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HomeMy WebLinkAboutTR-72-99 {. .. THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON REPORT Meeting: General Purpose and Administration Committee File#: HtJ Res.#&/'.Il-5ZJ-?f Date: December 6, 1999 Report #: TR-72-99 File #: By-Law #: Subject: 1998 AUDIT REPORT AND MANAGEMENT LETTER Recommendations: It is respectfully recommended that the General Purpose and Administration Committee recommend to Council the following: 1. THAT Report TR-72-99 be received; and 2. THAT the recommendations and actions identified in the body of Report TR-72-99 be endorsed. Backaround and Comment: The 1998 Audit Report and Management letter received from Deloitte and Touche, contains some recommendations to improve upon certain internal control areas within the Municipality. A copy of the Audit Management letter is attached as Schedule "A". The Audit Management letter states the following: "We have noted continuing improvement in the records and accounts of the Municipality and are pleased to see many of the comments in our prior year's management letter have been acted upon. We feel the attached suggestions will further enhance the accounting procedures, internal controls and operations of the Corporation. However, they should be considered in context with the Municipality's overall system of internal controls and accounting procedures which we consider, based on our review, to be good." 1.0 PSAB Requirements 1.1 At the present time, the Public Sector Accounting and Auditing Board (PSAB) recommendations have not yet been proclaimed and the Province has not yet released any revisions to the required format for the 1999 financial year end. It is 811 TR-72-99 1998 AUDIT REPORT AND MANAGEMENT LETTER Page -2- possible that for the fiscal year ending December 31, 2000, PSAB accounting standards will be in place. Treasury staff have been monitoring the situation and will undertake a detailed review of the applicable PSAB handbook sections and revise the municipal financial statement format at the appropriate time. 2.0 Deregulation in the Utilities Industry 2.1 Municipal staff, including the Chief Administrative Officer, Treasurer and Socilitor, have been working closely with the consultants for Veridian and a By-Law is forthcoming for Council approval. 3.0 Access to Computer Room 3.1 There are a total of four printers in the computer room, which are used for printing journals in the financial system, producing Accounts Payable cheques, printing tax bills, etc. The room is essentially used as a combination computer/printer room. Due to the size of the printers, as well as noise level, temperature control requirements, fumes, and space restriction in the Municipal Administrative Centre, it is currently not possible to relocate the printers to any area where they would be accessible to staff. 3.2 With the approval of the joint use facility to be constructed adjacent to the Municipal Administrative Centre, this issue will be referred to the Property Manager for consideration in any overall space reallocations. 4.0 Year 2000 Planning 4.1 As Council is aware, the Fire Chief was appointed as Y2K Co-Ordinator and has been addressing corporate Y2K issues. The Y2K Co-Ordinator has reported to Council on a regular basis to update on the activities of the committee and the organization. A single written high level plan would not provide any added benefit to the Municipality's Y2K efforts. Significant effort has been devoted to emergency plans, in order to respond to public safety concerns. 5.0 Internet Use 5.1 It is an established practice with all software and hardware installations to perform proper testing and verification of security measures. This practice will be followed when a firewall is installed. 5.2 At the time of the 1998 year end audit, an internet use policy was still in draft form. It has now been finalized and approved by the Chief Administrator's Office. 812 TR-72-99 1998 AUDIT REPORT AND MANAGEMENT LETTER Page -3- 6.0 Capital Fund Accounting Procedures 6.1 As indicated in the 1998 and 1999 approved Capital Budgets, the Municipality is setting aside funds to replace the financial software over a three year period. At this time it is more cost effective to establish new capital fund accounting procedures in conjunction with the capabilities of any proposed new financial software. Currently, unexpended capital financing is recorded through commitments to the reserve and reserve funds which is included in the Budget and Trial Balances. The Municipality actually maintains this information with a greater degree of detail and accuracy than is normally found in formal capital fund systems. For 1999, the total value of commitments to the Reserves and Reserves Funds will be reported in the notes to the Financial Report at year end. 7.0 Back-Up Procedures 7.1 Due to the frequency and timing of network back-ups, it is not always feasible to rotate back-ups to a secure off-site location. 7.2 Currently, the Treasury Department is investigating fireproof storage cabinets to be placed inside the fireproof vault in the event that a fire occurs inside the vault. This will be handled through the 2000 Capital Budget process. 8.0 Information Systems Strategic Plan 8.1 Due to the current emphasis on the Year 2000 issues that has followed immediately after the Municipality's major upgrade to a Windows environment, it has not been feasible to develop a strategic plan in this area at this time. 8.2 As new technology is brought forward in the marketplace with municipal uses, the Systems Department reviews each request and analyzes the options available. Prioritization is then done through the Capital Budget process. 8.3 The Systems Department will consider the development of a strategic plan as a future longer-term project. Conclusion: In summary, the audit recommendations made in the 1998 Audit Report and Management letter have been received as constructive comments and an effort has been made to implement the recommendations that are feasible and cost effective at this time. 813 TR-72-99 1998 AUDIT REPORT AND MANAGEMENT LETTER Page -4- lIy submitted, Reviewed by: ~ ' Marie A. Marano, H.BSc.,AMCT, Treasurer. Q vudfL~ Franklin Wu, M.C.I.P.,R.P.P., Chief Administrative Officer. MMfNT/hjl Attachment 814 , Schedule f1An Deloitte & Touche o Telephone: 1416) 229-2100 Facsimile: (4161 229-2524 Deloitte & Touche LLP 5140 Yonge Street Suite 1700 Toronto, Ontario M2N 6L7 October , 1999 Mr. John Mutton Chair - Finance Committee Corporation of the Municipality ofClarington Municipal Offices 40 Temperance Street Bowmanville, ON 11 C 3A6 Dear Mr. Mutton: We have recently completed our examination of the consolidated fmancial statements of the Corporation of the Municipality of Clarington for the year ended December 31, 1998. Our examination included a review of the system of internal controls, accounting procedures and other matters. The attached comments should not be construed to represent the results of a detailed system review but are observations made during the normal course of our examination. We have noted continuing improvement in the records and accounts of the Municipality and are pleased to see many of the comments in our prior year's management letter have been acted upon. We feel the attached suggestions will further enhance the accounting procedures, internal controls, and operations of the Corporation. However, they should be considered in context with the Municipality's overall system of internal controls and accounting procedures which we consider, based on our review, to be good. We would be pleased to discuss any of these comments and suggestions further with you. If we can be of assistance in the implementation of any of these recommendations, please do not hesitate to contact us. We would like to take this opportunity to thank the staff of the Municipality of Clarington for their excellent assistance and co-operation during our audit. Yours very truly, ~ 't ::S-rfl% 11."f Enclosure Deloitte Touche Tohmatsu 815 CORPORATION OF THE MUNICIPALITY OF CLARINGTON Management Comments December 31,1998 Page I of5 1. PUBLIC SECTOR ACCOUNTING STANDARDS (PSAB) Observation: The current authority for setting accounting and financial reporting standards is contained in the Municipal Act and basically states that municipalities will follow the Municipal Financial Reporting Handbook. It is possible that for the fiscal year ending December 31, 2000, PSAB accounting standards will replace the Ministry's Handbook. The Public Sector Accounting Board was created in 1981 by the Canadian Institute of Chartered Accountants (CICA). In 1989 PSAB began its local government initiative with the goal of recommending standards for good municipal accounting and financial reporting practices. The fundamental objective was to ensure that financial statements were complete, accurate and presented in a way that facilitated decision-making. Also, by adopting common standards, differences arising from comparing one municipality to another would not be the results of different accounting and reporting practices, but actual real differences in the way the municipality finances, organizes and conducts its operations and in the service provided. We will continue to monitor the status ofPSAB for Ontario Municipalities and the impact on the Municipality. Two of the significant changes required by PSAB will be the cording of all liabilities in the financial statements, as well as accounting for government business enterprises such as the municipalities investment in the newly amalgamated Hydro utility. During the course of the upcoming year, we will communicate any significant PSAB or other pronouncements to Management as they arise. Recommendation: We recommend that finance department staff review the impact such changes could have on the Municipality's financial statements and budgeting process in the future. 816 Deloitte & Touche o , CORPORATION OF THE MUNICIPALITY OF CLARINGTON Management Comments December 31, 1998 Page 2 of 5 2. DEREGULATION IN THE UTILITIES INDUSTRY Observation: The Energy Competition Act, 1998, is currently reforming the electrical industry in Ontario from its previous integrated monopoly structure. Competition will be created in the generation and sale of electricity from November, 2000. Distribution of electricity will operate in a re-regulated monopoly environment. The recent legislative changes pose some major challenges and opportunities for local government councils, including the Municipality of Clarington, in monitoring the future business objectives of their newly amalgamated electric utility. Some of the key issues to be considered by the newly amalgamated hydro utility include: >- Determining an appropriate strategic direction; >- Business and asset valuation; >- Information technology systems; >- Mergers and acquisitions' >- Business planning and cash flow analysis; >- Recapitalization (refinancing) strategy; >- Strategic alliances and joint ventures; and >- Energy trading risk management. Recommendation: We recommend that Council take an active role in monitoring the activities of the newly amalgamated hydro utility under the new environment. Deloitte & Touche has significant experience in working with municipal councils and hydro commissions in this area and would be pleased to assist the Municipality. 817 Deloitte & Touche o CORPORATION OF THE MUNICIPALITY OF CLARINGTON Management Comments December 31, 1998 Page 3 of5 3. ACCESS TO COMPUTER ROOM Observation: During discussions with client personnel it was noted that access to the computer room is not restricted to computer personnel as their is a printer in the room that is used by various staff. This is a weakness in controls as the risk of unauthorized access to the computer equipment is high. Management has informed us that the printer was going to be moved into an empty office and that the code on the computer room door would be changed so that access would be restricted to systems personnel. Recommendation: We recommend that the printer be moved as soon as possible and that the access code changed to only allow systems personnel access to the computer room. 4. YEAR 2000 Observation: Although management has created a Year 2000 project team in response to previous year management comments, the Municipality has not developed a high level written plan which documents the Municipality's approach to the Year 2000 issue. Another concern is that the date for completion of the Municipality's Year 2000 activities may be as late as November 1999. Recommendation: Currently the Municipality has a Year 2000 initiative underway. A written high level plan and proper documentation of the Municipality's activities should be put into place. We suggest that Senior Management ensure that focus on Year 2000 efforts continue over the critical fall months. 818 Deloitle & bJche o . CORPORATION OF THE MUNICIPALITY OF CLARINGTON Management Comments December 31, 1998 Page 4 of 5 s. INTERNET USE Observation: Although the Municipality is in the process of implementing a firewall, the Municipality should ensure that the firewall is adequately configured to limit exposure. As well, the Municipality has not developed either E-mail or Internet Acceptable Use Policies to outline what the Internet services will be used for within the Municipality and the repercussions for misuse. Recommendation: As noted in the previous year management letter comments, the Municipality should properly test and validate the firewall and other security measures to be implemented as well as develop Acceptable Use Policies. 6. CAPITAL FUND ACCOUNTING PROCEDURES Observation: At the present time the Municipality accounts for capital expenditures through the Revenue Fund. A separate ledger to record the financing and expenditures for the capital projects would be more efficient. Recommendation: Due to the increasing number and complexity of capital projects undertaken by the Municipality, we suggest that the Municipality consider establishing a formal Capital Fund Ledger to further improve your financial information. Such a ledger would allow for easier monitoring of capital projects, eliminate the need to transfer unexpended capital financing to reserve/reserve funds at the end of each year, and provide, for more informative reporting of unencumbered reserves and reserve fund balances. 819 DeIoitIe & Touche o . . . CORPORATION OF THE MUNICIPALITY OF CLARINGTON Management Comments December 31, 1998 Page 5 of5 7. BACK-UP PROCEDURES Observation: The Municipality does not have a current Disaster Recovery Plan in place. We noted that although a daily full back-up and log is maintained, the tapes are retained on-site in a fire proof vault. Recommendation: To safeguard the Municipality's ability to recover from an unexpected disaster, we suggest the Municipality rotate back-up tapes to a secure off-site location (such as a bank safety deposit box), on a regular basis. 8. INFORMATION SYSTEMS (IS) STRATEGIC PLAN Observation: As in previous year management letter comments with respect to systems policies and procedures, the Municipality does not have an IS strategic plan in place. An Information Systems strategy is a valuable guide in planning for the acquisition and management of technology resources. Without such a plan, it is difficult for IS management to provide timely and cost effective support to users and to provide enabling technology that helps meet other business objectives. Recommendation: An information system strategy plan should be developed that links to the overall business objectives of the municipality. The plan should include consideration and evaluation of how to improve the current infrastructure to meet current and future needs. 820 Deloilte & _~.Ju:he o