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HomeMy WebLinkAboutTR-81-96 THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON REPORT Meeting: GENERAL PURPOSE AND ADMINISTRATION COMMITTEE File# - Date: October 21, 1996 Res. # By-Law# Report#: File#: Subject: 1995 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-81-96 be received; and 2. THAT the recommendations and actions identified in the body of Report TR-81-96 be endorsed. BACKGROUND AND COMMENT: The 1995 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 noticed continuing improvement in the records and accounts of the Municipality and are pleased to see that 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." The Treasury staff has forwarded the applicable comments to the Library Board and Recreation Boards for their action and attention. i i av E �ElV °AP U t3 Pe°rovciE � Di BPWMEDC PEGVCEDPAPEA TR-81-96 Page 2 INFORMATION SERVICES DEPARTMENT Stand Alone Payroll Computer "As the payroll system is critical to the operation of the Municipality we recommend the Municipality purchase a small UPS to protect against this potential risk." Currently, the payroll department does a back-up copy of all payroll information both nightly and before each transmission to the bank's automated payroll service. As a result, it is not considered necessary to install an uninterrupted power supply device. This will be considered in future budget preparations based on priority. Physical Security "We suggest the Municipality implement a fire protection system (ie. dry pipe sprinkler system) including at a minimum a CO2 fire extinguisher." The auditors have recommended an alternate fire extinguishing system in the computer room. This has been discussed with the Property Manager due to recent environmental issues relating to fire extinguishing materials. As a result, the matter has been referred to the Municipality's insurance company for their recommendations. Their recommendations have not yet been received. Any cost implications will be dealt with through the Municipal budget process. Security Policy System Policies and Procedures "We suggest one member of the information systems team be assigned the responsibility of reviewing, updating and monitoring compliance with current documented policies and procedures." Information System Strategic Plan The above three (3) items will be referred to the new Systems Manager once the position has been filled. Currently the computer division staff are operating at capacity in dealing with ongoing maintenance and programming issues. 809 TR-81-96 Pao 3 Lan Passwords "We suggest all users, including members of the Information Systems team, be required to change their LAN password on a regular basis." All users are required to have unique passwords and the system forces the users to change their passwords every six months with the exception.of the computer division staff. In discussions with the MIS staff, this suggestion would severely inhibit work processes in that they may be "logged on" to several different systems at once and therefore individually use a common password. They have a procedure in place whereby they change their passwords on a periodic basis rather than on a system generated basis. CASH MANAGEMENT "We commend you on your efforts in this area and encourage continued emphasis on cash management in the future." This area will continue to be a focus in the future due to severely declining interest rates and reductions in grants. INTERNAL CONTROLS IN A CHANGING ENVIRONMENT "We recommend that as changes are implemented, controls be reviewed to ensure that appropriate segregation of duties, approvals and other monitoring checks and balances are maintained. Management has indicated that they stress the maintenance of strong internal controls in conjunction with all changes instituted." Internal controls continue to be maintained and reviewed in conjunction with all proposed changes to systems or work processes. TAX ASSESSMENT ROLL "Given that the Municipality derives the majority of its revenues from taxation, we recommend that review procedures be implemented to help ensure all available tax revenue is realized by the Municipality. One type of procedure would be to trace a selection of supplementary taxes from the prior year to the current year-end to determine if they were correctly carried forward. Another suggestion would be to review building permits issued on a test basis to determine if new structures andlor significant improvements have been assessed." It is a provincial responsibility to ensure the accuracy of the assessment roll. Staff perform random test checks to verify assessed values. Future implementation of a Geographic Information System would provide an automated link between building permit activity and assessed values. Council authorized Phase 1 of an implementation study on GIS in 1995. A report will be forthcoming to Council on the results of the study. -810 TR-81-96 Page 4 PUBLIC LIBRARY BOARD "We recommend in the future allplanned acquisitions of capital equipment be submitted in the Library Board Budget as capital budget items for approval by the Municipality. We understand that this situation has been recently discussed with library management." As the comment indicates, this issue has been discussed with the library management staff. MUNICIPAL RECREATION BOARDS "We recommend that the respective Board Treasurers estimate cashflow requirements and all excess funds be placed in short-term investments which earn interest while allowing the funds to be accessed on a periodic basis as required." This comment will be communicated with the recreation affiliate boards as part of the 1996 year end transactions. PRIOR YEAR'S COMMENTS STILL APPLICABLE Capital Fund Accounting Procedures "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 system. Such a ledger would allow for easier monitoring of capital projects, eliminate the need to transfer unexpended capital financing to reserveslreserve funds at the end of each year, and provide for more information reporting of unencumbered reserves and reserve fund balances." The establishment of a capital fund accounting system is under review in order to determine the most efficient method within our current financial system environment. Development Charges/Lot Levies Accounts Receivable Syste "We commend you on the progress made to date on the preliminary development of the new development chargesllot levies receivable system and encourage you to complete this project as soon as possible." The Municipality is currently developing an organization-wide computerized accounts receivable system. This is currently of a greater priority. Subsequent to the development of this system, the development charges system could be added as an additional module. The development of a Geographic Information System on a corporate basis would also aid in a receivable system by providing a link of information between development approvals and cash flow of development charge levies. 811 TR-81-96 Pam CONCLUSION In summary, the audit recommendations made in the 1995 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. Respectful ubmitted, Reviewed by, Man`e� A. Marano, H.BSc., A.M.C.T., W.H. Stockwell, Treasurer. Chief Administrative Officer. MM/NT/hjl Attachments 812 SCHEDULE "A" Deloifte Touche Deloitte&Touche Chartered Accountants Bank of Commerce Building Telephone: (905) 579-8202 2 Simcoe Street South Toronto Area: (905)686-8249 P.O. Box 800 Facsimile: (905) 579-3388 Oshawa, Ontario L1 H 7N1 June 14, 1996 Ms. Mary Novak Chair - Finance Committee Corporation of the Municipality of Clarington Municipal Offices 40 Temperance Street Bowmanville, ON L 1 C 3A6 Dear Ms. Novak: We have completed our examination of the consolidated financial statements of the Corporation of the Municipality of Clarington for the year ended December 31, 1995. 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 result of a detailed systems 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 that 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, 4A _ zj'.1 cc: Mayor Diane Hamre and Members of Council Mr. W. Stockwell, Chief Administrative Officer Mrs. M. Marano, Treasurer Ministry of Municipal Affairs and Housing Deloittebuche Tohmatsu International 813 THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON COMMENTS ON INTERNAL CONTROLS, ACCOUNTING PROCEDURES AND OTHER MATTERS FOR THE YEAR ENDED DECEMBER 31, 1995 INFORMATION SERVICES DEPARTMENT In connection with the audit for the year ended December 31, 1995 Deloitte&Touche has updated its review of the general computer controls and environment for the Municipality of Clarington. Stand Alone Payroll Computer During our review of the management information systems we noted there was no uninterrupted power supply device (UPS) on the stand alone Payroll computer. In the event of a power spike or failure during the transmittal or input of data there is the possibility of the loss or corruption of data. As the payroll system is critical to the operation of the Municipality we recommend the Municipality purchase a small UPS to protect against this potential risk. Physical Security As part of our year-end review we toured the computing facility within the Municipality. During our tour we noted there is not a sprinkler or alternate method of fire protection within the computer room. We suggest the Municipality implement a fire protection system (i.e. dry pipe sprinkler system) including at a minimum a CO2 fire extinguisher. Security Policy The Municipality currently has individual policies in effect to provide for the security of the Local Area Network (LAN). However, due to the increasing dependence users are placing on the LAN's for their day to day work we suggest the Municipality take this opportunity to develop a formal comprehensive security policy. Contents of the policy should consider but are not limited to: • Defining the objective and scope of a security policy; • Include user rules regarding unlicensed software and virus checking of disks which have come from an outside source or have been taken home and brought back; • Assigning ownership and responsibility to a department(s)for the physical protection of computing assets including maintaining an up to date inventory listing and sufficient insurance coverage; • Current fire protection in the main computer room; • Assigning ownership and responsibility to a department(s) for the protection of data; • Classification of the various Municipal data (i.e. sensitive information vs. public information); • Procedures and details regarding adding new users or removing current users on all systems; • Description of any legal regulatory requirements for information protection and disposal; • A framework for incident reports and their implications (i.e. breach of security or loss of an asset); • Method for compliance reviews and day to day monitoring of security; • Details regarding employee awareness and education of security measures; and • Both current and future system architecture including security around remote access to the systems. JUNE 14, 1996 PAGE 1 OF 6 814 THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON COMMENTS ON INTERNAL CONTROLS, ACCOUNTING PROCEDURES AND OTHER MATTERS FOR THE YEAR ENDED DECEMBER 31, 1995 Security Policy (continued) Such a guideline will provide for the protection of the Municipality's computing assets and sensitive data. The policy will also serve as a guideline for staff to follow in the event of turnover resulting in consistency of application across all departments. SYSTEM POLICIES AND PROCEDURES During our review of the current information system we noted certain documented policies and procedures are out of date and in places refer to software no longer in use. As remote sites continue to be introduced on the LAN, control over computer operations become increasingly difficult. Strong system policies and procedures with regards to system operations, security and maintenance will contribute to the consistency and reliability of the information produced by the systems. We suggest one member of the information systems team be assigned the responsibility of reviewing, updating and monitoring compliance with current documented policies and procedures. LAN PASSWORDS During our review of user profiles within the Novell network we noted certain individual's password defaults do not: • force the users to change their passwords on a regular basis • require unique passwords. We suggest all users, including members of the Information Systems team, be required to change their LAN password on a regular basis. INFORMATION SYSTEM STRATEGIC PLAN It is our understanding the Municipality of Clarington currently has no management information system strategic plan in place. As the Municipality continues to invest heavily in technology (i.e. LANs) we recommend such a strategy. Such a plan could be used to benchmark how the information services area is performing relative to the technology and information needs of the various departments within the Municipality. Such a plan will also allow for continuity of vision and plans in the case of key employee turnover as was experienced in early 1996. We would be pleased to aid the Municipality in the development of such a document. We note that the Municipality is currently in the process of developing such a plan relative to the implementation of the G.I.S. system. JUNE 14, 1996 PAGE 2 OF 6 815 THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON COMMENTS ON INTERNAL CONTROLS, ACCOUNTING PROCEDURES AND OTHER MATTERS FOR THE YEAR ENDED DECEMBER 31, 1995 CASH MANAGEMENT Interest earned on investments increased significantly over the prior year, due mainly to improved cashflow management and a change in the investment policy relative to the use of longer term investments. We commend you on your efforts in this area and encourage continued emphasis on cash management in the future. INTERNAL CONTROLS IN A CHANGING ENVIRONMENT We recognize that management and staff are working diligently to deal with the restructuring of certain municipal departments. In addition, the Municipality has plans to review a number of significant financial application systems in 1996. It is our experience that in a time of significant change, which includes changes in the reporting structure, a reassignment of duties and new application systems, the risk of weakening existing internal controls increases. We recommend that as changes are implemented, controls be reviewed to ensure that appropriate segregation of duties, approvals and other monitoring checks and balances are maintained. Management has indicated that they stress the maintenance of strong internal controls in conjunction with all changes instituted. TAX ASSESSMENT ROLL In our audit of tax revenues, it was noted that the Municipality relies heavily upon the Ministry of Revenue to accurately maintain the annual assessment rolls. Even though the responsibility for accuracy is the Ministry's, the risk of an error still exists. Given that the Municipality derives the majority of its revenues from taxation, we recommend that review procedures be implemented to help ensure all available tax revenue is realized by the Municipality. One type of procedure would be to trace a selection of supplementary taxes from the prior year to the current year-end to determine if they were correctly carried forward. Another suggestion would be to review building permits issued on a test basis to determine if new structures and/or signifr.cant improvements have been assessed. We are aware that staff currently review and analyze the tax assessment roll and perform some of the procedures suggested above. JUNE 14, 1996 PAGE 3 of 6 816 THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON COMMENTS ON INTERNAL CONTROLS, ACCOUNTING PROCEDURES AND OTHER MATTERS FOR THE YEAR ENDED DECEMBER 31, 1995 PUBLIC LIBRARY BOARD - Capital Expenditure Budget During our examination of the capital expenditures of the Public Library Board we noted that several expenditures had been financed by general operating funds and that these items had not been submitted to council as capital expenditures in the process of approval of the Library's 1995 budget. We recommend in the future all planned acquisitions of capital equipment be submitted in the Library Board Budget as capital budget items for approval by the Municipality. We understand that this situation has been recently discussed with library management. JUNE 14, 1996 1 PAGE 4 OF 6 THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON COMMENTS ON INTERNAL CONTROLS, ACCOUNTING PROCEDURES AND OTHER MATTERS FOR THE YEAR ENDED DECEMBER 31, 1995 MUNICIPAL RECREATION BOARDS - Cashflow Management We noted that in certain instances relatively large sums of cash are being held by some recreation boards in low-interest savings accounts. We recommend that the respective Board Treasurers estimate cashflow requirements and all excess funds be placed in short-term investments which earn interest while allowing the funds to be accessed on a periodic basis as required. JUNE 14, 1996 PAGE 5 OF 6 THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON COMMENTS ON INTERNAL CONTROLS, ACCOUNTING PROCEDURES AND OTHER MATTERS FOR THE YEAR ENDED DECEMBER 31, 1995 PRIOR YEAR'S COMMENTS STILL APPLICABLE CAPITAL FUND ACCOUNTING PROCEDURES 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. 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 system. Such a ledger would allow for easier monitoring of capital projects, eliminate the need to transfer unexpended capital financing to reserves/reservefunds at the end of each year, and provide for more informative reporting of unencumbered reserves and reserve fund balances. DEVELOPMENT CHARGES/LOT LEVIES ACCOUNTS RECEIVABLE SYSTEM The Municipality has recently started the process of developing a formal accounts receivable system to better monitor and control the collection of development charges/lot levies. We understand the development of this accounting system has been delayed in order to incorporate a wider range of departments and other sources of revenue. We commend you on the progress made to date on the preliminary development of the new development charges/lot levies receivable system and encourage you to complete this project as soon as possible. JUNE 14, 1996 PAGE 6 OF 6 X19