Report to/Rapport au :

 

Finance and Economic Development Committee

Comité des finances et du développement économique

and Council / et au Conseil

 

29 March 2011 / le 29 mars 2011

 

 Submitted by/Soumis par: Kent Kirkpatrick, City Manager / Directeur municipal

 

Contact Person/Personne ressource : Steve Box, Manager, Policy Coordination and Outreach/ Gestionnaire, Direction de la coordination des politiques et du rayonnement

 (613) 580-2424 x 24200, Steve.Box@ottawa.ca

 

City Wide/à l’échelle de la Ville

Ref N°: ACS2011-CMR-OCM-0001

 

 

SUBJECT:

Quality Assessment Review - Office of the auditor general (OAG)

 

 

OBJET :

examen de l’évaluation de la qualité – Bureau du vérificateur général (BVG)

 

 

REPORT RECOMMENDATION

 

That the Finance and Economic Development Committee waive the Rules of Procedure and  recommend Council waive the Rules of Procedure and approve the Audit Sub-Committee direction to the City Manager to amend the existing contract with Pricewaterhouse Coopers LLP to include a Quality Assessment Review of the Office of the Auditor General.

 

 

RECOMMANDATION DU RAPPORT

 

Que le Comité des finances et du développement économique suspende les règles de procédure et recommande au Conseil de suspendre les règles de procédure et d’approuver la directive du Sous-comité de la vérification qui demande au directeur municipal de modifier le contrat existant avec la société Pricewaterhouse Coopers, s.r.l., visant à inclure un examen de l’évaluation de la qualité du Bureau du vérificateur général.

 

 

BACKGROUND

 

On 8 December 2010, City Council considered the 2010-2014 Council Governance Review report (ACS2011-CMR-CCB-0106) which discussed the fact that it is an industry norm for auditors to incorporate some form of Quality Assessment Review as a means to ensure that their work is meeting relevant auditing standards. While Ottawa’s Auditor General provides for an external financial auditor, a review of the City of Toronto’s Auditor General’s By-law and framework indicated that an external quality assurance review is incorporated as part of their accountability standard. 

The Auditor General concurred that a movement towards a quality assurance peer review model is a timely evolution with respect to Ottawa’s Office of the Auditor General (OAG).  He recommended that an external Quality Assurance Review be conducted for the Office of the Auditor General every five years, or halfway through the mandate, and that the Audit Sub-Committee initiate the engagement of that review in 2011 with the first audit cycle to be reviewed in 2012.

 

Council subsequently approved the following motion: 

 

WHEREAS Section 224 (d) and (d.1) of the revised Municipal Act, 2001 establishes that it is the role of City Council “to ensure that administrative policies, practices and procedures and controllership policies, practices and procedures are in place to implement the decisions of council” and “to ensure the accountability and transparency of the operations of the municipality, including the activities of the senior management of the municipality”; and

 

WHEREAS the Auditor General is a senior, statutory officer reporting directly to City Council, and City Council is responsible for ensuring the accountability and transparency of the operations of the Office of the Auditor General; and

 

WHEREAS the most common and accepted method in the industry for ‘auditing the auditor’ is a Quality Assessment Review; and

 

WHEREAS there are several models and standards in place for the conduct of a Quality Assessment Review, including the Peer Review model used by the City of Toronto, and an independent review undertaken under the Institute of Internal Auditors; and

 

WHEREAS the City’s external auditor, Ernst and Young, is a well-respected firm that is independent from the City and would be prohibited from conducting a Quality Assessment Review of the Auditor General due to procurement rules;

 

THEREFORE BE IT RESOLVED THAT Ernst and Young be contracted to recommend a process for a Quality Assessment Review of the Office of the Auditor General based on current best practices, reporting to the Audit Sub-Committee and the Finance and Economic Development Committee early in 2011; and

 

BE IT FURTHER RESOLVED THAT the City Manager, under the Mayor’s direction, be delegated the authority to negotiate the terms and conditions of the contract with Ernst and Young to develop the recommended process, with funds to come from the Auditor General’s budget.”

 

 

DISCUSSION

 

Further to Council direction on 8 December 2011, the City Manager contacted Ernst & Young to provide advisory services with regard to a quality assessment review process for the Office of the Auditor General.  A proposal was received from Ernst & Young and was reviewed by the City Manager.  The Auditor General was asked to provide his feedback on the suggested approach. 

 

After discussion, the Auditor General and City Manager concurred that the involvement of Ernst & Young was not necessary as it was felt the review could be undertaken by Pricewaterhouse Coopers LLP (PWC), who has an existing contract with the Auditor General’s Office. PWC was retained through direct negotiation as permitted by s. 22(1)(c) of the Purchasing By-Law. PWC has extensive experience with regard to this type of work and have conducted a similar review of the federal Auditor General’s Office.  The cost of the review is estimated at $60,000.  The City Manager felt that this was the most cost-effective manner in which to proceed in order to achieve a Quality Assessment Review of the audit function, which is currently operating in accordance with the 2004 Council approved by-laws governing the Office of the Auditor General (OAG), and to identify the changes required to the audit function to meet the Institute of Internal Auditors (IIA) standards.

 

The City Manager received direction from the Audit Sub-Committee on 22 March 2011 to recommend to the Finance and Economic Development Committee (FEDCO) that the existing contract with PWC be amended to conduct the review of the Auditor General’s Office.  Upon Committee and Council approval, PWC will be asked to prepare a draft Terms of Reference and criteria for Audit Sub-Committee review and approval at an upcoming meeting.  In addition, to ensure impartiality and independent analysis and reporting, PWC will present its findings directly to the Audit Sub-Committee as its client.

 

 

RURAL IMPLICATIONS

 

There are no rural implications associated with this report.

 

 

CONSULTATION

 

As this is considered an internal administrative matter no public consultation was undertaken.

 

 

COMMENTS BY THE WARD COUNCILLOR(S)

 

N/A

 

 

LEGAL/RISK MANAGEMENT IMPLICATIONS

 

There are no legal/risk management impediments to implementing any of the Recommendations arising from this Report.

 

 

CITY STRATEGIC PLAN

 

The measures outlined in the report are in keeping with the directions contained in the 2010-2014 Council Governance Review report (ACS2011-CMR-CCB-0106) and strengthening the City’s overall accountability framework.

 

 

TECHNICAL IMPLICATIONS

 

N/A

 

 

FINANCIAL IMPLICATIONS

 

Funds to conduct the Quality Assessment Review outlined in this report are accommodated in the 2011 operating budget of the Office of the Auditor General.

 

 

SUPPORTING DOCUMENTATION

 

N/A

 

 

DISPOSITION

 

Upon approval of the recommendation of this report by Council, the City Manager will seek an amendment to the existing contract with Pricewaterhouse Coopers LLP to include a Quality Assessment Review of the Auditor General’s Office.