Attachment 1
Office of the City Auditor Quarterly Report – March 2003
Quarterly Report – March 2003
Office of the City Auditor
Introduction
This report summarizes the activities of the Office of the City Auditor (OCA) during the period of late November 2002 through February 2003. As always, the OCA invites comments from members of Council regarding clarity and contents of this report.
Issues and Observations
Audit Committee Training and Awareness
The OCA worked with the City’s External Auditor (KPMG LLP) to produce an awareness and training information resource designed to assist members of both Council and Audit Committee in enhancing their governance roles and responsibilities related to corporate oversight. With Council’s motion on October 1, 2002, the OCA was assigned (through the Procedures and Committees Bylaw, the City Auditor Bylaw, and the Audit Committee Terms of Reference) to coordinate the development and delivery of training and awareness materials for Audit Committee and other members of Council. It is the intention of the OCA to present training and awareness sessions to members of Audit Committee and interested members of Council each year following rotation of committee assignments. This material will be reviewed annually and updated as required to ensure that it remains current. The first presentation was made to Audit Committee and other members of Council on March 10, 2003.
Financial Governance Review
The information presented in this section is related to the City Auditor’s responsibility as defined in Bylaw 12424, City Auditor Bylaw as a means of enhancing the financial governance role of Audit Committee.
Skyreach Centre
The City’s support agreement for Skyreach Centre expires in 2004. The City Manager approached the OCA in the fourth quarter 2002 and requested a financial and operational review of Skyreach Centre in the context of the current Northlands agreement.
The OCA evaluated Northlands’ pro forma financial information for the years 2003 to 2009. The underlying assumptions reflected in the pro forma statements, the capital and major maintenance program developed by Northlands for 2003 to 2014, and the Administration’s analysis of prior years’ financial statements were also reviewed. The operating revenue assumptions seem to be reasonable, but the expense forecasts are understated by about $1 million in wages and assume only inflationary increases in other expenses. The pro forma estimates of expenses are, therefore, most likely understated.
The OCA observed that without the City’s annual contribution to operating and maintenance expenses ($2.4M in 2003), Northlands will likely experience ongoing operating losses (at least $1.3M in 2003, growing to at least $1.7M in 2009) in the operation of Skyreach Centre. Northlands’ capital program predicts significant annual funding shortfalls, averaging $0.7M from 2003 through 2007 and $1.5M from 2008 through 2014. The most significant difference is that Northlands is planning to maintain its level of funding for major maintenance projects, but to reduce its funding for capital projects by about $1.3M per year.
The most basic assumption underlying the pro forma statements is that historical usage patterns will continue.
City Centre Airport
On November 25, 2002, Special Executive Committee (now Audit Committee) asked the City Auditor to prepare draft terms of reference for conducting a high-level review of the City Centre Airport’s operating plan. The OCA has held several meetings with Edmonton Regional Airport Authority (ERAA) to discuss the scope of the potential review and to obtain preliminary operating and capital information. The OCA will submit a draft terms of reference document for Audit Committee’s consideration on March 27, 2003.
Completed Reports
Drainage Operations Work Analysis
The Work Analysis study conducted by Drainage Operations and the University of Alberta with technical support from the OCA is now complete. Productivity standards have been developed and implemented for low pressure flushing, high pressure flushing, mainline televising, service line rodding & televising, commercial establishment investigation, and catch basin cleaning. The productivity standards predict average productivity gains of about 18% over historical levels. The projected cost saving for Drainage Operations after the new productivity standards are implemented is approximately $300,000.
The specific productivity gain and approximate annual cost saving associated with each crew is as follows: low pressure flushing (29%, $91,000); high pressure flushing (1%, $14,000); mainline televising (4%, $26,000); service line rodding & televising (8%, $86,000); commercial establishment investigation (49%, $53,000); and catch basin cleaning (16%, $46,000). To date, approximately $100,000 in savings realized by implementing productivity standards developed during the project has been identified by Drainage Operations. They will be incorporating the productivity standards directly into the SAP maintenance module to facilitate work crew efficiency reporting.
Cash-handling Reviews
Cash Handling Reviews determine whether cash resources are handled in a manner consistent with established City requirements and to assess the adequacy and effectiveness of internal controls at each cash-handling location reviewed. This quarterly report includes summaries of five cash-handling reviews.
Community Services Bookings and Information
The Bookings and Information Section of City Wide Services Branch, Community Services provides and administers booking services for City sports, recreation and room facilities. Revenues for the section amounted to $5.1 million in 2002 of which $4.7 million were attributed to arena rentals.
The OCA’s review indicated that cash controls at the Bookings and Information section are strong. In particular we noted good segregation of duties and strong monitoring of cashier activity.
ERD Public Safety and Education
In 2002, ERD contacted the OCA and requested that a cash audit be performed in the Public Safety and Education section of the Fire Prevention Branch. The section uses a manual cash collection system to collect approximately $75K annually for such items as file searches and permit applications for dangerous goods, fireworks, and pyrotechnics devices.
This review identified a number of recommendations focussed on strengthening internal controls, improving tracking processes and increasing accountability for file search request and permit revenue receipts. In addition, some opportunities for operational improvements were presented to Management. All recommendations were accepted by Management and implemented or scheduled for implementation.
Planning and Development Animal Control Pound Section Follow-up
The Animal Control Pound Section was audited within the previous 3 years, therefore the scope of the audit was restricted to following up on the recommendations contained in the previous audit, which was conducted by a consultant hired by the OCA. Of the two recommendations made by the consultant, one has been fully implemented and the other is no longer applicable because of process changes.
Commonwealth Stadium
Early in 2002, a scheduled in-house review was conducted by the Cash Handling and Business Processes Supervisor of Community Services, with the assistance of a Cash Consultant from the Finance Branch of Corporate Services. This internal review covered many topics including identification of a number of control weaknesses at the Fitness Centre. Improvement recommendations were provided to management regarding such matters as cashing out, segregating cashier duties, monitoring cashier operations, refund documentation, and reconciliation requirements between the CLASS Program Registration and CLASS Point of Sale systems.
The OCA reviewed the working papers and recommendations of the in-house review team and placed reliance on the internal review conducted. Several additional opportunities for improvement were noted by the OCA during its review. The OCA provided additional recommendations to management to address these opportunities for improvement. The OCA’s recommendations related to matters such as post-dated cheques, retention of credit card data, logging off terminals when leaving the work area, timing of activities at end of shift, and the completeness of data on audit and reset register tapes. The OCA received satisfactory management action plans for each of the opportunities for improvement.
Office of the City Clerk
The OCA reviewed the revenue receipt and accounting procedures surrounding the 2001 municipal election, and examined the cash handling and accounting practices and procedures for all other revenue sources. Every year these sources include appeal fees from Assessment Review Board and Subdivision and Development Review Board, recovery from the school boards for a share (40%) of the ongoing costs of two permanent election staff, a contract with Telus for standby service at the Records Centre, and miscellaneous sales.
In election years, the revenues from the school boards are much higher than in non-election years, due to the significantly greater expenditures incurred in those years to conduct the election. School board billings for the 2001 municipal election were over $720,000. Additional revenue of over $640,000 was received during the 2001 election from the Province because the City handled the election of Capital Health Authority board members. This will not be an ongoing source of revenue in future elections. Another small source of revenue in election years is the candidates’ deposits. All candidates nominated for election pay a deposit, which may be reimbursed to the candidates following the election.
The OCA review identified several opportunities for improvement that were presented to and discussed with the Office of the City Clerk. These related to matters such as the timeliness of deposits, controls over receipt books, reconciliation procedures at the Assessment Review Board (ARB), and accounting practices for ARB appeal fees. The OCA received satisfactory management action plans for each of the opportunities for improvement.
Fraud Investigation - Valley Zoo
In 2001, as a part of regular operational reviews, including random cash checks, irregularities were discovered in cash handling at the Valley Zoo. The Community Services Department immediately advised the OCA and an investigation was undertaken. This investigation revealed evidence of fraudulent activities by a part-time cashier. The individual under investigation resigned from employment with the City of Edmonton in June 2001.
On July 30, 2001,the Office of the City Auditor turned the results of the investigation over to the Economic Crimes Section of the Edmonton Police Service. The OCA Final Report was completed and forwarded to members of Council in May 2002. On July 26, 2002, the Edmonton Police Service charged the former employee with theft over $5,000 and fraud over $5,000. The individual appeared in court on September 11, 2002 at which time a court case was scheduled for April 22, 2003.
The ex-cashier appeared in court on February 26, 2003 and plead guilty to the charge of theft over $5,000. The charge of fraud was withdrawn. The thefts began on May 1, 1999 and over the next two years, the individual took a total of $17,116.12, covering the thefts with false refund transactions. The individual was given a six-month conditional sentence and committed to repay the stolen funds.
Corporate Overtime
The City of Edmonton expends substantial sums of money every year on overtime. Corporate overtime costs from 1999 through 2002 were $13.3M, $15.1M, $18.3, and $18.5M respectively (excluding EPS Salaries – Court Time, which is a mix of overtime and regular time). The planned scope of work for this project was to focus on operational areas in the City that make significant use of overtime and analyze the rationale for using overtime rather than increasing the size of the workforce or identifying and implementing operational efficiencies that would reduce dependence on overtime.
The OCA recommended that the Office of the City Manager (OCM) undertake a corporate-wide review of the management and control of overtime expenditures. Key components of this review will include effective directing measures, appropriate segregation of duties, effective management information systems, and evaluation of alternative approaches.
The City Manager and Senior Management Team have accepted this recommendation and have initiated a review of the corporate use of overtime. Edmonton Police Service and Edmonton Public Library will also participate in this review. Implementation is planned for completion in 2004.
Delegation of Authority Follow-up
In 1999, the City Manager requested that the Office of the City Auditor (OCA) conduct a review of the delegation of authority process that originated with the City Administration Bylaw No.12005. The OCA assessed the adequacy of mechanisms developed and implemented by departments to effect the delegated authority as well as the reporting process for two quarters in 1999. Opportunities for improving the process were presented to the relevant departments and members of the Senior Management Team and progress made was noted. This information was also included as part of the administration’s reports to City Council. A number of changes have taken place in the reporting process since the last review.
The OCA has completed a follow up review of the current delegation of authority and reporting process. This review focussed on determining whether the present process is clear to the users and operating efficiently, whether the required delegation instruments are in place, and whether the reporting process to City Council is operating as intended.
Based on this review, the City has an adequate overall process for ensuring that authority for expenditures exceeding $100,000 has been delegated and all relevant contracts and agreements are authorized in accordance with the City’s delegation and sub-delegation of authority documents. Three opportunities for improvement were identified for ensuring that the delegation documents are kept current and the existing Guidelines for Reporting of Contracts and Agreements are updated to reflect the current process. These have been accepted by the Administration and appropriate action plans have been developed.
Telecommunications Review – Phase 2
In Phase 1 of this project, the OCA reviewed the use of cellular telephones and made recommendations to strengthen controls over their acquisition and use. In Phase 2, the OCA assumed a proactive role in assisting the Administration with development of the City’s telecommunications strategy and provided quality assurance feedback on the completeness of the strategy. The development of the Telecommunications Technology Strategy (TTS) is based on recognizing the importance of telecommunications as a business foundation necessary for the overall viability of operations, aligning the telecommunication function with corporate and business unit goals, and managing the City’s investment in telecommunication assets and tools.
Our involvement in the development of the Telecommunications Technology Strategy that was presented to the Senior Management Team on September 20, 2002 included:
- Reviewing and providing feedback on project documentation including the project scope and draft report,
- Providing input to the telecommunication needs-identification process,
- Observing the information-gathering process,
- Reviewing research documentation, and
- Holding meetings with individuals associated with other City telecommunications initiatives.
The OCA is satisfied that all significant aspects of the City’s telecommunication service needs have been considered in the development of the TTS and that reasonable effort is being taken to reduce the risks of incompatible telecommunication strategies and duplication of service.
Assessment Operations – Productivity & Quality Improvement
In response to a request for assistance from the Assessment & Taxation Branch, the OCA developed a project charter and plan for productivity and quality improvement of Assessment Operations. This project is designed to implement key recommendations of the OCA’s 2002 Assessment Audit by developing productivity standards, a systems-management philosophy for improved co-ordination, and a quality management system with in-process quality control measures to improve the overall effectiveness of the program. The Assessment & Taxation Branch has reviewed the project charter and plans to initiate the project following completion of the current reorganization efforts. The OCA will provide periodic updates to Audit Committee on the Administration’s progress in implementing the recommendations.
Grant Allocation Process Review
The City of Edmonton values the contribution that the not-for-profit sector makes in social, personal, economic and environmental areas. Individuals and teams selected to represent the City in eligible events achieve excellence in arts, recreation, multicultural, or sports activity, and contribute to the quality of life in Edmonton. The City of Edmonton has committed to supporting these activities and providing limited operating and financial assistance by awarding Community Investment Grants to organizations and individuals through City Policy C211E. The OCA assessed the allocation processes for community investment grants awarded pursuant to this policy. These include Operating, Hosting, Travel, Arts, Festival, Major Parades and The Edmonton Art Gallery – “Keeping the Doors Open” grants. These grants are managed by the Community Services Advisory Board, the Edmonton Arts Council and the City’s Community Services Department, depending on the type of grant.
Risk/control assessment sessions were planned, organized and facilitated by the OCA to jointly assess the grant allocation processes with staff from the Community Services and Corporate Services Departments as well as the Edmonton Arts Council. The OCA functioned as an agent of change in this portion of the review. Eighteen risks were identified in a team setting along with ideal controls based on best practices and industry standards to minimize these risks. The current status was assessed through meetings, analysis, walkthroughs, review of documentation, and compliance testing where applicable. Detailed action plans were developed by the groups involved to minimize the risks and enhance the grant allocation processes. Implementation dates have been established for all action plans, and where possible, immediate action was taken by the Community Services Advisory Board, the Community Services Department and the Edmonton Arts Council.
In-Progress Status Reports
This section includes summary progress reports for those projects with significant status changes since the previous quarterly report.