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April 22, 1998

 To:Strategic Policies and Priorities Committee

 From:Audit Committee

 Subject:Establishment of an Auditor General=s Office

 Recommendation:

 That City Council adopt, in principle, the establishment of an Auditor General=s office and:

 (1)request the Chief Administrative Officer and the City Auditor to prepare a report on the timing and establishment of an Auditor General=s office; and

 (2)include the Agencies, Boards and Commissions under the purview of such office.

  On April 21, 1998, the Audit Committee had before it a report (April 2, 1998) from the City Auditor on the establishment of an Auditor General=s Office.

 The above recommendation of the Audit Committee is forwarded to the Strategic Policies and Priorities Committee for consideration and recommendation to Council.

 CCCC

 (Report dated April 2, 1998, addressed to the

Audit Committee from the City Auditor)

 Subject:Establishment of an Auditor General=s Office

 Recommendation:

 It is recommended that this report be received for information.

 Background:

On March 24, 1998, the Audit Committee adopted the following motion by Councillor Minnan-Wong:

 AWhereas the City of Toronto is the fifth largest city in North America, with a budget in excess of six billion dollars, and is bigger in size than many provinces;

 And Whereas given the massive size of the new government, it is becoming increasingly difficult to monitor the spending and administration of the City of Toronto;

 And Whereas an Auditor General=s Office can take a proactive approach in suggesting which City departments and branches are functioning effectively and where improvements can be made;

 And Whereas there are currently Auditors General in both the Federal and Provincial Governments;

 And Whereas this proactive approach will improve service delivery and keep taxes down;

 And Whereas the City of Toronto needs an independent watchdog that will report directly to Council;

 THEREFORE BE IT RESOLVED that staff be directed to prepare a report for consideration at the next meeting of the Audit Committee on the establishment of an Auditor General=s Office, similar to those in the Federal and Provincial governments.@

 Comments:

 AUDITOR GENERAL OF CANADA

 The Auditor General of Canada reports functionally and administratively directly to Parliament. The mandate of the Auditor General is set out in the Auditor General Act which came into force in 1997. The Act outlines the duties of the Auditor General as follows:

 ATo make such independent examinations and inquiries as he considers necessary and, based on them, to report on whether or not there were significant deficiencies in the management control systems and practices in the audited entity during the period under examination: thereby providing reasonable assurance, where possible, that:

 -public assets are safeguarded and controlled;

-transactions are lawful and proper;

-financial, human and physical resources are managed with due regard to economy and efficiency, and procedures are in place to measure and report the effectiveness of the programs.

 To call attention to anything that he considers to be of significance and of a nature that should be brought to the attention of the House of Commons, to communicate his findings and observations to management of the audited entity and to make any constructive recommendations he may have.

 To maintain the status of his Office and share its expertise with Canadian and international colleagues.

 To manage his Office with due regard for economy, efficiency and effectiveness, ensuring professional and administrative competence and adherence to applicable government policies.@

 PROVINCIAL AUDITOR OF ONTARIO

 The Audit Act of Ontario contains similar provisions to the Auditor General Act, and as such, the reporting relationship and duties of the Provincial Auditor generally parallel those of the Auditor General.

 THE CITY AUDITOR

 The City Auditor reports on a professional basis to the Audit Committee, and on an administrative basis to the Commissioner of Corporate Services.

 The proposed mandate of the Audit Department was included in a submission to the Budget Committee of the City and included the following:

 (i)ATo conduct operational audits, defined as evaluating the management of public funds and resources from a standpoint of economy, efficiency and effectiveness. Recommend operating improvements;

 (ii)To examine and evaluate the adequacy of the City=s systems of internal control, both financial and operational;

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

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

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

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

 (vii)To co-ordinate the financial internal audit activities with the external auditors of the City to ensure the efficient and economical use of audit resources; and

 (viii)To conduct attest audits as appropriate.@

 The proposed mandate of the City Auditor is in many respects similar to the one which exists at both the Federal and Provincial Auditor level. Consequently, the type of work being conducted at the City level parallels that of the Auditor General and the Provincial Auditor. In addition, the selection of an area for audit is based on similar criteria as currently exists at the Federal and Provincial levels. In general terms, the City Auditor during his selection of audit projects would consider the following:

 (a)the significance of an entity or activity;

(b)major cost centres with potential savings;

(c)major problem areas to the Corporation;

(d)specific problems in process, organization or function;

(e)part of a specific audit cycle approved by Council;

(f)political sensitivity;

(g)public sensitivity; and

(h)management competence, etc.

  Each of these criteria would be factored into an audit plan which would form the basis for audit work over a predetermined cycle. This process exists at both the Federal and Provincial level.

 As can be seen from the above, there are distinct similarities between the audit process at the City and the Federal and Provincial governments, particularly in the type of work conducted, as well as the selection of the audit work to be done.

 The major difference between audit functions, however, relates to the degree of independence afforded the Auditor General, the Provincial Auditor and the City Auditor. Both the Auditor General and the Provincial Auditor are completely independent of the government and its administration. While independence in an audit function is of critical importance, a similar degree of independence at the City level would not be in the best interest of the effective management of the municipality. One of the benefits of the current audit arrangements relates to the department=s relationship with both the City Audit Committee and management. It is particularly important during the transition process that the City Auditor work closely with both the Committee and management to address issues of mutual concerns. Even at this early stage in the evolution of the City, this relationship is assuming significant importance when viewed in the context of the requests for specific audit work by the Budget Committee. The development of the City Auditor=s annual work plan will provide the flexibility for such projects.

 The Chief Administrative Officer, as well as senior management requires an independent resource to address audit and financial related concerns on an ongoing basis. Because of its broad overview of the corporate picture, Audit Departments are generally called upon to provide advice and consultation on a wide range of issues, including accounting and procedural concerns, as well as broad operating and policy issues. It is important that this resource continue to be available to the senior corporate management staff.

 Adopting the Auditor General reporting model would compromise the benefits management receives from its audit function. Assisting management in resolving problems, as well as providing assistance in implementing change is one of the benefits of the current audit arrangements. Due to the fact that the Auditor General and the Provincial Auditor are required to remain completely independent, they do not generally provide the degree of advice and assistance often required by management to ensure changes and improvements are successfully implemented.

 Conclusion:

 The mandates of the Auditor General=s Office, as well as the Ontario Provincial Auditor=s Office are similar in many respects to the mandate proposed for the City Auditor=s Office. Consequently, the type of work conducted by the Department will parallel that of the Federal and Provincial Auditors. The ongoing independence of the City audit function is served through its relationship with the Audit Committee. The terms of reference outlined in the City Auditor=s report to the Committee dated March 4, 1998, clearly articulate the responsibilities of the Committee in relation to the City Auditor. In addition, the same report indicates that the City Auditor should be viewed as providing a constructive service to management, as well as to Committee and Council.

 In this regard, it is imperative that the Chief Administrative Officer and senior management have available an audit resource to address ongoing concerns identified by staff. This process is best served by the current audit arrangements. It is recognized, however, that as the City evolves over the next number of years, the audit process may require further review and refinement. This report does not recommend an Auditor General reporting model for the City.

 Contact Name and Telephone Number:

 Jeffrey Griffiths, 392-8461.

 Jeffrey Griffiths

City Auditor

 JG:lm

 

   
Please note that council and committee documents are provided electronically for information only and do not retain the exact structure of the original versions. For example, charts, images and tables may be difficult to read. As such, readers should verify information before acting on it. All council documents are available from the City Clerk's office. Please e-mail clerk@city.toronto.on.ca.

 

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