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HomeMy WebLinkAboutFND-020-05 CJ~.n REPORT FINANCE DEPARTMENT Meeting: GENERAL PURPOSE AND ADMINISTRATION COMMITTEE Date: MONDAY, DECEMBER 5, 2005 Resolution #: f;(J/-J - Cj7~' C~ Report #: FND-020-05 File #: By-law #: Subject: 2004 AUDIT MANAGEMENT LETTER COMMENTS AND RECOMMENDATIONS Recommendations: It is respectfully recommended to Council the following: 1. THAT Report FND-020-05 be received for information; and 2. THAT the actions taken in the body of this report be endorsed. Reviewed (j. ~~'- Franklin Wu, Chief Administrative Officer. / Submitted by: NT/hjl REPORT NO.: FND-020-05 PAGE 2 BACKGROUND: 1.0 As part of the annual audit process, the Municipality's auditors, Deloitte and Touche, provide a management letter containing observations and recommendations noted during the course of the audit, if any. The management letter for the 2004 audit was received October 31,2005 and is attached. For ease of understanding, the letter should be read in conjunction with the related comments below. Management Letter Observations/Recommendations and Actions Taken: 2.0 Financial Statement Preparation/Audit Preparedness The auditors have commended municipal staff on our continued progress in streamlining the year-end reporting process and support continued efforts. The Municipality strives to continually improve and enhance in this area. 2.1 Computer System Conversion The auditors are reporting that appropriate controls were in place during the Municipality's conversion to the new financial software and no significant issues are noted. 2.2 Bank Reconciliation Procedures The auditors noted that there was no documentary evidence pertaining to the independent review of monthly bank reconciliations. It is the Municipality's practice for the reviewer to initial that the review has taken place. While all reviews took place as monthly adjustments arising out of the bank statements must be electronically authorized by the management staff, staff will ensure that the initials are placed on the working papers for the bank reconciliation. 2.3 Payroll It was noted in the management letter that in a limited instance, there was a delay in changing an employee's status from active to terminated. The comment pertains to the part time staff. It should be clearly emphasized that this category of employee is only paid from authorized time sheets so staff are of the opinion that the potential for erroneous payment is extremely slight. Also, there is a process in place where beginning and end dates are entered into the database and reports generated by payroll to follow up on with the appropriate department. As a result of this audit comment, departments have been requested to be increasingly diligent in notifying payroll promptly of status changes. 2.4 Encryption The auditors have recommended that encryption tools be used when sending tax billing files to the third party printer. This recommendation was put into place immediately. It is worth noting that the information is accessible to the public under the Municipal Act, 2001 for individual properties. REPORT NO.: FND-020-05 PAGE 3 2.5 Building Permit Revenue It was noted by the auditors that deposits for building permits were kept in an unlocked drawer for later transfer to finance for bank deposit. Building permit revenues are almost exclusively cheques, many of which are certified. As an interim measure, deposits are being turned over to the Finance department on a daily basis and are being maintained in a locked drawer during the course of the day. A drop safe will be installed in the building division as a longer term measure. CONCLUSION: 3.0 The auditors provide the management letter as a tool to improve processes within the municipality. No weaknesses or problems were identified that in any way impacted the results of the audit or the opinion expressed by the auditor on the municipality's financial statements. The municipality received a clear audit report for 2004 and was commended by the auditors for the municipality's efforts to improve the efficiency of the annual audit. Attachment "A" - Management letter from Deloitte & Touche LLP CORPORATION OF THE MUNICIPALITY OF CLARINGTON 40 TEMPERANCE STREET, BOWMANVILLE, ONTARIO L 1C 3A6 T (905)623-3379 F (905)623-4169 Attachment "A" Deloitte & Touche LLP 5140 Yonge Street Suite 1700 Toronto ON M2N 6L7 Canada f Deloitte Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca September 9,2005 Private and Confidential Mr. John Mutton Chief Executive Officer Corporation of the Municipality of Clarington Municipal Offices 40 Temperance Street Bowmanville ON 11 C 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, 2004. In addition to our audit report on the financial 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 opinion on the financial 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. Our comments and recommendations are set out in the attached report. We would be pleased to discuss our recommendations and provide any assistance you may wish in their implementation. We would also like to take this opportunity to thank your stafffor their excellent co-operation and assistance throughout the audit. Yours very truly, ~ 0/ /cucLt ul Chartered Accountants Enclosure Member of Deloitte Touche Tohmatsu CORPORATION OF THE MUNICIPALITY OF CLARINGTON Management Letter Year ended December 31,2004 Page 1 of2 1. Financial Statement Preparation/Audit Preparedness Observation: The financial statements for the Municipality and related audit working papers were again well prepared and substantially completed this year when we commenced the final audit. This continues to promote the efficiency of executing the related year-end audit. Recommendation: We commend you on your continued progress in streamlining the year-end reporting process and urge you to continue to do so in future years. 2. Computer System Conversion Observation: During the year, your finance department performed a successful installation of Great Plains accounting software. During our review ofthis conversion procedures, we found no significant issues and appropriate controls were in place surrounding the conversion process. 3. Bank Reconciliation Procedures Observation: During our examination of the cash recording and bank reconciliation process, we noted that while bank account reconciliations were prepared on a timely basis, there was no documentary evidence that they were being independently reviewed on a regular basis. A regular and thorough review of bank reconciliations is critical to helping ensure that the Municipality's cash is being safeguarded and recorded accurately. Recommendation: We recommend that all bank reconciliations be reviewed and approved by someone independent of the preparer, and that evidence of such review be indicated by the reviewer inserting their initials on the related reconciliations. We understand that the conversion to the new financial system software resulted in extra staff workload this year, which may have contributed to this situation. CORPORATION OF THE MUNICIPALITY OF CLARINGTON Management Letter Year ended December 31,2004 Page 2 of2 4. Payroll Observation: During our testing of the payroll cycle, we noted certain instances in which there was a delay in changing an employee's status from Active to Terminated once these employees left the employ of the Municipality. It should be noted that these employees were not paid during this lag period, but the potential exists for the payment of terminated employees in this situation. Recommendation: We recommend the status of employees be updated immediately after the employee's last day of work in order that the potential for any erroneous payments is minimized. 5. Encryption Observation: We noted that tax bills containing private information such as names, addresses, phone numbers and tax amounts are emailed to the third party printer without any encryption. There is a potential risk for information sent over the Internet to be intercepted and viewed using widely available software tools such as network sniffers. This jeopardizes the confidentiality of the information managed by the Municipality and could lead to unauthorized use of private information. The need to address information security has been heightened with the recent increase in the number of incidents of internet information theft. Recommendation: We recommend that encryption tools be used when sending data across the Internet. As a minimum, the ZIP file that contain the tax bills should be password protected during these transfers. 6. Buildin2 Permit Revenue Observation: During the course ofthe audit, it was noted that deposits for building permits were kept in an employee's unlocked drawer for later deposit into the bank. Recommendation: We recommended that all undeposited receipts be properly controlled in a locked receptacle while awaiting deposit, and only accessible to the related custodian of the funds.