Attachment 1
Office of the City Auditor Quarterly Report – March 2006
Quarterly Report – March 2006
Office of the City Auditor
1.Introduction
This report provides an overview of the activities of the Office of the City Auditor (OCA) during the period of mid-November 2005 to the end of February 2006. During this period, the OCA is reporting on eight completed projects, as well as assistance we provided to the City’s External Auditors and our Continuous Monitoring Applications. In addition to two governance reports, the OCA completed thirteen projects during this reporting period from which eight formal audit reports (one of which incorporated the results of three separate cash-handling projects) were produced. Three other projects did not result in formal reports, but are summarized in this report.
2.Progress Monitoring
To improve our activity reporting In order to increase its level of accountability to Audit Committee and Council, the OCA willhas decided to provide updates of our progress its activities toward completionng of the its approved Annual Work Plan in each quarterly report. This is the first of these detailed reports. The report is divided into project categories to provide a better sense of the type of work that is associated with each project. The OCA believes that these reports will assist Audit Committee and Council in their governance role by enabling them to better monitortrack the City Auditor’s progress towards completing the approved Annual Work Plan.
The timing of specific projects may be influenced by the emergence of investigations and other projects during the year. In addition, the OCA may discover information or encounter circumstances during the course of a project that require expansion of the project scope or extending the planned timeline.
# / Project Title / Project StatusNot Started / In progress / Complete
OCA Governance Reporting
1 / 2005 Annual Report /
2 / Quarterly Report – March 2006 /
3 / Quarterly Report – June 2006 /
4 / Quarterly Report – September 2006 /
5 / Quarterly Report – November 2006 /
6 / OCA External Quality Assessment /
7 / 2007 Annual Work Plan /
Branch Audits
8 / Transportation Planning Branch /
9 / Edmonton Transit Branch /
10 / Assessment & Taxation Branch /
Operational Audits
11 / Purchasing Process /
12 / Project Change Order Review /
13 / Debenture Servicing /
14 / Hotline Evaluation /
15 / EPS Charitable and Fund Raising Review /
16 / Governance Review - City of Edmonton /
17 / Corporate Payment Cards /
18 / Performance Measurement /
Information Technology Audits
19 / MainLink Post Implementation Review /
20 / Value Case Analysis Methodology /
21 / Property Assessment Data Security /
22 / Continuous Monitoring /
23 / Internet Usage Review /
Investigations
24 / Fraud Policy Revision and Promotion /
25 / Economic Crime Awareness /
Cash Handling Audits
26 / Community Services – Cash Handling Sites /
27 / Community Services – Eastglen Leisure Centre /
28 / Surplus Sales – Westwood Facility /
29 / LRT Ticket Vending Machines /
30 / Edmonton Transit – Ferrier Garage /
31 / LRT Portable Fare Boxes /
Emerging Issues
32 / Boxing and Wrestling Commission /
33 / External Auditor Assistance /
Follow-up Reviews
34 / Assessment Review /
35 / Telecommunication-Cellular Telephones /
36 / Corporate Overtime /
37 / EPS Overtime /
38 / Edmonton Composter Facility /
39 / Municipal Election 2004 /
40 / EPS Comprehensive /
41 / EPS Governance /
42 / South East Yard /
43 / Business Licensing Revenue /
Corporate Projects
44 / FOIP Steering Committee /
45 / E-Records Steering Committee /
46 / Management Job Evaluation Review Team /
47 / IT Technical Council /
48 / Business Planning Coordination Team /
49 / Environmental Management System Steering Committee /
50 / City of Edmonton Management Association /
3.Completed Reports
3.1.Project Change Order Review
In its 2005 Annual Work Plan, the OCA scheduled a review of project change orders for construction projects. The objectives for this review were to identify the underlying reasons for changes to contracts issued for capital construction projects, verify compliance with delegated authority and other relevant governance documents, and determine where opportunities for improvement to the City’s processes exist.
Generally, project change orders are well managed at the project level. However, each branch reviewed has developed its own project management practices to meet operational objectives. This results in varying project management practices throughout the organization. At the corporate level, project management guidelines, capital budget instructions and purchasing directives do exist, but do not clearly identify monitoring responsibilities and processes to ensure consistency or compliance with corporate requirements. As a result, corporate monitoring is either not in place or is ineffective and the administration has limited ability to demonstrate that existing project change management processes adequately and consistently protect the City’s interests.
By comparing the differing practices observed and by reviewing corporate processes and documentation, the OCA was able to identify opportunities for improvement to four processes:capital budget, project change management, monitoring and reporting, and governance and accountability.The report includes eight recommendations which ensure that corporate and departmental responsibilities and requirements are clearly identified and aligned, and that communications and monitoring strategies are in place to increase the likelihood of consistent application of processes. The OCA believes that these improvements will help ensure that appropriate governance oversight occurs and will provide the ability to demonstrate that processes adequately protect the City’s interests. The administration has accepted the eight recommendations and provided action plans for implementation.
3.2.Edmonton Police Service Charitable and Fund Raising Activities Review
The Edmonton Police Service (EPS) requested that the OCA provide a review of itsEPS charitable and fund raising activities since these initiatives have increased both in nature and scope over the past several years.
The EPS is actively involved in several non-profit and charitable activities that are directly or indirectly related to policing activities(e.g., DARE). It is generally understood and accepted that EPS involvement in non-core programs is instrumental to building better and safer communities and delivering quality programs and services.
This review focused on those activities sponsored or performed by EPS that involve collecting donations, obtaining sponsorships and fund-raising. The objectives for this review were to:
- Assess cash handling practices and procedures,
- Assess the program selection process,
- Review program revenues, expenditures and controls, and
- Assess program monitoring and reporting.
Overall, the programs that the OCA reviewed generally followed EPS and City of Edmonton procedures related to expenditure controls. However, the diversity of personnel involved in collecting and recording revenue resulted in a variety of methodologies being used and, consequently, different levels of assurance that all revenue was collected and reported accurately. Although no incidences of inappropriate transactions were identified, EPS involvement in any program has the potential to impact the perception of EPS’ integrity. Therefore, EPS must strive to maintain high standards to ensure that the likelihood of any improprieties is minimized.
The OCA made recommendations to address:
- The need for program selection and evaluation criteria,
- The need for a program charter templateto ensure that each type of program is administered consistently, and
- The application of existing EPS policies and procedures (relating to cash handling and bank accounts) for non-core program operations to ensure that proper controls are in place.
In response to these recommendations, EPS developed implementation plans that are acceptable to the OCA.
3.3.Cash Handling Audits
Cash handling reviews are performed to determine whether cash resources are handled in a manner consistent with established City requirements and are adequately safeguarded against loss. These reviews consist of an objective review and evaluation of the cash handling practices and procedures relating to the receiving, transporting, storing, depositing, recording and safeguarding of City money (including cash, cheques, credit cards and debit card transactions).
3.3.1.Surplus Sales – Westwood FacilityCash Handling Review
The surplus sales function is operated by theSurplus, Freight, & Customs operation within Materials Management of the Finance Branch using three sales methods. Various sales methods are used based on the type of asset being sold. Surplus equipment, which includes heavy trucks, tractors, golf carts, tractor mowers and other miscellaneous equipment, is offered for sale through semi-annual public tenders. City vehicles are sold at auction, scrap metal is sold to a scrap metal company, and abandoned vehicles are either sold at auction or to a scrap vehicle dealer. Office furniture, computers and other assets are usually sold at auction.
During our initial site visit, the OCA observed a control weakness over the tendering process followed for surplus equipment sales. As a result, the OCA decided to audit thatetender process for surplus equipment sales as well as the scheduled audit of cash handling procedures.
The OCA found that in general, cash handling procedures were working effectively andmade three recommendations that will strengthen controls over surplus equipment sales. Those recommendations addressed segregation of tendering and bid-opening duties, reconciliation of successful bids and deposit amounts, and updating the procedure manual to incorporate these process changes and to modify outdated procedures.
Management agreed with all recommendations and provided an implementation action plan that is acceptable to the OCA.
3.3.2.Edmonton Transit Cash Handling Reviews
The OCA completed cash reviews in the following areas of Edmonton Transit: (1) LRT Ticket Vending Machines, (2) LRT Portable Fare Boxes, and (3) the cash-handling site at Ferrier Transit Garage.
The OCA made five recommendations that are designed to improve the safeguarding of cash assets and to enhance controls over cash processing. Management agreed with all recommendations and provided an implementation action plan that is acceptable to the OCA.
The OCA consolidated the results of the three reviews into one report rather than issuing separate reports.
3.4.Hotline Evaluation
In May 2005, the OCA evaluated the City’s ethics management framework in collaboration with departmental management teams and members of the Senior Management Team (SMT). Reporting of alleged violations was one of the framework elements evaluated. Leading practice organizations provide several easily accessible ways for people to safely, effectively and confidentially report alleged violations of the Code of Conduct, policies and other acts of misconduct.At the SMT meeting of June June116, ,2005, the City Auditor in conjunction with the General Manager of Corporate Services agreed to review the need for and assess the risks and benefits of reporting alleged violations through a hotline.
The OCA in collaboration with Corporate Services researched leading practices for enhancing reporting methods, including the associated risks and benefits. Our research, including the results of a survey conducted to gauge employee perceptions, indicated that although the City’s current measures are useful and reasonably effective, additional measures are likely to be successful in increasing employee comfort levels and willingness to report misconduct.
The City could offer more formal protection to employees who make disclosures by establishing and implementing a whistle-blowerCity policy. Our research of better practices in leading organizations indicates that an integrated whistle-blower and fraud investigation policy serves organizations well in providing a high profile for combating fraud, waste and abuse. SMT and Union/Association leaders support the implementation of a whistle-blower policy to provide additional protection to employees.
A hotline facilitates the reporting of alleged misconduct in a confidential and anonymous manner, if the caller desires. Although it comes with additional cost and some level of nuisance calls since callers are allowed to remain anonymous, the benefits outweigh the costs and risks involved. The Employee Hotline Survey results also support the use of a hotline. SMT supports the implementation of a hotline as an additional method of reporting and agrees that in order to provide the required independence and objectivity, the OCA should lead this initiative. Union/Association leaders have expressed some concerns with a hotline but have agreed to work with the OCA and SMT to establish a fair and credible process. Council’s approval will be required to incorporate the OCA’s oversight role in Bylaw 12424, City Auditor Bylaw.
The City Auditor made two recommendations to City Council to address these matters.
3.5.Boxing and Wrestling Commission Governance Review
The Community Services Committee of Council requested that the OCA conduct a Governance Review of the Edmonton Boxing and Wrestling Commission (Commission). The objective of the Governance Review was to review and assess the effectiveness of the governance roles, responsibilities, and operations of the Edmonton Boxing and Wrestling Commission.
City Bylaw 5821 - Boxing, Wrestling and Other Combative Sports established the Commission to govern the regulated sports. The Commission has full power and authority to supervise, regulate, govern and control boxing, wrestling, full-contact karate, kickboxing, and other regulated sports that hold contests between opponents involving striking with hands, feet, knees or elbows, bouts and contests, and to approve training quarters for persons in training for the regulated sports.
The Commission is comprised of seven members and is supported by an Executive Director. The position of the Executive Director of the Commission exists to ensure that the business of the Commission is carried out effectively, efficiently, and in accordance with the provincial and municipal legislation governing Commissions. Commissioners are appointed by Council for no more than six consecutive one-year terms, from January 1 to December 31 of each year.
The audit report provided the Committee and Council with appropriate information prior to their appointing Commissioners for the remainder of 2006. The OCA’s observations and recommendations covered the following governance areas: new member Board orientation and composition, role clarity, meeting protocol, and conflict of interest policy. In addition, information from other jurisdictions was compiled and summarized in the report for information.
The Chair of the Community Services Committee of Council requested that the OCA undertake a governance review of the Edmonton Boxing and Wrestling Commission (Commission).
City Bylaw 5821 – Boxing, Wrestling and Other Combative Sports established the Commission to govern regulated sports. The Commission is comprised of seven Edmonton residents who are appointed by Council and is supported by an Executive Director.
The objective of this review was to assess the effectiveness of the governance roles, responsibilities, and relationships of the Commission.
The Commission is a working committee comprised of capable people with a passion for the combative sport industry. The Commission members contribute valuable background experience and knowledge to the regulation of these sports, thus adding credibility to the City. There is a good cross section of representation on the Commission and the members are committed to the mission of ensuring the safety of the participants and public.
The OCA’s observations and recommendations focus on enhancing the governance framework through: a) Improved Orientation and Training to address role clarity, meeting protocols, and the need for a Conflict of Interest policy; b) Revisions to the Bylaw to ensure the Commission’s Mandate is accurately reflected; and c) Review of City Policy/Procedures regarding the Commissioner Appointment Process and the Annual Reporting of Commission activity to Council. The OCA received acceptable action plans from both the Commission and the Office of the City Clerk.
3.6.Debenture Servicing Review
The OCA’s 2005 Annual Work Plan included an audit of the Debenture Servicing process. The City of Edmonton utilizes two types of debentures: private issues and public issues.The objective of this audit was to conduct a debenture servicing review of the public issue debenture process, specifically the processes related to the transfer procedures, interest payments and the corporate debenture tracking system control procedures for the City of Edmonton’s Public Issue debenture process.
As of December 2005, $575 million of Public Issue debentures were outstanding on the Debenture Tracking System. The principal and interest paid in 2005 on these debentures totalled approximately $90 Million. Additional interest and principal payments totalling approximately $50 million were made in 2005 on debentures that matured during the year.
This audit included a risk identification and assessment, verification of debenture transfer and interest payment procedures, a physical security check of the vault, testing of un-issued certificates and a 100% external confirmation of outstanding debenture balances. The report included two administrative recommendations that have been acted upon by the Finance Branch. The OCA concluded that the City’s debenture servicing process for public issue debentures has adequate controls in place.
3.7.External Audit Assistance
The OCA assisted the City of Edmonton’s external auditors, Deloitte & Touche, in the audit of the City’s 2005 financial statements. The OCA tested controls related to departmental involvement in three computer applications (TACS, Peoplesoft and POSSE) to assess the operational effectiveness of those controls. The external auditors will use the results of those assessments to determine the nature, extent and timing of their detailed audit procedures.
The external auditors provided an audit program for the OCA to complete for each of the three applications. The OCA completed the testing and submitted the results to the external auditors. Based on the external auditor’s blended rate, this assistance would have been valued at approximately $8,000. The OCA will not issue a formal report on this project because it forms a part of the external auditor’s report on the City’s financial statements.
3.8.Property Assessment Data Security Review
The OCA reviewed the process of summarizing property assessment data, establishing data access controls, and maintaining data security. The objective of the review was to ensure that appropriate security of confidential property assessment data is in place.