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Audit Agenda - 2024-12-16
1 KITc�ivER Audit Committee Agenda Monday, December 16, 2024, 3:00 p.m. - 4:00 p.m. Council Chambers - Hybrid City of Kitchener 200 King Street W, Kitchener, ON N2G 4G7 People interested in participating in this meeting can register online using the delegation registration form at www.kitchener.ca/delegation or via email at delegation(a)kitchener.ca. Please refer to the delegation section on the agenda below for registration in-person and electronic participation deadlines. Written comments received will be circulated prior to the meeting and will form part of the public record. The meeting live -stream and archived videos are available at www.kitchener.ca/watchnow. *Accessible formats and communication supports are available upon request. If you require assistance to take part in a city meeting or event, please call 519-741-2345 or TTY 1-866-969-9994.* Chair: Mayor B. Vrbanovic Pages 1. Commencement 2. Disclosure of Pecuniary Interest and the General Nature Thereof Members of Council and members of the City's local boards/committees are required to file a written statement when they have a conflict of interest. If a conflict is declared please visit www.kitchener.ca/conflict to submit your written form. 3. Delegations Pursuant to Council's Procedural By-law, delegations are permitted to address the Committee for a maximum of five (5) minutes. All Delegations where possible are encouraged to register prior to the start of the meeting. For Delegates who are attending in-person, registration is permitted up to the start of the meeting. Delegates who are interested in attending virtually must register by 1: 00 p.m. on December 16, 2024, in order to participate electronically. 3.1 Item 4.1 - Matthew Betik and Courtney Cheal, KPMG 4. Discussion Items 4.1 External Audit Planning Report for Fiscal Year 20 m 3 2024, FIN-2024-517 4.2 2025 Internal Audit Work Plan, CAO-2024-510 10M 50 (Staff will provide a 5-minute presentation on this matter.) 5. Status Updates 5.1 4th Quarter 2024 Audit Status Report, CAO- 15 m 58 2024-511 (Staff will provide a 20-minute presentation on this matter.) 6. Adjournment Mariah Blake Committee Coordinator Page 2 of 101 Staff Report r NJ :R Financia( Services Department www.kitchener.ca REPORT TO: Audit Committee DATE OF MEETING: December 16, 2024 SUBMITTED BY: Katie Fischer, Director, Financial Reporting and ERP Solutions, 519-904- 9354 PREPARED BY: Greg Demacio, Manager, Financial Reporting and Analysis, 519-904- 9353 WARD(S) INVOLVED: All DATE OF REPORT: December 6, 2024 REPORT NO.: FIN -2024-517 SUBJECT: External Audit Planning Report for Fiscal Year 2024 RECOMMENDATION: That the Audit Planning Report for the year ended December 31, 2024 prepared by KPMG, attached as Attachment A to report FIN -2024-517, be approved. REPORT HIGHLIGHTS: • The purpose of this report is to approve the 2024 audit plan, prepared by the City's external auditors (KPMG). • The approach being proposed is consistent with previous years. • This report supports the delivery of core services. BACKGROUND: Item 4 (d) of the Audit Committee Terms of Reference states that one of the responsibilities of the audit committee is to "approve external audit plans". It is important to have open communication between the external auditor and the Audit Committee to ensure that both groups are kept up to date on changes in the organization, changes in the accounting/regulatory environment, and their related risks. In KPMG's proposal to serve as the External Auditor, they committed to meeting with the Audit Committee twice annually. This is the first of those meetings for the 2024 fiscal year. A second meeting will be held once their audit is complete to present results and offer an opportunity for questions. REPORT: KPMG will present their Audit Planning Report. Please see attached document titled "The Corporation of the City of Kitchener Audit Planning Report for the year ended December 31, 2024". STRATEGIC PLAN ALIGNMENT: This report supports the delivery of core services. *** This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. Page 3 of 101 FINANCIAL IMPLICATIONS: Capital Budget — The recommendation has no impact on the Capital Budget. Operating Budget — The recommendation has no impact on the Operating Budget. COMMUNITY ENGAGEMENT: INFORM — This report has been posted to the City's website with the agenda in advance of the council / committee meeting. It will provide the public with information to assist them in understanding the scope of the external audit to take place in the spring of 2025. The City's consolidated financial statements for the year ended December 31, 2024, will be the subject of this audit. The 2024 audited consolidated financial statements, once completed and approved, will be posted on the City website and notice will be provided to all residents through a widely distributed newspaper in accordance with Section 295 (1) of the Municipal Act, 2001. PREVIOUS REPORTS/AUTHORITIES: • Municipal Act, 2001 APPROVED BY: Jonathan Lautenbach, Chief Financial Officer, Financial Services ATTACHMENTS: Attachment A — The Corporation of the City of Kitchener Audit Planning Report for the year ended December 31, 2024 Page 4 of 101 C CD O � o O ■ � � ami o •- _CL cco O L O ON N N O N O N N rn m O m CCN Q Cc: -Q� • L M Q o v L .0 z D G1 o c ° 0Q ° N o 4—d - ° � U ° U E Q _COD cc CDV cm m CL R r. a� rn � U (6 00 E .E C Y ) r m ai t J Lo U 8 /= f k� .rrg 2 e k «o « co LO qt� ) \ . 2 � / 2 0 ■ m ® 2 z _ � � - � j kCL CL }\ �C" 2 � / 2 0 ■ m ® 2 z _ � � � cu / � � \ � .CM ) � cm . \ � ) T= � act ME co � CO E * \ \ \ 7 \ . . \ \ \ 0 ; E / 0 \ Z 0 0 ) ) : [ > § � � § \ U) E � 0 ƒ � f e § U) 0 \ § / } \ 2 / * § - / E 5 o E § 5, E / e \ og�\7 }//#E ME co � CO k &G & 2 G 2§ k CD C.2 � � o 9 E * \ \ \ 7 \ . . \ \ \ ; E / \ Z 0 k &G & 2 G 2§ k CD C.2 � � o 9 N N N Ncu N w cc cc cc O O O COD cc N C z 1+1 N C z 0 E � M� cc :L L -A �� \ _ \ \ § / E \ E 7 \ � 8 % 0 e— \ I � � � M- cc cc _rn t _rn 2 0 w cm ■ O 1 ■ cc O cm vi N 3 N U O Q U 7 (6 N t 7 C E O CL Q 7 O N t O C N E N (6 N N E (6 (6 E O N Y .N U) U) U) U) U) U) m c m a� a� U 0 c O Q U) a) 1: 0 � m 0 0 N 00— co 0— co 0 - E t F Rn - k (2) ® (2) (2) ® R \ q \ \ q § \ L L / >1L * G cu \ ƒ// e o a ® / E \ \ \ \ \ 77 � \ 3/\ 0 cc ) \ / / & 0 � � > 5a/ » / 5 R = \ � _ 0 \� \ /\\ CU E`y 7 \ //§ / k co/ /j§ \ k 7 \ \_\ Eco E 2 \ % _ q ®2f f o § / \ 0 k.- � / co\ O \ / a)} k £ \ 'E §cu / CD ƒ§ o / c- § [ \ ® E = o \ = _ ® _ � 2 = 2 # _ % \ 2 G ) \ E 0 I / O $ < ± / = o E ¥ S 4 C) % n e- _ 9 0- Rn � � � .� � � cc C.D � .� .cm � Yj ) \ 5f g §/ ®\j E \ E7oo 7 = o --o \ '— 2 '7 « / e 7 {1-= 2 » 0 ° /E ƒ ! o ww » 2 e = e q �88� b °\ «�2.� E -0;q\ ! —0 0 ® §� E \ '§ q .(nf ��§[§ §?ag\~ 2§ � \ a) 0 � } � 2 �0 m >) y=w7 \ k a) :3 # }.%] . . . _U) »ƒ 03\2\? )B§°°0E0 — \ ° I ,'c: Q)a)46 CL a-- f .2 a) / § m uu$�E.®�.� u § ±a—U) }E¥±_=eQ o®�®//k »3 4 §®§)a) §®_ S> ��e2_2¢ .\-4Ef2§c »oo>� - a) ao) 0 a) a) E a) U) § / 2=29«22 > §§W,CL e=oE.2 E�[2»} t6 E 2 | f= W0 Jff§G 6 8 % ,qt 0— co I o \) � � Rn m � � co � co � cc � � � ._ � � � co � cc � � � � � � � co � � LD ® f ® _ ƒ_ / §.� � a S.r / °2\ o- � ƒ / - E (7 2 o �U) ®U)j 2 /§§-\° :/t§7% U) 0U) m [ g §§ X 7a) 22a®- '-»j\ §( t _ a)U)M9 Eo6 ;m§E&.,2 �e �� } _ eG.,"� �£oE« roEm°m / / \ o24e0 k \ E N ƒ 7 / § / U) 'E S _ ] 0 o U) / q Q .% § t% 0 \ % _ ] �g o . =-2 ) 7 L / C � -0 j ) k )f /§a/ E /§ \j / ]0 / -a /» Bum §/{\§ L6 §G _0 §Z2 0 §( 0 \ \ �\ § ) 00 ` \ [- /\) F§ \� � )®± }] § $ S / 20 E § 2\ \ 70 - 2/\ - _� 2k % = g8 % Q2o Q2 § E§ g± o= - §� ]-f ) ± k / G \ / E \ e° a \ \ j.� Q m2 §) Ew- 22f 2 E2 § z§ $\ f 2 B / (/ / 7 7/}/k § ƒ&2ƒ§ LD ® f ® � ■ � 9 0 - E _ ƒ_ / §.� � a S.r / ; § g a E o- o= - \2 - E !\�k�� 2 §\ƒ� �U) ®U)j 2 /§§-\° :/t§7% U) 0U) 2 /®-_§ . lEo0 - Eo*&- �2«=U ® �� ®Eom2 « E27/� X 7a) 22a®- '-»j\ 0,=.,2 EL C: U) 5- (j])E§ §S2= a)U)M9 Eo6 ;m§E&.,2 �e �� oma -o -o 0 a2oSQE/ �o)E�@� §02 eG.,"� �£oE« roEm°m �-0mq=E- §�o;m�0 !4-a E w o o24e0 � ■ � 9 0 - E Rn m � � co � � � CD C.2 � � � C12 � C12 � cc � COD COD ._ � cc .= co � cc � � � � � � .� � co � � 8 ± o \ a\j \ ( / k ° U) _< x § § .2 2 / 7 m N 2= § §m 2 B /f § )\ E 8 «_ ± /7 o E° g 0& « q f Rm'/ k� k ;o E a 7± m f § § o - -� #\]§] go } / / (u { / 2 » L » S o 8- E \ oEgo = 2y / E \ / \ § / ) u) ~\ ~w \ d®k \ ///(J 7(f ƒ \� / 4 _ \\ _ f oE _: }{ ± ± &J / / ({ 0 .� &U) ~2 -0 {0 �\ § §( § $L2/§ ■�\ e«= neo �`E$ )\\o )\§ d t t � m � m m � o N N _ O t N a) m a) a3 U 3 O) ! 6 C', N p � N U Q C 3 N .2 0 d Cm O O O a3 as u U o d 3 N a) m t y C C E O O E Q O O O m U C N O E t '•^— N N U Eo V o .2) E 0)) E m UN a5 E O U C-' Q m U N N 0) N N O O -6 >, p ->, -C U t U Qa3 U N N N Q I E N y O L o N O N N U O o Cu a y a3 Q N E N y N N N y O UO N E Oi 0- m t a3 O C C d Q O a3 t U N C t, Q - U .— N N N a3 t m m C v d > d O .0 .t. 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[ = | /7\® | co _\ �@� | 3gjj | �S°° § §/ o~ k22 2�` U \ | � \ ^ � -0 \ � L \0 � | )� c E 0 /ƒ /m§§ | /k m 7 �� \ \�\/ \\ | �/b k �\ ƒ j\ | � \ 2)) 0-0 _0 /2 E I 0� 0 Co Ln / m L0 | \\£_o | U)_ co _ 0| | 0 (k \ (UD/) ----- ---- ---- ---- - | - - - -� � � wA 9 I 2{ ZZ E I Fn w U C a � d d n o E O N 3 N N U N NU 6 Cu Cu N N o E m O E N Q - O N N C t t O H H U 0 0 N ao N co 0- � T � y � O .a O L R t W Z N H V! C O O C N R � E t E y � V � 00 � w co v E� W Z N \,`JCC act T co co co co cc W act i N t 0) t 01 2 0 0 O N N 0) co d E KPMG LLP 120 Victoria Street South Suite 600 Kitchener, ON N2G OE1 Canada Telephone 519 747 8800 Fax 519 747 8811 PRIVATE & CONFIDENTIAL Mr. Ryan Scott Chief Procurement Officer City of Kitchener 200 King Street West P.O. Box 1118 Kitchener, ON N2G 4G7 October 22, 2024 Re: Q24-122 Audit Services The purpose of this letter is to outline the terms of our engagement for the City of Kitchener (the "Entity"), commencing for the periods ending December 31, 2024. We will issue reports on the financial statements of the Entity as follows: KPMG LLP,an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG Canada provides services to KPMG LLP. Page 25 of 101 Entity Report Basis of Financial Statements 1 The Corporation of Audit Consolidated the City of Kitchener 2 Kitchener Gasworks Audit Enterprise 3 The Corporation of Audit the City of Kitchener Trust Funds 4 Belmont Audit Improvement Area Board of Management KPMG LLP,an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG Canada provides services to KPMG LLP. Page 25 of 101 11191 -MIR The Corporation of the City of Kitchener October 22, 2024 This letter supersedes our previous letter to the Entity dated December 20, 2022. The terms of the engagement outlined in this letter will continue in effect from period to period, unless amended or terminated in writing. The attached Assurance Terms and Conditions and any exhibits, attachments and appendices hereto and subsequent amendments form an integral part of the terms of this engagement and are incorporated herein by reference (collectively the "Engagement Letter"). FINANCIAL REPORTING FRAMEWORK FOR THE FINANCIAL STATEMENTS The annual financial statements will be prepared and presented in accordance with Canadian public sector accounting standards (hereinafter referred to as the "financial reporting framework"). The annual financial statements will include an adequate description of the financial reporting framework. MANAGEMENT'S RESPONSIBILITIES Management responsibilities are described in Appendix — Management's Responsibilities. An audit of the annual financial statements does not relieve management or those charged with governance of their responsibilities. AUDITOR'S RESPONSIBILITIES Our responsibilities are described in Appendix — Auditor's Responsibilities. If management does not fulfill the responsibilities above, we cannot complete our audit. 2 Page 26 of 101 Entity Report Basis of Financial Statements 5 Kitchener Audit Downtown Improvement Area Board of Management This letter supersedes our previous letter to the Entity dated December 20, 2022. The terms of the engagement outlined in this letter will continue in effect from period to period, unless amended or terminated in writing. The attached Assurance Terms and Conditions and any exhibits, attachments and appendices hereto and subsequent amendments form an integral part of the terms of this engagement and are incorporated herein by reference (collectively the "Engagement Letter"). FINANCIAL REPORTING FRAMEWORK FOR THE FINANCIAL STATEMENTS The annual financial statements will be prepared and presented in accordance with Canadian public sector accounting standards (hereinafter referred to as the "financial reporting framework"). The annual financial statements will include an adequate description of the financial reporting framework. MANAGEMENT'S RESPONSIBILITIES Management responsibilities are described in Appendix — Management's Responsibilities. An audit of the annual financial statements does not relieve management or those charged with governance of their responsibilities. AUDITOR'S RESPONSIBILITIES Our responsibilities are described in Appendix — Auditor's Responsibilities. If management does not fulfill the responsibilities above, we cannot complete our audit. 2 Page 26 of 101 11191 -MIR The Corporation of the City of Kitchener October 22, 2024 ADDITIONAL RESPONSIBILITIES REGARDING "OTHER INFORMATION" "Other information" is defined in professional standards to be the financial or non-financial information (other than the financial statements and the auditor's report thereon) included in the "annual report'. An "annual report" is defined in professional standards to comprise a document or combination of documents. Professional standards also indicate that: • an annual report is prepared typically on an annual basis in accordance with law, regulation or custom (i.e., is reoccurring) • an annual report contains or accompanies the financial statements and the auditor's report thereon • an annual report's purpose is to provide owners (or similar stakeholders) with information on the Entity's: -operations; and/or -financial results and financial position as set out in the financial statements. Based on discussions with management, the following are expected to meet the definition of an "annual report" under professional standards: • The document likely to be entitled Annual Report Management agrees, when possible, to provide us with the final versions of the document(s) comprising the "annual report' prior to the date of our auditors' report on the financial statements. If that timing is not possible, management agrees to provide us with the final versions of the document(s) comprising the "annual report" prior to the entity's issuance so that we can complete our responsibilities required under professional standards. Management is responsible for the "other information". Our responsibility is to read the "other information" and, in doing so, consider whether such information is materially inconsistent with: • the financial statements; or • our knowledge obtained in the audit. Our responsibility is also to remain alert for indications that the "other information" appears to be materially misstated. Our auditors' report on the financial statements, when applicable under professional standards, will contain a separate section where we will report on this "other information". AUDITOR'S DELIVERABLES Unless otherwise specified, our report(s) will be in writing and the expected content of our report(s) are provided in Appendix - Expected Form of Report. However, there may be circumstances in which a report may differ from its expected form and content. 3 Page 27 of 101 11191 -MIR The Corporation of the City of Kitchener October 22, 2024 In addition, if we become aware of information that relates to the information we reported on after we have issued our report, but which was not known to us at the date of our report, and which is of such a nature and from such a source that we would have investigated that information had it come to our attention during the course of our engagement, we will, as soon as practicable: (1) communicate such an occurrence to those charged with governance; and (2) undertake an investigation to determine whether the information is reliable and whether the facts existed at the date of our report. Further, management agrees that in conducting that investigation, we will have the full cooperation of the Entity's personnel. If the subsequently discovered information is found to be of such a nature that: (a) our report would have been affected if the information had been known as of the date of our report; and (b) we believe that the report may have been distributed to someone who would attach importance to the information, appropriate steps will be taken by KPMG, and appropriate steps will also be taken by the Entity, to advise of the newly discovered facts and the impact to the information we reported on. NON -AUDIT SERVICE - CERTAIN ASSISTANCE RELATING TO WORD PROCESSING AND/OR PREPARATION OF FINANCIAL STATEMENTS FOR ENTITY #5, KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Word Processing We will assist management by providing word processing for the Kitchener Downtown Improvement Area Board of Management financial statements and related notes. Assistance in Preparing Financial Statements We will assist management in preparing the financial statements and related notes in accordance with the financial reporting framework. We will use information from the trial balance and/or other source documents provided by management to assist management in preparing the financial statements and related notes. We may also provide advice and recommendations to assist management of the Entity in performing its responsibilities. We will not assume management responsibilities on behalf of the Entity. The Entity agrees to: • Assume all management responsibilities, including determining the accuracy and completeness of the financial statements and notes. • Assign a suitable employee with appropriate skills, knowledge and/or experience to oversee the financial statement preparation assistance and evaluate the adequacy and results of the services. • Accept responsibility for the results of the financial statement preparation assistance. 4 Page 28 of 101 11191 -MIR The Corporation of the City of Kitchener October 22, 2024 INCOME TAX COMPLIANCE AND ADVISORY SERVICES Tax compliance and advisory services are outside the scope of this letter. These services will be subject to the terms and conditions of a separate engagement letter. USE OF KPMG CLARA FOR CLIENTS The terms and conditions for use of KPMG Clara for clients apply to the use of the collaboration tool and are available at https:Hkcfcdocumentstore.blob.core.windows.net/documents/KCfc terms and conditions%20Can ada%20J u ne%2024. pdf. FEES The Entity and KPMG agree to a fee based on actual hours incurred at mutually agreed-upon rates for the audit as described in our pricing proposal to your RFP Q24-122 dated August 23, 2024. Our fees will be billed as the work progresses. Harmonized Sales Tax (HST) will be computed and shown separately on our invoices, together with our firm's HST registration number, so that you will have the information required to claim input tax credits and input tax refunds, if applicable. The Entity agrees, by accepting the terms of this engagement, to pay all invoices to KPMG upon receipt. We are available to provide a wide range of services beyond those outlined above. Additional services are subject to separate terms and arrangements. 5 Page 29 of 101 I� The Corporation of the City of Kitchener October 22, 2024 We are proud to provide you with the services outlined above and we appreciate your confidence in our work. We shall be pleased to discuss this letter with you at any time. If the arrangements and terms are acceptable to the Entity, please sign the duplicate of this letter in the space provided and return it to us. Yours very truly, kAw'�� Z4P Matthew Betik, CPA, CA Partner, responsible for the engagement and its performance, and for the report that is issued on behalf of KPMG LLP, and who, where required, has the appropriate authority from a professional, legal or regulatory body 519-747-8245 Enclosure cc: Audit Committee Jonathan Lautenback, CFO The terms of the engagement set out are as agreed: Ryan Scott, Chief Procurement Officer (having the appropriate authority to engage the Entity as defined above) Date (DD/MM/YY) 6 Page 30 of 101 11191 -MIR The Corporation of the City of Kitchener October 22, 2024 Appendix - Management's Responsibilities Management acknowledges and understands that they are responsible for: (a) the preparation and fair presentation of the financial statements in accordance with the financial reporting framework referred to above. (b) providing us with all information of which management is aware that is relevant to the preparation of the financial statements ("relevant information") such as financial records, documentation and other matters, including: - the names of all related parties and information regarding all relationships and transactions with related parties - complete minutes of meetings, or summaries of actions of recent meetings for which minutes have not yet been prepared, of shareholders, board of directors, and committees of the board of directors that may affect the financial statements. All significant actions are to be included in such summaries. (c) providing us with unrestricted access to such relevant information. (d) providing us with complete responses to all enquiries made by us during the engagement. (e) providing us with additional information that we may request from management for the purpose of the engagement. (f) providing us with unrestricted access to persons within the Entity from whom we determine it necessary to obtain evidence. (g) such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Management also acknowledges and understands that they are responsible for the design, implementation and maintenance of internal control to prevent and detect fraud. (h) ensuring that all transactions have been recorded and are reflected in the financial statements. (i) providing us with written representations required to be obtained under professional standards and written representations that we determine are necessary. Management also acknowledges and understands that, as required by professional standards, we may disclaim an audit opinion when management does not provide certain written representations required. (j) ensuring that internal auditors providing direct assistance to us, if any, will be instructed to follow our instructions and that management, and others within the entity, will not intervene in the work the internal auditors perform for us. 7 Page 31 of 101 11191 -MIM The Corporation of the City of Kitchener October 22, 2024 Appendix - Auditor's Responsibilities Our function as auditors of the Entity is: to express an opinion on whether the Entity's annual financial statements, prepared by management with the oversight of those charged with governance, are, in all material respects, in accordance with the financial reporting framework referred to above to report on the annual financial statements We will conduct the audit of the Entity's annual financial statements in accordance with Canadian generally accepted auditing standards and relevant ethical requirements, including those pertaining to independence (hereinafter referred to as applicable "professional standards"). We will plan and perform the audit to obtain reasonable assurance about whether the annual financial statements as a whole are free from material misstatement, whether due to fraud or error. Accordingly, we will, among other things: identify and assess risks of material misstatement, whether due to fraud or error, based on an understanding of the Entity and its environment, including the Entity's internal control. In making those risk assessments, we consider internal control relevant to the Entity's preparation of the annual financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control obtain sufficient appropriate audit evidence about whether material misstatements exist, through designing and implementing appropriate responses to the assessed risks form an opinion on the Entity's annual financial statements based on conclusions drawn from the audit evidence obtained communicate matters required by professional standards, to the extent that such matters come to our attention, to the appropriate level of management, those charged with governance and/or the board of directors. The form (oral or in writing) and the timing will depend on the importance of the matter and the requirements under professional standards 8 Page 32 of 101 11191 -MIR The Corporation of the City of Kitchener October 22, 2024 Appendix - Expected Form of Report INDEPENDENT AUDITOR'S REPORT To Council, Inhabitants and Ratepayers of The Corporation of the City of Kitchener Opinion We have audited the consolidated financial statements of The Corporation of the City of Kitchener (the Entity), which comprise: • the consolidated statement of financial position as at December 31, 2024 • the consolidated statement of operations for the year then ended • the consolidated statement of remeasurement gains and losses for the year then ended • the consolidated statement of changes in net debt for the year then ended • the consolidated statement of cash flows for the year then ended • and notes to the consolidated financial statements, including a summary of significant accounting policies (Hereinafter referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at December 31, 2024, and its consolidated results of operations, its consolidated remeasurement gains and losses, its consolidated changes in net debt and its consolidated cash flows for the year then ended in accordance with Canadian public sector accounting standards. Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our auditor's report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. 9 Page 33 of 101 11191 -MIR The Corporation of the City of Kitchener October 22, 2024 AUDIT ENGAGEMENTS Appendix - Expected Form of Report (continued) In preparing the consolidated financial statements, management is responsible for assessing the Entity's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Entity's consolidated financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such 10 Page 34 of 101 11191 -MIM The Corporation of the City of Kitchener October 22, 2024 AUDIT ENGAGEMENTS Appendix - Expected Form of Report (continued) disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Entity's to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. 11 Page 35 of 101 1111RAIMN TERMS AND CONDITIONS FOR ASSURANCE ENGAGEMENTS (NON -LISTED COMPANY CLIENTS) These Terms and Conditions are an integral part of the accompanying engagement letter or proposal from KPMG that identifies the engagement to which they relate (and collectively form the "Engagement Letter"). The Engagement Letter supersedes all written or oral representations on this matter. The term "Entity" used herein has the meaning set out in the accompanying engagement letter or proposal. The term "Management" used herein means the management of Entity. 1. DOCUMENTS AND LICENSES. a. All working papers, files and other internal materials created or produced by KPMG in relation to this engagement and all copyright and intellectual property rights therein are the property of KPMG. b. Only in connection with the services herein, Entity hereby grants to KPMG a limited, revocable, non-exclusive, non- transferable, paid up and royalty -free license, without right of sublicense, to use all logos, trademarks and service marks of Entity solely for presentations or reports to Entity or for internal KPMG presentations and intranet sites. Further, Entity agrees that KPMG may list Entity as a customer in KPMG's internal and external marketing materials, including KPMG websites and social media, indicating the general services rendered (e.g., "Client is an Audit, Advisory, and/or Tax client of KPMG LLP"). 2. ENTITY'S RESPONSIBILITIES. a. Entity agrees that all management responsibilities will be performed and all management decisions will be made by Entity, and not by KPMG. b. Entity's provision of documents and information to KPMG on a timely basis is an important factor in our ability to issue any reports under this Engagement Letter. KPMG is not responsible for any consequences arising from Entity's failure to deliver documents and information as required. c. To the extent that KPMG personnel are on Entity's premises, Entity will take all reasonable precautions for their safety. d. Entity understands and acknowledges that KPMG's independence may be impaired if any KPMG partner, employee or contractor accepts any offer of employment from Entity. e. Except as required by applicable law or regulation, Entity shall keep confidential the terms of this Engagement Letter, and such confidential information shall not be distributed, published or made available to any other person without KPMG's express written permission. f. Management agrees to promptly provide us with a copy of any comment letter or request for information issued by any securities or other regulatory authority in respect of information on which KPMG reported, including without limitation any continuous disclosure filings. 3. FEE AND OTHER ARRANGEMENTS. a. KPMG's estimated fee is based in part on the quality of Entity's records, the agreed-upon level of preparation and assistance from Entity's personnel, and adherence by Entity to the agreed-upon timetable. KPMG's estimated fee also assumes that Entity's financial statements and/or other financial information, as applicable, are prepared in accordance with the relevant financial reporting framework or the relevant criteria, as applicable, and that there are no significant changes to the relevant financial reporting framework or the relevant criteria, as applicable; no significant new or changed accounting policies; no significant changes to internal control; and no other significant issues. b. Additional time may be incurred for such matters as significant issues, significant unusual and/or complex transactions, informing management about new professional standards, and any related accounting advice. Where these matters arise and require research, consultation and work beyond that included in the estimated fee, Entity and KPMG agree to revise the estimated fee. Our professional fees are also subject to an additional charge to cover information technology infrastructure costs and administrative support of our client service personnel. Disbursements for items such as travel, accommodation and meals will be charged based on KPMG's actual disbursements. c. KPMG's invoices are due and payable upon receipt. In order to avoid the possible implication that unpaid fees might be viewed as creating a threat to KPMG's independence, it is important that KPMG's bills be paid promptly when rendered. If a situation arises in which it may appear that KPMG's independence is threatened because of significant unpaid bills, KPMG may be prohibited from signing any applicable report and/or consent. d. Fees for any other services will be billed separately from the services described in this Engagement Letter and may be subject to written terms and conditions supplemental to those in the Engagement Letter. e. Canadian Public Accountability Board ("CPAB") participation fees, when applicable, are charged to Entity based on the annual fees levied by CPAB. 4. USE OF MEMBER FIRMS AND THIRD PARTY SERVICE PROVIDERS; STORAGE AND USE OF INFORMATION. a. KPMG is a member firm of the KPMG International Cooperative ("KPMG International"). Entity acknowledges that in connection with the provision of services hereunder, KPMG may use the services of KPMG International member firms, as well as other third party service providers or subcontractors, and KPMG shall be entitled to share with them all documentation and information related to the engagement, including Entity's confidential information and personal information ("information"). KPMG may also: (i) directly, or using such aforementioned KPMG International member firms, third party service providers or subcontractors, perform data analytics in respect of the information; and (ii) retain and disclose to KPMG International member firms the information to share best practices or for knowledge sharing purposes. In all such cases, such information may be used, retained, processed, or stored outside of Canada by such KPMG International member firms, other third party service providers or subcontractors, and may be subject to disclosure in accordance with the laws applicable in the jurisdiction in which the information is used, retained, processed or stored, which laws may not provide the same level of protection for such information as will Canadian laws. KPMG represents that such KPMG International member firms, other third party service providers or subcontractors have agreed or shall agree to conditions of confidentiality with respect to Entity's confidential information, and that KPMG is responsible to ensure their compliance with those conditions. Any services performed by KPMG International member firms or other third party service providers or subcontractors shall be performed in accordance with the terms of this Engagement Letter, but KPMG remains solely responsible to Entity for the delivery of the services hereunder. Entity agrees that any claims that may arise out of the engagement will be brought solely against KPMG, the contracting party, and not against any other KPMG International member firms or other third party service providers or subcontractors referred to TERMS AND CONDITIONS FOR ASSURANCE ENGAGEMENTS - NON -LISTED COMPANY CLIENTS MARCH 2023 12 Page 36 of 101 1111RAIMN TERMS AND CONDITIONS FOR ASSURANCE ENGAGEMENTS (NON -LISTED COMPANY CLIENTS) above. b. Certain information (including information relating to time, billing and conflicts) collected by KPMG during the course of the engagement may be used, retained, processed and stored outside of Canada by KPMG, KPMG International member firms or third party service providers or subcontractors providing support services to KPMG for administrative, technological and clerical/organizational purposes, including in respect of client engagement acceptance procedures and maintaining engagement profiles; and to comply with applicable law, regulation or professional standards (including for quality performance reviews). Such information may be subject to disclosure in accordance with the laws applicable in the jurisdiction in which the information is used, retained, processed or stored, which laws may not provide the same level of protection for such information as will Canadian laws. KPMG may also share information with its legal advisers and insurers for the purposes of obtaining advice. c. Entity acknowledges that KPMG aggregates anonymous information from sources including the Entity for various purposes, including to monitor quality of service, and Entity consents to such use. KPMG may also use Entity's information to offer services that may be of interest to Entity. 6. PERSONAL INFORMATION CONSENTS AND NOTICES. KPMG may be required to collect, use and disclose personal information about individuals during the course of the engagement. Any collection, use or disclosure of personal information is subject to KPMG's Privacy Policy available at www.kpmq.ca. Entity represents and warrants that (i) it will obtain any consents required to allow KPMG to collect, use and disclose personal information in the course of the engagement, and (ii) it has provided notice to those individuals whose personal information may be collected, used and disclosed by KPMG hereunder of the potential processing of such personal information outside of Canada (as described in Section 4 above). KPMG's Privacy Officer noted in KPMG's privacy policy is able to answer any individual's questions about the collection of personal information required for KPMG to deliver services hereunder. 6. THIRD PARTY DEMANDS FOR DOCUMENTATION AND INFORMATION / LEGAL AND REGULATORY PROCESSES. a. Entity on its own behalf hereby acknowledges and agrees to cause its subsidiaries and affiliates to acknowledge that KPMG or a foreign component auditor which has been engaged in connection with an assurance engagement ("component auditor") may from time to time receive demands from a third party (each, a "third party demand"), including without limitation (i) from CPAB or from professional, securities or other regulatory, taxation, judicial or governmental authorities (both in Canada and abroad), to provide them with information and copies of documents in KPMG's or the component auditor's files including (without limitation) working papers and other work -product relating to the affairs of Entity, its subsidiaries and affiliates, and (ii) summons for production of documents or information related to the services provided hereunder; which information and documents may contain confidential information of Entity, its subsidiaries or affiliates. Except where prohibited by law, KPMG or its component auditor, as applicable, will advise Entity or its affiliate or subsidiary of the third party demand. Entity acknowledges, and agrees to cause its subsidiaries and affiliates to acknowledge, that KPMG or its component auditor, as applicable, will produce documents and provide information in response to the third party demand, without further authority from Entity, its subsidiaries or affiliates. b. KPMG will use reasonable efforts to withhold from production any documentation or information over which Entity asserts privilege. Entity must identify any such documentation or information at the time of its provision to KPMG by marking it as "privileged". Notwithstanding the foregoing, where disclosure of such privileged documents is required by law, KPMG will disclose such privileged documents. If and only if the authority requires such access to such privileged documents pursuant to the laws of a jurisdiction in which express consent of Entity is required for such disclosure, then Entity hereby provides its consent. c. Entity agrees to reimburse KPMG for its professional time and any disbursements, including reasonable legal fees and taxes, in responding to third party demands. d. Entity waives and releases KPMG from any and all claims that it may have against KPMG as a result of any disclosure or production by KPMG of documents or information as contemplated herein. e. Entity agrees to notify KPMG promptly of any request received by Entity from any third party with respect to the services hereunder, KPMG's confidential information, KPMG's advice or report or any related document. 7. CONNECTING TO THE ENTITY'S IT NETWORK; EMAIL AND ONLINE FILE SHARING AND STORAGE TOOLS. a. Entity authorizes KPMG personnel to connect their computers to Entity's IT Network and the Internet via the Network while at the Entity's premises for the purpose of conducting normal business activities. b. Entity recognizes and accepts the risks associated with communicating electronically, and using online file sharing, storage, collaboration and other similar online tools to transmit information to or sharing information with KPMG, including (but without limitation) the lack of security, unreliability of delivery and possible loss of confidentiality and privilege. Entity assumes all responsibility or liability in respect of the risk associated with the use of the foregoing, and agrees that KPMG is not responsible for any issues that might arise (including loss of data) as a result of Entity using the foregoing to transmit information to or otherwise share information with KPMG and, in the case of online tools other than email, KPMG's access to and use of the same in connection with obtaining Entity information and documents. E:311111111111111LVA Ik1FAIIQL,t•]L,RTITI N:IML,kI1*11 THIS IS A SERVICES ENGAGEMENT. KPMG WARRANTS THAT IT WILL PERFORM SERVICES HEREUNDER IN GOOD FAITH WITH QUALIFIED PERSONNEL IN A COMPETENT AND WORKMANLIKE MANNER IN ACCORDANCE WITH APPLICABLE INDUSTRY STANDARDS. SUBJECT TO SECTION 14, KPMG DISCLAIMS ALL OTHER WARRANTIES, REPRESENTATIONS OR CONDITIONS, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTIES, REPRESENTATIONS OR CONDITIONS OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 9. LIMITATION ON LIABILITY AND INDEMNIFICATION. a. Subject to Section 14: (i) Entity agrees that KPMG shall not be liable to Entity for any actions, damages, claims, fines, penalties, complaints, demands, suits, proceedings, liabilities, costs, expenses, or losses (collectively, "Claims") in any way arising out TERMS AND CONDITIONS FOR ASSURANCE ENGAGEMENTS - NON -LISTED COMPANY CLIENTS MARCH 2023 13 Page 37 of 101 1111RAIMN TERMS AND CONDITIONS FOR ASSURANCE ENGAGEMENTS (NON -LISTED COMPANY CLIENTS) of or relating to the services performed hereunder for an aggregate amount in excess of the lesser of one million dollars ($1,000,000) or two times the fees paid by Entity to KPMG under the engagement; and (ii) on a multi -phase engagement, KPMG's liability shall be based on the amount actually paid to KPMG for the particular phase that gives rise to the liability. b. Subject to Section 14, in the event of a Claim by any third party against KPMG that arises out of or relates to the services performed hereunder, Entity will indemnify and hold harmless KPMG from all such Claims, including, without limitation, reasonable legal fees, except to the extent finally determined to have resulted from the intentional, deliberate or fraudulent misconduct of KPMG. c. Subject to Section 14: (i) in no event shall KPMG be liable for consequential, special, indirect, incidental, punitive or exemplary damages, liabilities, costs, expenses, or losses (including, without limitation, lost profits and opportunity costs); (ii) in any Claim arising out of the engagement, Entity agrees that KPMG's liability will be several and not joint and several; and (iii) Entity may only claim payment from KPMG of KPMG's proportionate share of the total liability based on degree of fault. d. For purposes of this Section 9, the term KPMG shall include its subsidiaries, its associated and affiliated entities and their respective current and former partners, directors, officers, employees, agents and representatives. The provisions of this Section 9 shall apply regardless of the form of Claim, whether in contract, statute, tort (including, without limitation, negligence) or otherwise. 10. CONSENT TO THE USE OF THE KPMG NAME OR KPMG REPORT. Except as otherwise specifically agreed in this Engagement Letter, KPMG does not consent to: i. the use of our name or our report in connection with information, other than what we have reported on as part of this engagement letter or our report thereon, that contains, incorporates by reference, or otherwise accompanies our report or our name; ii. the use of our report in another language, or the use of our report in connection with information that we reported on that has been translated into another language, or the use of our name in connection with information that we reported on that has been translated into another language; iii. the use of our report in connection with an offering document or other securities filing, including continuous disclosure filings; or iv. the use of our name or our report in connection with the interim financial statements (or other interim financial information) to any statement by the Entity regarding the services that we provided on the interim financial statements or other interim financial information. Any communication, report, statement or conclusion on the interim financial statements may not be included in, or otherwise referred to in any public document or public oral statements except when the interim review conclusion contains a modified conclusion, in which case our interim review report will accompany the interim financial statements. If the Entity wishes to obtain KPMG's consent regarding the matters above or other matters not otherwise specifically covered by this Engagement Letter, we will be required to perform procedures as required by applicable professional standards, and such procedures would be a separate engagement and subject to separate engagement terms. 11. ALTERNATIVE DISPUTE RESOLUTION. Any dispute or claim between the parties arising under or relating to this Engagement Letter or the services provided hereunder (the "Dispute") shall be submitted to non-binding mediation. If mediation is not successful within 90 days after the issuance by a party of a request for mediation, then the Dispute shall be referred to and finally resolved by arbitration under the Arbitration Rules of the ADR Institute of Canada in force at that time. The Seat of Arbitration shall be the province where KPMG's principal office performing this engagement is located. The language of the arbitration shall be English. The Arbitral Tribunal shall be made up of a single Arbitrator. The arbitration award shall be final, conclusive and binding upon the parties, and not subject to appeal. 12. POTENTIAL CONFLICTS OF INTEREST. a. KPMG is or may be engaged by entities and individuals who have potentially conflicting legal and business interests to Entity. Entity agrees that, without further notice or disclosure to Entity, KPMG may: (i) accept or continue such engagements on matters unrelated to KPMG's engagement for Entity; and (ii) provide advice or services to any other person or entity making a competing bid or proposal to that of Entity whether or not KPMG is providing advice or services to Entity in respect of Entity's competing bid or proposal. b. In accordance with professional standards, KPMG will not use any confidential information regarding Entity in connection with its engagements with other clients, and will establish confidentiality and other safeguards to manage conflicts, which may include, in KPMG's sole discretion, the use of separate engagement teams and data access controls. C. In no event shall KPMG be liable to Entity, or shall Entity be entitled to a return of fees or disbursements, or any other compensation whatsoever as a result of KPMG accepting or continuing a conflicting engagement in accordance with the terms of this Engagement Letter. d. Entity agrees that KPMG may, in its sole discretion, disclose the fact and nature of its engagement for Entity to (i) KPMG International member firms to inform conflict searches, and (ii) to the extent reasonably required in order to obtain the consent of another entity or individual in order to permit KPMG to act for such entity or individual, or for Entity, in connection with the engagement or any future engagement. e. In the event that circumstances arise that place KPMG into a conflict of interest as between Entity and a pre-existing client, which in KPMG's sole opinion cannot be adequately addressed through the use of confidentiality and other safeguards, KPMG shall be entitled to immediately terminate the engagement with Entity, without liability. f. Other KPMG International member firms are or may be engaged by entities and individuals who have potentially conflicting legal and business interests to Entity. Entity agrees that (i) it will not assert that other KPMG International member firms are precluded from being engaged by those other entities or individuals, and (ii) those engagements of other KPMG International member firms do not conflict with KPMG's engagement for Entity. 13. LOBBYING. Unless expressly stated in this Engagement Letter, KPMG will not TERMS AND CONDITIONS FOR ASSURANCE ENGAGEMENTS - NON -LISTED COMPANY CLIENTS MARCH 2023 14 Page 38 of 101 TERMS AND CONDITIONS FOR ASSURANCE ENGAGEMENTS (NON-LISTED COMPANY CLIENTS) Ilks undertake any lobbying activity, as that term is defined in all applicable federal, provincial and municipal lobbyist registration statutes and regulations, in connection with the engagement. In the event that KPMG and Entity agree that KPMG will undertake lobbying activity in connection with the engagement, such agreement shall be set out in an amendment to this Engagement Letter. 14. SEVERABILITY. The provisions of these Terms and Conditions and the accompanying proposal or engagement letter shall only apply to the extent that they are not prohibited by a mandatory provision of applicable law, regulation or professional standards. If any of the provisions of these Terms and Conditions or the accompanying proposal or engagement letter are determined to be invalid, void or unenforceable, the remaining provisions of these Terms and Conditions or the accompanying proposal or engagement letter, as the case may be, shall not be affected, impaired or invalidated, and each such provision shall remain valid and in effect and be enforceable and binding on the parties to the fullest extent permitted by law. 15. GOVERNING LAW. This Engagement Letter shall be subject to and governed by the laws of the province where KPMG's principal office performing this engagement is located (without regard to such province's rules on conflicts of law). 16. LLP STATUS. KPMG is a registered limited liability partnership ("LLP") established under the laws of the Province of Ontario and, where applicable, has been registered extra -provincially under provincial LLP legislation. 17. INDEPENDENT LEGAL ADVICE. Entity agrees that it been advised to retain independent legal advice at its own expense prior to signing this Engagement Letter (including without limitation with respect to Entity's rights in connection with potential future conflicts) and agrees that any failure on its part to retain such independent legal counsel shall not affect (and it shall not assert that the same affects) the validity of the provisions of this Engagement Letter. 18. SURVIVAL. All sections hereof other than Section 7(a) shall survive the expiration or termination of the engagement. 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(D 0 7{?o -TJ 0) 00 \D En ,®©D {k�) \)}\ \/7[ \{§) /fEf 7!\± °�\ \\E cC E \00 a- E 0 ) {Lu `14 0 /f£42 Staff Report Chief Administrator's Office REPORT TO: Audit Committee DATE OF MEETING: December 16, 2024 SUBMITTED BY: Corina Tasker, Internal Auditor, 519-783-8154 PREPARED BY: Corina Tasker, Internal Auditor, 519-783-8154 WARD(S) INVOLVED: All DATE OF REPORT: November 26, 2024 REPORT NO.: CAO -2024-510 SUBJECT: 2025 Internal Audit Work Plan www.kitchener.ca RECOMMENDATION: That the 2025 Internal Audit work plan be approved as outlined in report CAO -2024- 510. REPORT HIGHLIGHTS: • The purpose of this report is to outline the proposed assurance and consulting activities to be conducted by the Internal Auditor in 2025. • The work plan consists of seven assurance/compliance audits, one status update, and two consulting engagements. • There are no financial implications. • Community engagement included this report posted to the city's website with the agenda in advance of the council / committee meeting. • This report supports the delivery of core services BACKGROUND: Internal Audit Goal The overarching goal of internal audit is to protect the City's assets and interests. This includes, but is not limited to, protecting the long-term health of the organization, its financial and physical assets, its reputation, its ability to perform critical services and the safety and well-being of employees and citizens. Internal Audit Services To fulfill the above goal, the internal auditor provides two types of service in accordance with the Institute of Internal Auditors definitions: Assurance services — which involve the internal auditor's objective assessment of evidence to provide an independent opinion or conclusions regarding an entity, operation, function, process, system, or other subject matter; and *** This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. Page 50 of 101 Consulting services — which are advisory in nature and are generally performed at the specific request of an engagement client. When performing consulting services, the internal auditor should maintain objectivity and not assume management responsibility. Internal Audit Work plan The assurance services included on the internal audit work plan outlined in this report consists of topics that have been independently selected by the internal auditor. These topics fall broadly into one of three categories: 1) Physical assets — such as physical inventory counts 2) Financial resources — such as expense audits 3) Policy compliance — such as hiring transparency This annual plan consists of compliance and controls audits, confidential investigations, and any other independent analysis as required. Standard assurance audit topics which are common to most organizations or other municipalities are included in a recurring 6 -year plan. Other assurance topics are added as required related to emerging risks, tips, or other audit findings. The internal auditor will also provide consulting services related to process reviews, capacity analysis, organizational structure analysis, risk assessments and value for money analysis as the need arises. These services are provided to aid staff in continuous improvement in the design and delivery of City services. These types of reviews are requested by divisional management, or by Council through discussions with the CAO on a semi-annual basis. Additional consulting services may be added in the second half of 2025 as requested. Audit reports on each work plan item will be presented to Audit Committee as completed, on a quarterly basis. REPORT: 2025 Internal Audit Work Plan Audit Committee is asked to approve the 2025 Internal Audit work plan shown below as per the Audit Committee terms of reference. Assurance Services: Audit Topic Type of Audit Notes Deposits Controls In progress in 2024 Fire Life Safety Controls In progress in 2024 Employer Paid Parking Compliance In progress in 2024 Physical Inventory Count Verification Annual SAP Separation of Duties Controls Employee Expenses Compliance Hiring of Relatives Compliance Re -test under new policy Hiring Transparency Status Update Confidential Investigations Controls, Compliance As required Page 51 of 101 Consulting Services: Topic Type of Analysis Concrete Maintenance Service Levels Custodial Services at Community Centres Roles and Responsibilities, Service Levels Definitions Compliance audit - A test to determine if staff is following all rules, regulations and policies associated with the service. Confidential Investigations — Investigating staff or public complaints about any alleged staff misconduct including, but not limited to, fraud, theft, or inappropriate behaviour. Controls audit - An analysis and test of control points within a process to ensure that fraudulent activity can be eliminated or mitigated. Count Verification — Sampling physical inventory counts to verify the accuracy of staff physical inventory counts. Roles and Responsibilities — A review across functions or roles to determine the best location for certain tasks to reside. Status update — A check-in on the status of recommendations and benefits achieved from previous audits or reviews. Service Levels — An analysis of current and desired service levels and associated resourcing and costs to achieve objectives. STRATEGIC PLAN ALIGNMENT: This report supports the delivery of core services. FINANCIAL IMPLICATIONS: Capital Budget — The recommendation has no impact on the Capital Budget. Operating Budget — The recommendation has no impact on the Operating Budget. COMMUNITY ENGAGEMENT: INFORM — This report has been posted to the City's website with the agenda in advance of the council / committee meeting. PREVIOUS REPORTS/AUTHORITIES: There are no previous reports/authorities related to this matter. APPROVED BY: Dan Chapman, CAO ATTACHMENTS: none Page 52 of 101 0 a Q Z W F o Z N Ln � N ' O u N 0 O M LO N 0) (6 0 O LO N 0) (6 Ln Ln O O 4 cn O �..� L ,,IJ W W W r1 •- . - C6 Q) U _0 Q� C� C: Q) �--� Q) Q- > > Q U O a--+ O MO s U a) _0 sQ) (3.)V) C: L ca C- V .2 cu L ca O • - a--) 0Q) tw V E =3 Q O O O O O Q U U 0 I I I 0 O LO N 0) (6 I -- mm 0 Q) U L Q) Q) U Q) 0 > Q) Q) V) Q) Q) Q) 0 O s U Q) 0 Q) CL Q) 0 C a 0 0 0 O ate-+ W, u N N i 0 O LO LO N 0) (6 n 0 O (D LO ( V) n c O 4-0m W W WW U U •L N U U Q N 0 � 0 Q Q CL � CT N •� O O O O O O O to U U U U U U U cn Q L V E cn a o CLC/)a) Z 0 o � � � 06 ca 2 0 � > � a oa)��� > ��� oa CL � > LUcL � ma) CL � o a) O J O 'U U) O ��_0 Q Q Q � c 0 O (D LO ( V) n N C U CL H- V CL 12 2 N U N a C6 a) cu a) a) U i 0 cu ^� _W 0 ry _C/) \W W J N U N 4-0 C6 N U N cu a 0 40 Mm a) ry T A, E E 0 U 0 O ti LO N 0) (6 Staff Report Chief Administrator's Office REPORT TO: Audit Committee DATE OF MEETING: December 16, 2024 SUBMITTED BY: Corina Tasker, Internal Auditor, 519-783-8154 PREPARED BY: Corina Tasker, Internal Auditor, 519-783-8154 WARD(S) INVOLVED: All DATE OF REPORT: December 4, 2024 REPORT NO.: CAO -2024-511 SUBJECT: 4th Quarter 2024 Audit Status Report RECOMMENDATION: For Information www.kitchener.ca REPORT HIGHLIGHTS: • The purpose of this report is to provide information regarding recent audits. • There are two audits, two consulting engagements, three confidential investigations, and two status updates included in this report. • With the exception of the confidential investigations, results of the other audits were positive, with no fraud detected. • There are no financial implications. • Community engagement included this report posted to the city's website with the agenda in advance of the council / committee meeting. • This report supports the delivery of core services. EXECUTIVE SUMMARY: The following report provides a summary of the Internal Audit assurance and consulting services completed or underway during the period of July to December 2024. Work in -progress: Assurance work is in progress on the following topics: • Employer paid parking — compliance audit • Deposits — controls audit • Fire Life Safety — controls audit *** This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. Page 58 of 101 Work completed: The table below shows the audits contained in this report. Division / Topic Scope 1. Physical Inventory Annual Inventory Count Verification 2. Contractor Management Service Delivery Analysis 3. Bylaw Enforcement Organizational Structure 4. Hiring Transparency and Nepotism Controls and Compliance 5. Confidential Investigations Investigations 6. Petty Cash and Floats Status Update 7. Accounting and Payroll Status Update The physical inventory verification count which was overseen by the Internal Auditor only found 1 variance worth $11 write-down. This is considered a very low value and number of variances found through the audit process and is the lowest variance / most accurate count to date. The 2024 total write-down of $202,804 processed by Stores staff represents 1.9% of the total inventory purchases for the year of $10.6M. This is largely related to uncontrollable inventory such as aggregate. Industry standards indicate that up to 2.5% is an acceptable shrinkage rate. The physical inventory process is in control and no concerns were identified. The consulting engagement related to capital construction contractor management recommended the establishment of a Project Management Office and several supporting actions to provide more consistency in project management processes. It is anticipated that implementing the recommendations will help projects come in on time, on budget, and within scope more often, while meeting stakeholder expectations and ensuring communication throughout the project. The consulting engagement related to Bylaw Enforcement led to the staff consensus that combining the Parking and Noise roles into one position in order to better meet the growing demand for service without adding more staff is a promising idea that they support. To make this change successful it will be important to involve staff in the scheduling discussions and be open to making changes as various options are tested. The Hiring Transparency and Nepotism audit found that there have been significant improvements in the hiring process, training completion and hiring transparency testing results since the previous audits. However, there are still some hiring managers who are not following the process and are not properly storing all required documentation to support the hiring decision. While there were six conflicts with the current Hiring of Relatives policy, none of them represent a risk since none of the employees have authority over their relatives. This topic will remain on the list of recurring assurance audits and nepotism testing against the new policy will occur in 2025. There were three different confidential investigations throughout 2024. The status updates of the Petty Cash and Floats audit and the Accounting and Payroll audit did not find any concerns. Both topics will remain on the list of recurring assurance audits. Page 59 of 101 BACKGROUND: The overarching goal of internal audit is to protect the City's assets and interests. This includes, but is not limited to, protecting the long-term health of the organization, its financial and physical assets, its reputation, its ability to perform critical services and the safety and well-being of employees and citizens. Internal Audit provides assurance and consulting services in accordance with the International Standards for the Professional Practice of Internal Auditing (Standards), IIA 2024. These services include independent, objective activities/reviews designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. Assurance services provide an objective assessment of evidence to provide an independent opinion or conclusions regarding an entity, operation, function, process, system, or other subject matter. • Consulting services are advisory in nature and are generally performed at the specific request of an engagement client. When performing consulting services, the internal auditor should maintain objectivity and not assume management responsibility. Audit topics are selected independently by the Internal Auditor and approved by Audit Committee on an annual basis. Audit results and updates are brought back to Audit Committee in reports such as this on a quarterly basis as completed. REPORT: 1. Physical Inventory — Count Verification Completed: October 27, 2024 Overview The Procurement -Stores section of the Financial Operations division is responsible for the receipt, storage, and disbursement of a variety of physical inventory used in City operations. This inventory is stored within the Stores warehouse within the Kitchener Operations Facility (KOF), as well as some larger items being stored outside in the yard. (e.g., large pipe, catch basins, aggregates, salt). Stores staff perform an annual inventory of all parts and materials to ensure that financial records match the amounts on hand. They also implemented regular cycle counts in January 2023 which see each high moving part number counted many times per year, including the full physical inventory. This allows variances to be identified earlier and investigated to determine root cause of the error, allowing real-time corrections to be made and eliminating the need to write parts up or down. Currently they are counting approximately 210 parts per week and finding an accuracy rate of about 80-90%. If they can determine the root cause and the user of the part, they will charge it out to that job or cost centre. If they are unable to ascertain ownership, then they will use the write-up or write-down function which then charges the amounts on a prorated basis to all user groups. Page 60 of 101 Following the full physical inventory Internal Audit then counts a sample of parts to provide assurance that staff counts are accurate. This is a standard audit activity. In addition, staff make adjustments to inventory balances within SAP throughout the year and during the physical inventory count to restore the financial balance to equal the quantity on hand. An analysis of the total adjustments for the year is also included below. Definitions Absolute variance - total variance from adding all the variance amounts without taking into account gains or losses (if we gained $100 on item A and lost $100 on item B the ABSOLUTE variance would be $200) Controllable stock - stock which the Stores staff have direct control over with regards to purchases and usage. Located within the warehouse. Error percentage or rate - percentage of items found that did not match what showed in SAP prior to the counts (if we counted 100 items and 10 of them did not match SAP then the error percentage would be 10%). Floor -to -sheet audit — randomly selecting parts in the warehouse, counting them, and comparing the quantity to what is in the financial system (SAP). Net write-down - total variance from adding the positive and negative variances together (if we gained $100 on item A and lost $100 on item B the NET variance would be zero). Sheet -to -floor audit — pre -selecting parts based on unit value or total value, counting them, and comparing the quantity to what is in SAP. This includes both warehouse and outdoor inventory. Shrinkage rate — the percentage of total inventory purchases that are written -down or lost due to factors such as theft, error, fraud, or damage. Uncontrollable stock - stock which is located in the KOF yard which are not under direct supervision by the Stores division. Write-down - the quantity on hand was less than what was recorded in SAP and therefore the financial records were decreased to match the physical quantity. Usually occurs when inventory is used without updating SAP. Write-up — the quantity on hand was more than what was recorded in SAP and therefore the financial records were increased to match the physical quantity. Usually occurs due to keying errors when setting up or relieving inventory, or when the wrong unit of measure was used (e.g., number of cartons counted instead of individual parts). Physical Inventory Count New this year — Stores staff have provided the error rate for their full physical inventory count. This measures the percentage of items counted that did not match what was recorded in SAP. In addition, the net and absolute dollar value of variances have been calculated. 2023 2024 Error percentage 10.7% 10.5% Net write-down (without aggregates) ($12,202) ($19,716) Absolute variance (without aggregates) $134,894 $81,933 Page 61 of 101 Note that aggregates have been excluded from these figures as they are difficult to measure and routinely have large variances. General Ledger Reconciliation New this year - Financial Reporting and Analysis staff have prepared a reconciliation between the physical count and the general ledger immediately after the physical count. This involves comparing the balance in the materials module in SAP, which should now equal the physical inventory, to the balance in the general ledger. The reconciliation showed that the general ledger was higher than the material module by $148,011. The cause of the variance is unknown at this time but is being investigated. Preliminary analysis shows that this variance has existed in the general ledger account for several years. Audit Process and Findings 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 21 % of the total value of inventory. The sheet -to -floor audits covered the top 10 unit values and top 10 total values. The floor -to -sheet audits consisted of twenty random shelf locations. One variance, which equates to 3% of the sample, was found through this verification process which resulted in a $11.09 write-down. This is considered a very low value and number of variances found through the audit process and is the lowest variance / most accurate count to date. It represents 0.0% of total inventory on hand. Total Adjustments In addition to reporting on the variances found through the audit process during the physical inventory, the total adjustments for the year are also reported below. These numbers include the adjustments made by staff during the physical inventory as well as all other adjustments made throughout the year. The purpose of this analysis is to identify any material groups or part numbers that have large or unusual adjustments to ensure the root cause has been identified and actions put in place to eliminate or reduce adjustments in the future. (Note that positive numbers represent write-ups and negative numbers represent write-downs.) Year 2023 2024 Controllable stock write-up $50,084 $31,334 Uncontrollable stock write-down ($47,276) ($234,138) Total write-up (down) $2,807 ($202,804) In 2024 the total adjustments for the year (Oct.29/23 — Oct.28/24) were $202,804 write-down. The 2024 total write-down represents 1.9% of the total inventory purchases for the year of $10.6 million. Industry standards indicate that up to 2.5% is an acceptable shrinkage rate. The ending inventory balance was $4,044,935. Controllable Stock Adjustments Of the 2024 adjustments, $31,334 write-up was from controllable stock. In 2024 the write-up was attributable to multiple material groups and there was not a large write-up in any specific part number. However, the material groups which saw the largest total write-ups included gas utility parts and vehicle maintenance parts. Write-ups are most often due to errors in issuing out stock, such as using the wrong unit of measure causing too much inventory to be relieved. Page 62 of 101 Over time, as more root causes of variances are determined and rectified, it is anticipated that the total amount of adjustments will decrease. Uncontrollable Stock Adjustments The remaining $234,138 of write-down is related to stock which is outside in the KOF yard which are not under direct supervision by Stores staff. It is impractical to have dedicated staff monitoring the outdoor inventory on a 24/7 basis and therefore there is a reliance on staff to inform Stores when they take inventory from the yard. However, this often does not happen, leading to the write-downs in products such as pipe or aggregates. $252K of the total write-down is related to aggregate products, offset by write-ups in other uncontrollable part numbers. The main issue with aggregates is the difficulty in accurately measuring the piles of product using estimation techniques, either when relieving inventory or when doing the physical inventory count. Conclusion Overall, the physical inventory process is in control and no concerns were identified. The adjustments to controllable stock are generally small write-ups. Uncontrollable stock adjustments are typical and are expected given the current uncontrolled environment and issues with measuring aggregates. Improvements to measurement techniques and ongoing cycle counts will help reduce the amount of inventory adjustments. 2. Capital Project Contractor Management Review Completed: September 12, 2024 Background Contract administration for capital project delivery is not performed consistently across the organization and there are knowledge gaps to effectively manage the construction phase of a project. In addition, City -led construction projects undertaken in the downtown core are often uniquely challenging as a result of requiring consideration of business impacts, special events, and the general higher level of scrutiny that these projects engender. Outcomes of this review will ultimately help support any strategic plan projects that involve contractors or consultants. Review Objectives The purpose of this review was to assess organizational strengths and weaknesses related to contractor management for capital projects, with consideration for those City -led projects in the downtown core and develop recommendations to ensure effective project delivery. It was senior management's desire that this review explore transformative change and provide recommended clarity around accountability. Scope The following areas were within the scope for this review: • Review of project management processes, tools, and templates currently in use for capital projects compared to Project Management Institute (PMI) best practice or other known entities that are consistently delivering successful projects of a similar nature • Review of what recourse is available to the City for significant delays and/or poor performance on projects Page 63 of 101 • Review of a sample of projects to understand what circumstances led to success or lack of successful outcomes. This is for the purposes of improvement and mitigation of future risks. The following areas were out of scope for this audit: • Maintenance and/or emergency related work (i.e., watermain breaks, sanitary issues, etc.) • IT related capital projects — the intent of this project is to review infrastructure (hard assets) and not to review software, hardware, etc. related projects Methodology The following activities were completed for this review: • Document review (report on previous work, examples) • Internal stakeholder interviews / surveys • Review of best practice from Project Management Institute (PMI) • Comparison of a sample of successful and unsuccessful projects to the PMI best practice criteria • Research and analysis of roles, responsibilities, and organizational structure to support project delivery • Discussion with City of Cambridge and City of Guelph staff • Workshop with project managers and stakeholders to brainstorm transformational ideas to address issues that were uncovered in the interviews, surveys, and analysis Findings and Recommendations Six problem statements were generated by the review team based on what they saw as the main issues to be solved. Solutions were brainstormed for each problem statement. The six problems included: 1. How might we ensure a consistent project management approach to construction project management? 2. How might we enhance stakeholder engagement and communication strategies to meet or exceed expectations on capital projects? 3. How might we ensure better contractor performance on every project? 4. How might we set project managers up for success and ensure they have adequate training, to ensure a skilled and motivated project manager and a reduction in turnover? 5. What could we explore in terms of resources, structure and/or capacity that would enhance project delivery at the City? 6. How might we identify, implement, and integrate tools and software solutions to streamline budget tracking processes, ensuring visibility, data accuracy, and integration across all stages of capital projects? A total of 361 ideas were generated which were then vetted and prioritized. Two transformational ideas were further analyzed and are outlined below. These represent ideas that could fundamentally change how capital project management is done at the City. In addition, five other tactical recommendations have been provided. Implementation of the transformational ideas will enable these other recommendations to also be completed. Page 64 of 101 Transformational Idea #1: a Project Management Office (PMO) for capital construction and high-risk projects is being established on a pilot basis through an 18 -month secondment, reporting to the Director of Strategy and Corporate Performance in the CAO's Office. Initially, the role of the PMO is to establish standard practices, tools, and training to support a consistent approach to capital project management across the corporation, with application to other types of projects occurring over time (e.g., projects that involve the development of a plan or strategy, like the official plan or master plan). They are also responsible for providing ongoing services such as supporting the onboarding process of all new project managers (from a training perspective), providing advice and support to PMs when needed, and overseeing risk assessments of large and complex projects. Without this role, project delivery will remain inconsistent across departments/divisions as individual divisions may not have the time, resources, or desire to create the processes and training required. Transformational Idea #2: Select capital construction projects should have two project managers and/or resources — one to manage stakeholder engagement and communications, and one to manage construction wherever feasible. This would be appropriate for large, complex projects and / or projects where there is a high risk of public dissatisfaction due to disruption or change. This has worked successfully in several past projects (e.g., Customer Service Centre project). This would provide enhanced customer service, communications and change management through staff who are specifically skilled in stakeholder engagement. In situations where there is no funding to support an additional project manager/engagement consultant or no additional internal resource available, the project manager should at a minimum develop a comprehensive engagement and communication plan. Other Recommendations: In addition to the two transformational recommendations outlined above, there are 5 other recommendations which will support successful project outcomes and will largely fall to a PMO to lead or implement: 1. Provide consistent training for construction project managers. 2. Establish consistent construction project management tools and templates. 3. Enable project managers to share their knowledge with each other. 4. Clarify project manager roles and responsibilities. 5. Explore different service delivery methods and processes. Conclusion: In general, project managers and stakeholders are eager for change and are looking for more supports to ensure projects are successful. It is anticipated that implementing these recommendations will help projects come in on time, on budget, and within scope more often, while meeting stakeholder expectations and ensuring communication throughout the project. 3. Bylaw Enforcement — Re -organization Completed: August 6, 2024 Background The Bylaw Enforcement division has been operating with five parking enforcement full-time equivalents (FTEs) for over 30 years, and five noise enforcement FTEs for over 12 years. Although the complement has changed in size, the current staffing structure and job descriptions have remained static. There was a perceived need to make changes to better meet the growing needs of the corporation and the community including an increase in Page 65 of 101 demand for service, changing landscape and more complex issues, and issues with attracting and retaining staff. Initial analysis including benchmarking, financial analysis and pros and cons of a proposed solution were previously completed by Bylaw management. The proposed solution includes combining the full-time parking and noise officer roles into a single position as an alternative to adding more staff to meet growing demand. Review Objectives The purpose of this consulting engagement was to provide feedback on the proposed solution and workshop facilitation assistance for the division to fully vet the solution before proceeding. Scope The following areas were within scope for this engagement: • Facilitation of two workshops with Bylaw staff to gather their input on issues or concerns with the proposed solution. • Advice / suggestions to management on how to proceed with the re -organization of 24 staff including considerations, risks, and tactics. The following areas were out of scope for this engagement and were performed by management: • Discussions with HR on the impact of combining the roles • Individual interviews with staff prior to the workshop • Implementation of the re -organization Methodology The following activities were completed for this engagement: • Work with management to schedule staff for one of two workshops • Preparation of materials for the workshops • Facilitate the workshops • Document outcomes of the workshops • Debrief meeting with management Outcomes Two workshops were held with Bylaw parking and noise officers. Staff were reminded of the reasons driving the change including an increase in demand for service, changing landscape and more complex issues, and issues with attracting and retaining staff. The new organizational structure was reviewed and staff had the opportunity to ask questions. The bulk of the workshop was spent exploring the solution in more detail through facilitated discussions. The consensus of staff was that this is a promising idea that they support. To make this change successful it will be important to involve staff in the scheduling discussions and be open to making changes as various options are tested. Data should be used to determine optimal shift sizes and routes. It will also be important to provide consistent training to all staff. Page 66 of 101 It will be important to regularly gather feedback from staff on what is working or not and analyze data to adjust as required. A list of change management tasks that should be considered were provided to management. 4. Hiring Transparency and Nepotism — Controls and Compliance Completed: October 23, 2024 Background The topic of Hiring Transparency and Nepotism has been audited twice before — originally in 2011 and then a status update and follow-up audit were conducted in 2018. This topic is part of the recurring list of assurance audits. Audit Objectives There were four objectives in this audit: 1) To re -assess the transparency of the hiring process; 2) To re -assess compliance with the Hiring of Relatives policy; 3) To provide a status update on the recommendations from the 2011 audit; 4) To provide a status update on the recommendations from the 2018 follow-up audit. Methodology This audit included the following components: • Analysis of the current hiring process and technology used to support it • Review of management training records related to Hiring@Kitchener training • Testing a sample of recent hiring decisions to ensure transparency and fairness • Cross-reference of employee names and addresses to identify and evaluate relationships between employees in the context of compliance with the Hiring of Relatives policy • Status update of recommendations from the 2011 audit and 2018 status update Findings Hiring Process The documented process appears to be following best practice and if followed, should lead to a fair, transparent, and legally defensible outcome. As noted below, there are some steps however which are not being followed by all hiring managers. Training A key requirement to ensure hiring managers are conducting fair and transparent hiring competitions is that they have taken all three modules of the Hiring@Kitchener training. In 2020 only 55% of management had taken the original training. As of October 21, 2024, 80% of management have taken all three modules of the new training. Additional in-person sessions were offered this fall with the intent to increase the completion rates. Applicant Tracking System Through the course of the testing for this review, the auditor had the opportunity to use the current applicant tracking system to look up data about the sample of job competitions. While this use was not comprehensive, one observation was that the summary analytics for each competition indicating number of applicants in each status (i.e. hired, interviewed, selected for review by hiring manager, rejected, etc.) was not accurate and could not be relied on. In addition, Page 67 of 101 there was no place to capture any notes about the decision which would have been helpful. It is understood that the system will be replaced in the near future, and it is hoped that these issues can be resolved, lending more functionality to the system for tracking, storing, analyzing, and reporting on hiring competitions. Transparency Testing A report was generated to show all hiring competitions from January 1, 2024 —August 31, 2024. The date range was selected with the intent of assessing hiring transparency after the majority of hiring managers had received the Hiring @ Kitchener training to see if they were following the process. The report was further divided into 101 HR -led and 25 Hiring Manager (HM) led competitions. A random sample of 15 HR -led (15%) and 10 HM -led (40%) competitions was selected for review and analysis. The total sample represented 20% of the hiring competitions during the assessment period. All available hardcopy files, online documents, and information stored in the applicant tracking system were reviewed for each competition and assessed against the following criteria: • Job was posted (either internally, externally, or both), ensuring it was available broadly and not given to a single individual without following a fair hiring process • Two or more hiring managers conducted the interviews to avoid bias • Interview notes were kept, showing comments and scoring for each candidate • Scoring of all candidates to support selection decision (either in a summary sheet or taken from the interview notes) • Fully executed offer letter for the successful candidate • Reference checks where applicable Criteria HR- Led HM -led Sample size 15 10 Job posted 100% 100% 2+ hiring managers 100% 100% Interview notes 100% 60% Scoring 93% 50% Fully executed offer letter 100% 90% Reference checks (excl. internal or series 9000) 93% 100% Overall, there have been significant improvements in the hiring transparency testing results since the previous audits. However, there are still some hiring managers who are not following the process and are not properly storing all required documentation to support the hiring decision. Nepotism Testing To review the degree of compliance with the employment of relatives policy a report was run from PeopleSoft which listed all current employees, address, position, division, and department. Page 68 of 101 All records were then matched on address or last name. Any matches were then evaluated against the current policy which states: • The CAO, general managers, directors, and HR employees may not have any relatives working anywhere at the City of Kitchener • Managers and supervisors must not work in the same department as their relatives, unless the relative is a student in which case they may not work in the same division. Note that the original 2011 nepotism audit had recommended changes to the policy to remove reference to departments and divisions and replace with wording indicating that no employee shall supervise or be supervised by a family member or be placed in a position of influence over a family member. While this work is now underway in 2024, the new policy has not been finalized or released yet. Therefore, the testing done in this audit is in relation to the existing policy. The testing found six technical conflicts with the current policy, three of which were new. However, none of them present a risk since none of the employees have authority over their relatives, and therefore no action is being taken currently. Once the new policy is released, testing can be repeated and appropriate action taken to document any conflicts identified under the new policy. 2011 Audit Status Update Status Definitions: • Complete = the recommendation has been fully implemented. • In progress = implementation has begun. • Not started = No work has begun yet but will in the future. • Not required = the recommendation either does not require any action, or it is no longer relevant, and no work will be done to implement it. •Status 7of Update: July 20, 2018 Status Update: November 2, 2020 Status Update: July 22, 2024 recommendations: 12 12 12 # complete: 6 5 6 # in progress: 1 2 4 # not started: 4 4 0 # not required: 1 1 2 The four recommendations still in progress relate to Hiring @ Kitchener training which continues this fall and the Hiring of Relatives policy update which will go to CLT and Council for approval in early 2025. 2018 Audit Status Update # of original 5 5 recommendations: # comolete: 2 4 Page 69 of 101 # in progress- 0 1 # not started: 3 0 # not required: 0 0 The one recommendation still in progress relates to senior management following up with management who have not taken the training. In addition to the list provided as part of this audit, HR will run targeted reports to determine who has not completed the training and then enlist GM's or directors to follow up with those staff. Recommendations In addition to completing the actions above, it was recommended to HR to make it mandatory that hiring managers complete a scoring matrix for each competition (currently an optional step), document any variance or anomalies, and HR should follow up with the hiring manager to ensure all documentation is properly filed. Conclusion Overall, there have been significant improvements in the hiring process, training completion and hiring transparency testing results since the previous audits. However, there are still some hiring managers who are not following the process and are not properly storing all required documentation to support the hiring decision. Recommendations aim to strengthen controls in this area. This topic will remain on the list of recurring assurance audits (which occur every 5 to 6 years) and nepotism testing against the new policy will occur in 2025. 5. Confidential Investigations Completed: Throughout 2024 In 2024 Internal Audit was involved in three separate confidential investigations. 1. Suspected fraud by a contracted service provider. • Investigation did not uncover fraud but did call the efficiency of service into question • Identified the potential for unsubstantiated billings • Vendor contract was terminated and additional controls added to RFP 2. Personal use of corporate credit card • Corporate card used for personal expenses, subsequently recovered from employee • Employee terminated with cause 3. Benefits fraud • Benefits fraud identified by Sunlife, subsequently recovered from employee • Employee terminated with cause Page 70 of 101 6. Petty Cash and Floats — Status Update Completed: November 27, 2024 Overview: In 2023 an audit was conducted to physically confirm that petty cash and float balances were correct and that the cash was adequately protected from theft. The results showed that the cash floats are generally well protected. There were no large discrepancies or suspicions of theft. The implementation of SAP Concur has greatly decreased this risk as petty cash is only used in a few instances. Audit Objective: All services which have undergone a service review in the past are subject to a status update, not sooner than one year following the original audit. The purpose of status updates is to hold staff accountable for addressing the audit findings and to identify any areas that have not seen significant progress. In addition, if applicable, further testing or review may also be done to test whether improvements have had the intended effect. Status Definitions: • Complete = the recommendation has been fully implemented. • In progress = implementation has begun. • Not started = no work has begun yet but will in the future. • Not required = the recommendation either does not require any action, or it is no longer relevant, and no work will be done to implement it. Number of original recommendations: 4 Number of recommendations complete: 3 Number of recommendations in progress: 1 Number of recommendations not started: 0 Number of recommendations not required: 0 All unneeded floats were returned to Financial Operations and deposited. Updates were made to the custodians, approvers, and amounts as required. Parking has reduced their required float and continue to balance their float each time the parking machines are emptied. However, they still need to start reconciling the revenue reports from the machine to the deposits to ensure all funds are accounted for. There are no concerns about this topic, however it will remain on the list of recurring assurance audits. 7. Accounting and Payroll — Status Update Completed: December 3, 2024 Overview A comprehensive audit of the Accounting and Payroll sections was completed in 2016. A follow- up audit was conducted in 2019. Part of the audit focused on controls within the financial processes. Audit of just the financial controls was then added to the list of recurring assurance Page 71 of 101 audits and was completed in 2023. The objective was to document and test various financial controls to ensure assets are adequately protected from fraud, theft, or error. Audit Objective: All services which have undergone a service review in the past are subject to a status update, not sooner than one year following the original audit. The purpose of status updates is to hold staff accountable for addressing the audit findings and to identify any areas that have not seen significant progress. In addition, if applicable, further testing or review may also be done to test whether improvements have had the intended effect. Status Definitions: • Complete = the recommendation has been fully implemented. • In progress = implementation has begun. • Not started = no work has begun yet but will in the future. • Not required = the recommendation either does not require any action, or it is no longer relevant, and no work will be done to implement it. Number of original recommendations: 13 Number of recommendations complete: 7 Number of recommendations in progress: 5 Number of recommendations not started: 1 Number of recommendations not required: 0 Several actions have been completed to ensure sufficient backup for a variety of financial transactions. Work is underway to develop and implement several new policies and procedures to even further improve controls. The one recommendation that has not been started yet is dependent on the upcoming installation of a new payroll system which will occur over the next 1-2 years. There are no concerns about this topic, however it will remain on the list of recurring assurance audits. STRATEGIC PLAN ALIGNMENT: This report supports the delivery of core services. FINANCIAL IMPLICATIONS: Capital Budget — The recommendation has no impact on the Capital Budget. Operating Budget — The recommendation has no impact on the Operating Budget. COMMUNITY ENGAGEMENT: INFORM — This report has been posted to the City's website with the agenda in advance of the council / committee meeting. 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