HomeMy WebLinkAboutAudit Agenda - 2017-03-20n' FN R
Office of the City Clerk
Kitchener City Hall
200 King St.W. - 2nd Floor
Kitchener ON N2G 4G7
Audit Committee
Agenda
Monday, March 20, 2017
3:00 p.m. - 4:00 p.m.
Council Chamber
Page 1 Chair — Mayor B. Vrbanovic
Presentations -
a) Mayor B. Vrbanovic - To present the Canadian Award for Financial Reporting for the
fiscal year ending in 2015 to the Accounting Division on behalf of the Government
Finance Officers Association.
Status Reports
1. FCS -17-008 - 2016 Year in Review (15 min)
2. FCS -17-007 -First Quarter Audit Status Report (15 min)
Dianna Saunderson
Committee Administrator
Staff Report
rR finance and Corporate Services Department www.kitchener.ca
REPORT TO: Audit Committee
DATE OF MEETING: March 20, 2017
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: March 13, 2017
REPORT NO.: FCS -17-007
SUBJECT: 1st 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 December 2016 to March 2017. 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:
• Cyber Security risk assessment and gap analysis
• Revenue comprehensive audit
• Stores — Tool Crib physical inventory
• Aggregates — cost/benefit analysis
*** This information is available in accessible formats upon request. ***
Please call 519-741-2345 or TTY 1-866-969-9994 for assistance.
2-1
REPORT:
1. Petty Cash — Compliance Audit
Completed. March 3, 2017
Background:
Employees are empowered to purchase goods and services on behalf of the City of
Kitchener in order to perform their jobs. For purchases <$3000 they can do so through
using a corporate VISA card if they have one, or by using their own funds and being
reimbursed through petty cash (for <$100) or cheque requisition (>$100).
For purchases that are reimbursed through petty cash, the employee is to receive oral
approval from their supervisor prior to making the purchase. Following the purchase
they attach the original receipts to a Petty Cash (PC) voucher with the date of the
purchase, business reason for the expense, account to charge and amount. The
voucher is then signed by the supervisor who authorizes the purchase. The supervisor
should be checking to ensure that the expense is a valid business expense, original
receipts are attached, and that no prohibited items have been purchased.
The employee takes the signed voucher and receipts to a PC custodian who disburses
the cash and signs the PC voucher indicating the cash was given out. The custodians
are selected individuals assigned to manage the petty cash for a given area or division.
Once the cash is received, the employee also signs the voucher to indicate they
received the cash. The custodian then files the voucher and receipts.
Once a PC custodian's cash float is diminished to a certain limit, the PC custodian will
submit all of the vouchers and receipts with a reconciliation report for review and
approval by their supervisor. It is then submitted to Accounting in order for the float to
be replenished. Accounting verifies that the vouchers plus the remaining float equal the
authorized float amount and then issues a cheque for the difference, charging the
accounts indicated on the vouchers.
In the past, the internal audit division conducted annual "surprise" cash counts at all City
facilities that have petty cash custodians. A checklist was completed for each location to
assess if the cash plus receipts equaled the petty cash float amount, whether the safe was
locked, whether deposits were current, how many staff have access to the safe and what
other assets are kept in the safe.
Findings in those annual audits indicated that all cash variances were considered minor
and records were generally organized and current. Controls appeared to be sufficient
and staff was following established policies. As a result, the frequency of petty cash
counts has been moved to bi-annual. Recommendations have been made in past years
regarding the physical safety of the cash as well as the accuracy of the reconciliations.
A deeper review of cash deposit processes was done in 2014 at all locations in lieu of
the cash counts.
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2 — 2
In 2015, a review of all employee expenses was done, including petty cash. One of the
objectives was to test a sample of employee expenses to see if they complied with
policy. The hardcopy backup for all 2014 petty cash vouchers for selected petty cash
custodians was reviewed and tested against criteria as part of that review.
Audit Objectives:
To test a sample of 2016 petty cash vouchers for compliance with policy.
Methodology:
This audit included testing a sample of 2016 petty cash expenses against the following
criteria:
• Voucher was authorized by the appropriate person, and the custodian and
person receiving the cash signed in the appropriate spot on the voucher
• Business reason for the expense was provided
• No alcohol or tobacco was purchased
• No personal items / loans / cashing of personal cheques
• Not used to pay a vendor directly
• Original receipts attached
A random sample of 50% of the petty cash custodians was drawn which equated to 18
of 36 staff. From that sample the reconciliation reports and attached vouchers and
receipts were obtained for 12 of the 18 staff. (The remaining 6 staff did not process any
petty cash replenishment requests during 2016.) One reconciliation report from each of
the 12 staff was reviewed. Within these 12 reconciliation reports, 129 individual petty
cash vouchers and associated receipts were reviewed.
Findings:
The following observations were made:
Prohibited Purchases
• One instance of payment to a vendor. Accounting informed the employee of the
proper process subsequently.
• One instance of personal items reimbursed as part of a larger receipt for
legitimate business items (item was flagged by employee as personal but not
deducted from the total, $1.29 total)
• Two instances of alcohol being purchased. However this was for the Market
where this is an acceptable purchase for the cooking classes, however it should
be done using the corporate VISA card. The control point to ensure all alcohol
purchased is actually used at the Market is for the manager to confirm all
purchases were added to the inventory tracking sheet when they approve the
corporate VISA statement on a monthly basis. The tracking sheet records all
purchases and uses of alcohol and should match the physical count of alcohol on
hand at any time. While the petty cash reconciliation could also be used for this
3
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purpose, it may not be done monthly if the float has not been depleted. This
would make it more difficult to regularly monitor and reconcile the alcohol
inventory. Accounting did follow up with staff subsequently to confirm the
required alcohol inventory practices were being followed. Staff indicated this was
a last minute purchase made by a chef which is why VISA could not have been
used.
• Five instances of purchases for tools and supplies at Home Depot. While not
prohibited, staff should be obtaining these items from the tool crib or stores
where possible. Management has been notified.
Signatures
• 16 instances with no supervisor approval on the vouchers (12% of the sample)
0 7 instances where it was missing
0 9 instances in Golf where their vouchers do not have a place for
supervisor signature
• 2 instances where the employee receiving the cash did not sign the voucher (1%
of the sample)
Analysis:
The testing for this audit was based on the written petty cash policy as it exists today.
Analysis of the requirements in the policy and a risk assessment of the consequences
of non-compliance have led to the conclusion that some of these rules within the policy
serve no purpose and could be relaxed. Specifically, there is no difference between
paying a vendor with petty cash or with a cheque other than the speed at which it can
be done. The amounts are under $100 and will always be accompanied by an original
receipt. If paying by cash staff must ensure the vendor writes on the receipt that they
were paid.
With regards to signatures, on further discussion with accounting management it was
decided that the most important signature for most petty cash expenses is the
management signature on the overall replenishment reconciliation, indicating they
approve all of the expenses that were submitted by staff. In addition, the person
receiving the cash should sign the individual voucher as proof of receipt. Beyond that,
the other signatures on the voucher (custodian and supervisor) are irrelevant and do not
increase controls in any way. The process could be streamlined by not requiring these
signatures on the vouchers or at least making them optional if the manager chooses.
Some managers may still wish to give express approval for each voucher before the
cash is given out. However, the dollar values and risk are low. This applies, however,
only to divisions which have their own petty cash float.
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For petty cash floats which can be accessed by multiple divisions, for example the ones
managed by staff in Revenue for City Hall staff or at the KOF reception desk for KOF
staff, it is important that the appropriate management sign the individual voucher
approving the expense for their area. This is because the petty cash custodian and
their management have no authority for approving purchases in other divisions.
Recommendations:
It is recommended that -
1 .
hat:1. Accounting update petty cash procedures to indicate that custodian and
management signatures on the vouchers are optional for areas with their own
petty cash float only and that vendors may be paid with cash as long as the
vendor signs the receipt as paid.
2. Accounting add information about the proper petty cash procedures into the
upcoming employee expense training program they are developing.
Conclusion:
The process appears to be working well and controls are strong. There were only two
isolated non-compliance with policy as noted above which were caught by Accounting.
In general the expenses are not excessive and do not appear to be fraudulent. The
main categories of expenses being claimed through petty cash include such things as
program or office supplies, meeting expenses (refreshments), or food for programs.
The recommended modifications to the policy will streamline the process while
maintaining adequate controls. Recommendations from this review have been shared
with the Accounting division for action.
2. Integrated Planning Centre of Excellence — Status Update
Completed. January 26, 2017
Background:
The Integrated Planning Centre of Excellence (COE) was created in 2011 based on
consultant recommendations coming from the 2010 Organizational Design Review. The
COE was initially established with a 3 year term in order to meet specific short term
goals. The timing of the original review coincided with the end of the 3 year term.
The objective of the original review was to revisit the goals of creating the COE and
determine if they had been met and what should happen in the future. The intended
outcome for the review was a recommended path forward regarding which services to
provide, how to resource them, and whether the COE should remain a distinct unit or be
absorbed into the CAO's department as a core service.
Recommendations and decisions from that review resulted in "Integrated Planning"
being formalized as a permanent section within the CAO's Department responsible for
strategic and business planning, project tracking and reporting, and ownership of project
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and change management tools and templates. Other program areas such as risk
management, performance management, change management and project
management have been either resourced in other areas (such as internal audit) or
imbedded throughout the corporation.
Audit Objective:
In order to hold staff accountable for implementing audit recommendations a status
update is conducted at least one year following the completion of the audit. The
purpose is to assess the outcome of the audit in terms of which recommendations have
been implemented and comment on what the impact to the division has been. This will
help determine if a further follow-up or direction to the division is required.
Audit Statistics:
Date original audit completed
January 9, 2015
# of Recommendations
12
# of Recommendations complete
10
# of Recommendations in progress
2
# of Recommendations not started
0
Positive Impacts:
• Establishment of Strategic and Business Planning as permanent part of CAO's
Department and its substantial advancement over the few years it has existed
• Refreshed performance management system introduced
• Resource development - list of mentors willing to support and advise others on
project management developed
• CapaCity courses introduced for project management and change management
• Focus on change management for leadership team in leadership training
• Service Coordination and Improvement Managers now exist for each department
and additional business analysis support realized in INS
Unaddressed Recommendations:
Project management templates still need to be posted to the intranet.
Next Steps:
There are no new recommendations in this report and 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.
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.
no
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COMMUNITY ENGAGEMENT:
INFORM — This report has been posted to the City's website with the agenda in
advance of the council / committee meeting.
ACKNOWLEDGED BY: Dan Chapman, Deputy CAO, Finance and Corporate Services
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Staff Report
I r.R finance and Corporate Services Department www kitchener.ca
REPORT TO: Audit Committee
DATE OF MEETING: March 20, 2017
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: March 13, 2017
REPORT NO.: FCS -17-008
SUBJECT: 2016 YEAR IN REVIEW — 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.
EXECUTIVE SUMMARY:
The intent of this report is to give Audit Committee a full picture of the service review work
completed, in progress and not started in 2016. This encompasses the work of internal audit
and the service review work undertaken within each department.
This report provides a summary of the Internal Audit activities during the 2016 calendar year
compared to the Audit Committee approved work plan. The 2016 internal audit work plan was
approved by the Audit Committee on December 14, 2015 and can be referenced in report FCS -
15 -170. Detailed audit reports relating to each item have been or will be presented to Audit
Committee during past or future quarterly status updates and are thus not included here.
This report also includes a summary of the other service reviews performed within each of the
three departments as part of the Integrated Service Review Work Plan which was presented to
Audit Committee as part of the report referenced above. Staff committed to reporting back to
Audit Committee on an annual basis regarding the status of the plan.
*** 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:
A significant amount of internal audit and service review work was completed in 2016.
Resources in all departments were working at full capacity. Resource vacancies in the
Infrastructure Services Department were filled in 2016 and they have ramped up a service
review work plan for that department in 2017.
Internal Audit
75% or 6 of 8 2016 activities were completed as planned within the year. In addition, one review
(Revenue) is still in progress and on track to be completed in 2017 as planned. Of the two
reviews not completed as planned, one has been deferred until the related service improvement
work is complete (Hiring Transparency) and the other was delayed due to difficulty in obtaining
the data needed for the review (Stores — Tool crib). This has since been remedied and is back
on track. There were no confidential investigations in 2016.
The following chart shows the status of each of the approved 2016 work plan items.
Topic
Type of Review
Status
Service Reviews
Community Resource Centres
Comprehensive
Complete
Accounting
Comprehensive
Complete
Legislated Services
Follow-up capacity review
Complete
Welcome Centre
Value for money
Complete
Revenue
Comprehensive
In progress and on track
Controls Reviews
Capital Account Balances
Controls
Complete
Stores — Tool Crib
Controls
In progress
Hiring Transparency
Follow-up controls audit
Deferred
Recurring Internal Audit Activity
Physical Inventory
Count verification
Complete
Ad hoc
Confidential Investigations
Investigation
Not applicable
*Note: a list of review type definitions is included in Appendix A.
1-2
Integrated Service Review Work Plan
The chart below provides the status of the 2016 integrated service review work plan items
assigned to the three departments for completion, excluding the items assigned to internal audit
mentioned above.
Topic
Type of Review, ' '
Status
Resources,
Comments '
Operations
Risk assessment
Cancelled
INS
Sanitary Sewer
Risk assessment
Cancelled
INS
Facilities Management
Risk assessment,
Cancelled
INS
process
IT (Database
Risk assessment
Complete
FCS
See summary
Administration and
below
Development)
HR (Job Evaluation)
Process
Complete
FCS
See summary
below
HR (Human Rights)
Process, roles
Complete
FCS
See summary
below
Kitchener Utilities
Follow-up risk
Delayed
INS
On work plan for
assessment
2017
HR (Recruiting —
Process
Delayed
FCS
On work plan for
Phase 3)
2017
Summaries of the Information Technology risk assessments and the two Human Resources
reviews are included below. These did not involve Internal Audit and therefore have not been
presented through the quarterly audit status updates.
The three risk assessments in INS were cancelled due to vacancies in key resources. Based on
the new Council -approved prioritized list of services from 2016, these are no longer a priority to
complete, but may be revisited in future years.
1. Information Technology (IT) Risk Assessment
Objective: To proactively identify risks to the City's information technology environment
including potential impact and likelihood using the City's corporate risk framework, and to create
a prioritized risk register to be a tool for IT management to develop mitigation strategies to
address high risk areas. The timing of the risk assessments was aligned with staff providing
input to inform the Corporate Technology Strategic Plan refresh (Digital Kitchener Strategy) and
as such, two additional goals were identified:
1. To identify topics for cross -functional staff working groups to explore ideas and
solutions to be included in the Digital Kitchener Strategy
2. To identify priority areas that cut across IT to include in Digital Kitchener strategy
Scope: Based on the scope and different focus areas in IT, assessments were done by section
teams. The final two of seven sections were completed in 2016, having been postponed from
1-3
the previous year due to staff resources being required to support Project Everest: Development
and Database Administration.
Methodology:
• Online survey of 22 IT staff to obtain input on goals, vision of success and risks in the
following areas: Service delivery, Employee, Public, Physical Environment, Reputation,
Financial, Regulatory.
• Data analysis and creation of a draft risk register document for each section.
• Workshops with 2 IT staff teams to discuss staff's input on goals, vision of success, and
to assign ratings for the impact and likelihood of each risk, through a consensus -building
approach.
• Consolidation of section risk registers to identify key themes and input for Digital
Kitchener.
Key Findings and Recommendations:
Risks were rated and prioritized within IT sections and all input was reviewed to identify ideas
and priority areas for inclusion in the Digital Kitchener strategy framework. Staff's input was
used to help inform the four strategy themes: Connected, Innovative, On Demand, and
Inclusive.
With all IT section risk assessments complete, a combined divisional risk register was provided
to the IT management team. The register is being used as a tool to proactively identify, assess,
and assign ownership to mitigate high priority risks across the entire IT division. No further
recommendations were made from the risk assessments.
2. Human Resources (HR) Job Evaluation - Service/Process Review
Objective: To review the CUPE 791/Non-Union/Management job evaluation process and
procedures to identify challenges and propose recommendations for improvement to existing
practices. Specific goals included:
1. Review job evaluation system to ensure system is compliant with Pay Equity Act
2. Review policies and processes
3. Ensure customer experience is positive
Scope: Internal process review; review of supporting documentation; review of job evaluation
plan, tools, practices and processes.
Methodology:
• Stakeholder consultation with 66 employees - a random sample of employees who
participated in the job evaluation process in the last two years, members of the corporate
management and corporate leadership teams, and stakeholders identified by the
Director, HR who had expressed an interest in being interviewed.
• External review of job evaluation system, policies and procedures to confirm compliance
with Pay Equity Act.
• Interviews with Rating and Appeal Committee members.
• Review policies, procedures, stakeholder consultation and identification of related
challenges.
il
FSI
Key Findings and Recommendations:
Five common themes were identified by the project team based on the outcome of the
consultations and review of job evaluation processes, policies and procedures. A total of 5
major recommendations were made in the following areas:
1. Ownership of the job description writing process.
2. Development of new tools to support management and employees
3. Update documentation and provide statistics and references to help participants clearly
understand context of job evaluation plan.
4. Communication plan to improve communication throughout the job evaluation process.
5. Training in all facets of the process to be developed to help support continued
• u�TT ii�t'OTORTmi e
Recommendations are currently being communicated and reviewed with key stakeholder
groups including the Corporate Management Team, and joint union -management Job
Evaluation Maintenance Committee. Subject to final approval, the recommendations will be
implemented by HR in partnership with key stakeholders.
3. HR Human Rights - Process and Roles/Responsibilities Review
Objective: As a result of recent legislation (Bill 132: Sexual Violence and Harassment Action
Plan Act (Supporting Survivors and Challenging Sexual Violence and Harassment)), case law
and recent investigations, a comprehensive review of relevant policies, training and
processes/procedures has been undertaken.
Scope: To ensure that there is consistent organizational understanding of respect in the
workplace including: updates to relevant policies, review of investigation procedures and
processes, and updated training requirements.
Methodology:
• Review of training needs across the corporation to ensure consistent organizational
understanding of legislation, rights and responsibilities
• Review of processes and procedures
• Benchmarking of policies, processes and procedures with other municipalities
• Policy review including external legal expertise to incorporate policy standards for both
Respect in the Workplace (retitling of previous Human Rights Policy) and Violence in the
Workplace policy.
• Process mapping to clarify investigation process — identified gaps and improvements
• Presentation of updated policies to senior management/Joint Health & Safety
committees
Key Findings and Recommendations:
Updates to legislation as well as several recent investigations have advanced the need to
review and update policies, processes and procedures. A lack of staff understanding and
personal accountability have created the need for refreshed training across the organization.
Mandatory in -class training for all management staff, and mandatory online training for all staff
will be delivered later in 2017. Updated policies are currently being presented to various internal
staff committees, with final approval to be received from Council. Specific skill building around
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conflict resolution and how to have conversations relating to respect in the workplace will be
given consideration for later in 2017.
CONCLUSION:
Many service improvements have been made during 2016 as a result of the work carried out
under the Integrated Service Review Work plan by Internal Audit and department staff. Work
continues to support a culture of continuous improvement and contributes to more efficient and
effective services.
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 on the City's website with the agenda in advance of the
committee meeting.
PREVIOUS CONSIDERATION OF THIS MATTER:
Integrated service review work plan approval: FCS -15-170, December 14, 2015.
ACKNOWLEDGED BY: Dan Chapman, Deputy CAO, Finance and Corporate Services
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Appendix A — Review Type Definitions
Capacity
A review of the actual transaction or work volume, the average time to
complete each transaction and the estimated required resourcing compared
to the actual resourcing.
Compliance
A test to determine if staff is following all rules, regulations and policies
associated with the service.
Comprehensive
An all-encompassing review of the division or service including things like
process and functional analysis, organization structure review, controls,
compliance, risk assessment, service delivery, customer satisfaction, value for
money, capacity, benchmarking and any other analysis required.
Controls
A review of the adequacy of control points in a process to protect assets from
fraud or theft.
Debrief
A review of the outcomes of a project or event following the completion of the
project or event, in comparison to the original goals and objectives.
Follow up
An additional review of any type, not sooner than 1 year after the original
review in order to assess the impact of the original recommendations and
proactively identify any new / emerging risks.
Impact
A review to determine all of the up -stream and down -stream touch points,
assessment
information flows and dependencies in a process.
Operational and
A comprehensive review of the strategy and operations of a unit to determine
Strategic
if the operating model is in alignment with the strategic goals.
Process
An analysis of what is done in delivering a particular service and where
effectiveness could be improved.
Risk assessment
An identification of all of the possible risks that could affect a service including
rating the probability and impact of the risk using the corporate risk matrix.
Role clarification
Clarification, documentation, and communication of roles and responsibilities
of similar roles to ensure there is no overlap in duties.
Service delivery
A review to determine the optimal method of delivering a service including
exploring options of contracting out or not delivering the service at all.
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