

(b) Review of Commissioner Street Transfer Station Project Expenditures.

The Audit Committee reports having recommended to the Works and the Budget Committees the adoption of the following report:

(April 24, 1999) from the City Auditor respecting Review of Commissioner Street Transfer Station Project Expenditures, and recommending that:

(1) the Chief Administrative Officer advise all department heads that the selection and engagement of all consulting services be made in accordance with the City's purchasing policies;

(2) the Chief Administrative Officer advise all department heads of the importance of providing accurate and complete cost estimates when submitting projects to Council for approval, ensuring that necessary due diligence and care is exercised when preparing these estimates, and that if changes in the scope of work are necessary, the details and implications of the changes, as well as additional funding requirements, be clearly communicated to Council for approval;

(3) as part of the 2000 to 2004 Capital Budget Process, the Budget Division, Finance Department advise all departments and local boards that all funds relating to a particular capital project be provided for in one capital account, so that the full funding requirements and expenditures for each project are more readily available and known; and

(4) this report be forwarded to the Works Committee and Budget Committee for consideration.

(c) Radio Communications System -

Toronto Police Services and Toronto Fire Services.

The Audit Committee reports having recommended to the Budget Committee and the Policy and Finance Committee, the adoption of the following report:

(May 4, 1999) from the City Auditor respecting Radio Communications System - Toronto Police Services and Toronto Fire Services, and recommending that:

(1) the Commissioner of Works and Emergency Services report to the Policies and Finance Committee every six months on the status of the Integrated Police and Fire Radio Communications System;

(2) the first of such progress reports be submitted by June 30, 1999 and include information on any changes to the final contract price for the system, scheduled completion date, the progress of the implementation, the meeting of prescribed milestones and payments to Motorola, any problems or delays encountered or anticipated, and whether the project will be completed on time and within the contract price; and

(3) this report be forwarded to the Budget Committee, as well as the Policies and Finance Committee, for consideration.

(d) Follow-up to Review of Data Conversion,

York Employees' Pension and Benefit Fund.

The Audit Committee reports having adopted the following report:

(April 26, 1999) from the City Auditor respecting Follow-up to Review of Data Conversion, York Employees' Pension and Benefit Fund, and recommending that for those recommendations contained in the 1998 report from the City Auditor titled, "Review of Data Conversion, York Employees Pension and Benefit Fund", which have not yet been implemented, as outlined in Attachment I, the Chief Financial Officer and Treasurer:

(a) submit to the Audit Committee an action plan with specific time lines and staff responsibility for implementation; and

(b) report to the Audit Committee on the status of the implementation process prior to December 31, 1999.

(e) Thefts from Parking Meters.

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

(April 29, 1999) from the City Auditor respecting Thefts from Parking Meters and recommending that this report be received for information.

(f) 2008 Olympic Bid / Review of The Bid Company's

Administrative And Financial Policies.

The Audit Committee reports having received the following reports for information and having forwarded same to the Olympic Task Force:

(i) (April 21, 1999) from the City Auditor respecting 2008 Olympic Bid / Review of the Bid Company's Administrative and Financial Policies, and recommending that this report be received for information and that it be forwarded to the Olympic Task Force; and

(ii) (April 19, 1999) from the City Clerk, forwarding Clause No. 13 of Report No. 7 of The Strategic Policies and Priorities Committee, headed "City of Toronto Olympic Task Force (Possible Audit of the 1996 Olympic Games Bid), which was adopted, as amended, by the Council of the City of Toronto at its meeting held on April 13, 14 and 15, 1999.

(g) Update on the Audit of the Handling of Sexual Assault and

Family Violence Cases by the Toronto Police Service.

The Audit Committee reports having:

(1) deferred consideration of the following report until its special meeting to be held at the call of the Chair within 5 week of May 25, 1999;

(2) deferred consideration of the following motion by Councillor Sgro:

"That no honorarium be paid to volunteers for work done in the public interest, except in extenuating circumstances:

(3) requested the City Clerk, in consultation with appropriate officials, to provide, at that time, an interpretation on the authority by which the City Auditor has been providing an honorarium to organizations/persons who are on the Audit Reference Group (Corporate Services Committee Report No. 15, Clause 16 of the Corporate Services Committee, titled, "Action Taken by the Committee on the Status of Women Respecting the Jane Doe Case", which was adopted, without amendment, by City Council at its meeting on October 28, 29 and 30,1998):

(April 13, 1999) from the City Auditor respecting Update on the Audit of the Handling of Sexual Assault and Family Violence Cases by the Toronto Police Service, and recommending that:

(1) this report be received for information by the Audit Committee; and

(2) this report be forwarded to the Audit Reference and the Toronto Police Services Board for their information.

(h) Chemical Pricing.

On motion by Councillor Sgro, the Audit Committee received the following confidential report for information:

(April 27, 1999) from the City Auditor, which was forwarded to Members of Council with the Agenda for the Audit Committee meeting on May 25, 1999, and a copy thereof is on file in the office of the City Clerk.

(i) Consolidation of City Audit Activities - Update.

The Audit Committee reports having:

(1) received the following report for information; and

(2) directed that a special meeting be held within 5 weeks of May 25, 1999 to consider the 1999 Financial statements.

(May 10, 1999) from the Chief Administrative Officer respecting Consolidation Of City Audit Activities - Update and recommending that this report be received for information.

(j) Audit Workplan Update - Public Health Report.

The Audit Committee reports having received the following report for information and forwarded same to the Board of Health for information:

(May 12, 1999) from the City Auditor respecting Audit Workplan Update - Public Health Report, and recommending that this report be received for information and that the report be forwarded to the Board of Health for their information..

(k) External Firms Retained for Insurance Claim Defence.

The Audit Committee reports having recommended to the Policy and Finance Committee that Ernst and Young provide a cost evaluation of the report requested by Councillor Lindsay-Luby to the Policy and Finance Committee:

(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.

(l) 1999-2000 Schedule of Meetings.

The Audit Committee reports having received the following report:

(April 22, 1999) from the City Clerk respecting 1999-2000 Schedule of Meetings

(m) 1999 Audit Workplan.

The Audit Committee reports having received the following report:

(March 10, 1999) from the City Clerk forwarding Clause 1 of Report No. 2 of The Audit Committee, headed "1999 Audit Workplan", which was adopted, as amended by the Council of the City of Toronto at its meeting held on March 2, 3, and 4, 1999.

(n) Works Best Practices Program and Projected Staffing Levels -

Water and Wastewater Services Division.

The Audit Committee reports having received the following report:

(March 10, 1999) from the City Clerk forwarding Clause No. 1 of Report No. 2 of The Works and Utilities Committee, headed "Works Best Practices Program and Projected Staffing Levels - Water and Wastewater Services Division, which was adopted, as amended, by the Council of the City of Toronto at its meeting held on March 2, 3 and 4, 1999.

Respectfully submitted,

GLORIA LINDSAY LUBY

Acting Chair

Toronto, May 25, 1999

(Report No. 4 of The Audit Committee was adopted, as amended, by City Council on June 9, 10 and 11, 1999.)