The URL can be used to link to this page

AGENDA - Special General Committee - 20070618SPECIAL GENERAL COMMITTEE - AUDIi COMMITTEE AGENDA N0.O7-27 MONDAY, JUNE 18, 2007 7:00 P.M. COUNCIL CNAMBERS AURORA TOWN NALL PUBLIC RELEASE 15/06/07 AURORA TOWN OF AURORA SPECIAL GENERAL COMMITTEE MEETING AUDIT COMMITTEE AGENDA NO. 07-27 Monday, June 18, 2007 7:00 p.m. Council Chambers Mayor Morris in the Chair I DECLARATIONS OF PECUNIARY INTEREST 11 APPROVAL OFAGENDA RECOMMENDED: THAT the agenda as circulated by the Corporate Services Department be approved. III DELEGATIONS (a) Mr. Paul Duggan and Ms Megan Foster, Regional Auditors Re: Presentation on Audit Approach for Municipal Internal Audits (b) Mr. John Gutteridge, Director of Financial Services/Treasurer Re: Budget Process Review Special General Committee - Audit Committee Meeting No. 07-27 Page 2 of 2 Monday, June 18, 2007 IV CONSIDERATION OF ITEM REQUIRING SEPARATE DISCUSSION 1. AC07-003 pg.1 Internal Audit Reports RECOMMENDED: THAT the Leisure Complex Audit Report and the Procurement & Accounts Payable Audit Report be received; and THAT appropriate action be taken to resolve all the issues identified and outstanding. 2. AC07-001 pg.20 Audit Committee Terms of Reference 3. AC07-002 pg.26 2007 Budget Process Review 4. Proposed 2008 Budget Timetable pg. 32 XI ADJOURNMENT SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE Jj --Ttpru/ AGENDA ITEM # i TOWN OF AURORA AURORA AUDIT COMMITTEE REPORT No. AC07-003 SUBJECT: Internal Audit Reports FROM: L. John Gutteridge, Director of Finance/Treasurer DATE: June 18, 2007 RECOMMENDATIONS That the Leisure Complex Audit Report and the Procurement & Accounts Payable Audit Report be received and That appropriate action be taken to resolve all the issues identified and outstanding. BACKGROUND In 2006 the Town entered into an agreement with the Region of York to provide internal Audit Services to the Town of Aurora. The attached reports on "Leisure Complex Audit Report" and "Procurement and Accounts Payable Audit Report" are the first two report completed and presented to the Town. We are presenting these to the Audit Committee for your information. COMMENTS We have invited Mr. Paul Duggan, Director —Audit Services, Region of York, and Megan Foster our Regional Auditor to this meeting to explain the process that has determined areas for review and to answer any questions you may have regarding these reports or their engagement with the Town. IZIL1 FINANCIAL IMPLICATIONS Some of the recommendations have a cost to implement. CONCLUSIONS As can be seen in the reports they have identified the issue and made recommendations —1— SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE JUNE 18/07 June 18, 2007 - 2 - Report No. AC07-003 for correction, this is followed by management's comments and timeline for resolution. LINK TO STRATEGIC PLAN Goal D: Ensure transparent, accountable and open governance in concert with informed and involved citizens Objective D1: Continue the commitment of fiscal responsibility and accountability Objective D2: Enhance customer service Objective D3: Be accountable and transparent to residents by ensuring open and accessible information flow and accessible decision -making Objective D4: Create a respectful environment that fosters team work and open dialogue, consistent with a Character Community. These Objectives acknowledge the responsibilities required by governance that contribute to informed and involved citizens. ATTACHMENTS Attachment #1 - Leisure Complex Audit Report Attachment #2 - Procurement & Accounts Payable Audit Report PRE -SUBMISSION REVIEW Prepared by:11L. John Gutteridge, Director of Finance/Treasurer-Ext. #4111 utteri ge John S. Rogers of Finance/Treasurer Chief Administrative Officer -2- SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE JUNE 18/07 ATTACHMENT#1 Town of Aurora — Leisure Complex r uuu ;upu,t April 2006 Town oT Aurora -Leisure vompiexx Audit Rn"ort April 2006 Internal Audit Report -3- SPECIAL GENERAL COMMITTEE —AUDIT COMMITTEE JUNE 18/07 Town of Aurora — Leisure Complex Audit Report April 2006 TABLE OF CONTENTS Section Page No. 1.0 MANAGEMENT SUMMARY 2.0 INTRODUCTION 3.0 OBJECTIVES AND SCOPE ........................... ............. ................ ..................... ................... I..... I..................3 4.0 DETAILED OBSERVATIONS AND RECOMMENDATIONS................................................................4 4.1 CASH HANDLING PROCEDURES AT RECEPTION.....................................................................................4 4.2 CASH BALANCING/CLOSING PROCEDURES........................................................................................... 5 4.3 TICKETS/MEMBERSHIP PASSES............................................................................................................. 6 4.4 CLASS SYSTEM....................................................................................................................................7 4.5 AQUATICS COMPLIANCE.......................................................................................................................8 Internal Audit Report —4— Page 1 SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE JUNE 18/07 Town of Aurora — Leisure Complex Audit Report 1.0 Management Summary Audit Services has completed a review of the operations at the Town of Aurora's Leisure Complex (ALC). Based on the work performed, we were able to highlight opportunities to introduce or enhance management internal controls relating to: • Cash handling procedures at the reception desks. • Pay as You Go tickets and memberships passes. • Processing of cancellations/withdrawals in the Class system. • Compliance with Ministry of Health regulations pertaining to operation of the pool. A draft copy of this report has been discussed with Leisure Services Management. They have provided us with their comments and have agreed to take the necessary action to implement the noted recommendations. Should the reader have any questions or require a more detailed understanding of the risk assessment and sampling decisions made during this audit, please contact the Director, Audit Services. We wish to thank the Town of Aurora Treasury, and Leisure Services management and staff for their- co-operation and assistance in providing Audit Services with requested documentation and timely responses. 2.0 Introduction In June 2005 the Town of Aurora and York Region entered into a memorandum of understanding for the delivery of audit services. To determine which areas would benefit most from audit services, an Audit Plan was developed by the Audit Services Branch using a Risk Assessment Methodology that helps to define the different risks associated with the various processes at the town. It is one tool that Audit Services uses in assessing where best to allocate audit resources. The Leisure Services Department is responsible for the planning, development and general/financial management and administration of the Parks and Facilities planning, construction, maintenance of operations, community and heritage program development and delivery for the residents of Aurora. The Aurora Leisure Complex provides a wide range of recreational programs and services including fitness, pool and squash memberships, and aquatics. Internal Audit Report -5- Page 2 SPECIAL GENERAL COMMITTEE —AUDIT COMMITTEE JUNE 18/07 Town of Aurora — Leisure Complex Audit Report April 2006 3.0 Objectives and Scope The objectives of this engagement included ensuring: • Controls over cash handling are in place and adequate to ensure the completeness of revenues and reduce the likelihood of fraud. • Controls are in place over the completeness, existence and accuracy of the processing and accounting of memberships/program registration. • Compliance with Ministry of Health regulations for the pool. The audit objectives were accomplished through: • A review of cash handling procedures from point of sale through to the accounting and bank records. • A review of registrations/memberships through the Class system through to the accounting records. • Review of regulations, policies and procedures manuals and other related documentation. • Interviews with appropriate personnel. Audit Report Page 3 SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE JUNE 18/07 Town of Aurora — Leisure Complex Audit Report _ A rip 12006 4.0 Detailed Observations and Recommendations Cash Handling Procedures at Reception Observation A review cash handling procedures at the front and back reception desks revealed the following opportunities to strengthen internal controls: • Cash and cheques received as payment for transactions processed through Class are not adequately secured. They are placed in bag which sits on the cabinet at reception throughout the day until closing. • Cheques received as payment are not restrictively endorsed upon receipt. Restrictive endorsement reduces the likelihood of misappropriation. • Gift Certificates are not stamped "redeemed/cancelled" when redeemed. Stamping the Gift Certificates upon redemption ensures that it cannot be presented again resulting in loss of revenues. • Receipts are not printed from the register and given to clients at point of sale. Issuance of receipts is standard procedure and reduces the likelihood of manipulation of sales/cash. Recommendation • Cash and cheques for Class transactions should be put under the money till in the cash register during the day to reduce the likelihood of loss. • The front and back reception desks should be provided with a stamp "For Deposit only to the Credit of the Town of Aurora" and cheques should be stamped upon receipt to reduce the likelihood of misappropriation. • The front and back desk should be provided with a "redeemed" stamp to be used when gift certificates are presented for redemption. • Sales receipts should be issued and given to clients for all transactions. Management Response • Reception desk procedures will be amended to accommodate all recommendations. (by October, 2006) • Cash and cheques for Class transactions will be placed under the money drawer in the register until reconciliation at the end of each day. ( completed ) • A "for deposit only" stamp will be purchased for both the front and back reception desks. ( by October, 2006 ) • Both desks will be provided with a "redeemed" stamp for use on the gift certificates. ( by October, 2006 ) • Staff will provide sales receipts to each customer. ( completed ) Internal Audit Report -7- Page 4 SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE JUNE 18/07 Town of Aurora — Leisure Complex Audit Report 4.2 Cash Balancing/Closing Procedures Observation A review cash balancing and closing procedures at the front and back reception desks revealed the following opportunities to strengthen internal controls: • Closing procedures require staff to adjust the sales figures (i.e. put through a refund or sale) in order to agree with the cash on hand/sales report at the end of the day. Operators should not have access to the master register key and should not be adjusting sales to balance. This procedure encourages manipulation of cash receipts which increases the likelihood of theft. • Cash is not adequately secured at the end of the day. Cash register receipts are placed in regular envelopes and are sealed before being placed in the safe, however the envelopes are not suited for this purpose and the seal is not signed by the person responsible for the cash. This would allow others to open the envelope and re -seal it undetected. Reception staff indicated that they open sealed envelopes for change if needed. • There are no controls over the completeness of items deposited nightly in the safe. The person emptying the safe has no idea how many envelopes are to be collected. If an envelope was missing, it would not be discovered until the daily cash balancing was performed. • On April 5 during observation of closing procedures it was noted that the security camera was not operational, and had not been for a few weeks. On April 18, Operations indicated that they were in the process of getting it fixed. Security tapes could provide key evidence in the event of a break-in. Recommendation • Overages/Shortages should be recorded on the cash sheet and tracked and investigated by accounting personnel (Martine Legate — Secretary/Clerk — Financial) at the Town. A record of overages/shortages by operator should be maintained to identify potential problems. • The master key to the registers should be held by someone other than the operator. This person should run the closing sales reports for the register and sign the tape to reduce the risk of manipulation of sales. • Envelopes suitable for cash should be obtained and used for daily cash receipts. The seal should be signed by the person responsible for the cash. • A control sheet for each reception desk should be created and used to track the number of envelopes deposited. The number of envelopes in the safe should be compared to the control sheet to ensure that all bags are accounted for. • The security camera should be fixed immediately. Internal Audit Report M-M Page 5 SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE JUNE 18/07 Town of Aurora — Leisure Complex Audit Report April 2006 Management Response • Overages and shortages will be recorded on each cash sheet at the end of every day. Accounting personnel will track all overages/shortages and monitor potential problems. ( completed ) • Two staff will be on shift at the close of each day. These staff will run off the opposite report and initial the tape at the end of each day. Both register tapes will be forwarded tc accounting personnel for verification, ( completed ) • Treasury will be requested to provide Leisure Services with sealable bank bags which will be used at the end of each day for daily transactions. ( request made ) • A control sheet will be developed and utilized by the Admin./Budget Co-ordinator daily. The number of bags will be compared with the control sheet on a daily basis, (by October, 2006 ) • The security camera has been updated and is in working order. ( completed ) 4.3 Tickets/Membership Passes Observation Completeness and access controls over tickets (Pay as You Go, punch passes, and membership passes) are not adequate. Tickets are easily duplicated, are not pre -numbered, Large quantities of blank tickets are kept in an unlocked drawer and blank poollaquafit passes are kept in a plastic recipe box on the desk, both of which are susceptible to theft. As tickets are redeemed they are ripped and put in the garbage, nothing is rung into the register and no receipt is given to the client. Improved controls over ticket redemption would reduce the likelihood of lost revenues. Recommendation • Tickets should be redesigned where necessary to include pre -numbering and security features to reduce the risk of reproduction. A log should be kept to enable reconciliation of tickets sold to sales. • Management should investigate the cost of acquiring a web camera, scanner and printer to more fully utilize the technology in the Class system. Photo passes can be produced and usage tracked via the scanner. Multi -use photo passes can also be produced and scanned each time it is used to eliminate the need for books of tickets and punch passes. • Tickets should be stamped "redeemed" and rung into the register under a "no charge" key and a receipt given to the client. Tickets should be retained as evidence of redemption and reconciled to the number of "no charge" sales by the Town accountant. Management Response • Leisure Services is awaiting direction from the Treasury Department on their recommendation for the design of new tickets. ( request made ) Leisure Services will ask IT to investigate the program upgrade in Class as requested in the recommendation. ( ongoing ) Internal Audit Report Page 6 SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE JUNE 18/07 Town of Aurora — Leisure Complex Audit Report • Tickets will be stamped as "redeemed". A "no charge" key will be set up on both registers. Tickets will be collected and rung into the register for reconciliation at the end of each day. ( by October, 2006 ) 4.4 CLASS System Observation A review of transactions processed through the Class system revealed the following opportunities to strengthen internal controls: Operators have the ability to process a cash program/membership withdrawal in the system which increases the risk of misappropriated funds, Although procedures require that the withdrawal confirmation along with the written request be sent to the Town for approval and processing of the refund, it would be possible for a withdrawal to be put through Class on the date of purchase, and the cash could be taken which would likely not be caught until a client complaint was received. • Operators have the ability to change the preset fee amount in Class upon registration for programs/memberships. Manipulation of fees could result in lost revenues. Recommendation • The "Cash Transactions" section of the Class Daily Cash Balancing Report should be reviewed by the Secretary/Clerk — Financial on a daily basis to identify any cash withdrawals processed. Any such transactions should be brought to the attention of the Manager of Programs for investigation. • Management should investigate the possibility of exception reporting in Class which would identify instances where fees have been changed. If available, this report should be printed off daily at the Town to identify and follow up any inappropriate undercharging of fees. Management Response • Review of cash withdrawals on the Class Daily Cash Balancing Report on a daily basis will be implemented in October, 2006. • The Admin./Budget Co-ordinator will investigate the possibility of utilizing an "exception" report as suggested in the recommendation. ( by October, 2006 ) Internal Audit Report -10- Page 7 SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE JUNE 18/07 Town of Aurora — Leisure Complex Audit Report April 2006 4.5 Aquatics Compliance Observation A review of Aquatics compliance to Ministry of Health Regulations revealed the following opportunities to strengthen internal controls: • The Policies and Procedures manual does not include the requirement for Aquatics staff to perform pool chemistry tests every two hours. Including this in the manual would formally establish the testing as an essential component of aquatics staff duties. • Manual pool chemistry tests were not completed/documented every two hours per regulatory requirements. In a 10 day period (April 1-10) 7 out of 10 days had a total of 12 gaps in the 2 hour testing on the deck. Manual testing by Operations revealed 5 out of 7 days had a total of 13 gaps in the testing. Recommendation • The requirement to perform and document pool chemistry testing every two hours should be added to the policies and procedures manual. The importance of performing and documenting pool chemistry testing should be reviewed with staff. The Aquatics supervisor should perform weekly spot checks to follow up. Management Response ® The requirement to perform and document pool chemistry testing every 2 hours will be added to the staff training manuals. The Facility Manager has met with operations staff to ensure compliance. Weekly spot checks will be performed by a full time aquatics staff person and an Operations Supervisor. ( completed ) Allan Downey Paul J.J. Duggan Director of Leisure Services Director - Audit Services Regional Municipality of York Audit Report —11— Page 8 SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE JUNE 18/07 ATTACHMENT #2 Internal Audit Report -12- SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE JUNE 18/07 Town of Aurora - Procurement & Accounts Payable Audit Report October 2006 TABLE OF CONTENTS Section Page No. 1.0 MANAGEMENT SUMMARY ....................... I ..................... .................................................................. 2 2.0 INTRODUCTION 3.0 OBJECTIVES AND SCOPE 4.0 DETAILED OBSERVATIONS AND RECOMMENDATIONS ................................................................ 4 4,1 RESULTS OF DETAILED INVOICETESTING .... .......................... ............................................................. 4 4.2 POLICIES AND PROCEDURES ............................................................................................................ ..... 5 4.3 SIGNING AUTHORITY ..................................... I ........ I ............... I ... I ...... I .................... I ............................. 5 4.4 PROCUREMENT DOCUMENTATION ....................... ................................... I ....... I ... I ....... ........................ 6 Internal Audit Report Page I SPECIAL GENERAL COMMITTEE —AUDIT COMMITTEE JUNE 18/07 Town of Aurora - Procurement & Accounts Payable Audit Report October 2006 1.0 Management Summary We have completed an audit of the Town of Aurora's compliance with the requirements as contained in the Purchasing By-law 4621-04.F. The focus of our review was to determine if processed disbursements and supporting documentation were accurate and appropriately authorized. The scope of the audit included detailed testing of a selected sample of Accounts Payable disbursements issued for the fiscal period January to June 2006, and a review of related supporting documentation. Interviews were also performed with appropriate personnel as necessary. Testing was conducted at a sufficient level of detail to allow us to evaluate the Town's compliance with the current by-law. Based on the work we performed, we conclude that the Town is generally in compliance with the Purchasing By-law. Opportunities for internal control improvements were noted and discussed with appropriate management. These improvements relate to periodic reiteration of individual responsibilities to those who are active within both the purchasing and payment cycles. We have provided our recommendations in the body of the report. A draft copy of this report has been discussed with Accounts Payable and Purchasing management, who have provided us with their comments and who have agreed to take the necessary action to implement the recommendations. Should the reader have any questions or require a more detailed understanding of the risk assessment and sampling decisions made during this audit, please contact the Director, Audit Services. Audit Services would like to thank the Accounts Payable and Purchasing management and staff for their cooperation and assistance. 2.0 Introduction In June 2005 the Town of Aurora and York Region entered into a memorandum of understanding for the delivery of audit services. To determine which areas would benefit most from audit services, an Audit Plan was developed by the Audit Services Branch using a Risk Assessment Methodology that helps to define the different risks associated with the various processes at the town. It is one tool that Audit Services uses in assessing where best to allocate audit resources. Audit Services randomly selected 35 disbursement transactions from a population of approximately 6000 transactions between January 1, 2006 and June 30, 2006. The selection was performed judgementally. From the sample of 35 invoices, 10 purchase orders were identified for further detailed testing for compliance with the Procurement By-law. Internal Audit Report —14— Page 2 SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE JUNE 18/07 Town of Aurora - Procurement & Accounts Payable Audit Report October2006 3.0 Objectives and Scope The objectives of this engagement included: • Ensuring that supporting documentation is in compliance with the Purchasing Policy. • Ensuring processed disbursements are accurate and appropriately authorized. The audit objectives were accomplished through: • Detailed testing of a sample of processed disbursements to -date for the 2006 fiscal year. • Interviews with appropriate personnel. • Review of disbursement files and other related documents. Internal Audit Report -15- Page 3 SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE JUNE 18/07 Town of Aurora - Procurement & Accounts Payable Audit Report October2006 4.0 Detailed Observations and Recommendations 4.1 Results of Detailed Invoice Testing Observation Detailed testing of 35 invoices highlighted the following opportunities to strengthen internal controls over the procurement and payments processes: Condition # of % of total invoices reviewed 1. Invoices did not have purchase requisitions/purchase orders 7 20% approved prior to the receipt of the invoice. 2. Invoice was not approved as evidenced by an authorized 1 3% signature prior to payment. 3. Invoice amount exceeded the authorized signing authority 1 3 % limit. Recommendation • Accounts Payable management should ensure that all staff are aware of the requirement to have an approved purchase requisition prior to an order being placed/work being performed. • Accounts Payable management should ensure that all staff are aware of their signing authority limits. Invoices should be reviewed and signed as evidence that they are approved prior to processing payment. This is considered to be a "best practise". If approval of the P.O, in the electronic system is also considered to be approval of payment of the invoice, this should be documented in your Policies/By-law and Procedures, and should be reported to the Audit Committee and Council. This alternative practice is being used in some municipalities and businesses, however, this alternative processing increases the inherent risk in the purchasing and payment process. Management Response With regard to condition No. 1, this is actually a Purchasing issue and will be addressed with the Purchasing Department. This issue is primarily the result of one department and we have instructed this department to insure that this doesn't happen again. We are looking to review the procurement by-law and process to include a formal reporting mechanism that will identify non- conformity to the purchasing process. Internal Audit Report -16- Page 4 SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE JUNE 18/07 Town of Aurora - Procurement & Accounts Payable Audit Report October2006 It is our hope that this will be completed in the first quarter of 2007. This implementation will be completed in the first quarter of 2007. We are also implementing a policy where approval and sign off of signing for purchase approvals will occur on an annual basis. This will address the issue of keeping signing authorities current. This process will be completed by December 31, 2006. 4.2 Policies and Procedures Observation There are no formal policies and procedures for Accounts Payable or the Purchasing Department. Formalization of policies and procedures helps to ensure that expectations are understood and adhered to. Recommendation Formal policies and procedures should be drafted and implemented. Management Response Formal policies and procedures will be drafted and implemented my 2"d quarter 2007. 4.3 Signing Authority Review of the Accounts Payable Approval Records Forms revealed the following: There is no dollar limit indicated for L John Gutteridge on the form for Treasury, and the form has not been dated or approved by John Rogers. The form for Corporate Services does not have Bob Panizza (Department Head) as an approved signatory, and he has approved invoices. One employee was terminated in November, 2005 but had not been removed from the A/P Approval Record Form. Internal Audit Report —17— Page 5 SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE JUNE 18/07 Town of Aurora - Procurement & Accounts Payable Audit Report October2006 Recommendation The Accounts Payable Approval Records Forms should be updated to ensure that all authorized signatories and their approval limits are completed and approved by the respective department heads. The Accounts Payable Approval Records Forms should be reviewed periodically to ensure that they are up to date. Management Response We agree with the points identified and have taken action to have John Rogers sign off on the Financial Services Department approval schedule, the same has taken place for the Corporate Service Department and Bob Panizza. A process is being developed to have as a minimum an annual review and renewal. This will be completed by December 31, 2006. 4.4 Procurement Documentation Two out of 10 (20%) of the procurement files selected did not contain evidence of the evaluation criteria, or the evaluation process and consequently Audit Services could not ascertain whether or not the most suitable/lowest qualifying bid was selected. Section 7(g) of the Procurement by-law requires that "the evaluation of each Bid shall be carefully recorded ..., which shall be filed and maintained in accordance with the record retention by-law." Recommendation Management should reiterate with staff, the importance of ensuring that all evaluation criteria documentation is submitted to the Purchasing Manager. The Purchasing Manager should ensure that all required documentation is received and retained in the procurement file as required by the by-law. Management Response We agree with the observation and have instructed appropriate personnel that a purchase order will not be issued until the appropriate documents are obtained for the file. This has been implemented. Internal Audit Report Page 6 SPECIAL GENERAL COMMITTEE —AUDIT COMMITTEE JUNE 18/07 Town of Aurora - Procurement & Accounts Payable Audit Report October 2006 L. John Gutteridge Director of Finance/Treasurer Paul J.J. Duggan Director— Audit Services - Regional Municipality of York Internal Audit Report —19— Page 7 SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE J � AGENDA ITEM # oZ TOWN OF AURORA AUIZQRA AUDIT COMMITTEE REPORT No.AC07-001 SUBJECT: Terms of Reference, Town of Aurora Audit Committee FROM: L. John Gutteridge, Director of Finance / Treasurer DATE: June 18, 2007 RECOMMENDATIONS That the report be received and no changes be recommended to the Terms of Reference for the Town's Audit Committee at this time. BACKGROUND Last year Council adopted the Terms of Reference for the Town's Audit Committee as attached hereto as Attachment #1. As this is the first opportunity for this Committee to review the Audit Committee Terms of Reference and one of the responsibilities of the Audit Committee is "review and assess the adequacy of the Audit Committee Terms of Reference annually, requesting Council approval for proposed changes and ensure appropriate disclosure as may be required by law or regulation" we felt that this should be added to this agenda. As this Council has a 4 year mandate you may want to consider if it is necessary for all of Council to sit as the audit committee. All municipalities take different approaches to their audit committees with some having all of Council sit as we do, and some have a mix of political and public representation. We are not suggesting you change we just wanted to make you aware that you do have options as to the composition of this committee. If you would like to consider another option we can bring back a report on the formation of other municipalities audit committee. OPTIONS 1. That the report be received and no changes be recommended to the Terms of Reference for the Town's Audit Committee at this time. 2. That the Director of Finance prepare a report on alternative structures for the Audit Committee. -20- SPECIAL GENERAL COMMITTEE —AUDIT COMMITTEE JUNE 18/07 June 18, 2007 - 2 - FINANCIAL IMPLICATIONS WW CONCLUSIONS No. AC07-001 As was pointed out this report is being presented as a compliant issue for the existing terms of reference, Council may at your discretion suggest changes. LINK TO STRATEGIC PLAN Goal D: Ensure transparent, accountable and open governance in concert with informed and involved citizens Objective D1: Continue the commitment of fiscal responsibility and accountability Objective D3: Be accountable and transparent to residents by ensuring open and accessible information flow and accessible decision -making ATTACHMENTS Attachment #1 — Terms of Reference Town of Aurora Audit Committee PRE -SUBMISSION REVIEW Prepared by., L. John Gutteridge, Director of Finance/Treasurer -Ext. #4111 J -- 44- Gutteridge I n S. Rogers ofFinance/Treasurer Chief Administrative Officer —21— SPECIAL GENERAL COMMITTEE —AUDIT COMMITTEE JUNE 18/07 ATTACHMENT #1 Terms of Reference Town of Aurora Audit Committee Purpose: -To provide oversight responsibilities for the Town of Aurora's: ➢ financial reporting processes; overall guidance and direction to the CAO and Management related to. the Town's system(s) of internal control; > internal and external audit processes; and, processes for monitoring compliance with laws and regulations (applicable law), the Code of Conduct and the Conflict of Interest Policy Statement; Authority:- The Audit Committee is empowered to: > recommend the appointment, dismissal and compensation of the Town's external auditors; > oversee the work of the internal and external auditors of the Town; > resolve any disagreements between management and the auditor(s) regarding financial reporting; > retain independent counsel, accountants or others to advise the Committee or assist in the conduct of an investigation; seek any information the Committee requires from Management, employees and/or agents of the Municipality; meet with the Town's management team, external auditors, or outside legal counsel, as required, independently or together; > review and recommend for approval audit fee billings in excess of the approved budget for the completed audit of the period year; and review the audit plan and audit fee schedule for the ensuing year end, —22— SPECIAL GENERAL COMMITTEE —AUDIT COMMITTEE JUNE 18/07 Composition: > The Audit Committee is comprised of all Members of Council (General Committee) and reports directly to the Council of the Town of Aurora. Meetings; ➢ the Audit Committee will shall meet at minimum two times per year with authority to convene additional meetings, as circumstances require; > meetings of the Audit Committee will be open to the public subject to exceptions pursuant to Section 239 (2) of the Municipal Act, 2001, as amended; > the Committee will invite members of management, auditors and/or others to attend meetings and provide pertinent information, as necessary; > meeting agendas will be prepared and provided in advance to members, along with appropriate briefing materials; and > minutes will be prepared. Financial Statements > review significant accounting and reporting Issues, including complex or unusual transactions and highly judgmental areas, recent professional and regulatory pronouncements, and understand their Impact on financial statements; review with management and the external auditors the results of the audit, including any difficulties encountered; > review and receive the annual financial statements with management, and consider whether they are complete, consistent with information known to Committee members, and reflect appropriate accounting principles; > recommend to Town Council the approval of the annual financial statements; and > review with management and external auditors all matters required to be communicated to the Committee under Generally Accepted Auditing Standards. —23— SPECIAL GENERAL COMMITTEE —AUDIT COMMITTEE JUNE 18/07 Internal Control > consider the effectiveness of the Town's internal control system(s), including information technology security and control; > understand the scope of internal and external auditor's review of internal control and obtain reports on significant findings and recommendations, together with Management's responses and the timing of the disposition of significant findings; and > review the external auditor's Management Letter (if any) together with Management's responses. External Audit > review the external auditor's proposed audit scope and approach; subject to Section 296 of the Municipal Act, 2001 , as amended, review the performance of the external auditors, and recommend to Town Council the appointment or discharge of the auditors; > review and confirm the independence of the external auditors by obtaining statements from the auditors on relationships between the auditors and the Town of Aurora, including non -audit services, and discussing the relationship with the auditors; and > review the audit plan and audit fees for the ensuing year end. Internal Audit > review the Town's control processes and systems to ensure compliance with Town's policies, laws and regulations which Impact operations and reports; review policies used to safeguard corporate assets and verify the existence of these assets; and > review the efficiency and effectiveness of the utilization of the Town's resources on programs and projects. —24— SPECIAL GENERAL COMMITTEE —AUDIT COMMITTEE JUNE 18/07 Compliance > review the effectiveness of the system(s) for monitoring compliance with laws and regulations and the results of Management's investigation and follow-up (including disciplinary action) of any instances of non-compliance; review the findings of any examinations by regulatory agencies, and any auditor observations; > review the process for the communication of the Code of Conduct and Conflict of Interest Policy Statement to Town personnel, and for monitoring compliance therewith; and > obtain regular updates from Management and the municipality's legal counsel regarding compliance matters. Reporting Responsibilities report to the Town Council about Audit Committee activities, Issues and related recommendations; > provide an open avenue of communication between the external auditors and Town Council; and > review any other reports the Municipality issues that relate to Audit Committee responsibilities. Other Responsibilities > perform other activities related to these Terms of Reference as requested by Town Council; > institute and oversee special investigations as required; and > review and asses the adequacy of the Audit Committee Terms of Reference annually, requesting Council approval for proposed changes and ensure appropriate disclosure as may be required by law or regulation. —25— SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE JUN AGENDA ITEM # 3 TOWN OF AURORA AURORA AUDIT COMMITTEE REPORT No. AC07-002 SUBJECT: 2007 Budget Process Review FROM: L. John Gutteridge, Director of Finance/Treasurer DATE: June 18, 2007 RECOMMENDATIONS That Report No. AC07-002 be received. BACKGROUND Now that the 2007 Budget is behind us it is time to start planning for your 2008 budget. The purpose of this report is to take the opportunity to review our 2007 process and determine what worked well and what didn't so we can improve the 2008 process. As this was your first budget for some of you, you were probably not aware that we did make some major changes in the budget process for the 2007 budget. As a result of these changes we need this review to identify any improvements. We are attaching to this report the Priority Setting Matrix for 2007 Capital Budget and a sample Capital Budget —Analysis by Project, we would like to obtain Council's feed back on the process and suggested changes if any. COMMENTS In this regard we have taken the opportunity to review our process with the Senior Management Team with the intent of recommending changes for Council. When we went to Senior Management we ask them to evaluate the process based on the following matters and we have included the feed back we received: CAPITAL BUDGET • Comments on how process worked: o All agreed that the process was effective What worked well? o Communication from Financial Services • SMT felt that communication was excellent o What can be improved next year? o Suggestion that capital projects that don't make it one year get extra points -26- SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE JUNE 18/07 June 18, 2007 - 2 - Report No. AC07-002 the next year o A method to handle projects that go over multiple years so we don't have to present them the next year in the budget. o Need to review scoring process once the process has been reviewed by Council o Capital Ranking — suggested changes o Felt ranking process was good but not sure that Council used it. o Need to address projects that didn't make it this year and a process to recognize this in future years. o Capital Project Description — suggested changes o More specific on cost breakdown and the components of where funding coming from o Need to indicate on form if project is a carry forward project o Need to be consistentwhen identifying operating impact and adjust operating accordingly. o Do reports to advise Council of Capital Projects that are being considered OPERATING BUDGET o Format and Presentation o Felt that information provided was adequate and help focus on programs not line by line items. o Need to make sure roll up for consolidation is as per directed by operating department. o It was suggested that the driver package be more detailed in providing information regarding wage increases, fuel costs etc. o Operating Budget Binder o Suggest that we go back to 81/2 X 11 paper o Look at sharing information via the Intranet once it is up and running. o Would find it advantageous if questions about specific items were identified so proper answers can be prepared to avoid delays by having to bring information back at a later date. BUSINESS PLANS o Suggestions or Comments o Presentation of Business Plans need to be done before capital projects are presented in order to connect the needs of the department and the information provided. o Business plans need to be standardized this year o Need to do more work on the KPI's FEEDBACK ON PRESENTATION'S o Suggest that budget meetings be held in Council Chambers to make presentations -27- SPECIAL GENERAL COMMITTEE —AUDIT COMMITTEE JUNE 18/07 June 18, 2007 - 3 - Report No. AC07-002 more effective. o Suggest that we do a better job of scheduling presentation times. Separate the Public Works and Leisure Services presentations, make them on separate days. o Suggest that we plan for 2 Saturday meetings and 4 week night meetings. In general the management team were happy with the improvements in the process and would like to see budget timetable have budget completed by the end of December. N/A FINANCIAL IMPLICATIONS N/A CONCLUSIONS The purpose of this report and my presentation is to obtain Council's feed back on the process and to establish the 2008 Budget Timetable. LINK TO STRATEGIC PLAN Goal D: Ensure transparent, accountable and open governance in concert with informed and involved citizens Objective D1: Continue the commitment of fiscal responsibility and accountability Objective D2: Enhance customer service Objective D3: Be accountable and transparent to residents by ensuring open and accessible information flow and accessible decision -making Objective D4: Create a respectful environment that fosters team work and open dialogue, consistent with a Character Community. These Objectives acknowledge the responsibilities required by governance that contribute to informed and involved citizens. ATTACHMENTS Attachment #1 — Priority Setting Matrix for 2007 Capital Budget Attachment #2 — Capital Budget — Analysis by Project WE SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE DUNE 18/07 June 18, 2007 - 4 - Report No. AC07-002 PRE -SUBMISSION REVIEW Prepared by. L. John Gutteridge, Director of Finance/Treasurer -Ext. #4111 utteridge .,,.,00Tohn S. Rogers of Finance/Treasurer Chief Administrative Officer -29- SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE JUNE 18/07 ATTACHMENT #1 Priority Setting Matrix for 2007 Capital Budget Categories Potential Scores Maximum Score Legal Obligation Must be done this year — 25 points 25 Is the project necessary to support legal - Must be done next year —15 points obligations? (Regulations/ Legislation/Council - Must be done in the next three to five Policy) years — 5 points - Must be done in more than five years — 0 points Health and Safety - Immediate action required to protect 20 Is the project necessary from a mandated Health and Safety — 20 points Health and Safety perspective? - Preventative action required to improve Health and Safety —10 points - Not necessary to protect Health and Safety — 0 points Support Approved Town Programs/ - Supports approved plan(s) and 15 Direction identified for action in this year-15 Does the project support approved Town points programs/directions, such as: - Supports approved plan(s) and Strategic Plan identified for action next year —10 Official Plan points Master Servicing Plans - Supports approved plan(s) and Capital Asset Management Plan identified for action in the next three to Economic Development Study five years — 5 points Culture and Recreation Master Plan - Does not support any approved plans — 0 points Growth Related - Growth related project —10 points 10 Is the project growth related? - Partially growth related project — 5 points - Not a growth related project — 0 points External Funding - 70% or more of funding from external 8 Will the project receive external funding? sources — 8 points - Government grant - 50% to 69% of funding from external - Development Charge Reserve funding sources — 6 points - Obligatory Reserve funding - Up to 50% of funding from external sources — 4 points - No funding to come from external sources — 0 points Impact of deferral - High impact of deferral — 7 points 7 Impact of deferral - Medium impact of deferral — 5 points - Low impact of deferral — 3 points - No impact of deferral — 0 points S:\Financial Services\F05 Budgets &Estimates\2008 Budget\Priority Setting Matrix for 2008 Capital Budget.doc —30— SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE JUNE 18/07 Impact on Operations - Decrease in ongoing operational costs, 6 Impact on operating budgets net of revenues — 6 points No impact on ongoing operational costs, net of revenues — 3 points - Increase in ongoing operational costs, net of revenues — 0 points Related to Service Levels Required to improve service levels — 5 5 Is the project related to service levels? points - Required to maintain service levels — 3 points - Not related to service levels — 0 points Addresses Council Direction - Addresses Council direction — 4 points 4 Does the project address a Council direction - Does not address Council direction — 0 not captured elsewhere in the priorities? points S:\Financial Services\F05 Budgets &Estimates\2008 BudgetTriority Setting Matrix for 2008 Capital Budget.doc —31— SPECIAL GENERAL COMMITTEE -AUDIT COMMITTEE JUN [AGENDA ITEM # 2008 Budget Timetable Process Date Processes Budget Timetable Approval June 2007 Budget Time Table To Council Friday, Aug 31/07 Business Plans Submitted Business Plan Monday, Sept. 17/07 Special GC Meeting - Business Plans Friday Sept. 28/07 2008, 2009, 2010 & 2011 Capital Budget Requests Submitted to Financial Services Thursday, Oct. 4/07 (2 - 5) SMT - Capital Evaluation Meeting Capital Budget Friday, Oct. 5/07 (1 - 4) SMT - Capital Evaluation Meeting Friday, Oct. 12/07 All Capital Budget Requests Evaluated Saturday, Oct. 20/07 Special GC Meeting - Capital Monday, Oct. 1/07 Salary and Wage Information signed -off by all Departments October 1 - 15, 2007 Budget Review with Budget Coordinator Monday, Oct. 15/07 2008, 2009, 2010 & 2011 Operating Budget Requests Submitted to Financial Services Operating Budget Tuesday, Oct. 16107 (2 - 4) Budget Review with Public Works Wednesday, Oct. 17/07 (3 - 4) Budget Review with Building Friday, Oct. 19/07 (2 - 3) Budget Review with Planning Friday, Oct. 19/07 (3 - 4) Budget Review with CAO Tuesday, Oct. 23/07 (2 - 4) Budget Review with Leisure Services Wednesday, Oct. 24107 (3 - 4) Budget Review with Corporate Services Thursday, Oct. 25/07 (10 - 11) Budget Review with Financial Services Saturday, Nov. 10/07 Special GC Meeting - Operating Budget Meetings Monday, Nov. 19/07 Special GC Meeting - Operating Monday, Nov. 26/07 Special GC Meeting - Operating Monday, Dec. 3/07 Special GC Meeting - Finalize Budget Approve Budget December 11, 2007 Council Meeting Approve Water Budget January 2008 Water Budget Council SAFinancial Services\F05 Budgets &EstimateM2008 Budget\2008 Budget Time Table -32-