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3. COUNCIL AUDIT WORKING GROUP -
(i) 2005 and 2006 AUDIT
RECOMMENDATIONS -
QUARTERLY ACTION STATUS REPORt and (ii)
corporate overtime policY
GROUPe de travail du conseil sur la vérification -
(I) recommandations découlant des vérifications de 2005 et DE 2006 -rapport
d'étape trimestriel et (II) politique de la ville sur les heures
supplémentaireS
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Committee Recommendations
That Council:
1. Approve
the changes with respect to implementation for the following 2005 Audit
recommendations, and related May 2006 Council Motions, as outlined in Document
1, specifically:
a) Procurement
Audit recommendation no. 23;
b) Management
Control Framework Audit recommendation no. 1 i) c);
c) By-Law
and Regulatory Services Audit recommendation no. 1;
2. Approve
the Corporate Overtime Policy, as outlined in Document 2;
3. Receive
for information the ongoing action status tracking report for the 2005 audit
recommendations as of September 21, 2007, as outlined in Document 3;
4. Receive
for information the ongoing action status tracking report for the 2006 audit
recommendations as of September 21, 2007, as outlined in Document 4; and
5. Receive
for information the CAWG disposition of the CSEDC Referral Motion regarding the
Ernst & Young 2005 Management Letter and 2006 Audit Plan, as outlined in
the report and in Document 5.
Recommandations du comité
Que le Conseil :
1. Approuve
les modifications visant la mise en œuvre des recommandations suivantes
découlant de la vérification de 2005 ainsi que les motions connexes adoptées en
mai 2006 par le Conseil, énoncées dans le document 1, à savoir :
a) la
recommandation no 23 concernant la vérification des achats;
b) la
recommandation no 1 i) c) concernant le cadre de contrôle de la
gestion;
c) la
recommandation no 1 concernant les Services des règlements
municipaux.
2. Approuve
la Politique de la Ville sur les heures supplémentaires, décrite dans le
document 2;
3. Prenne
connaissance du rapport sur l’état de la mise en œuvre des recommandations
découlant de la vérification de 2005 au 21 septembre 2007, comme le précise le
document 3;
4. Prenne
connaissance du rapport sur l’état de la mise en œuvre des recommandations
découlant de la vérification de 2006 au 21 septembre 2007, comme le précise le
document 4; et
5. Prenne
connaissance de la décision du Groupe de travail du Conseil sur la vérification
concernant la motion de renvoi au Comité des services organisationnels et du
développement économique de la lettre à la direction de 2005 et du plan de
vérification pour 2006 soumis par Ernst & Young, ainsi que le précisent le
rapport et le document 5.
Documentation
1. Council Audit Working Group report dated 19
October 2007 (ACS2007-CMR-OCM-0008).
2. Extract of Draft Minute, 6 November 2007.
Report to/Rapport au :
Corporate Services and
Economic Development Committee
Comité des services organisationnels
et du développement économique
and Council / et au Conseil
19 October 2007 / le 19 octobre 2007
Submitted by/Soumis par : Council Audit Working Group /
Groupe de travail du Conseil sur la
vérification
Contact
Person/Personne ressource : Kent Kirkpatrick, City Manager /
Directeur des services municipaux
(613) 580-2424 x 25657,
kent.kirkpatrick@ottawa.ca
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Ref N°: ACS2007-CMR-OCM-0008
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SUBJECT:
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cOUNCIL AUDIT
WORKING GROUP - (i) 2005 and 2006
AUDIT RECOMMENDATIONS - QUARTERLY ACTION STATUS REPORt and (ii) corporate overtime policy
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OBJET :
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gROUPe de travail du
conseil sur la vérification - (I) recommandations découlant des vérifications
de 2005 et DE 2006 - rapport d'étape trimestriel et (II) politique de la
ville sur les heures supplémentaires
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REPORT
RECOMMENDATIONS
That the Corporate
Services and Economic Development Committee recommend Council:
1. Approve
the changes with respect to implementation for the following 2005 Audit
recommendations, and related May 2006 Council Motions, as outlined in Document
1, specifically:
a) Procurement Audit
recommendation no. 23;
b) Management Control Framework
Audit recommendation no. 1 i) c);
c) By-Law and Regulatory Services
Audit recommendation no. 1;
2. Approve
the Corporate Overtime Policy, as outlined in Document 2;
3. Receive
for information the ongoing action status tracking report for the 2005 audit
recommendations as of September 21, 2007, as outlined in Document 3;
4. Receive
for information the ongoing action status tracking report for the 2006 audit
recommendations as of September 21, 2007, as outlined in Document 4; and
5. Receive
for information the CAWG disposition of the CSEDC Referral Motion regarding the
Ernst & Young 2005 Management Letter and 2006 Audit Plan, as outlined in
the report and in Document 5.
RECOMMANDATIONS DU
RAPPORT
Que le Comité des
services organisationnels et du développement économique recommande ce qui suit
au Conseil :
1. Approuver
les modifications visant la mise en œuvre des recommandations suivantes
découlant de la vérification de 2005 ainsi que les motions connexes adoptées en
mai 2006 par le Conseil, énoncées dans le document 1, à savoir :
a) la recommandation no
23 concernant la vérification des achats;
b) la recommandation no
1 i) c) concernant le cadre de contrôle de la gestion;
c) la recommandation no
1 concernant les Services des règlements municipaux.
2. Approuver
la Politique de la Ville sur les heures supplémentaires, décrite dans le
document 2;
3. Prendre
connaissance du rapport sur l’état de la mise en œuvre des recommandations
découlant de la vérification de 2005 au 21 septembre 2007, comme le précise le
document 3;
4. Prendre
connaissance du rapport sur l’état de la mise en œuvre des recommandations
découlant de la vérification de 2006 au 21 septembre 2007, comme le précise le
document 4; et
5. Prendre
connaissance de la décision du Groupe de travail du Conseil sur la vérification
concernant la motion de renvoi au Comité des services organisationnels et du
développement économique de la lettre à la direction de 2005 et du plan de
vérification pour 2006 soumis par Ernst & Young, ainsi que le précisent le
rapport et le document 5.
BACKGROUND
Since the establishment of this
Council/Management Audit Working Group in May 2006, the group has been meeting
on an ongoing basis with the City Manager, the Auditor General and City staff
as required.
The Corporate Services and Economic Development
Committee and City Council have considered and approved previous quarterly
reports on the 2005 audit recommendations action status as well as an
adjustment to implementation of recommendations for some of the audit
recommendations under dispute.
The purpose of this report is to provide the
Corporate Services and Economic Development Committee and Council with the
following:
- Recommendation
for revisions regarding the implementation of recommendations from the
Procurement, Management Control, and By-Law and Regulatory Services audits
(Document 1);
- Approval
of the Corporate Overtime Policy
(Document 2);
- A
quarterly status update on implementation of the 2005 audit
recommendations highlighting the matters that will be subject of further
discussions between the Auditor General and the Council Audit Working
Group (Document 3);
- A
quarterly status update on implementation of the 2006 audit
recommendations highlighting the matters that will be subject of further
discussions between the Auditor General and the Council Audit Working
Group (Document 4); and
- CAWG
disposition with respect to the CSEDC February 6, 2007 Referral Motion
regarding the Ernst & Young LLP 2005 Management Letter and 2006 Audit
Plan (Document 5).
DISCUSSION
The CAWG was created to oversee the
implementation of the audit recommendations and provide a body for discussion
with the Auditor General, appointed members of Council and senior management to
further discuss the audit recommendations under dispute or where circumstances
may have changed.
When considering the total number of
recommendations coming forward from the Auditor General through his audit
reports, it should be noted that there were an overwhelming number of
recommendations supported by management that are being implemented on an
ongoing basis. In looking at the
overall picture, the number of recommendations that require further discussion
by the CAWG represent a very small percentage.
The primary focus of the CAWG has been to
receive additional background information from the 2005 audit recommendations
where the Auditor General and management had differing opinions, and to
formulate recommendations for decision by CSEDC and Council on the disputed
item. These management responses have been the subject of discussions between
the Auditor General, the City Manager and the CAWG. In a majority of the cases, consensus has been achieved on
revisions to the implementation of the audit recommendations, with only a small
number of cases where further discussion and analysis is required.
This function has now been expanded in that at
the July 25 meeting, the CAWG received the first review of the 2006 audit
status tracking and the workplan for the 2006 recommendations that will require
further discussion between the City Manager and the Auditor General, and when
required, the Council Audit Working Group.
2005 Audit Recommendations
(Document
1)
For recommendation 23 in the Procurement audit,
the CAWG and the Auditor General agreed to the recommended revisions as
outlined in Document 1. The Auditor
General agrees with the content of the revised procedures, stating it meets the
original intent of the audit recommendation.
The CAWG concurred with the Auditor General.
For
recommendation 1i) c) in the Management Control Framework audit, the Auditor
General and the CAWG agreed to the recommended revisions to the management
response as outlined in Document 1.
For
recommendation 1 in the By-Law and Regulatory Services audit, the CAWG agreed
with the management response and ongoing implementation as outlined in Document
1.
Branch-by-Branch
Overtime Review (Deloitte Recommendations) and Corporate Overtime Policy
(Document 2)
At its
meeting on February 14, 2007, City Council approved the Branch-By-Branch Overtime
Report (ACS2007-CRS-CSO-0002) and the
associated Motion:
That
Council:
1. Receive for information the report
prepared by Deloitte Consulting entitled, City of Ottawa Branch-by-Branch
Overtime Review Final Report dated September 7, 2006; and
2. Approve that discussion of overtime
budgets take place on a service-by-service basis as part of 2007 budget
deliberations so that any changes contemplated to those budgets would be
understood as they relate to service levels or standards;
3. Approve the implementation of all of
Deloitte Consulting’s recommendations, effective immediately, via Council’s
Audit Working Group;
4. That the implementation of all the
recommendations be complete by June 1, 2007; and
That the Audit Working Group report
to the Corporate Services and Economic Development Committee and Council no
later than June 30, 2007 confirming the completion of the implementation of all
the recommendations.
Since Council considered this report, the Director of Employee Services,
has attended the April 17 and July 25 meetings of the CAWG to speak to the
overtime review and associated Deloitte recommendations.
The CAWG endorsed the Corporate Overtime Policy at its meeting on July
25. Due to the connection with the
above Council motion regarding implementation and this policy, the City Manager
requested that CSEDC and Council approve this administrative policy (Document 2).
With respect to the implementation of the
Deloitte recommendations, Employee Services has confirmed progress. However, as noted in the previous CAWG
report considered by CSEDC and Council on May 1 and 9, 2007 respectively, staff
will not be finished with the implementation of some of the recommendations
until 2008.
The action status tracking on the Deloitte
recommendations can be reviewed in Document 3 within the Overtime audit
section.
2005 Audits – Action
Status Tracking
(Document 3)
Document 3 provides the action status tracking
of recommendations from the 2005 audits as of September 21, 2007, including the
Branch-by-Branch Overtime Review and associated Deloitte recommendations. Many of the audit recommendations have been
implemented, and the Emergency Measures Audit being 100% complete. This is provided to the CSEDC and Council
for its information.
2006 Audits – Action
Status Tracking
(Document
4)
During Council’s consideration of the 2006
Auditor General’s Annual report at its meeting on May 23, 2007, the following
motion was approved.
That the Audit Working Group be
directed to review all of the audit recommendations and report back to the
Corporate Services and Economic Development Committee and Council prior to the
2008 Budget process on the progress made on all of the OAG’s recommendations,
and include an assessment by the OAG on those areas where management and staff
disagree on the timing or approach to the implementation of the
recommendations.
CARRIED
In response to this motion, Document 4 provides
the action status tracking of recommendations from the 2006 audits as of
September 21, 2007. The Auditor General
and the City Manager are continuing to resolve any 2006 recommendations under
dispute with the involvement of the CAWG as required. With respect to an assessment by the OAG as noted in the
motion, the Auditor General is supportive of this process and satisfied with
the timelines and approach to the implementation of his audit
recommendations.
Document 4 provides the action status tracking
of recommendations from the 2006 audits as of September 21, 2007. This is provided to the CSEDC and Council
for its information.
Ernst & Young LLP
2005 Management Letter and 2006 Audit Plan
(CSEDC February 6, 2007 Referral)
(Document 5)
During the
consideration of the 2005 Management Letter and 2006 Audit Plan by the CSEDC on
February 6, 2007, the following Motion was referred to the Council Audit
Working Group for consideration:
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
On April
17, 2007, the CAWG received a presentation from the City Treasurer on the
“Intent of Financial Audits and Review of Internal Controls” and considered the
matter. The CAWG concurred with the
staff recommendation and did not support the CSEDC motion. The CAWG April 17 meeting results extract
and the City Treasurer Briefing Note are located at Document 5, both providing
an outline of the CAWG discussion and information regarding the implications of
supporting the CSEDC Motion.
The attached briefing note (Document 5) clarifies that the focus of the
external audit is on the financial statements. In conducting their audit, the
external auditors look for completeness, accuracy, and authorization of
financial transactions and issue an opinion as to whether the resulting
financial statements are presented in accordance with Generally Accepted
Accounting Principles (GAAP). The adequacy of internal financial controls has
been an important topic for the City’s Auditor General, and continues as a
priority for Management. The creation of a Controller position within the
Corporation will provide oversight, ensuring that adequate controls are in
place and are monitored to ensure their consistent application.
CONSULTATION
The Auditor General has not been involved in
the status tracking process on an ongoing basis, but upon request, participated
in the discussion and agreement to the revised implementation for the
recommendations outlined in Document 1.
As with the CAWG, the Auditor General receives the status tracking
documents through the CAWG meetings for his information.
Consultation was held with the applicable
department heads as part of drafting this report. Consultation will continue as part of the ongoing discussions
related to the implementation surrounding some of the audit recommendations.
Public consultation is not applicable and was
not conducted as part of this report.
FINANCIAL IMPLICATIONS
There are no financial implications associated with this action status
report.
SUPPORTING DOCUMENTATION
Document 1: 2005 Audit Recommendations and Management
Comments – Requested revisions with respect to implementation of
recommendations for the Procurement, Management Control Framework, and By-law and
Regulatory Services audits. (Attached
to the report.)
Document 2: Corporate Overtime Policy. (Attached to the report.)
Document 3: Status tracking for the 2005 audits as of
September 21, 2007.
2005
By-law Audit (Click here)
2005 Drinking Water Audit (Click
here)
2005
Emergency Management Audit (Click here)
2005
Internet Audit (Click here)
2005 Management Controls Audit (Click
here)
2005
Overtime Audit (Click here)
2005
Procurement Audit (Click here)
2005
Real Estate Audit (Click here)
(Document[s] issued separately and on file with the City Clerk.)
Document
4: Status tracking for 2006 audits as
of September 21, 2007.
2006 Building Services Audit (Click
here)
2006 Employment and Financial Assistance Audit
(Click here)
2006 Financial Control
Environment Audit (Click here)
2006 Fire Services Audit (Click
here)
2006 Fleet Management Audit (Click
here)
2006
IT Process of the Computerized Financial System Audit (Click here)
2006
Munster Hamlet Sewer Rehabilitation Project Audit (Click here)
2006 P-3 Projects Audit (Click
here)
2006 Property Management Audit
(Click here)
2006 Surface Operations Audit
(Click here)
2006 Wastewater Management
Audit (Click here)
(Document[s] issued
separately and on file with the City Clerk.)
DISPOSITION
The applicable department head and staff will
continue to work on the implementation of the audit recommendations as noted.
The Council Audit Working Group and the City
Manager will continue to work with the Auditor General on the resolution and
implementation of recommendations that are subject to further discussion.
Document 2
Overtime
Corporate
Policy
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Approved By
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Approval Date
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Section
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Compensation, Benefits and Payroll
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Effective Date
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June
4, 2007
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Revision Date
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Overtime
may be authorized when management is satisfied that the work or service is
necessary, and that overtime is the most appropriate and/or cost effective
way of doing this work or providing this service.
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To
promote the responsible management of overtime expenditures.
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This
policy applies to all employees who administer or receive overtime.
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It is the responsibility of departments to
manage overtime in a way that will ensure that its use is kept to a minimum,
given operational requirements, and that its cost is justified.
Overtime
should not form a regular part of the work schedule. If overtime becomes part of the regular
work schedule the branch director must document a business case and
report this practice to his/her department head.
Managers shall review overtime expenditures on a
monthly basis and branch directors shall review on a quarterly
basis.
·
A manager
may delegate essential overtime approval authority to a supervisor.
·
Justified overtime must be approved in
advance by a program manager or above.
·
Notwithstanding
the above, if immediate authorization is not feasible, an employee shall work
overtime in an emergency situation and/or when the safety of the public is at
risk.
Reporting / Tracking
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All
overtime must be documented on the appropriate Leave Request/Time Reporting
Form or Branch Time Reporting Document or daily activity sheet including the
reason for the overtime (or activity).
Link to “Overtime Reason Codes”
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Overtime
reports are available to managers on SAP and MSS (Managers Self Serve). Managers shall review usage on a monthly
basis.
Branch
Guideline / Procedure / Protocol
In addition to this policy, a Branch
shall issue a complementary Guideline/Procedure/Protocol and communicate
same to all affected employees. This branch document should
include:
·
Descriptions
of what service delivery levels and/or service delivery circumstances are
defined as essential and justified overtime (also see general
definition in this policy). This could also include a description of what
circumstances generate planned and unplanned overtime, if this is relevant
for the branch;
·
Any
branch specific procedures for the management and control of overtime.
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Directors
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Provide
direction to their branch management and supervisors on the proper
utilization and control of overtime including defining essential and justified
overtime in their branch overtime Guideline/Procedure/Protocol;
- Budget for overtime within
their branches and prepare to justify this budget at Council Budget
review;
Managers
- Budget for overtime within
their divisions;
- Approve all justified
overtime and all other overtime not delegated to a supervisor;
- Notify the Payroll Division
when there is a change in staff who have authorization to approve
time/leave forms including overtime (Payroll keeps an up-to-date
list of employees authorized to approve time/leave forms and ensures the
appropriate forms are signed by authorized personnel).
- Monitor overtime usage and
implement changes to work practice that can reduce overtime.
Program
Managers, Supervisors
- Approve overtime within the
delegated authority given to them by the Manager;
- Ensure all overtime is properly
documented.
Employees
- Shall work required overtime
when authorized by a manager or person designated by a manager.
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Directors
and managers will
monitor use of overtime within their Branch.
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Collective
Agreements
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Employment
Standards Act
Canada
Labour Code
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Overtime:
Any time worked where the employee is receiving overtime rate of pay
for hours beyond the standard hours of work.
Essential
overtime: Overtime deemed essential to meet critical
service delivery requirements of the branch where there is no choice but to
allow the overtime; eg. protect public health and the
environment, ensure public safety, meet legal obligations, protect City
assets or prevent loss of essential service to external or internal
customers.
Justified
overtime: Overtime that is not essential for the
branch to meet mandated service levels, however, there is a compelling
reason, under the circumstances, for approving the overtime eg. saves money, more efficient, provides
a necessary level of service to an external or internal customer, or there is
a reasonable business case.
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Overtime
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Tel:
(613) 580-2424 Ext. 13617
Employee
Services Branch
Business
Transformation Services Department
City of
Ottawa
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n/a
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Document 5
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Council Audit Working
Group
Extract of Meeting Results
Tuesday, April 17, 2007 3:00 p.m.
In Attendance: Kent
Kirkpatrick, Alain Lalonde, Jane Wright
Councillors Glenn Brooks, Gord
Hunter and Rick Chiarelli
Absent as advised:
Councillor Jacques Legendre
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3. ernst & young llp
2005 management letter and 2006 audit plan
(csedc February 6, 2007 referral)
·
M. Simulik, City Treasurer, reviewed the
Briefing Note on the “Intent of Financial Audits and Review of Internal
Controls”. In response to questions
from the CAWG, she confirmed the City’s current engagement with the external
financial auditor followed acceptable standards. She reported in order to implement the Wilkinson motion
presented at CSEDC and referred to the CAWG, it would be necessary for the external
auditor to run two separate audit functions.
Ernst and Young have estimated that such an engagement, above and below
their current function, would be in the price range of three to four times the
annual financial statement audit fees, or $750,000 or $1,000,000 in the case of
the City.
·
K.
Kirkpatrick referenced the 2006 Management Control Framework audit that will
outline how similar issues were being addressed and in some cases, already
undergoing implementation. He also
added that the work noted in the Wilkinson motion was to some extent a
component of the work of the Auditor General’s office.
·
The
CAWG concurred with the staff recommendation and did not support the Wilkinson
CSEDC motion. (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.)
·
Action:
The CAWG decision to be conveyed back to the CSEDC and Council
through the next 2005 Audit Recommendations Action Status tracking quarterly
report. Report content to include what
the City is currently doing in this regard, and explanation of the adequate
protection from same.
CAWG – 17 April 2007
Agenda Item No. 3
CAWG Briefing
Note
Intent of
Financial Audits and Review of Internal Controls
Intent
The sole
objective of an external financial audit is to issue an opinion as to whether
the financial statements of an organization as prepared by management are
presented fairly in accordance with Generally Accepted Accounting Principles
(GAAP).
External
auditors obtain only the audit evidence necessary to support this opinion. They may choose, for example, not to examine
systems of internal controls and rely almost exclusively on substantive testing
of transactions and balances. The
financial audit is concerned with matters related to financial statements such
as completeness, accuracy, and authorization of financial transactions. Management and an Auditor General function
are more concerned with the efficiency and effectiveness of a wide range of
processes and internal controls in place to ensure objectives are being
achieved.
The
external financial audit tends to focus on financial transactions within the
fiscal period and balances at a point in time; management, on the other hand,
would assess the effectiveness of internal controls in achieving business
objectives on an ongoing basis.
Extent of Audit Testing
and Sample Size
External financial auditors use substantive
testing to make supportable statistical assertions on a population of
transactions and account balances as they are reported in the financial
statements. Generally Accepted Audit Standards (GAAS) and statistical
parameters would determine sample size.
Management,
the Auditor General, and Policy & Compliance would normally use attributes
testing to determine if internal controls are working. Sample size is more
open. According to the Institute of Internal Auditors, internal auditors (as an
integral management control function) “should identify sufficient, reliable,
relevant and useful information” for them to conclude on the adequacy of
internal controls.
The extent
of audit testing to ensure that the internal controls are working and are
adequate for management purposes would involve significantly more work that
that required to ensure that the financial statements are free of material
misstatement. Discussions with Ernst
and Young have indicated that they would be prepared to take on this additional
work as a separate engagement, not as part of the financial statement
audit. Based upon their experience,
Ernst and Young have estimated that such an engagement would be in the price
range of three to four times the annual financial statement audit fees, or
$750,000 to $1,000,000 in the case of the City.
