There are no financial implications resulting from the receipt of this report.

Transcription

1 STAFF REPORT April 27, 2004 To: From: Subject: Audit Committee Auditor General Terms of Reference Purpose: To provide the Audit Committee with the terms of reference for certain audit projects included in the 2004 Audit Work Plan that will be commencing shortly or are already in progress. Financial Implications and Impact Statement: There are no financial implications resulting from the receipt of this report. Recommendations: It is recommended that this report be received for information. Background: Each year my office provides a work plan to the Audit Committee that summarizes the projects that will be undertaken. Part of our audit process requires the development of a terms of reference for each project which provides the background, objectives and reporting timeframe for the respective assignment. Comments: The terms of reference for the following projects are provided as Appendices to this report: (1) Payroll Processing and Management of Employee Benefits Finance Department; (2) Cash Controls Follow-up Review Board of Management of the Toronto Zoo; (3) Operational Support Review Emergency Medical Services; (4) Management of the City s Accounts Receivables Finance Department; and (5) City-wide Telecommunications Services Corporate Services.

2 - 2 - Conclusion: Terms of reference for audit projects are important in that they provide direction and focus for the work to be undertaken. They also specify the parameters, scope and objectives of the review, as well as the expected reporting date. However, depending on specific audit findings, it is important to comprehend that the audit process is not specifically restricted to those areas contained in the terms of reference. Contact: Jeffrey Griffiths, Auditor General Tel: (416) , Fax: (416) Jeff.GRIFFITHS@toronto.ca Jeffrey Griffiths Auditor General dl List of Attachments: Appendix 1: Appendix 2: Appendix 3: Appendix 4: Appendix 5: Payroll Processing and Management of Employee Benefits Finance Department Cash Controls Follow-up Review Board of Management of the Toronto Zoo Operational Support Review Emergency Medical Services Management of the City s Accounts Receivables Finance Department City-wide Telecommunications Services Corporate Services C:\DATA\audit\2004\Reports\AG's Office\Terms of Reference - FINAL - April 27.doc

3 - 3 - APPENDIX 1 AUDITOR GENERAL S OFFICE TERMS OF REFERENCE Department/Board: Finance Division: Pension, Payroll & Employee Benefits Project Name: Payroll Processing and Management of Employee Benefits Year of Audit: 2004 Project Code: 04-FPB-01 A. Introduction/Background The Auditor General s 2004 Work Plan includes a review of payroll processing and the management of employee benefits. Phase I of the review covers controls over payroll processing. Phase II will address the management of employee benefits. At the time of amalgamation, the City operated seven financial information and human resource/payroll systems. By February 2001, the City had consolidated the individual systems through the implementation of SAP Canada Inc. s Financial Information System and Human Resources/Payroll system. The original implementation of SAP excluded the Time Entry System of the former Municipality of Metropolitan Toronto, mainly due to the risks involved in implementing this application in the short time frame available. Consequently, the Time Entry System is currently being used to enter staff time for those employees from former Municipality of Metropolitan Toronto. The conversion of the Time Entry System to SAP has begun with expected completion by The Finance Department, Pension, Payroll and Employee Benefits Division has overall responsibility for payroll processing as well as administering various City employee pension plans and benefit packages. Clerks in City departments input time attendance and other payroll data for their employees into both SAP and the Time Entry System. The Corporate Services Department provides staffing, collective bargaining and other personnel functions through its Human Resources Division and information technology support, including enhancements, upgrades and refinements to the SAP system as required through the Information and Technology Division. Effective August 2000, the City consolidated its benefit carriers (from 11 at amalgamation) with the selection of Manulife to administer the employee benefits program. Harmonization of employee benefits plans for unionized employees occurred through the collective agreement process. A harmonized benefit plan for all management and non-union employees was implemented April 1, 2003.

4 - 4 - B. Financial/Operational Highlights Salary costs represent the most significant expenditure in the City. As of December 31, 2003, the salary and benefit costs for City departments provided by management amounted to approximately $1.7 billion (in millions) Regular salaries $1,386 Overtime 41 Separation 15 Employee benefits* 321 Total $1,763 *Employee benefits included above consist of: Comprehensive medical $58 Dental 36 Long-term disability 18 Workplace Safety and Insurance Board 16 Group life insurance 8 Sick pay payments 7 Other 178 Total $ 321 The other benefits category includes primarily legislated benefits such as Employment Insurance, the OMERS pension plan and the Canada Pension Plan. In total, City departments have approximately 36,000 employees (including part-time, casual, temporary). In addition, benefit payments are made to 10,500 retirees. At present time, there are six collective agreements pertaining to employees of City departments. C. Key Financial/Operational Issues and Controls The annual audit of payroll performed by the City s external auditor has not indicated any significant operational issues or control weaknesses over payroll processing. The Auditor General s Office has undertaken several payroll reviews that dealt with specific areas such as payroll input errors, controls over terminated employees and WSIB claims. The City s Fraud and Waste Hotline, operated by the Auditor General s Office, has received a number of complaints regarding suggestions of employee abuse of time and benefits.

5 - 5 - D. Audit Objectives and Scope The objectives of this review are to determine whether: (1) adequate control systems exist to ensure that: - payroll is not inflated by fictitious or terminated employees; - bona fide employees are only paid for hours worked; and - salary and other payments to employees are properly calculated, authorized and recorded; (2) the City s employee benefits plans are monitored and administered by Manulife Financial to ensure: - effective fraud prevention, detection and control systems are in place; and - compliance with the contract terms; and (3) employee benefit claims are paid to or on behalf of eligible recipients and that payments are made in compliance with collective agreements and management benefits plans. We will also determine the extent of implementation of recommendations made in previous payroll audit reports issued by the Auditor General s Office. Based on this review, we will also recommend further action, if any, required to achieve the substance of these recommendations. We will also review all employee payroll and benefits complaints received through the City s Fraud and Waste Hotline and assess the adequacy of underlying payroll and benefits processes and controls. Audit Scope Our review will include an overall assessment of risks and controls over payroll processing and the management of employee benefits for City departments. In order to effectively coordinate audit activities, we have consulted with the City s external auditor and internal audit department regarding payroll work conducted in 2003 and planned in We will also consider any significant issues and risks that they have identified in developing our audit approach. A review of the planned conversion from the Time Entry System to SAP is not part of this review. The audit work will involve a review of policies and procedures, the use of computer assisted audit techniques, interviews with relevant staff, examination of documents and records and the analysis of data. We will also review the work conducted by the external auditor for the year ended December 31, E. Expected Reporting Date Phase I Audit Committee Meeting October 2004 Phase II Audit Committee Meeting To be determined

6 - 6 - APPENDIX 2 AUDITOR GENERAL S OFFICE TERMS OF REFERENCE Department/Board: Board of Management of the Toronto Zoo Project Name: Cash Controls Follow-up Review Year of Audit: 2004 Project Code: 04-BZO-01 A. Introduction/Background In January 2001, the Auditor General issued a report entitled Cash Control Procedures Review to the Board of Management of the Toronto Zoo. The purpose of the review was to improve controls over the cash handling and financial related procedures at the Toronto Zoo, as requested by the Toronto Zoo s General Manager and Chief Executive Officer. A detailed report was also issued to the General Manager and Chief Executive Officer outlining our observations and recommendations. Our report concluded that cash control procedures were for the most part adequate. However, there were opportunities to strengthen controls to reduce the risk of cash losses and enhance physical security, clarify roles and accountability and promote consistency of procedures. The Toronto Zoo management accepted the findings of the report and indicated in the management response that they were addressing all the recommendations. B. Operational Issues and Controls The Toronto Zoo provides a wide range of programs and services that result in the collection and handling of over $22 million in revenue, the major portion through cash sales. Revenue is generated through admissions, retail sales, memberships, parking, rides, rentals and education programs. Cash sales are susceptible to risk of loss and controls such as physical security and independent balancing and reconciliation are needed to ensure that all cash sales are deposited intact. C. Audit Objectives and Scope - To determine the extent of implementation of recommendations made in the Auditor General s January 2001 report; and - To recommend further action, if any, required to achieve the substance of recommendations made in the January 2001 report. E. Expected Reporting Date Audit Committee Meeting October 2004

7 - 7 - APPENDIX 3 AUDITOR GENERAL S OFFICE TERMS OF REFERENCE Department: Works and Emergency Services Division: Emergency Medical Services Project Name: Operational Support Review Emergency Medical Services Year of Audit: 2004 Project Code: 04-WEM-01 A. Introduction/Background Reporting to the Commissioner of Works and Emergency Services, Toronto Emergency Medical Services is the sole provider of emergency medical service response in the City of Toronto. Its mandate is derived from provincial legislation, i.e., the Ambulance Act and its related regulations, the Federal Canada Health Act and other regulations such as the Highway Traffic Act, the Health Insurance Act and the Health Facilities Special Orders Act. The Auditor General s 2004 Work Plan includes a review of the Operational Support Review Emergency Medical Services. This review was selected based on criteria such as financial impact, public sensitivity and safety, and results of past audit work performed. B. Financial/Operational Highlights Toronto Emergency Medical Services is comprised of four divisions: Operations, Central Ambulance Communications Centre, Program Development and Service Quality, and Operational Support. In 2003, it incurred gross expenditures totalling $115.8 million, and an additional $11 million to manage the SARS outbreak and the subsequent SARS Rolling Stones Concert. The Province of Ontario provides annual funding to Toronto Emergency Medical Services for its provision of patient land transfer services and a Central Ambulance Communications Centre in the City. In 2003, Toronto Emergency Medical Services received approximately $61 million from the Province in the form of annual grants and subsidies, and a one-time provision of $10.3 million for incremental costs incurred by Toronto Emergency Medical Services to manage the SARS outbreak. Divisional managers in Toronto Emergency Medical Services are responsible for administering procurement and payment approval processes in their units. The Operations Support Division, with a total of 68 staff in 2003, is responsible for the provision of core support services. Its

8 - 8 - garage services has approximately 240 vehicles and various medical equipment and devices (e.g., stretchers), and manages service contracts with various external garages to provide specialized services or other services that may not be accommodated internally. The Division is also responsible for the ordering, warehousing and delivery of over 2,000 different medical, janitorial and patient care equipment and supplies, as well as auto parts and accessories for its garage operation. The Facility Management Unit responds to breakdowns and emergencies at the Headquarters complex and 41 ambulance stations across the City. The Support Services Division of the Works and Emergency Services Department provides financial support services and recovers its costs through interdepartmental charges. C. Key Financial/Operational Issues and Controls Cost effective deployment of fiscal resources and sound management controls are essential to support the City in delivering high quality emergency medical services within its budgetary constraints. Failure to comply with provincial requirements under the Ambulance Act and related regulations could result in significant fines and liability to the City. D. Audit Objectives and Scope The objectives of this review are to assess whether Toronto Emergency Medical Services has adequate and effective procedures in place to ensure that its programs are managed with due regard for economy, efficiency and compliance with City policies and legislative requirements, and to identify opportunities for cost savings and improved controls. The review will include, but not limited to, an assessment of the following areas: - authorization of purchases, payments and expenditure control processes; - materials and equipment management; and - fleet and equipment maintenance. Procedures will be conducted to validate and evaluate the efficiency and effectiveness of current management control processes that relate to the areas covered in this review. Audit work will involve interviews with relevant City staff, site visits, examination of documents and records, as well as review of recent audits and studies completed. We will conduct surveys and discussions with other ambulance service providers in Canada and the United States to identify best practices, as well as performing any other procedures we deem appropriate. This review will focus only on expenditure controls exercised by Toronto Emergency Medical Services of the Works and Emergency Services Department. It does not include the operation of the Central Ambulance Communications Centre, the delivery of pre-hospital emergency care and non-emergency transfer services that are offered by paramedics in Toronto Emergency Medical Services.

9 - 9 - It should be noted that overtime costs incurred by Toronto Emergency Medical Services totalled approximately $6.4 million (including $1.8 million during the SARS outbreak) in At this time, the Internal Audit Division of the Chief Administrator s Office is reviewing management controls over overtime payments to non-union City staff. The extent of our review in this area will depend on the nature and outcome of the Internal Audit Division s review. E. Expected Reporting Date Audit Committee Meeting October 2004

10 APPENDIX 4 AUDITOR GENERAL S OFFICE TERMS OF REFERENCE Department/Board: Finance Division: Accounting Services Unit: Financial Reporting Project Name: Management of the City s Accounts Receivables Year of Audit: Project Code: 04-FAS-01 A. Introduction/Background The City of Toronto collects a significant amount of revenue each year and the collection of this revenue occurs in separate departments and offices. All City departments are required to review their outstanding receivables on a regular basis and set up allowances for all accounts where collection is considered to be in serious doubt. Accounts Receivable is defined, for the purpose of the audit, as amounts owing from private persons or organizations for goods and services rendered by the City of Toronto through various departments and organizations. B. Financial/Operational Highlights The Accounts Receivable balance for the City is approximately $525 million. While the Finance Department is responsible for providing overall direction in the management of these receivables, individual departments are accountable for administering customer accounts and carrying out the required collection activity. C. Key Financial/Operational Issues and Controls The Auditor General s recent review of billing and collection practices followed by the Parks and Recreation Division, presented to the Audit Committee in May 2004, identified several concerns in the accounts receivable processes with respect to: - policies and procedures, - internal controls, - granting of credit, - record keeping, - monitoring, and - collection.

11 Recommendations were put forward to address the weaknesses identified. Due to the size of the City s Accounts Receivable balance and the decentralised nature of the Accounts Receivable, we have determined that further audit work with respect to the Accounts Receivable processes is required. D. Audit Objectives and Scope Objectives (1) to ensure that effective policies and procedures are in place and followed in the Accounts Receivable processes with respect to: - granting credit, - record keeping, - monitoring, - collection, and - write-offs. (2) to ensure effective internal controls exist and support management s oversight of the City s Receivables. Scope The audit will focus on the Finance Department, other City departments and the Agencies, Boards and Commissions of the City as deemed necessary. Scope Limitations Receivable amounts related to tax and water billings are excluded from this audit. E. Expected Reporting Date Audit Committee Meeting January 2005

12 APPENDIX 5 AUDITOR GENERAL S OFFICE TERMS OF REFERENCE Department/Board: Corporate Services Division: Computer Operations and Telecommunications Services Unit: Telecommunications Services Project Name: City-wide Telecommunications Services Year of Audit: 2004 Project Code: 04-CIT-02 A. Introduction/Background The Auditor General s 2004 Work Plan included a review of telecommunications services provided throughout the City. Telecommunications services are defined as the suite of voice and data communication services including wireless communication devices provided by the City. Although focus will be on the Telecommunications Services Unit we will also examine the roles of the Finance Department and individual departments in exercising due diligence over payment for telecommunication services. This review covers the City s ability to track and manage costs, administration of telecommunication related contracts and payments to vendors, telecommunication inventory practices and the management of changes to required equipment or services. B. Financial/Operational Highlights The Telecommunications Services Unit oversees the management of the majority of the telecommunication services used by the City. It is responsible for the purchasing of all telecommunication equipment, assigning new telephone numbers and voice mails, moves, changes or deletion of all lines and voice mails. The Unit also maintains an inventory of all equipment and associated lines and mailboxes. The Finance Department is responsible for ensuring payment is made to the vendor and individual departments are to monitor the charges made to their cost centers. The Telecommunications Services Unit is divided into two groups one responsible for voice communication and a separate group to deal with the data network. The first group responsible for the Voice infrastructure supports telephone service to 943 locations. The telephone service includes such as items as telephones, faxes, modems, and a total of approximately 4,545 outgoing lines, and 14,285 voice mail users. The types of costs associated with this service

13 include installation and service charges, chargeable messages (long distance), directory advertising, etc. The group overseeing the Data infrastructure is responsible for administering a Wide Area Network (WAN) that has links connecting over 700 locations to the City s enterprise network. The group is also accountable for the acquisition and maintenance of many hardware devices such as routers, switches, etc., needed to handle the volume of activity and to support the City s security requirements. Annual payments in the order of $15 million are made for services related to the City s telecommunication infrastructure requirements, maintenance of its Octel Voic application and Call Centre Management Information System, and long distance charges. Each month Accounts Payable disburses approximately $1 million for equipment and long distance charges billed to the City. The various City department users share these telecommunication costs. C. Key Financial/Operational Issues and Controls Effective and timely reconciliation of telecommunication related charges is necessary to ensure the City is not over billed due to billing errors by the vendor or paying for services that the City is no longer using. In addition, cellular telephone plans which do not match the business users needs, and the improper use and maintenance of telecommunications equipment could increase the overall cost to the City. D. Audit Objectives and Scope The objectives of this review are to determine whether the City effectively manages and oversees the use of its telecommunications services and to identify opportunities for improvement, cost savings and improved efficiencies and controls for: (1) Telecommunications payments and reconciliation; (2) Telecommunications inventory control and management: - land and wireless voice devices; and - data devices; (3) Employees are placed in the most cost effective cellular telephone plan; (4) Management of service changes; and (5) Administration of carrier or vendor contracts. E. Expected Reporting Date Audit Committee Meeting October 2004 C:\DATA\audit\2004\Reports\AG's Office\Terms of Reference - FINAL - April 27.doc