Management Letter - Metropolitan Toronto Convention and

Visitors Association for the Year Ended December 31, 1997

The Strategic Policies and Priorities Committee submits, for the information of Council, the following transmittal letter (May 26, 1998) from the Audit Committee, and reports having received same:

Recommendation:

That the report (April 2, 1998) from the City Auditor attaching the management letter of the Metropolitan Toronto Convention & Visitors Association dated March 3, 1998, together with the communication (April 22, 1998) from Tourism Toronto in response, be received and forwarded to Council for information.

Comments:

At its meeting held on May 21, 1998, the Audit Committee had before it a report (April 2, 1998) from the City Auditor attaching the management letter of the Metropolitan Toronto Convention & Visitors Association dated March 3, 1998, together with a communication (April 22, 1998) from Tourism Toronto in response.

The Audit Committee was advised by the City Auditor that the response from Tourism Toronto was appropriate and that the 1998 Audit will ensure that the actions proposed by Tourism Toronto have been implemented.

The Audit Committee advises that it received the aforementioned report and correspondence and directed that copies be forwarded to your Committee and City Council for information.

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(Report dated April 2, 1998, addressed to the Audit Committee from the City Auditor)

Recommendation:

It is recommended that the management letter of the Metropolitan Toronto Convention & Visitors Association dated March 3, 1998, be received for information.

Background:

As directed by the former Metropolitan Council, we are forwarding a copy of our management letter addressed to the President and CEO, containing comments on systems and procedures arising from the 1997 audits of the Association.

Contact Name and Telephone Number:

Jerry Shaubel, 392-8462.

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(Communication dated March 3, 1998, addressed to Mr. Kirk Shearer, President & CEO, Metropolitan Toronto Convention & Visitors Association, from the City Auditor)

We have completed the audit of the financial statements of the Metropolitan Toronto Convention & Visitors Association (MTCVA) 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.

During the course of our audit, we found areas where internal controls need to be strengthened or operations improved. This letter contains only 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.

In this letter, we are presenting for your consideration our observations and recommendations on matters which relate to the system of internal control and which came to our attention during the course of our examination. In addition, there are a number of operational matters which you may wish to consider.

Compensation Committee Matters:

Observation:

The Board has established a Compensation Committee to ensure competitive and fair compensation for the staff of the Association. Among the responsibilities of the Committee are to approve all staff salary grades and ranges and approve staff salary changes. In 1997, management authorized general staff salary increases ranging from 1 percent to 5 percent and job upgrades to certain staff. We understand that the intent of the Committee's mandate is that no approval is required for general salary increases. However, no approval from the Committee was obtained for the job upgrades. The annualized increase and upgrades amounted to $53,000.00 or 3 percent or total payroll.

Recommendation:

(1)In accordance with Board policy, all staff salary changes should be made only upon approval of the Compensation Committee.

Observation:

In August 1997, Information Services staff were paid an incentive bonus totalling $38,800.00 without the approval from the Compensation Committee. The bonus represented 50 percent of the Department's net underexpenditure in 1996. However, there is no evidence that pre-approved criteria were established as a basis for the payment of such bonus. In addition, this amount was not accrued in the 1996 accounts.

Recommendation:

(2)In accordance with Board policy, all incentive bonuses should be approved by the Compensation Committee. The Committee should also establish appropriate criteria for the payment of all incentive bonuses. In addition, all bonuses should be recorded in the period in which they are earned.

Administrative Controls:

Observation:

The Office Manager is responsible for payroll preparation, the distribution of payroll cheques and the custody of unclaimed cheques. Good internal controls require the segregation of such incompatible functions.

Recommendation:

(3)While we appreciate the limited number of Accounting staff, management should reassign the responsibility for payroll distribution and custody of unclaimed cheques to someone independent of the payroll preparation. This would improve internal controls.

Observation:

The Office Manager is responsible for the calculation and input of master file changes affecting pay rates. While the changes are approved by supervisory staff, there is no independent check on the mathematical accuracy of pay rate calculations. Errors not being detected have resulted in the overpayment of salaries.

Recommendation:

(4)All payroll changes affecting pay rates should be checked by a person independent of the preparation and input functions.

Observation:

The Association has an agreement with an advertising agency for the production and placement of various consumer and trade advertising. In 1997, management discontinued its practice of requiring all tear sheets to support print advertising to be submitted and now requests only the tear sheets for specific items selected on a test basis. As at the end of the year, documentation was obtained only up to the first half of the year. We also noted that the extent of testing was limited to only two main advertising agencies although other agencies were utilized in 1997 for specific programs. Since advertising expenses represent a significant portion of the Association expenditures, it is essential that adequate controls exist to ensure that all advertising expenditures are valid.

Recommendation:

(5)Management should ensure that the verification of documentation supporting advertising costs covers all advertising agencies utilized by the Association. In addition, the verification procedures should be performed on a timely basis.

Membership Fees:

Observation:

The membership fee structure is approved by the Board. In special cases, the Membership Department may charge a lower fee. We noted that for some negotiated fees, there was no evidence that the fees were authorized by senior management.

Recommendation:

(6)Management should establish a policy requiring that all deviations from the approved membership fee structure be approved by senior management.

Observation:

The Membership Department maintains a database of all members which is used for publication. However, the database does not contain certain information such as number of employees which is used as the basis for the membership fee. Currently, Membership Department staff manually list the required information on the membership listing and calculate the appropriate fee. This information is forwarded to Accounting for billing. This procedure is time-consuming and prone to error. We understand that the Department is currently considering acquiring a new database system.

Recommendation:

(7)Management should consider enhancing the current database system to allow for the maintenance of all information required for membership fee calculation. The system could also be further enhanced by allowing the calculation of membership fee based on established criteria and the merging of information with the Accounting system for billing purposes.

General:

Observation:

In 1997, Tourism Toronto launched a site on the world wide web. We reviewed this site recently and noted that several pages contained stale information. For example, in a Section titled, "In the Spotlight... A hot event for each of the next three months", the three months highlighted were January, February and March. Clearly this information should be updated at least monthly. As another example, on the press releases page the most recent releases were dated September 30, 1997, more than five months old.

In order to generate and maintain user interest, a web site must contain current and frequently updated information. Although certain portions of the web site are designed to be relatively static, for example, the "About Toronto" section, others, as noted above are designed to be dynamic. Where a dynamic section of a site is not kept up to date, users may not be motivated to return to the web site. Further, dated information could have a negative impact on a users view of the value of the site causing them to leave the site after only a cursory review. Such actions are unlikely to generate the interest and responses which would be an objective of operating the site.

Recommendation:

(8)The Tourism Toronto web site should be reviewed and updated frequently.

Year 2000:

Observation:

Many computer systems are predicted to experience significant problems when their internal clocks advance into the year 2000. The year 2000 problems have received significant media coverage over the past year or so. A considerable number of computer systems and programs designed in the 1980's will fail to work correctly on January 1, 2000 because programs were designed with two digits to specify the year, rather than four. This was generally done in order to save expensive disk space. Thus, when a system's internal calendar flips to 1/1/00, it will have no way of computing the correct date. This will place any organization that relies on date-sensitive computing in jeopardy.

While it appears that there is adequate time to address this particular 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 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.

We have discussed this matter with the Association's staff who have indicated that this particular issue has not yet been dealt with. In order to deal with this issue, the Association at some point may require external resources. However, finding the right kind of Year 2000 help is going to be an increasing challenge as the Millennium approaches simply because of the law of supply and demand. Consequently, it is important that this issue be dealt with expeditiously.

 Recommendations:

(9)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 Association.

(10)Management should establish purchasing policies requiring that any new software is certified as "year 2000 compliant".

We have discussed the contents of this letter with Mr. Murray Vaughan, Vice President, Finance and Administration and would be pleased to discuss it further with you if you so wish.

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(Communication dated April 22, 1998, addressed tothe City Auditor fromMr. Kirk Shearer, President & CEO, Tourism Toronto)

Thank you for attending the March 13th Tourism Toronto Finance and Administration Committee meeting. This letter is a response to the recommendations in the Management Letter with an explanation on how they will be implemented.

Recommendations 1 and 2 - Compensation Committee Matters:

The agenda for the March 13th Finance and Administration Committee meeting included two salary issues in Marketing and Administration. The Committee empowered staff to make compensation decisions that are within the approved Salaries/Benefits budget. The Committee requested that staff report these decisions to the Compensation Committee on a timely basis in future. The salary upgrades and bonus did not put the Salaries/Budget expense over budget. The actual for 1997 was $3,011,860.00 vs a budget of $3,090,101.00.

Recommendations 3 and 4 - Payroll:

I agree with both recommendations. It will be the responsibility of the Accounting Manager to distribute the payroll cheques and act as the custodian of the unclaimed cheques. This position will also check all payroll changes effecting pay rates. In the absence of the Accounting Manager, this responsibility will be transferred to the Vice-President, Finance and Administration.

Recommendation 5 - Advertising:

All advertising agencies will be required to submit tear sheets/affidavits. The media audit will be conducted on a test basis with each agency unless a discrepancy is found at which time the audit will be expanded.

Recommendation 6 - Membership Fees:

Any negotiated fees will be approved by the Vice-President, Marketing and myself.

Recommendation 7 - Membership Database:

The 1998 Capital Budget included funding to upgrade/replace the existing membership software.

Recommendation 8 - Web Site:

The web site is currently reviewed and updated by a webmaster. The budget provides for this position one day per week. Additional resources will be provided by the Marketing Department to ensure that the web site is reviewed and updated on a timely basis.

Recommendation 9 - Year 2000:

Thank you for the copy of your report to the Audit Committee on year 2000 issues. The Vice-President, Finance and Administration will be contacting the Commissioner of Corporate Services to see what assistance can be provided to Tourism Toronto in order to get ready for the year 2000.

If you agree with my response to the recommendations, I will submit copies of your letter and my response to the Board of Directors.

On a more personal note, thank you for your guidance and support over the last three years and for your encouraging comments made to our Board of Directors.