HomeMy WebLinkAboutFCS-12-183 - 4th Quarter Audit StatusKj R
Staff Report
Finance and Corporate Services Department
REPORT TO:
DATE OF MEETING:
Audit Committee
December 3, 2012
SUBMITTED BY: Corina Tasker, Internal Auditor, 519 - 741 -2361
PREPARED BY: Corina Tasker, Internal Auditor, 519 - 741 -2361
WARD(S) INVOLVED: ALL
DATE OF REPORT: November 5, 2012
REPORT NO.:
SUBJECT:
RECOMMENDATION:
For information only.
FCS -12 -183
4th QUARTER AUDIT STATUS REPORT
www.kitchener.ca
EXECUTIVE SUMMARY:
The following report provides a summary of the Internal Audit activities completed during the
period of September 2012 to November 2012. The chart below shows the audits and other
work contained in this report.
AUDIT
Division / Topic
Scope
Physical Inventory Count
Count Verification
User Fees
Compliance audit
The following 2012 work plan items are currently in progress and will be brought forward at a
future audit committee meeting in 2013:
• Operations review
• Emergency Plan audit
• Kitchener Utilities Dispatch and Corporate Contact Centre
BACKGROUND:
The Internal Audit 2012 work plan was approved during the audit committee meeting held on
November 14, 2011. This report provides a summary of the work completed during the 4th
quarter of 2012.
2 -1
REPORT:
1. Physical Inventory Count
Status: Complete, October 27, 2012
Internal Audit participated in the annual physical inventory counts at the Kitchener Operations
Facility (KOF) location. Standard floor -to -sheet and sheet -to -floor audits were done to confirm
the physical quantity of parts on hand compared to what staff had counted. The audit covered
18% of the total value of inventory. The sheet -to -floor audits covered the top 40 unit values and
top 40 total values. The floor -to -sheet audits consisted of 30 random shelf locations. All
variances were minor and fully explained.
In general the accuracy of the ongoing inventory records has improved since the controls audit
in 2008. However, there is still room for improvement. Write -downs have decreased from
$158,474 in 2007 to $93,012 in 2012. This is up slightly from 2011 where the write -down was
$89,218. This represents 1.5% of the total inventory purchases for the year of $6.2 million
which is an acceptable shrinkage rate and equal to the 2011 shrinkage rate. The ending
inventory balance was $1,791,621.
Of the 2012 variances, only $2,585 was from controllable stock (i.e. stock which the stores staff
have direct control over with regards to purchases and usage). This is a great improvement
over 2011 which saw $20,557 of write -downs from controllable stock.
The remaining $90,426 of write -downs is related to stock which is located in unsecured outside
locations which are not under direct supervision by the stores division. This means that other
staff have unrestricted access to take the inventory for use in their jobs without notifying stores
staff to relieve inventory in the system. This figure is up year over year from $68,658
in 2011. The write -downs for both years included:
Inventory Type
2011 Variance
2012 Variance
Manholes and catch basins
$4,990
$7,698
Pipe and Tubing
$4,023
$4,860
Sign shop supplies
$29,762
$4,989
Aggregates
$29,883
$72,539
Welding equipment / supplies
$340
Total
$68,658
$90,426
The follow -up audit of the stores division completed earlier this year recommended installing a
secure fence around the non - aggregate inventory and implementing a process for staff to
relieve inventory. Construction of the fence has begun and will be completed shortly. It is
expected that variances in this area will decrease next year. It is also expected that the City will
continue to experience large write -downs in aggregates until such time as aggregates are taken
out of inventory entirely and charged out at the time of purchase or a secure process for
inventory relief is developed.
Overall, the physical inventory process is in control and the variances are considered small.
2-2
2. User Fee Compliance Audit
Status: Complete, October 29, 2012
Overview
This review was recommended by Brenda Johnson, Director of Accounting. Every year through
the annual budget process business units determine their fees and charges which are then
approved by Council. Subsequent to Council's approval it is the responsibility of each business
unit to ensure that all amendments to the user fees and charges, namely rate and effective date,
are made in accordance with the Council approved schedule. Some fees are charged manually
while others require changes to billing systems (such as CLASS, CIS, AMANDA, etc).
Each year Accounting reviews the fees schedule to ensure applicable sales taxes is applied
appropriately. However, a comprehensive review to ensure the rates are updated accurately in
the various systems of the city has not been conducted in some time.
Objectives
The objective of this review was to test for compliance with Council approved user fees for a
sample of services across the City and assess the processes by which divisions update their
user fees annually.
Methodology
The following activities were undertaken as part of this review:
• Data collection from all areas which have Council approved user fees related to the
timing and process for updating the rates. This included email correspondence and
phone calls.
• Comparison of rates between the Council approved fees and the rates programmed into
the systems.
• Comparison of rates between the Council approved fees and a random sample of
manually applied user fees.
Findings and Recommendations
Process
Data was requested from the staff in each area which has Council approved user fees to determine
their process for updating their user fees each year. They were asked to fill in the following
information:
If the rates are input into a system, provide the name of the system, who updates
it, and when.
If the rates are not input into a system, describe the manual process for ensuring
the correct rates are used going forward.
Who is responsible for ensuring the correct tax code is being used.
2 -3
The chart below shows a summary of the number of system based and manually input fees in each
division.
Department
Division
# of fees —
System based
Systems used
# of fees —
Manual input
CAO
Communications
0
N/A
11
Kitchener Market
3
CLASS
1
CSD
Aquatics
104
CLASS
13
Athletics
25
CLASS
0
Community
Programs & Services
159
CLASS
10
Cemeteries
152
Cemetery
System
0
Golf Courses
42
Jencess-
TeeWay
0
KMAC / Arenas
37
CLASS
6
Special Events
32
CLASS
0
Fire
25
Mastermind
18
Planning
30
AMANDA
33
Plan ning /Engineerin
28
AMANDA
4
Building
76
AMANDA
6
Enforcement
42
Humane Society
system
6
FCS
HR
0
N/A
1
IT
0
N/A
16
Legal
2
AMANDA
23
Legislated Services
17
Access
0
Licensing
95
AMANDA
0
Revenue
14
CIS
0
Purchasing
0
N/A
1
INS
Operations
32
CIS / CLASS
45
Engineering
0
N/A
69
Parking
8
Parking system
8
Kitchener Utilities
36
CIS / Cityworks
23
Total
959(77%)
294(23%)
In total, 77% of the fees are programmed into a system, making the risk of error much smaller. 23% of fees
require manual input by staff for each transaction. These fees have a higher risk of being incorrect.
In terms of timing of fee updates, the majority are updated January 1St. However there area few categories of
fees which get updated at the beginning of the season or program which does not coincide with January 1.
Applicable taxes are either included in the fee and / or generated by the billing system. There are some areas
with specific staff accountable for ensuring the taxes are correct.
Random Sample
The areas chosen to audit were selected based on annual revenues. Any division with revenue greater than
$900,000 was reviewed. A random selection of 2012 transactions was then selected for those divisions which
rely on manual input of user fee rates to generate the transactions. Reports were generated to show the rates
which were programmed into the systems for the divisions which rely primarily on system generated
transactions. The results are shown in the chart below.
2 -4
Department Division Revenue Audit Results
INS Utilities Report run from CIS which shows rates
162,607,308 programmed into the system. 100% audit of
all rates. Result = 100% correct.
CSD KMAC / Arenas 5,467,929 Report run from CLASS which shows rates
programmed into the system. 66% audited.
Result = 76% correct.
INS
Parking
5,042,129
There is no easy way to audit this.
CSD
Building
4,750,222
Report run from AMANDA which shows rates
system; Result = 100% correct.
1,998,462 Audited random sample of 14 receipts,
CSD
Planning
programmed into the system. 100% audit of
representing $107K or 5% of total revenue.
rates. All correct except for 1 (designated
Results = 100% correct for those able to be
Aquatics /
structures). _
Report run from CLASS which shows rates
CSD
2,780,566
could not be verified.
1,298,059 Report run from SAP to show 683
Athletics
Operations
programmed into the system. Descriptions
transactions from the past year, grouped into
difficult to match to fee schedule. Some
37 fee types. Result = 2 fee types matched to
matches found, some additional fees found.
CSD
Golf
2,519,255 44% sample of all golf fees tested by viewing
rates programmed into Jencess TeeWay
system; Result = 100% correct.
1,998,462 Audited random sample of 14 receipts,
CSD
Planning
representing $107K or 5% of total revenue.
Results = 100% correct for those able to be
verified; some were based on square feet and
could not be verified.
1,298,059 Report run from SAP to show 683
INS
Operations
transactions from the past year, grouped into
37 fee types. Result = 2 fee types matched to
fee schedule, 18 types not found in fee
schedule, 17 fees based on calculations not
shown in report (i.e. square meters, labour
hours, etc).
1,277,341 Report run from Cemeteries system which
CSD Cemeteries
shows rates programmed into the system.
100% audit of all rates. Result = 100%
correct.
INS Engineering
972,528 100% audit of 2012 receipts; majority are
based on hectares which are not included on
the receipt; incorrect fee being charged for
site alterations.
Findings
The majority of areas are correctly using or programming the approved rates.
The KMAC and Arena rates were off slightly, either slightly over or under the approved rate in several cases. It
was found that 4 of the rates were keyed incorrectly into CLASS, resulting in fees which were between $0.45
under charge to $3.50 over charge. The net effect is immaterial. However it is recommended that this area
implement a peer review when the 2013 rates are input to ensure there are no errors next year. It was also
found that there are 3 rates on the user fee list which were incorrect in CLASS, however are no longer in use
2 -5
and thus produce no financial variance. These should be removed from future user fee schedules and deleted
from CLASS to avoid confusion.
There is no easy way of auditing the rates which have been programmed in to the parking meters other than to
physically view the parking meters. That was out of scope for this review and thus not verified.
The Aquatics and Athletics fees were very difficult to verify. Extracting the data from CLASS took a long time as
a new report had to be created and many of the fees are listed without tax included which added to the
confusion. It was found that there are a great many specialized personal interest type courses listed individually
within CLASS which fall under more broad categories on the fee listing. Trying to match the specific course to
the fee category was challenging. The ones that were found, were found to be correct. It is unclear whether
there are fees being charged which are not on the fee schedule.
Operations and Engineering fees were also difficult to verify as correct. This is because a great many of them
are fee calculations rather than flat fees. For example a set fee per square metre or per labour hour. The
calculations which gave rise to the transactions in the report were not part of the report. It was not deemed a
good use of time to dig further at this point. If concerns arise about incorrect rates in the future then work order
records could be pulled for each transaction and the calculations checked. There were also quite a few
Operations fees being used which were not on the fee schedule.
There was one Engineering fee which was found to be incorrect. This was due to the rate not being updated in
a timely manner on the internet site which is what customers refer to. The rate has now been corrected and
staff instructed to ensure that it gets updated in a timely fashion for 2013.
Recommendations
• The manager of KMAC and Arenas should peer review all 2013 rates input to CLASS to check for
accuracy
• The manager of KMAC and Arenas should remove all obsolete fees from the fee schedule and
CLASS.
• The manager of Aquatics and Athletics should double check that all fees listed in CLASS match back to
a fee category in the fee schedule and add any which are missing.
• The director of Operations should work with Operations managers to add the missing fees to the fee
schedule.
Conclusion
In conclusion, it appears that the majority of fees are included on the fee schedule and are being updated
appropriately. Given that 77% of the fees are system driven there is a much lower risk that incorrect rates are
being charged. There will always be the risk of human error but this can be reduced through peer review. There
are some fees which have not been included on the fee schedule but are being charged which should be added
in the future as well as some fees which are obsolete and should be removed.
Availability of data has been the largest issue in this review and is a reflection of the current usability of some of
the City's software systems.
2 -6
ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN:
Work falls within the Efficient and Effective Government plan foundation area of the Strategic
Plan. The goal of Internal Audit work is to protect the City's interests and assets through
- ensuring compliance with policy, procedures and legislation
- ensuring adequate controls are in place to protect our assets
- ensuring our operations are as efficient and effective as possible
This helps support the financial goal of long term financial stability and fiscal accountability to
our taxpayers.
FINANCIAL IMPLICATIONS:
None
COMMUNITY ENGAGEMENT:
Not applicable
ACKNOWLEDGED BY: Dan Chapman, Deputy CAO, Finance and Corporate Services
2 -7
5 � 1
■
Q N
L O
� � N
L M
E
o �
� v �
a�
o
0
g -
lop,
r
�a P
4.
5
^O
CIO.
W
0�
C/)
=3
A--A
m
A.-A
U)
FL
A.-A
(D
< < L
a)
L 0
a)
A.-A
x A--A
L
r
1
iv
nn�
W
p > ca
. _ W ^
cu ry
ON O
O
of= L) O 3:
O � �
Q >
U LL C:
Cy Cy)
O V =3 T11" O 0 �
-r- Cl) C/) O O
a) a) N
N
'el
C)
00
� 0 r
Cn
4.
lop,
0
74
N
L
0
L
00
L r
� N
C)
U
CO H
Q
r
4.
>
N a)
a >
U a)
>
C: L- a) > a)
=3 a)
0 (.) C/)
(.) C: c: a)
2:s M 0 _0
0 0- 'Fn c: a)
-§j: E .5; cu
a) o i5 n
cn >, a)
cn C: cn
a) 0 o
m a) cn -p a)
a)
4-0 u LL a)
a) Fn L- LZ CU
-a >. a) d) a) a) a-
_r_ cn 0 o- E cn
E0-Z) n"- 0 uj
0
lop,
now
N
wl
s
4--+
0
LJ
0
m
.0
n
I
o N
o N
N�c�
�70 MU
o �
o N U N
}
C)
4- �
• to � "
N
�a)
O4-1 • fn
o
MENEM
>E �
�0 >
0 O)o
ic6
w E>
O
N
c�
U
N
cn
■0
cnT
cn
L
Q
> T
0
00
a�
E
. ,� m
�cn
O.EZ
,
cn
MENEM
M
74
i
N
CD
M
O
LEE
>
>�
O
:L-
'@
EE ..
=
o
s
um)
�
oo
o
O
�
0
O
o
CL
CL
a
H
H
L
°
O
s
O
a�
M
74
i
N
• • • • •
1
N
cn
C:
-a
N
N
-a
C:
-0
C:
N
^
m
a
N
to
Z
p
p
�
N
p
U
®^
O•�
C:
C
C:
O
O
M
Op
:
�
U
cn
N
4-
O
O
N
.�
�
C:
.�
E
O
C:
0
to
,cn
O
O
cu
N
O
�
L
N
L
0
Q
N
CD
U
U
m
0
�
O
+�
�
0
p
N
to
�
N
�
\°
_
O
>
07
�
U
_
i
ol,
I
I
• • • • •
1
N
r
Ln
5
(�
�
N
CF)
to
W
>
N
CF)
(D
co
O
N Iq
L
(n
O
(D
I�
00
Ni
CF)
Ni
ti
M
..
a)
o
L
N
{�}
�}
�}
�}
6}
tf
}+
C:
W
(D
L
Q
A.—O
.�
nn''
n
W
�
N
�
M
co
00
�
L
>
N
o
C6
C6
06
Nqi
qi
N
N
(.0
L
>
�
Q
�C/)
co
-0
C/)
A-0
L
�
U
_�
c/)
C:
CL
U
Z Q
CL
Q
Q
O
Q
06
=3
C/)
C/)
V
C:
V
Q
Q
O
a)
�
co
C/)
ca
�
J
Z
>
co
CL
a'
�
N
_
0
Q
12
r
5�
U
cn
70
70
O ?�
}'
Q--Q M
QL C/)
�O�
Q
a) c/)
o00
U
UL�
aL
cn
a) cn
• —
Q
cn. L
U
N�
E
cn
OL.L.
cn a)
m
O
o��
U
�
U �
cn cn
N
O
O
Q�
}, —
'u—)
�
H-4--
�
cn'>
Cn
O D-0
(D
..
>
�
v
a�
N
�
O
��r
74
N
cn
70
70
cn
Z3
D
N
�
N
N
Cn
70
(n
cn
cn
0
cn
j
c6
0
0
m
4-j
-0
L
70
T
L
L
N
O
O
O
Q
+
E
C:
Q
O
O
c6
• •
L
•L
cn
•�
>%
75
O
U
E
O
z3
E
E
M
O
cn
O
O
O
L
U
cn
U
E
s
��r
74
N
5
O
L
�--+
O
C
a)
E
CL
E
(�
C;)
L
O
CU
L
'
a)
cu
L
E
m
cn
•
cn
O
>
�
O
a)
O
-*--a
cn
LL
cn
�
I�
C�
Ll
r
O
A--+
O �
A--+
U
C� O
c
A--+ • —
Jc: O
O �
0
cn
E
L
CD
O
L
L
O
42
O
O
U
x
O
O
E
O
cn
L
CU
L cn
�--+ x
CU CU
cu
� O
cn CU
i Q
� Q
0
L
CD
L
O cn
\ E
� O
cn
C� >,
O cn
O 0)
O —
J •—
N
N
s
N
4-0
4-
O
U
C�
L
U
U
Q
I
W
4)
4)
L
C�
C�
c
O
.�
O
r
r
C
0
a)
a)
4)
L
4)
L
a)
►�
Ovid
O
O
07
c�
L
a)
A--+
m
a)
L
U)
CIO
U
O
U
0
O
O
O
M
O
C6
U
O
U
O
N
(Cl)
U
O
O
U
O
E
O
.cn
.5;
Lek
O
U
O
O
.0
cn
O
.cn
a)
C�
E
E
.cn
C:
O
U
cn
U
C�
Oa
C
w
1
N
O
L
2
0
A--j
a
O
O
a)
L
L
a)
a)
0.
Ll
r
C/)
. S
J
U
0
E
E
CD
O
L
cn
C�
Q
Ya)
A.-O
.a)
C/)
.0
0
0
(a
O
N
Ll
N
Q
J
U
0
cn
0
LR
cn
c�
a�
L
in
U
cn
A
cn :3 U 70
a)
Jc: 0
•— O
cn
Q �
co 4—
cn C:
•U O
:3 a)
U
E O
CIO
L
O O
U 4a.)
O
cn
O
1.2
cn
O
c�
L
O
CD
cn
.cn
E
2
Ll
in
U
cn
m
1
N
