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HomeMy WebLinkAboutTR-92-93 THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON REPORT Meeting: GENERAL PURPOSE & ADMINISTRATION COMMITTEE File# Date: October 18, 1993 Res. # By-Law# Report#: File#: Subject: 1992 AUDIT REPORT & MANAGEMENT LETTER Recommendations: It is respectfully recommended that the General Purpose and Administration Committee recommend to Council the following: 1. That report TR-92-93 be received for information, and 2 . That the recommendations and actions identified in the body of report TR-92-93 be endorsed. Background and Comments The 1992 Audit Report and Management letter, received from Deloitte and Touche, contains some recommendations to fine-tune certain internal control areas within the Municipality. A copy of the Audit 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 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 and internal controls 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 have contacted each Department involved to inquire which steps are being taken to implement these recommendations . 2 -7 0" 8 11 41 RLcycL1 TR-92-93 Page 2 COMMUNITY SERVICES 1. In the review of cash receipts procedures of the Community Services Department, it was recommended by the auditors that senior Community Services staff should prepare "gross profit" analyses for each canteen location on a semi-annual basis. In order to do this, a physical inventory count would have to be taken at the end of each six-month period. The Facilities Supervisor does a gross profit analysis on large selling items, particularly those prone to theft. During the 1991- 1992 canteen year, a gross profit analysis was done on canned pop. The Facilities Supervisor does not feel that a full gross profit analysis for all items would be cost effective due to lack of time and staff. The Facilities Supervisor oversees a physical inventory twice during the canteen season of September to April, once in January for year end financial statement purposes, and again in April. A four year comparison of weekly sales is maintained by the Facilities Supervisor to monitor the reasonableness of current receipts . Any significant differences in this comparison of current to prior receipts is investigated. 2 . The auditors recommend that the Municipality should re- institute a previous policy of requiring night deposits in all situations where there is cash on hand at the end of the day's operation. i In consulting with Community Services staff, the present procedure is to deposit cash in safes, which are located at each facility. The Facilities Manager brings the money from the safes located at Bowmanville Recreation Complex and the Darlington Sports Centre. The Recreation Co-ordinator brings the money from the safe at the Newcastle Fitness Centre. Both staff members bring the cash to the Treasury department on Monday, Wednesday and Friday of each week. The Facilities Superintendent and the Recreation Superintendent both feel that a policy of night deposits would be ideal but facilities outside of Bowmanville do not have ready access to a branch of the Municipality's bank. Also, staffing in the evening at the various facilities is usually done by students, many of whom do not have transportation necessary to make the deposits at the bank. SMALL BOARDS 3 . The auditors recommend that Treasury staff review the GST accounting procedures of the various small recreation affiliate boards and provide them with the required technical assistance. . . . 3 0.9 it TR-92-93 Page 3 Treasury staff will notify all recreation affiliate boards and meet with any interested members to review their GST procedures with them for the 1993 year end audit. LOT LEVIES/DEVELOPMENT CHARGES/MISC. FEES 4 . A recommendation was made by the auditors that a new form be created, to be used by the Planning and Treasury Departments in determining how much in lot levies is owing for any one development at a specific date. This form has been created and is in use by the Planning Department. (See Schedule B) 5. The auditors also recommend that all lot levies, development charges and miscellaneous fees be collected directly by the Treasury department, with the payer presenting the "paid" treasury receipt form to the Planning Department to obtain the related building or other permits . Under the present system, these fees are collected by the Planning department. A further recommendation is that a formal subdivision levies receivable ledger be established by the Treasury Department. The Manager of the Development Review Branch and the Chief Building Official believe that these recommendations have merit and have agreed to meet with the Treasurer to discuss the matter further. Full implementation would require a shared information source with a commitment of human resources to ensure program development and also continual updating of data. The restrictions associated with the Social Contract, and the absence of the Chief Administrative Officer combined with the Official Plan pressures may delay the implementation of this process into 1994 . ACCOUNTS PAYABLE 6 . A recommendation is made to strengthen internal control in this area. Currently, the accounts payable clerk creates new vendor files, inputs payable invoice amounts into the computer, prepares the cheque runs, assists in operating the cheque signing machine and subsequently mails the signed cheques . An individual, normally the Deputy Treasurer, witnesses the cheque signing and reviews each cheque with the applicable supporting documentation before it is released. The recommendation made is that staff members independent of the accounts payable function operate the cheque signing machine and mail the signed cheques after review by the Treasurer. The auditors have indicated that they are aware that this would be an ideal situation and that the limited staff resources available currently, do not permit complete segregation of duties . This suggestion as the auditors are aware will not realistically be implementable until such time as the Treasury Staff complement grows to a significantly larger number. . . .4 NO TR-92-93 Page 4 COMPUTER CONTROLS 7 . The auditors recommend a formal computer disaster recovery plan be developed and documented for immediate implementation, should a computer disaster occur (i.e. as the result of a fire, etc. ) . Such a plan would provide for the contracting of hardware to be available at a separate location for use in the event of a disaster. A procedure manual would also need to be developed which would describe step-by-step procedures to be taken to get the computer system operational. The current recovery period for a complete loss of hardware/software would be approximately 3-5 working days. As part of the Information Systems strategy, all equipment is microcomputer based; a technology that is readily available from any hardware vendor. In addition, the municipality has two remote fileservers, at Hampton Works . Yard and the Fire Department utilizing the same technology that exists at the Corporate Office. All Operating systems, programs and data are kept offsite and could be restored to either of these locations if necessary to process critical information. The same procedure would be in affect if a disaster was to occur at the was to occur at the remote locations . It is estimated that the recommended contract backup of hardware facilities would be of a substantial cost to the taxpayer. During these times of economic restraint, this minimal exposure to risk does not warrant the expense of such a contract when replacement cost/time is minimal. Sufficient insurance coverage for equipment replacement is reviewed annually. 8 . The auditors have recommended that the individual computer passwords be changed every six months to promote confidentiality. Presently individual computer passwords are changed annually and I this can be readily changed to every six months . Procedures for individual users to change passwords at regular intervals has been in place with the upgrade of equipment in December 1992 . When there is a need to change passwords between the present regular intervals, passwords are manually expired by authorized computer staff and users have the ability to key in new passwords . j 9 . Presently, the Municipality's computer printers are located in the same room as the computer hardware. The auditors recommend that the computer printers be moved to a new location and the computer room be locked at all times to increase security. As an alternative, they recommended a partition wall be installed within the present computer room between the computer hardware and the computer printers . . . .5 711 TR-92-93 Page 5 At this time Computer staff are investigating security for the computer area (i.e. access to the computer room via a key pad combination lock, key lock or similar) . Funds were provided in the 1990 capital budget in the amount of $2,000 from the Working Funds reserve and $500 from the Community Services lot levy to total $2,500 . These funds were not expended because the entire building security system was being reviewed. It is recommended that the computer room proceed as a separate installation in order to satisfy this more immediate concern. It is anticipated that any Community Services Department recommendations with regard to the building would not alter the computer room security requirements . With this security in place, the computer room will be locked at all times and access to the computer equipment will be restricted to authorized personnel only. In summary, staff has analyzed all the audit recommendations made in the 1992 Audit Report and Management letter on the basis of cost/benefit analysis . An effort has been made to implement all recommendations that are feasible at this time. Respe tfully Submitted, Marie A. Marano, H.BSc . , AMCT Treasurer JC/MAM/pp Attach: 112 SCHEDULE A JUL I�. "'93 Deloifte & Touche OF NE�vCASW /\ Deloitte&Touche VANPK Chartered Accountants Bank of Commerce Building Telephone: (416) 579-8202 2 Simcoe Street South Toronto area: (416)686-8249 P.O. Box 800 Telecopier: (416) 579-3388 Oshawa, Ontario L1H 7N1 Mr. J. O'Toole June 16, 1993 Chairman - Finance Committee Corporation of the Town of Newcastle Municipal Offices 40 Temperance Street Bowmanville, Ontario L1C 3A6 Dear Mr. O'Toole: We have completed our examination of the consolidated financial statements of the Corporation of the Town of Newcastle for the year ended December 31, 1992. Our examination included a review of the system of internal controls and accounting procedures. The attached comments, which we present as a result of our review, 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 and internal controls 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 like to take this opportunity to thank the staff of the Town of Newcastle for their excellent assistance and co-operation during our audit. 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. Yours very truly, (signed) DELOITTE & TOUCHE cc: Mr. L. Kotseff, M.C.I.P. , Chief Administrative Officer Mrs . M. Marano, Treasurer/ Ministry of Municipal Affairs Deloittebuche Tohmatsu 3 International THE CORPORATION OF THE TOWN OF NEWCASTLE Page 1 of 5 COMMENTS ON INTERNAL CONTROL AND ACCOUNTING PROCEDURES FOR THE YEAR ENDED DECEMBER 31 1992 Community Services - Cash Receipts Procedures The Town operates several arenas and sports facilities where cash is collected from the public. In addition, the Community Services Department collects payments on accounts receivable for ice rentals, hall rentals, etc. As a result, cash collection in this department is decentralized. In order to strengthen internal controls in this area, and help ensure that all cash collected is ultimately properly deposited and recorded, we suggest the following internal control procedures be implemented where applicable: (i) Monitoring of Canteen Sales: In order to monitor the reasonableness of receipts recorded for all canteen sales, senior Community Services Department staff (independent of the cash receipts function) should prepare "gross profit" analyses for each location on a semi-annual basis. Any unusual trends noted should be investigated on a timely basis. In order to perform these "gross profit" analyses, a physical inventory count would have to be taken at the end of each six-month period. This suggestion should be implemented only if management feels the potential benefits are cost effective. (ii) Custody of Cash: The Town currently has a system in place to provide for night deposits, however, the system needs further refinement and, therefore, is not currently in use. Cash held over night at the various facilities is potentially subject to theft or other misappropriation prior to being deposited in the Town's bank account. In order to minimize the possibility of the above-noted potential cash loss occurring, the Town should re-institute the policy of requiring night deposits in all situations where there is cash on hand at the end of the day's operations over a predetermined minimum amount. ` 114 THE CORPORATION OF THE TOWN OF NEWCASTLE Page 2 of 5 COMMENTS ON INTERNAL CONTROL AND ACCOUNTING PROCEDURES FOR THE YEAR ENDED DECEMBER 31 1992 Computer Controls Disaster Recovery Plan: The Town currently stores all computer software and related transaction data at an off-site location. However, at the present time the Town does not have a comprehensive computer system disaster recovery plan to follow in the event of a major computer failure. We recommend a formal computer disaster recovery plan be developed and documented for immediate implementation, should such a computer disaster occur (i.e. as the result of a fire, etc. ) . Such a plan would provide for the availability of contracted back-up hardware facilities at a separate location (i.e. manufacturer or other installation) and describe step-by-step procedures to be taken to get the computer system operational with a minimum of delay and cost to the Town. Computer Passwords: The use of individual computer access passwords is a key computer control. It helps ensure that only authorized individuals have access to designated records and application systems. These passwords should be changed on a regular basis in order to promote confidentiality. We noted some instances where passwords had not been changed in over a year. We suggest the passwords be changed every six months. The Town should consider implementing a software program that requires all users to change their passwords at the required interval. Goods and Services Tax - Small Boards During our review of the small recreation Boards, we noted one Board was not calculating and recording the Goods and Services Tax (GST) correctly. As a result, the CST remittance forms were being filled out incorrectly and, therefore, incorrect CST amounts were being remitted. We recommend Town staff review the CST accounting procedures for all the small recreation Boards and provide them with the required technical assistance. THE CORPORATION OF THE TOWN OF NEWCASTLE Page 3 of 5 COMMENTS ON INTERNAL CONTROL AND ACCOUNTING PROCEDURES FOR THE YEAR ENDED DECEMBER 31 1992 Subdivider Lot Levies/Development Charges/Miscellaneous Fees A. Accounts Receivable Records: The current lot levies collection system is adequate, but internal controls over these collections should be strengthened. Under the current system, it is difficult to determine how much in lot levies is still owing for any one development (or in total for the municipality) at a specific date. i We recommend the Planning and Treasury departments work together to develop and implement a system to better monitor these fees. In order to improve the documentation of expected revenues from subdivider agreements, we recommend the creation of a new form. This form should be completed by the Planning department when each new subdivider agreement plan number is approved and would include the following information: Plan number; Owner; Registration date; Property description; Lot levies/development charges required - method and timing of payment; Cash-in-lieu of land; Performance guarantee; Occupancy deposit; Engineering and inspection fees; and Other. A copy of this form should be forwarded to the Treasury department in order to facilitate monitoring collections of amounts due under these agreements on a timely basis. In addition, a formal subdivision levies receivable ledger should be established by the Treasury department to control and promote the timely collection of these monies. We understand that preliminary steps have recently been taken to improve internal controls in this area. I I / 16 THE CORPORATION OF THE TOWN OF NEWCASTLE Page 4 of 5 COMMENTS ON INTERNAL CONTROL AND ACCOUNTING PROCEDURES FOR THE YEAR ENDED DECEMBER 31 1992 Subdivider Lot Levies/Development Charges/Miscellaneous Fees (continued) B. Collection of Lot Levies/Development Charges/ Miscellaneous Fees: Collection of cash for lot levies, development charges and miscellaneous fees, as well as the issuance of the related building permits, are handled by the Planning department. In order to improve internal controls in this area we recommend that all such monies be collected directly by the Treasury department, with the payer presenting the "paid" treasury receipt form to the Planning department to obtain the related building or other permits. Prior Year's Comments Still Applicable Accounts Payable - Sezre¢ation of Duties Under the current assignment of duties, the account payable clerk performs certain incompatible functions, as follows: • creates new vendor files; • inputs payable invoice amounts into the computer system; • prepares cheque runs and assists in operating the cheque signing machine; and • mails signed cheques. In order to strengthen internal control in this area, we suggest that staff members independent of the accounts payable function operate the cheque signing machine and subsequently mail the signed cheques after review by the Treasurer. Under this procedure the accounts payable clerk would not be handling signed cheques as well as all related supporting documentation. We are aware that this situation occurs due to other duties taking priority in this area. -117 THE CORPORATION OF THE TOWN OF NEWCASTLE Page 5 of 5 COMMENTS ON INTERNAL CONTROL AND ACCOUNTING PROCEDURES FOR THE YEAR ENDED DECEMBER 31, 1992 Prior Year's Comments Still Applicable (continued) Physical Access to Computer Equipment During our review of the Computer department we noted: • the door to the computer room is not locked between the hours of 8:00 a.m. and 4:30 p.m. ; and • the printer used to generate user reports is located in the same room as the computer hardware. We recommend consideration be given to moving the above-noted computer printer to a new location and keeping the computer room locked at all times. However, as an alternative, Council may want to consider the installation of a partition wall within the computer room to achieve this security feature. This would help limit unauthorized physical access to the computer equipment. I SCHEDULE B PLAN # 40M- OWNER: PROPERTY LOCATION:, LOT LEVIES REQUIRED AND METHOD OF PAYMENT: 1st Installment: Date Received: 2nd Installment: Date Received: 3rd Installment: Date Recieved: 4th Installment: Date Received: CASH-IN-LIEU PAYMENT: DATE RECEIVED: AMOUNT: $ PERFORMANCE GUARANTEES: OCCUPANCY DEPOSIT: ENGINEERING INSPECTION FEES: DATE RECEIVED: DATE RECEIVED: AMOUNT: $ AMOUNT: $ OTHER II t 9'