July 8, 1998
To:Strategic Policies and Priorities Committee
From:Audit Committee
Subject:1997 Management Letter - The Hummingbird Centre for the Performing Arts
Recommendation:
That the report (June 25, 1998) from the City Auditor attaching the management
letter of the Hummingbird Centre for the Performing Arts, together with the
communication (June 16, 1998) from General Manager and Chief Executive Officer of
the Centre in response, be received and forwarded to Council for information.
Background:
On July 7, 1998, the Audit Committee had before it a report (June 25, 1998) from the City
Auditor attaching the management letter of the Hummingbird Centre for the Performing
Arts, together with the response (June 16, 1998) from the General Manager and Chief
Executive Officer of the Centre.
The Audit Committee advises that it received the aforementioned report and
communication and directed that copies be forwarded to your Committee and City Council
for information.
Interim Secretary
Audit Committee
Christine Dodds 392-7031
Attachment
Item 9
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March 6, 1998
Ms. Elizabeth Bradley
General Manager and CEO
The Hummingbird Centre for the Performing Arts
One Front Street East
Toronto, Ontario
M5E 1B2
Dear Ms. Bradley:
We have completed the audit of the financial statements of The Hummingbird Centre for
the Performing Arts for the year ended December 31, 1997. The primary purpose of our
audit is to express an opinion on the financial position of the organization as at that date and
the results of its operations for the year then ended.
This letter contains our observations and recommendations relating to matters that came to
our attention during the normal course of our examination and, as a result, may not include
matters which a more extensive or comprehensive examination might disclose. These
observations and recommendations are presented for your consideration.
Observation:
The year 2000 computer issues have received significant media coverage over the past year
or so. In our previous year's management letter, we recommended that the Centre implement
a coordinated work plan to ensure that any hardware and software issues related to this
problem are addressed on a timely basis. Management's response indicated that the
computer consultant supporting the Centre's systems has assured management of a timely
solution to this problem.
While it appears that there is adequate time to address this issue, many computer system
professionals recommend that this issue be dealt with as soon as possible. Certain
publications in Canada for example have indicated that organizations which began year 2000
system conversions as early as six years ago are encountering obstacles. Revenue Canada,
for instance, began upgrading its system nine years ago and has set a January 1, 1999
deadline to give its information technology officials a full year to work out any last minute
problems.
The year 2000 issue has an impact far beyond critical business and financial systems. It will
affect potentially any computer processor at the Centre, including micro-processors, whose
processing of information is somewhat dependent on dates. Examples of systems that could
be potentially affected at the Centre would include:
- Telephone systems
- Elevators
- Security systems
- Lighting systems
- Maintenance schedule on operational equipment such as heating and air
conditioning
- Cash register systems
Recommendations:
- Consideration should be given to establishing a year 2000 project team with overall
responsibility for ensuring all potential year 2000 problems are identified and addressed.
A year 2000 conversion plan should be developed as soon as possible. It may be
appropriate to contact staff at the City of Toronto, who have recently established a
specific year 2000 project team to address this issue. The work being done by this team
may be of use to the Centre.
- Management should establish purchasing policies requiring that any new software is
certified as "year 2000 compliant".
Observation:
The Board of Directors of the Centre, at its meeting held on February 25, 1998, established
five sub-committees and appointed members to each. However, there appears to be no
specific, written mandate which outlines the responsibilities of each of the sub-committees.
Recommendation:
- The Board should formalize the mandate outlining the responsibilities of each of its
sub-committees.
Observation:
The Associate Manager, Developing and Community Programs, is in charge of promotion
and administration relating to Inner Circle memberships. She maintains the database of
members and applies the payments received directly by her in the form of cheques and credit
card payments to member's accounts. Having one individual perform these functions
represents a weakness in the system. Such a weakness could be minimized by having an
independent reconciliation of members renewing in a given period to monies collected in
that same period and performing an independent review to assess reasonableness of
collections. Neither of these compensating control procedures are in place.
Recommendation:
- A periodic reconciliation of current Inner Circle members to fees collected should be
done by supervisory personnel and evidence of this reconciliation should be maintained.
Explanations for discrepancies should be obtained and documented.
Observation:
During the summer vacation period, a temporary employee working in the accounts
payables area made a number of duplicate payments to suppliers in error. One supplier
notified the Centre of a duplicate payment which resulted in a review of all invoices paid
during this period and the necessary corrections being done.
In cases where the duplicate payments were made, the missing copies of back-up
documents indicating receipt of goods were obtained from the suppliers and these copies,
with the cheque, were reviewed and approved for payment by the appropriate staff.
Recommendation:
- In cases where an invoice submitted for approval and payment is supported by documents
which are not originals, this fact should be highlighted for the department heads and other
signatories attention. When reviewing these invoices and supporting documents, the
department heads should take special care to ensure that payment is not being made
twice.
Observation:
Cheques received in the mail are logged in a journal and restrictively endorsed by the
Assistant to the Manager, Finance and Personnel. The cheques are then handed over to the
Accounts Receivable clerk for recording and depositing. The journal records are agreed to
cheques deposited by the same Accounts Receivable clerk.
Recommendation:
- In order to improve internal control, the reconciliation of the log of cheques received to
deposits made should be done by an individual other than the Accounts Receivable clerk.
Observation:
The Centre has, through its development activities, sought opportunities for corporate and
individual partners to participate in the funding of operations and capital projects of the
Centre. Management formulated and issued a policy relating to the recognition of these
funds termed as "sponsorship revenue" effective January 1, 1996. The policy lacks a
definition of a sponsorship. Problems relating to timing of revenue recognition for example
could be encountered when the sponsor receives a benefit in kind that spans a limited
number of years in return for the "sponsorship". Although the current policy was discussed
with the Auditor, transactions during 1997 indicate that some clarification is required.
Recommendation:
- Management should review the sponsorship revenue policy. A definition of sponsorship
revenue should be contained within the policy.
We have discussed the contents of this letter with Mr. Roy Reeves, Manager, Finance and
Personnel, and would be pleased to discuss it further with you if you so wish.
Yours very truly,
Jeffrey Griffiths
City Auditor
RS:bf