HomeMy WebLinkAboutFCS-16-142 - 3Q Audit Status ReportStaff Report
rR finance and Corporate Services Department www.kitchener.ca
REPORT TO: Audit Committee
DATE OF MEETING: September 26, 2016
SUBMITTED BY: Corina Tasker, Internal Auditor, 519 - 741 -2200 ext. 7361
PREPARED BY: Corina Tasker, Internal Auditor, 519 - 741 -2200 ext. 7361
WARD(S) INVOLVED: All
DATE OF REPORT: September 16, 2016
REPORT NO.: FCS -16 -142
SUBJECT: 3rd Quarter Audit Status Report
RECOMMENDATION:
No recommendation required. The following information is being provided as an
update and assurance on internal audit matters, in accordance with the Audit
Committee Terms of Reference.
BACKGROUND:
The following report provides a summary of the Internal Audit activities completed
during the period of July to September 2016. The chart below shows the audits
contained in this report.
The following items are currently in progress and will be brought forward at a future
audit committee meeting:
• Capital Balances Audit
• Revenue Comprehensive Audit
* ** This information is available in accessible formats upon request. * **
Please call 519- 741 -2345 or TTY 1- 866 - 969 -9994 for assistance.
1- 1
REPORT:
1. Legislated Services — Follow up Audit
Completed. July 26, 2016
Audit Objectives:
Each division which has been reviewed by Internal Audit in the past will participate in a
follow up audit at least one year following the completion of the original audit. The
purpose is to assess the outcome of the audit in terms of which recommendations have
been implemented, what the impact to the division has been, and to identify any new or
existing challenges the division is facing. This will help determine if a further in -depth
review is required and will highlight any high risk issues proactively.
Methodology:
The following research and analysis was undertaken for the follow up audit:
• 17 staff surveys and interviews
• Review of relevant literature, including the original audit report and output related to
the original recommendations
Audit Statistics:
Date original audit completed
January 12, 2012
# of Recommendations
14
# of Recommendations complete
8
# of Recommendations in progress
2
# of Recommendations not started
4
Positive Impacts:
15 out of 17 staff surveyed felt that the implementation of the recommendations from
the original audit has had a positive impact on the division. The remaining two staff were
new to the division. Some of the accomplishments and improvements include:
• The creation of a division vision and mission has helped to unify the division
around a common purpose and break down silos between the sections. This was
seen as a very positive team building exercise.
• Communication between licensing and other stakeholders has been improving
through the implementation of a joint task force.
• More consultation is taking place with other divisions for the development of the
yearly meeting schedule.
• Communication within the division has improved with the implementation of
things like regular monthly management meetings, monthly staff meetings in
each section, a white board to show what everyone is working on, and improved
sharing of information and a clear direction by the current director.
1-2
• Removal of the second cash drawer and consolidation of the cash processes has
reduced the time to reconcile the deposit from one half day down to 15 minutes.
• Removal of labour intensive tasks involved in the Committee of Adjustment has
saved time in the Legislated Services division. Examples include transferring the
stuffing and folding of mailers to Mail Services, and sending the mailers only to
those that are required under the legislation.
• All Committee of Adjustment processes have now been documented which will
help in the event that the position needs to be covered by another staff.
• Standard Operating Procedures are in progress for Licensing processes.
• Staff are in the process of being cross - trained on each other's tasks and can
backfill when necessary.
• The culture within the division has improved, with less tension among staff and
more collaboration happening. Staff are more engaged and seem happier.
• The process has been improved for posting agendas and reports.
• Ownership and storage of files has moved from Legislated Services to the
originating division as the owner of the documents which saves time and space
for Legislated Services.
Unaddressed Issues and New Risks:
Workload continues to be an issue within this division. The original audit recommended
more staff for the Corporate Records and Archives section but due to budget constraints
this has not been possible. The section continues to struggle with workload as demand
for services continues to rise. Staff are working reactively rather than proactively which
leads to legal and reputation risks and doesn't allow the staff time to think strategically.
Workload pressures will only continue to grow as the use of electronic records grows.
Although more and more records are kept in an electronic form, staff still keep paper
records as well which effectively doubles the workload for staff in this section. There
are also additional risks related to secure storage of electronic records, viruses, and the
fact that many people do not realize that electronic records are real records.
Workload in Licensing and Council and Committee Services has also grown over time.
This coupled with high turnover in the division has left staff feeling very stressed.
Although many staff mentioned that the culture had improved greatly over the past four
years and the creation of the vision and mission has helped to unify the division, more
needs to be done to keep the momentum around the vision and mission and break
down the silos even more.
In addition, due to workload several of the team meetings have been rescheduled which
is frustrating for staff.
1-3
Four of the original recommendations which related to the Licensing section were not
implemented due to management turnover in the section. However, they will be
considered as part of the ongoing licensing review.
One of the requests from the original audit was that licensing staff start tracking their
time so that capacity could be more accurately determined. For the past 9 months staff
have been required to fill out activity logs which take a lot of time to complete. There
should be enough data now to analyze the capacity.
Recommendations:
1. Approach service delivery, particularly at the front counter, with the division's
vision and mission in mind. Continue to look at all processes from the
customer's perspective using Lean techniques and aim to remove waste and
break down barriers between sections. Use this as a catalyst to cement the
vision and improve the sense of team across the whole division. It will also help
free up capacity to better manage the volumes of work.
2. Make an effort to maintain regular team meetings, regardless of workload. This
is important to staff and should be placed as a priority. The meetings could be
shortened in order to get back to the pressing workload, but should at least
happen.
3. Continue documenting processes and aggressively cross - training staff within and
across sections to provide greater coverage during absences and to assist in
times of heavy workload.
4. Review tracking activity in licensing with the new manager once hired to
determine what information is required for performance management, legislation,
and key results indicator purposes. Discontinue the tracking of all other statistics
which do not serve a purpose.
5. Analyze the current licensing data to determine capacity (or lack thereof) as one
input into the licensing review.
Next Steps:
No further follow -up audits will be conducted. Staff and management should continue to
work together to address the outstanding recommendations from the original audit as
well as the new recommendations in this report.
2. Accounting — Comprehensive Audit
Complete: August 19, 2016
Objective:
The objective of this review was to examine the services provided, inherent risks,
processes, controls, roles and responsibilities, and culture within the division. The
review assessed the positive aspects that should continue, as well as possible areas to
improve efficiency and effectiveness, mitigate risks and strengthen controls.
MKIA1
Methodology:
Similar to internal service reviews conducted in other areas of the municipality, this
review incorporated the following elements:
• Internal Stakeholder Consultation
o All active Accounting division staff were interviewed
0 44 internal staff in divisions which frequently interact with Accounting staff /
services were interviewed
o Council was given the opportunity to be interviewed — 1 member agreed to
provide input
• External Stakeholder Consultation
o Arms - length groups who use Accounting services such as Kitchener Public
Library, Kitchener Housing, Waterloo Region Municipalities Insurance Pool,
Neighbourhood Associations
• Risk Assessment
o All risks identified through the consultation were prioritized for future action by
Accounting staff.
• Process reviews in selected areas:
o Gift certificates
• Cheque and Electronic Funds Transfer (EFT) audit
o Bank reconciliation
• Accounts Payable processes
• Accounts Payable filing processes
• Hardcopy Paystubs
• Hardcopy T4s
• Security deposits and Letters of credit
• Controls testing in selected areas:
o Journal entries
• Social Insurance Numbers
• Separation of duties
• Duplicate payments
• Purchase Orders less than $3000
• Payroll controls
• Literature Review of key internal and external documents
• Municipal Benchmarking on the following subjects:
o Cheque audits
• A/P filing processes
o Gift certificate processes
Findings:
1-5
Strengths
It was clear from the staff and stakeholder input that accounting has a highly functioning
team culture characterized by trust, respect and collaboration. Everyone agrees the
division has a very positive culture and is a great place to work. They aim to go above
and beyond to help each other and other stakeholders. They have instilled a culture of
continuous improvement and are open to change. Their attention to detail leads to
accuracy of their work.
For the most part the division understands client needs and acts as an internal partner
to support service to the organization or public. They work together with clients to find
solutions even when things are not easy and it takes time — they are flexible and
creative with solutions and work together to troubleshoot and solve problems. They are
knowledgeable, professional staff who are passionate about their work.
Issues and Risks
Since this audit focused on processes and controls, input from staff and stakeholders
was consolidated to identify processes which were inefficient and /or ineffective, as well
as areas where controls were weak or non - existent. Staff then voted on which
processes they would most like assistance on reviewing and improving. The review
team chose the areas to do controls testing in. The resulting lists of processes and
control areas are included in the methodology section above.
In addition to these areas, staff also identified lack of cross - trained backups as a major
risk for their division. When employees go on vacation the work has to wait until they
return which results in a large amount of workload to catch up on. There is a risk to
employee morale if vacation time is seen as a burden when they have no assistance to
decrease their backlog.
There are also many processes and knowledge within accounting, much of which are
not documented due to lack of time to do so. As mentioned above, several of the roles
have no cross - trained backups in the event of an absence. There is a risk to service
delivery in that deadlines may be missed or work not completed if there is a prolonged
staff absence or if key staff were to leave.
Recommendations:
A total of 68 recommendations were developed in this review. Since the primary focus
of this review was on process reviews and controls testing, the majority of
recommendations concentrate on improving efficiency and effectiveness, reducing
manual effort, and enhancing communication and understanding of procedures and
processes throughout the organization. Additional recommendations are made in the
1-6
areas of organizational structure, roles and responsibilities, and accounting enhancing
its role as an internal business partner in the organization. A summary of only the key
recommendations are included below.
Process Reviews
Rocoillillendatioh
Be' nefits
Explore the use of reloadable gift cards to
.
Greater customer satisfaction (ability to
replace the existing paper gift certificates
purchase at multiple City locations
for City services.
using any payment method)
•
Potential for increased revenue if
marketed
•
Removal of manual work from
Accounting
Based on risk levels, reduce the number of
.
166 — 218 hours of staff time saved per
cheque audits in Accounts Payable.
year (roughly 5 -6 weeks)
Make changes to the deposit system and
.
Decreased staff time spent reconciling
SAP to facilitate easier reconciliation of
the accounts each month due to similar
bank accounts.
data formats between systems
meaning less manual manipulation
Establish a purchasing protocol including:
.
Less staff time spent following up on
a) who can purchase goods / services
invoices with no purchase order
b) when to use various methods of
number or name, duplicate payments,
payment
holdbacks, or blanket purchase order
c) correct process to follow
d) penalties for non - compliance with
*
expiries
Faster payment of vendors and ability
process for employees and vendors
to avoid late payment fees
•
Appropriate purchasing methods used
by staff
Add an online approval path in SAP for
.
Increased management oversight over
field orders and discontinue the use of
all purchases
parked invoices.
Consider a move to electronic document
.
More efficient filing and retrieval of data
management for Accounts Payable in
.
Less paper use
connection with a move to Electronic
.
Coordinated implementation of both
Funds Transfer (EFT).
technologies to ensure an integrated
solution
Move towards electronic pay stubs for all
.
Cost savings in paper, toner, envelopes
employees unless there is a legitimate
and postage
1-7
reason to provide hardcopy.
. Staff time savings across payroll, mail
Journal entries
services and in all 4 departments
• Greater security of personal information
• Quicker access to paystub information
by employees
Communicate and promote the use of
. Cost savings in paper, toner, envelopes
electronic T4's to staff.
and postage
Social insurance numbers
• Staff time savings in payroll and mail
Separation of duties
services
Controls Testing
Overall it was found that there are multiple levels of controls in place to protect the City
from fraud and theft and that Accounting staff are very good at identifying the
appropriate controls to put in place, balancing both the need for protection against
operational effectiveness. During the controls testing there were some isolated minor
areas of concern found and the following recommendations were made to mitigate the
risks in future.
Topic
Rocomtnendations
Journal entries
. Do not allow SAP Business Solutions
staff to make journal entries
• Validate journal entry access annually
• Continue process of post - approval but
revisit the possibility of online SAP
approvals in 2017
Social insurance numbers
. No concerns or recommendations
Separation of duties
. Perform an annual separation of duties
analysis on all SAP users, with an initial
focus on users which currently have
"ALL" access
Duplicate payments
. Educate employees who made
duplicate payments to vendors on the
correct process to avoid future errors
• Run a report quarterly to look for
duplicate payments in order to pursue
1-8
Other Recommendations
• Dedicate time monthly for all Accounting staff to develop desk procedures and
cross -train each other on mission critical tasks.
Conclusion:
This review looked critically at a variety of accounting processes, and the resulting
recommendations are focused on enhancing effectiveness, efficiency and controls. The
Accounting team is starting from a strong position, with knowledgeable people and
strong positive workplace culture, which together will be advantageous to take action on
the recommendations.
The review has shown that Accounting staff are diligent at identifying and maintaining
critical control points in their processes. They also are open to suggestions for
improvement in order to make their own processes more efficient and to serve their
customers better. They will need to work closely with other groups such as Human
Resources, Supply Services, Financial Planning, SAP Business Solutions and I.T. to
implement the solutions, therefore their collaborative approach will be a benefit in this
regard. The recommendations will also be shared with the applicable divisions to ensure
this collaboration happens seamlessly.
ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN:
This report supports the achievement of the city's strategic vision through the delivery of
core service.
FINANCIAL IMPLICATIONS:
There are no financial implications related to this report.
COMMUNITY ENGAGEMENT:
INFORM — This report has been posted to the City's website with the agenda in
advance of the council / committee meeting.
1-9
reversal of payment in a timely fashion
Purchase orders less than $3000
• Add approval path for field orders and
discontinue use of parked invoices
Payroll controls
• Ensure all sensitive data is securely
stored in a locked location, including
pending paperwork
• Ensure backup retained for all off -cycle
payments
Other Recommendations
• Dedicate time monthly for all Accounting staff to develop desk procedures and
cross -train each other on mission critical tasks.
Conclusion:
This review looked critically at a variety of accounting processes, and the resulting
recommendations are focused on enhancing effectiveness, efficiency and controls. The
Accounting team is starting from a strong position, with knowledgeable people and
strong positive workplace culture, which together will be advantageous to take action on
the recommendations.
The review has shown that Accounting staff are diligent at identifying and maintaining
critical control points in their processes. They also are open to suggestions for
improvement in order to make their own processes more efficient and to serve their
customers better. They will need to work closely with other groups such as Human
Resources, Supply Services, Financial Planning, SAP Business Solutions and I.T. to
implement the solutions, therefore their collaborative approach will be a benefit in this
regard. The recommendations will also be shared with the applicable divisions to ensure
this collaboration happens seamlessly.
ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN:
This report supports the achievement of the city's strategic vision through the delivery of
core service.
FINANCIAL IMPLICATIONS:
There are no financial implications related to this report.
COMMUNITY ENGAGEMENT:
INFORM — This report has been posted to the City's website with the agenda in
advance of the council / committee meeting.
1-9
CONSULT — Staff, council, and external and internal stakeholders were consulted as
part of this review as noted in the methodology sections above.
ACKNOWLEDGED BY: Dan Chapman, Deputy CAO, Finance and Corporate Services
1-10
0
U
0
f6
1
Cf
Ln
1- 11
4-a
L-
0
0
O
cry Co
N
cn o
a-J • L
-0 C
a
�
L (1)
Co
� V
M cn
• •
1-12
H
FZ
a
0
FM
a
cc
W
FM
Q
Fm
cr
0
a
am
W
M
cc
1-13
a--a
_(1)
CL
E
O
U
4-a
I
O
O
4—
c�
V
i
V)
60
4-a
Co
W
>
L
CL
E
O
V
C�0
a--a
O
V
V
5
i
C�0
O
L-
0-
c
4-a
Co
>
L
O
V
0
4-a
Co
V
Co
Co
m
Co
a--a
.0-
Co
U
A,
FMtl
c/'i
W
V
OC
W
O
W
Q
J
L7
W
J
1-15
Co
c
h—
L
O
W
O
W
E
O
cn
V
c/1
}'
O
O
C
O
—
a..�
• Z
ca
E
•>
V
E
0
C�0
�
O
•�
Co
V
4-J
• —
+�
O
X
cu
cn
V
O
e
1-16
• •
r-I w N
0
ca
0
a�
E
0
U
N
DC
O
W
Ln
_0
Co
4-a
bD
ca
4-a
E
0
0
N
.O
4--j
a--a
E
E
-
•-
4-j
0
>
V
O
C
N
`r'
O
cn
J
I
I
• •
r-I w N
0
ca
0
a�
E
0
U
N
DC
O
W
1-17
Ln
_0
a�
bD
ca
E
0
0
.�
1-17
4-a
V
C�
E
4-a
>
.Ln
O
0-
_0
ca
a--a
0-
_0
:3
4-a
ca
O
Ln
•
LC
>
O
.Ln
E
O
.O
0
•
.O
V
E
E
O
V
_0
O
E
>
C�
Co
V
N
4-
O
ca
O
E
DC
L
C�0
Ln
Ln
O
V
Co
.O
Co
a--a
E
V
O
0
•
O
E
ca
U
•
Ln
E
>
O
E
V
O
0-
4-a
I'-
65 W
•
1-18
0
1-19
^0
W
4-a
rf
O
Q
E
V
-
�
�
V
-0
a--a
�
�
O
.—
_0
O
Z
N
N
O
.v
O
o
_M
O
V
O
E
-0
V
c:
V
E
4-a
0O
C
+,
V
V
O
C
-0
(3)
Q
0
_�
O
u
*Z7;
EF
E
O
-0
•u
I
I
iD
0
1-19
4-a
Co
O
O _0 .-
O C
4-J CO Co
V O
•- V
V
}' 4-a E 'L
4-a -0 +-a
E c�
a--� E
E
_0
�O p
CAA
Co cn � Co E t�A 4-j � ca
V > :3 V ,� V
E Q Co
Q O ca Ca
L- C:
N
J V }' •-
�, V oc Q
1-20
z
z
0
u
v
a
1-21
1-22
C-:
O
.(A
W
c
• -
O
-0
•�
• >
-
O
O
4-J
ou
>
•-
},
O
V
i
�
cri
�
V
-
E
V
•�
O
co
V)
X
0-
O
},
O
4-J
• -
9
C:
O
�
O
�
�
�
v
1-22
N
L
0
Ca
N
Ca
L
X
ul \
L
N
0 0 Ln
�> bA
C: C:
.0 _N �
cc
Ln
Ln M
C: cl Q 0 C
U I I I oC U m
1-23
Ja
twD
LM
c
O
4-a
Co
L-
0
r)
Co
O
V
V
0-
a--a
I
V
O
In-
•
4--a
W
Ln
E
E
O
E
O
O
U
•
V
Co
V
V
Co
.Co
O
O
4-a
4-a
El
•
tr_
Co
Co
O
O
Co
bD
O
•
O
_:3
O
O
V
0 §
O
1-24
W
V
O
1-25
_0
cn
O
�p
C
4-J
_se
�
4-a
V
4-J
M
4-J
-0
E
-0
:3
E
O
u
O
>
-0
O
O
Co
E
-
V
•—
C
O
O
Co
L-
u
L-
0
O
O
ca
.�
--se
--se
Q
V
V
a
Co
1-25
Qj
ct
Qj
Qj
i
U
Ctf
_(1)
fB
fB
O
(1)
O
_O
Q
W
fB
cr
U
O
E
U
DC
O
U
O
O
i
Q
bn
.�
s
i
Q
s
Z
W
L
L
O
i
0
Q
Ln
.C:
s
fB
Q
ca
0
Q
fB
.C:
O
Q
•U
O
.C:
Q
0
L
C: C:
E c:
CAA
m U
• -
fB C:
O
+, U
C: w
w
O
U
O >
-0 O
•U E
o+,
U
w C:
w •O
U
C: C:
O O
U U
fB
Q
U
.E
0
U
w
w
i
fB
O
O
2
(n
U
.-
C:
O
i
U
O
E
0
Q
c�
U
.C:
E
E
O
U
1-26
1-27
Q
�--�
Q
Ln
O
E
Q
(/)
C
U
•�
4
fB
V
Q
tu
•cn
�
Q
�
�
�
•fa
i
fB
Q
CL
},
._
>
CU
cn
i
•-
ca
ca
Ln
i
Q
Q
4-J
Q
cn
—_
C:
,�
llftft
Q
0
�
i
L
•-
O
L
Q
—
>
cu
fB
cn
>
DC
a-
DC
w
w
1-27
W
4-a
W
E
:3
V
O
_0
O
c
O
E
0)
E
Co 0-
4-a
.V
0
•
L�
Ln
E
RIC
ca
O
V
c
Co
V
O
0-
Co
Co
V
. i
A
1-28
W
4-J rf
0 _0 O
O w
a--,
CAA V �
� V
� •� v O V
ca a-J U
-0
4--'
O .v =
ca — � � �_ •— ca
(� V m
•
•
1-29