1. ERNST & YOUNG LLP 2005 management letter AND 2006 AUDIT PLAN Lettre
de recommandations de 2005 ET PLAN DE VÉRIFICATION DE 2006 de Ernst &
Young LLP |
Committee Recommendation
That Council
receive the attached reports from Ernst & Young LLP for information.
Recommandation du cOMITé
Que le Conseil municipal prenne
connaissance des rapports de Ernst & Young LLP ci-joints.
Documentation
1. Chief Corporate Services Officer's report
dated 30 November 2006 (ACS2007-CRS-FIN-0001).
2. Extract of Draft Minute, 6 February 2007.
Report
to/Rapport au :
Corporate Services and Economic Development Committee
Comité des services organisationnels
et du développement économique
and Council / et au Conseil
30 November 2006 / le 30 novembre
2006
Submitted
by/Soumis par : Greg Geddes, Chief Corporate Services
Officer /
Corporate Services / Services généraux
Contact Person/Personne ressource : Wayne Martin, Manager, Accounting and
Financial Reporting/Gestionnaire, Vérification et rapports
Financial Services/Services financiers
(613) 580-2424 x25183, Wayne.Martin@ottawa.ca
SUBJECT: |
ERNST &
YOUNG LLP 2005 management letter
AND 2006 AUDIT PLAN |
|
|
OBJET : |
Lettre de recommandations de 2005 ET PLAN DE VÉRIFICATION DE 2006 de Ernst &
Young LLP |
REPORT RECOMMENDATION
That the Corporate Services and Economic Development Committee and Council receive the attached reports from Ernst & Young LLP for information.
RECOMMANDATION DU
RAPPORT
Que le Comité des services organisationnels et du
développement économique ainsi que le Conseil municipal prennent connaissance
des rapports de Ernst & Young LLP ci-joints.
BACKGROUND
On November 13, 2001, Ernst & Young LLP was appointed as the external auditors of the City of Ottawa for the five year term ending December 31, 2005. On September 13, 2006, Ernst & Young LLP was re-appointed for another five year term ending December 31, 2010. As part of the 2005 audit, Ernst & Young LLP is providing its Management letter identifying areas where financial management and internal controls can be strengthened. The attached memorandum of observations and recommendations from Ernst & Young LLP includes responses from City Management.
In addition, as part of the 2006 audit, Ernst & Young LLP is also providing a planning memo for the information of Corporate Services and Economic Development Committee and Council that outlines the scope and key issues affecting the audit.
CONSULTATION
No public consultation was required.
FINANCIAL IMPLICATIONS
Fees are fixed as part of a five-year contract.
SUPPORTING DOCUMENTATION
Attachment 1 - Ernst & Young LLP 2005 Management Letter
Attachment 2 - Ernst & Young LLP 2006 Audit Plan
DISPOSITION
Management will take appropriate action as described.
Corporate Services and Economic Comité
des services organisationnels
Development Committee et du développement économique
Report 2 rapport
2
Extract of draft Minutes 3 6
february 2007 |
|
Extrait de l’ébauche du procès-verbal 3 – 6 février
2007 |
ERNST
& YOUNG LLP 2005 management
letter AND 2006 AUDIT PLAN
Lettre de recommandations
de 2005 ET PLAN
DE VÉRIFICATION DE 2006 de Ernst & Young LLP
ACS2007-CRS-FIN-0001 city-wide / À l’Échelle de la ville
Mr. K. Kirkpatrick, City
Manager, Ms. M. Simulik, Director of Financial Services, and Ms. D. Monaghan,
Partner with Ernst & Young, responded to Committee members’ questions on
this item. The following summarizes the
information provided.
Ms. Simulik noted that, in
the Long Range Financial Plan (LRFP), staff had identified unfunded liabilities
as a concern and suggested that the City needed to start finding ways to fund
them. She explained that the unfunded
liabilities related to employee benefits and she noted that this year, the
City’s external auditors had identified them in their management letter because
they had increased beyond the rate of inflation. At the time of amalgamation, there was already $213 million in
unfunded liabilities on the books. She
explained that municipalities are allowed to have unfunded liabilities because
these represent employee benefits, which employees earn today but don’t
cash-out until they retire, leave their employment, draw Workplace Safety and
Insurance board (WSIB) benefits or take vacation pay. They are put on the books as unfunded liability and the offset is
future revenues. Municipalities have been
required to put these on their books since the year 2000. Before that, municipalities dealt with them
strictly on a cash basis and operating budgets were adjusted accordingly year
after year. Ms. Simulik referenced the
5 elements included in the figure; the OC Transpo pension plan, unfunded
vacation, WSIB, post-retirement and post-employment. She indicated the City already had strategies in place to deal
with the first 2, which would be eliminated within the next 7 years and that
staff would be developing strategy proposals, for Council’s consideration, to
deal with the last 3.
With respect to vacation
carry-over, Ms. Simulik explained that under the various collective agreements,
employees were allocated a certain amount of vacation time, a portion of which
they were allowed to carry over if they were unable to take their vacation
during the year in which it was earned.
As a rule, employees were allowed to carry over one year’s worth of
vacation. She explained that during the
first few years, vacation banks increased significantly because people did not
have the time to take vacation due to amalgamation-related work. Since 2005, the City Manager has directed
that the time between the Council meetings of early July and late August be
considered a “down time” in the corporation and that employees be encouraged to
take their vacation during that 4-week window.
Ms. Simulik maintained it was up to managers to monitor their employees’
carry-over. However, she noted that in
some cases, staff came into amalgamation with significant overtime banks and
unless the City dedicates some money towards them, these banks would not
quickly be eliminated. In closing, Ms.
Simulik indicated that of the $270 million identified in the report as unfunded
liability, $17 million related to vacation carry-over. She explained that for the past 2 years, the
City had been funding employee vacation time.
Ms. Simulik indicated the
Firefighters’ collective agreement was the only one that still allowed sick
leave banking and carry-over.
Otherwise, under every collective agreement at the City, new employees
are no longer allowed to bank sick leave to cash-out when they leave the
corporation. As a result, pre-1979
employees have the most sick leave accumulated; numbers will decrease as they
retire.
Speaking to the management
comment that one should not have employees doing the counts who have access to
perpetual records, Ms. Simulik advised that in order to address this, staff had
identified the need for a dedicated staff person who would become the
supervisor of the stores audit as part of their responsibilities and only that
person would have access to the count and the recount information. She submitted it could not be done without
adding a position because the same people who have to do the count are also the
ones who have access to the perpetual records.
She indicated this would be coming forward as part of the budget for
Council’s consideration.
In regards to access to
inventory, as referenced on page 8 of the agenda, Ms. Simulik explained that
currently there was only 1 storekeeper.
Therefore in order to ensure that non-stores personnel did not have
access to the area or that they were escorted by stores personnel while in the
area, there was a need to augment the number of staff in that store. She advised that would also be coming
forward for Council’s consideration as part of the budget.
Responding to questions on
whether or not other major municipalities across Canada were in the same boat
with respect to unfunded liabilities, Ms. Simulik suspected that they were, although
she could not confirm this. She
indicated she could obtain information with respect to any that may be setting
aside funds for such liabilities and provide same at a later date. Mr. Kirkpatrick added he believed the vast
majority of municipalities would be in the same boat. He re-iterated earlier comments with respect to the changes in
reporting requirements and explained this discussion demonstrated the purpose
of those changes; to illuminate the situation and cause policy discussions
about the extent to which governments are actually in debt. He also re-iterated that some of the
unfunded liabilities were already being addressed through new policies and
staff would be coming forward with recommendations for Council’s consideration
on strategies to resolve the others. He
reminded members that at amalgamation, some municipalities had come into the
new City with funded employee benefits and some had brought forward unfunded
liabilities. The Council of the time
dealt with that as a policy issue in 2001.
In terms of the demographics
and the projected demands on these funds over the next 10 years due to employee
retirements, Mr. Kirkpatrick suggested that, as with the rest of society, the
City would experience a bulge in retirements over the coming years. In that light, he felt this was a timely
discussion and more importantly, it was a good time to bring recommendations to
Council with respect to a strategy to address the issue. However, he submitted unfunded liabilities
with respect to vested employee benefits were no different than deferred
capital maintenance.
Responding to questions with
respect to the OC Transpo fleet maintenance, Mr. Kirkpatrick suggested that
this issue would form a large part of the upcoming budget discussions. However, because of gas tax revenue, he
believed the Transit fleet would be the healthiest in terms of overall
infrastructure maintenance and lifecycle.
In closing, he advised that Council would be receiving, as part of the
Auditor General’s 2006 Audit Report, the results of his audit of fleet
management.
Speaking to the last
paragraph in the letter from Ernst & Young with respect to the study not
being designed to determine whether or not the City’s system of internal
controls was adequate, and a motion introduced by Councillor Wilkinson to
request that this form part of future audits, Mr. Kirkpatrick explained the
scope of the external audit was for an external auditor to be able to express
an opinion on the validity of the financial statements. He submitted that looking at the City’s
internal control systems to determine whether or not they were adequate was the
primary function of the City’s Auditor General. Therefore, he submitted that the motion was not necessary and at
a minimum, he suggested Committee hear from the Auditor General before
approving the motion.
Ms. D. Monaghan concurred
with the explanation provided by the City Manager with respect to the scope of
the external audit, and advised that reviewing internal controls would be a
much different and much larger exercise.
In light of this, Councillor
Wilkinson said she wished to refer her motion to the Auditor General rather
than having Committee vote on it. A
discussion ensued with respect to the appropriateness of referring matters to
the Auditor General in light of his workplan and his function. In light of this, Mayor O’Brien proposed
that the motion be referred to Council’s Audit Working Group. The Committee concurred.
Moved by Councillor M.
Wilkinson
That
Ernst & Young be asked to remove the sentence “This study was not designed
to determine whether the City of Ottawa’s system of internal controls is
adequate for management’s purpose” from future audits and include such
information in future audits.
REFERRED to the Audit Working Group
Committee then voted on the report recommendation.
That the
Corporate Services and Economic Development Committee and Council receive the
attached reports from Ernst & Young LLP for information.
RECEIVED