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Home My WebLink AboutFND-003-04 .~ . CI![-!lJglOn REPORT FINANCE DEPARTMENT Meeting: GENERAL PURPOSE AND ADMINISTRATION COMMITTEE Date: MONDAY, FEBRUARY 23,2004 C\d Resolution #: C...PPr- O"IS-o{ Report #: FND-003-04 File #: By-law #: Subject: 2002 AUDIT MANAGEMENT RECOMMENDATION LETTER Recommendations: It is respectfully recommended that the General Purpose and Administration Committee recommend to Council the following: 1. THAT FND-003-04 be received; and 2, THAT the recommendations and actions identified in the body of this report be endorsed, Reviewed bYO~ t-sk Franklin Wu Chief Administrative Officer NMT/LB/hjl 1., . .i :-i.' )\J i " REPORT NO.: FND-003-04 PAGE 2 Background and Comment: At the October 20,2003 meeting, Council approved report FND-023-03 for the appointment of Auditors for the 2003 year-end audit and received a copy of the 2002 Audit Management Recommendation letter. The Management Recommendation letter was referred to Finance staff to review and report back to Council. A copy of the 2002 Management Letter is attached marked Attachment "A". 1,0 Financial Statement Preparation/Audit Preparedness - The auditors commented on the improvement in efficiency of executing the year-end audit due to the efforts of the Municipality's staff, The auditors urge staff to continue to streamline the year-end reporting process in future years. The Accounting staff members take this responsibility seriously and will continue to look for ways to enhance the year-end procedures. 2.0 Internal Audit Function-Risk Management - The auditors recommended the Municipality consider the cost\benefit relationship of establishing an Internal Audit department that can perform regular tests on internal controls and other "business risk" areas and highlight areas where improvements can be made to various aspects of the Municipality's operations. A well-positioned Internal Audit department can support the municipality in its efforts to optimize risk management. The addition of an Internal Audit position is a long-term goal the Finance Department would like to pursue in future budget years. To help address the issue currently, the Finance Department currently utilizes its existing staff to perform tests of internal controls and suggest improvements where required and as time allows. 3,0 New Financial Accounting Software - The auditors commented that the Municipality's 2003 audit will include a data conversion assurance review to assess the completeness and accuracy of the data conversion to the new system. Our implementation team has duly noted the auditor's comments and will work in co-operation with the auditors to meet the audit requirements. Conclusion and Recommendations: In summary, the audit recommendations made in the 2002 Management Recommendation 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. Attachment "A" - 2002 Management Recommendation letter CORPORATION OF THE MUNICIPALITY OF CLARINGTON 40 TEMPERANCE STREET, BOW MANVILLE, ONTARIO L 1 C 3A6 T (905)623-3379 F (905)623-4169 1 JU, Deloitte & Touche LLP 5140 Yonge Street. $uile1700 Toronto, ON M2N 6L7 Canada Attachment "A" Tel: (416) 6016150 Fax: (416) 229 2524 www.deloitte.ca Oeloitte & Touche August 28. 2003 Mr. John Mutton Chief Executive Officer Corporation of the Mtmicipality of Clarington Mtmicipal Offices 40 Temperance Street Bowmanville ON LlC 3A6 Dear Mr. Mutton: We have completed our examination of the consolidated financial statements of the Corporation of the Municipality of Clarington for the year ended December 31, 2002. In addition to our audit report on the fmancial statements, we would like to provide the attached management comments for your consideration. These comments were reviewed with management. As part of our examination, we reviewed the Municipality's systems and internal accounting controls to the extent we considered necessary to make an evaluation of such systems and procedures in accordance with Canadian generally accepted auditing standards. Under these standards. the fundamental purpose of the evaluation is to establish a basis for reliance on the internal accounting controls in determining the nature, extent, and timing of other auditing procedures which are necessary for the expression of an opm/on on the [mancial statements; it is not to determine whether internal controls are adequate for management's purposes. While the audit did not include an in-depth evaluation of all systems or all aspects of any individual system. we undertake to report any internal control matters which come to our attention during the audit. OUf corrunents and recommendations are set Out in the attached report. \\ie would be pleased to discuss our recommendations and proVide any assistance you may' \vish in their implementation. We would also like to take this opportumty to thank your staff for theIr excellent c~operalion and assistance throughout the audit. Yours very truly, ~ tlltwdL LLI Chartered Accountants Enclosure Deloitte Touche Tohmatsu 1.. . : ) U ! CORPORATION OF THE MUNICIPALITY OF CLARINGTON Management Letter For the year ended December 31, 2002 Page 1 of 2 1. Financial Statement Preparation/Audit Preparedness Observation: The fmancial statements for the Municipality and related audit working papers were well prepared and substantially completed this year when we cornmenced the final audit. Although a few late changes were required to be made to enhance financial statement disclosure, we noted a significant improvement in the efficiency of executing the related year-end audit. We commend you on your progress and urge you to continue to streamline the year-end teporting process in future years. 2. Internal Audit Function-Risk Manal!ement Observation: These are challenging times for local governments. The Municipality is required to operate in an environment of constant change. In addition to the ongoing challenges provided by the devolution of services by the Province of Ontario. the Municipality fmds itself faced with challenges related to: need for urban and development planning, need for a1temative service delivery mechanisms, changing demographics. a growing popula lion. small non-residential tax base, and the attraction and retention of talented staff. There is a need to deliver the service and programs demanded by residents, while demonstrating efficient, effective and accountable government. In this environment, there is a requirement to take a more proactive approach to the management of risk, ensuring that an appropriate control environment is maintained and that key business risks are identified and addressed as changes in the internal and externai environment occur. An internal audit function is one response to the requirement to become more proactive in risk management activities. especially during periods of rapid change such as the Municipality is experiencing. There is value in having a strong risk management focus that is enabled through an internal audit ftmction -- a ftmction that understands the various stakeholders and their differing needs - a ftmction, which recognizes the necessary balance between creating stakeholder value and protecting stakeholder value. Internal audit needs to parmer with management in proactively managing key business risks and providing high-quality service in a cost-effective. non-intrusive manner. Moreover, during our audit of the Municipality, we review and test the financial systems and related controls. However, our examination is perfonned on a test basis. and would not necessarily bring to light all weaknesses in internal control and management infonnation which would be detected if an [Ptemal Audit department is in operation. 1 )( I. CORPORATION OF THE MUNICIPALITY OF CLARlNGTON Management Letter For the year ended December 31,2002 Page 2 of 2 2. Internal Audit Function-Risk Management (continued) Recommendation: We recommend that the Municipality consider the costlbenetit relationsl1jp of establishing an Intemal Audit department that can perform regular tests on internal controls and other "business risk" areas and highlight areas where improvements can be made to various aspects of the Municipality's operations. A well-positioned Internal Audit deparonent can support the Municipality in its efforts to optimize risk management. New Financial Accounting Software 3. General Comment We understand during the 2003 fiscal year, the Municipality will be commencing a financial systems implementation project. As part of this project we encourage the Municipality's management team to ensure that focused consideration is given to leveraging the new system in the design and implementation of appropriate internal controls. Although there is no impact to the 2003 fiscal year end audit, we will include in our scope for the 2004 fiscal year end audit an assessment of all changes to the overall internal control environment and perform appropriate testing of application level security and controls. business process controls. general computer controls impacted by the implementation. Also in 2003, we will be required to perform a data conversion assurance review to assess the completeness and accuracy of the data conversion to the new system as part of our audit scope. We would be please to provide your implementation team with a listing of our audit requirements around the new system to help ensure that they are cons:deted during the implementation process. J l..,:.)