STAFF REPORT

February 7, 2000

To: Policy and Finance Committee

From: Chief Administrative Officer

Subject: Consolidation of Audit Activities

Purpose:

To respond, in part, to the request of the Audit Committee relating to the potential of consolidating the audit activities of the City.

Financial Implications and Impact Statement:

There are no financial implications to this report.

Recommendations:

It is recommended that:

(1) City acknowledge the requirement of the Chief of Police to maintain an audit related Policing Standards Review Unit in order to address concerns and projects indentified by the Chief of Police;

(2) City Auditor and the civilian component of the Policing Standards Review Unit jointly develop a structured audit work plan based on an evalutation of audit risk and this work plan be approved by the Police Services Audit Sub-committee;

(3) this report be forwarded to the Chief of Police and the Toronto Police Services Board for comment and review and a response to the report be submitted to the next meeting of the Policy and Finance Committee; and

(4) the City Auditor be requested to report to the next meeting of the Policy and Finance Committee on those issues raised by the Chief of Police in his report to the Toronto Police Services Board dated April 28, 1998, relating to the consolidation of City audit activities; and

(5) the appropriate officials are authorize to take the necessary action to give effect thereto.

Background:

The Audit Committee, in correspondence dated February 3, 1999, 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."

In response to this request, the City Auditor, in a report to the Audit Committee meeting of March 1, 1999, recommended that the Chief Administrative Officer request the firm of Ernst & Young, the City's external auditors, to independently report to the Audit Committee by May 31, 1999 on this particular issue. It was also recommended that the evaluation should be done as part of the 1998 financial audit and should include, but not be limited to:

- potential for consolidation and streamlining

- reporting relationships

- staff requirements

- staff qualifications

- audit workload

- efficiency and effectiveness measures

- potential cost savings

At the Audit Committee meeting of March 1, 1999, Ernst & Young indicated that they would be in a position to issue a report on this matter by May 31, 1999. However, the delay in the completion of the 1998 audit of the financial statements of the City until August 1999 precluded Ernst & Young from addressing this particular issue until that time. Subsequent discussions by the Chief Administrative Officer and the City Auditor with Ernst & Young, however, indicated that in their view the conduct of such work would require a significant time commitment and would result in a fee of up to $100,000. In view of this, the Chief Administrative Officer indicated that he wished to consider other alternatives in relation to this review.

This issue has been the subject of discussion on a number of previous occasions, particularly in regard to the audit activities at the Toronto Police Service. For instance, during 1998 budget deliberations the City's Budget Committee directed that the City Auditor "perform the audit function for the Toronto Police Service and, as such, recommended that the service's five internal auditors be deleted as of August 1, 1998."

This matter was referred to the Chief of Police who recommended to the Toronto Police Services Board in a report dated April 1998, that the board "approve maintaining the five internal auditors within the domain of the Toronto Police Service." This was approved by the Toronto Police Services Board. In the report to the Board, the Chief of Police indicated that "Council does not have the authority to recommend staffing reductions and drew 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."

In addition, in his April 1998 report to the board, the Chief of Police raised a number of issues in support of maintaining the police civilian internal audit unit as a distinct unit within the Toronto Police Service

During 1999 the City Auditor was requested to review a number of police related issues. These requests were initiated by both the Toronto Police Services Board and City Council. As a significant emphasis in relation to specific audit work by City Council has been directed towards the Toronto Police Service, this report has focussed on the enhancement of audit activities at the police only. A review of other audit related activities at the City will be the subject of a forthcoming report.

In connection with audit work conducted at the Toronto Police Service, the reporting responsibilities of the City Auditor and the audit unit at the police (recently renamed the Policing Standards Review Unit) are different. The City Auditor conducts work which is independent from management and reports directly to City Council and the Toronto Police Services Board. This is consistent with most major Canadian and US municipalities and is considered best practice in the municipal and private sector field. The Policing Standards Review Unit report to a Deputy Chief with audit reports being submitted to the Executive Review Command for comment prior to being forwarded to the Chief of Police.

At the present time, the Policing Standards Review Unit consists of 21 staff, five civilians and 16 police officers.

The Chief of Police has indicated that he requires an audit related/consulting resource to conduct specific special reviews which may occur from time to time. In actual fact, a significant time commitment of the Policing Standards Review Unit has been expended in 1999 on work conducted in connection with the Internal Affairs Unit. This work has generally been conducted by the police component of the Policing Standards Review Unit. The extent of the police resources required to conduct this work has been determined by the Chief and has not been addressed in this report.

The focus of this report is directed to the civilian component of the Policing Standards Review Unit.

Comments:

The City Auditor, over the past number of months, has conducted a significant amount of work in connection with the Toronto Police Service. This work includes the following:

- Review of the Investigation of Sexual Assaults

- parking enforcement activities

- police overtime

- Metropolis Review

In addition, at the request of the Toronto Police Services Board the City Auditor has also been involved in the review of the towing and pound services as well as providing advice and consultation relating to the police towing quotation process and contract. Staff from the City Auditor's office also participate on the Police and Fire Integrated Radio Communication System Committee. The Audit Department has also been asked to take the lead role in the development of a vehicle replacement policy.

Due to the fact that a significant portion of the City Auditor's recent work has focussed on the police, a number of other city-wide projects initially included in the City Auditor's work plan have been by necessity deferred.

The projects completed by the City Auditor in relation to the police have been of significant benefit to the City and the Toronto Police Service and as a result, there may be further opportunities to work co-operatively with the Policing Standards Review Unit at the Toronto Police Service in order to enhance the service presently provided. A closer level of co-operation with the City Auditor would provide the police review unit with a far wider range of audit resources and expertise than currently exists, as well as provide the City Auditor with the benefit of the additional police knowledge currently existing at the review unit. This is especially so in relation to the civilian component of the Policing Standards Review Unit whose skill sets and experience match those of the staff in the City Auditor's office.

A specific audit work plan based on a standard risk evaluation process has not been conducted by the Policing Standards Review Unit. The work currently being conducted is based on specific requests from the Executive Review Command as well as input from the unit based on their knowledge of ongoing or perceived concerns. While in certain circumstances this may be appropriate, it is important that an evaluation be conducted which identifies all audit risks across the service. Audit resources should be directed to those areas identified as posing the greatest audit risk which may or may not coincide with those projects requested by the Executive Review Command or by the Policing Standards Review Unit itself.

The development of a structured audit work plan at the police, completed on a co-operative basis with the City Auditor and based on an evaluation of audit risk would ensure the City and the Toronto Police Services Board that those areas being audited are areas of priority. In addition, the work plan would be flexible enough to accommodate specific project requests from the Chief of Police, the Toronto Police Services Board and City Council.

The work plan also needs to identify those audit areas which require the skill sets of the police component of the unit as well as the expertise of the civilian unit.

The combined annual work plan of the civilian component of the Policing Standards Review Unit and the City Auditor should be approved by the Toronto Police Service Audit Sub Committee in much the same way as the City Auditor's work plan is approved by the City Audit Committee. Audit reports emanating from the work plan would be reported to the Audit Sub Committee. Specific audits initiated by the Chief of Police would be reported directly to him, unless there were issues of major significance in which case they would also be reported to the Toronto Police Service Audit Sub Committee.

In order to ensure that audit standards are consistent across the City and to enhance the independence of the audit process, audits would be conducted on a co-operative basis between the civilian component of the Policing Standards Review Unit at the Toronto Police Service and the City Auditor. Audits, for the most part, would be conducted by police audit staff with additional resources provided by the City Auditor as required.

The benefits of such an arrangement would include:

- access by the police to a large pool of qualified auditors;

- access to the administrative resources of the City Auditor, including project monitoring and budgeting;

- access to the training resources of the City Auditor;

- access to the audit technology of the City Auditor's office;

- potential for staff exchanges in order to enhance the skills and experience of both units

- a more disciplined approach to the audit process, particularly in terms of a development of a structured risk based work plan, time budgeting, monitoring of audit output, and a more independent audit reporting process; and

- potential for partnership relationships with the police component of the Policing Standards Review Unit.

The report of April 1998 by the Chief of Police indicated specific reasons as to why the amalgamation of the civilian component of the Policing Standards Review Unit with the City Auditor's office was not possible or indeed advisable. The relationship proposed in this report should also be viewed in the context of the issues raised in the April 1998 report. Consequently, the City Auditor should be required to review these issues and advise as to whether or not they would be applicable in regards to the amended relationship as now proposed.

Conclusions:

The purpose of any restructuring in the audit process is to ensure that the value of the audit function at both the City and the Toronto Police Service is maximized. The consolidation of the skill sets of both the City Auditor's office and the civilian component of the police audit function has the potential to achieve this objective, particularly in the allocation of scarce audit resources to those areas which pose the greatest audit risk. The development of a closer working relationship and the sharing of resources will be of significant benefit to the Chief of Police, the Toronto Police Services Board and City Council.

Contact:

Michael R. Garrett,

Chief Administrative Officer

tel: 392-3551

z

Michael R. Garrett

Chief Administrative Officer