Attachment 1
Office of the City Auditor Quarterly Report — June 2001
Quarterly Report — June 2001
Office of the City Auditor
June 25, 2001
Introduction
This report presents a summary of the activities of the Office of the City Auditor (OCA)
during the months of April through early June 2001.
Issues and Observations
Service Level Agreements
The concept of Shared Services was introduced for Finance, Information Technology,
Human Resources, Law and Corporate Communication during the City ’97 project.
Shared Services operations are characterized by establishment of central providers of
common services throughout a corporation. One of the basic tools of an effective
Shared Services operation is the establishment of Service Level Agreements (SLA).
These agreements serve as contracts between the service provider and the users of
those services. They also serve as a tool for outlining performance criteria, monitoring
service delivery, and comparison with best practices.
In a current review, the OCA determined that SLAs were established for the City in 1998
as part of a corporate initiative. They did not include Boards and Authorities served by
the City such as Edmonton Police Services and Edmonton Public Library. These
agreements expired at the end of that year and many of them have not been renewed.
In effect, this means that users have only informal means of recourse if services being
provided are not meeting their operational needs.
The City Manager and General Manager of Corporate Services Department have
agreed to develop new agreements for 2003. These agreements may be in the form of
improved Service Level Agreements, an operating protocol, etc., but will be designed to
ensure that ongoing service levels to client departments are maintained at optimal
levels. Rather than simply renew the original agreements that were established in 1998,
they plan to develop meaningful performance measures that reflect both degrees of
efficiency and productivity and levels of customer satisfaction with the services
provided. As a first step in this process, Corporate Services conducted a customer
survey during the year 2000 with each of its clients to identify opportunities to improve
the quality of their services. The Administration also believes that the Corporation’s
needs will be best served by agreements or protocols that provide means of addressing
needs for service level changes that provide some degree of uniformity in services
provided to each operational area. Finally, they plan to incorporate a process for dispute
resolution into the agreements to ensure that the interests of both the clients and the
service providers are considered in those situations where something goes wrong. The
OCA has discussed each of these points with the Administration and believes that
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implementing this plan will both satisfy our concerns and incorporate related bestpractice principles for Shared Services operations.
In 2000, the Senior Management Team accepted most of the recommendations made
by two external consulting groups to build upon the City’s successes and ensure
sustainability of further development of Shared Services. An evaluation of the efficiency
and effectiveness of the Shared Services operations will be undertaken through the
implementation of these recommendations.
Recovery of Subsidy Overpayment
As reported in the OCA’s March 19, 2001 Quarterly Report, an individual was charged
with Fraud for charging for services that were not provided following an investigation
conducted jointly by the OCA and EPS. That individual subsequently plead guilty to the
charges. The facility in question provides Out-of-School Care (OSC) for school age
children (6 – 12 years of age) and receives a subsidy from the City of Edmonton based
on certain eligibility criteria, including attendance. The OCA determined that the City of
Edmonton overpaid the OSC facility by $6,918.31 for the period of April 1, 1998 to
March 31, 2000. This overpayment resulted from claiming substantially more hours on
the Community Services Attendance Records than were actually provided.
Since publication of the OCA’s last Quarterly Report (March 2001), the OCA has met
with the bookkeeper of the OSC facility and a Community Services Department
Consultant to discuss the overpayment of subsidy claims to the OSC facility. As a result
of this discussion, the OSC facility has agreed to repay the total amount owing to the
City of Edmonton. The OSC facility and the Community Services Department have
agreed to a repayment schedule that will result in total repayment of the debt owing by
December 31, 2001.
Completed Reports
Unmetered Energy Review
EPCOR Distribution &Transmission, and the City’s Transportation and Streets
Department management requested that their respective internal audit offices jointly
review their proposed process for estimating energy consumption for unmetered
devices such as street lights, traffic controls, etc.
The primary goal of the Unmetered Load (UML) System is to provide accurate and
timely estimates of unmetered energy consumption. Energy consumption estimates are
calculated from an accurate inventory of the types of asset at each site, the hourly burn
rate for each asset type, and the number of hours the asset operates each day.
The UML application is performing its intended function – calculation of energy
consumption estimates. Nine opportunities for improvement to ensure accuracy of
consumption estimates were presented jointly to EPCOR and Transportation and
Streets Department management. All recommendations made to the City and EPCOR
have been accepted and action plans have been provided to both audit offices. Where
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possible, management took immediate action as opportunities for improvement were
brought to their attention during the review.
Payroll and Benefits – Data Analysis
The City of Edmonton currently uses version 7.51 of PeopleSoft to manage its human
resource information requirements (the system is known as the Human Resources
Information System – HRIS). The OCA has completed an analysis of employee and
transactional data in HRIS for 26 pay periods ending September 23, 2000, using the
Audit Command Language (ACL) software. ACL is used to analyze large volumes of
data for indicators of fraud, errors and/or irregularities. Employee records including
addresses, Social Insurance numbers and direct deposit account numbers were
scanned and those exceptions identified during the scan were reviewed with Payroll
Services. Relevant earnings data including unusual wage increases, excessive overtime
and illogical conditions were also reviewed and samples of identified exceptions were
reviewed in detail.
Based on our testing and analysis, the OCA did not find any material errors or
omissions in the HRIS employee database. Five recommendations were made to the
Director of Payroll Service, Human Resources Branch, all of which have been accepted.
Actions taken or commenced during the audit to address these recommendations
include:
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Correction of inaccurate employee records identified, pertaining to missing address
information, invalid Social Insurance numbers and more than one direct deposit
account.
Establishing effective edit routines and/or reporting mechanisms to detect and
correct missing and inaccurate employee information in a timely manner.
Emphasizing to Payroll Services staff the current procedure requiring authorization
and supporting documentation for all changes to job data, and initialling and dating
forms after entry into HRIS.
Stressing to line managers and supervisors the importance of timely submission of
overtime worked so that Payroll Services can process it accordingly.
Payroll and Benefits – Direct Deposit
The City uses electronic transfer of funds as the method of paying its employees. Direct
deposit files are created and electronically transmitted to the TD Bank for disbursement
to employee accounts. Effective April 30, 1999, the HR Branch initiated a staged
implementation of the direct deposit file transfer. At the special request of the Director of
Payroll Services, the OCA completed a post-implementation audit of the direct deposit
process in the last quarter of 1999. Ten recommendations were made to enhance
controls pertaining to the transmission method, security, operating procedures and
reconciliation of direct deposit payments.
On March 8, 2001, Payroll Services implemented a server to server transmission to the
bank using TD Business Windows software. A follow-up review was undertaken by the
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OCA after this change to determine whether issues in our original report had been
addressed.
Based on our testing and analysis, we found that our concerns pertaining to the
transmission method, security and operating procedures have been addressed. Eight
recommendations have been implemented satisfactorily, one is in progress and one is
no longer applicable. Opportunities for further improvement of controls exist in the area
of more effective reconciliation and timely clearing of the direct deposit suspense
account. The Director of Payroll Services and the Coordinator of Cash Management,
who is the City’s representative with the bank, have also agreed to pursue a formal
agreement pertaining to direct deposit.
Snow and Ice Control Audit
The Office of the City Auditor (OCA) conducted a value-for-money audit of the snow and
ice control activities in the Streets Engineering Branch, Transportation and Streets
Department in accordance with the OCA audit plan. Snow and ice control activities
include snow plowing, snow removal, sanding, and de-icing of roadways, sidewalks,
bridges as well as snow storage and the pick up and disposal of street sand and debris
accumulated through the winter, from roadways, lanes, boulevards and medians.
Overall, the financial and physical resources, culture, structure and activities of the
Streets Engineering Branch support the snow and ice control objectives. Generally, the
snow and ice control programs are delivered equitably with efficiency and speed. The
OCA has recommended several opportunities for improvement. These address several
important issues that need to be resolved in order to accomplish the snow and ice
control objectives more effectively, efficiently and economically. These include the
financial commitment to increase the snow and ice control budget, communication and
clarification of residential snow and ice control policies, and opportunities linked to
corporate initiatives — performance reporting, optimization methodology and
succession planning. Administration accepted the recommendations and developed
action plans designed to accomplish the identified improvements.
Provision has been made in the budgeting process to increase the snow and ice control
budget by $1 million per year for the five years commencing in 2000. Although there is
no guarantee that the additional $1 million per annum for five years will be sufficient to
fully finance snow and ice control activities in the future, this is the first step to
acknowledging that the total cost of snow and ice activities should be budgeted.
Based on corporate citizen satisfaction survey results, residential snow and ice control
service levels are not well understood by the public and generate consistently low
degrees of satisfaction. Citizens need to be made aware that, with the exception of
residential bus routes and back lanes, residential snow and ice control policies are
designed to address only emergency access and city-wide safety concerns because of
financial constraints.
Roadway Maintenance currently uses an organized manual methodology that makes
effective use of the knowledge and experience of personnel to develop routes for
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sanding, snowplowing, and spring cleanup. This approach doesn’t always lead to an
optimization of resources. The use of optimization software for resource planning is
more likely to lead to an optimization of resources. Roadway Maintenance should
continue investigating optimization technology in conjunction with the applicable
corporate groups. In conjunction with the corporate succession planning effort
underway, Roadway Maintenance personnel should work with Corporate Human
Resources to effect a succession planning solution for Roadway Maintenance,
especially for critical positions.
Investigation into Cash Irregularities at a City Facility
On October 30, 2000, Community Services Department informed the OCA of their
suspicion of fraud by a Recreation Facility attendant at Londonderry Leisure Centre.
Londonderry Leisure Centre is one of twenty community leisure centre facilities
operated by the City of Edmonton. The volume of cash handled makes leisure centre
facilities more susceptible than average to misappropriation of funds. The OCA’s
investigation determined that sufficient evidence existed to warrant reporting the matter
to the Edmonton Police Service (EPS). On November 12, 2000, EPS charged the
individual with Fraud under $5,000 and Possession of Stolen Property. The individual
appeared in court on December 12, 2000, December 28, 2000 and on April 6, 2001.
The subject pleaded guilty to fraud under $5,000 and received a sentence that included
the requirement to conduct 60 hours of community services work by August 2001. The
results of this investigation revealed that a number of cash control procedures at
Londonderry Leisure Centre require revision. The OCA met with Community Services
Representatives throughout this investigation and provided a number of
recommendations designed to strengthen internal controls. The OCA will work in
conjunction with the Community Services Department to ensure that recommendations
resulting from this investigation are implemented for all leisure centres.
In-Progress Status Reports
Payroll and Benefits
In accordance with the OCA’s 2000 Annual Work Plan, a review of the City’s payroll and
benefits processes was initiated in the fourth quarter of 2000. Four major objectives
were established for this review. Two objectives have been completed. The Review of
Payroll and Benefits for DATS Drivers was included in the March 2001 Quarterly Report
and the Follow-up Review of Direct Deposit is included in the previous section of this
report.
Fieldwork is complete for the Review of Internal Controls objective. Two selfassessment sessions of payroll and benefit processes were facilitated by the OCA for
the City and Edmonton Police Service. The results will be included in the November
2001 Quarterly report. Planning for the Internal versus External Cost/Benefit
Assessment has been initiated and the analysis is scheduled for completion by yearend.
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Maintenance Management System Development Project
The City is currently undertaking a comprehensive corporate-wide analysis of
maintenance activities. The focus of this analysis is to assess the effectiveness and
efficiency with which the City’s assets (sewers, roads, parks, LRT, facilities, street
lighting, etc.) are being maintained. The OCA was invited by the Administration to sit on
the steering committee to provide proactive control-related feedback, input into the
development of meaningful performance reporting requirements, and sharing of best
practice knowledge with the committee. During this reporting period, the project team
presented a summary of the results of the (Request for Information) RFI and a
recommendation on how to proceed. SMT agreed to proceed with SAP implementation
realizing that significant change in either business processes or software may be
required in some areas. All maintenance areas in the Corporation are to be involved in
the design phase and a phased implementation approach will be followed. Gaps will be
identified in the design phase and then decisions will be made on whether the solution
requires a business process or software change. The upcoming design phase will
include the formation of a new committee and the OCA ‘s involvement will increase at
that time.
Fraud Data Analysis Project
In accordance with the OCA’s 2001 Annual Work Plan, this project was initiated in the
first quarter of 2000. One portion of this project – Payroll and Benefits Data Analysis – is
complete and a report summary is included in the previous section of this report. A
second objective – analysis of payments to payees who have the same addresses as
City employees – is nearing completion. Supporting documentation for selected
transactions is being analysed. The results of these analyses will be reported as the
work is concluded and summaries of the results will be included in the OCA’s Quarterly
Report in November 2001.
Code of Ethics
The OCA is working with Corporate Services Department to develop a new Code of
Ethics for the Corporation. Input is being solicited from employees and managers to
ensure that issues of concern to staff and management are addressed appropriately
(e.g., email, Internet browsing, telephone use, access to personal records, interpersonal
relationships, verbal expression, conflict of interest, etc.). Members of the project team
are rewording and repackaging the Code of Ethics to make it less sensitive to
technological change, increase employee awareness, and increase its exposure within
the Corporation as a means of influencing corporate culture.
Closing the Gap – Expenditure and Revenue Review Project
Data collection and planning has begun on the subprojects “Use of Overtime,” “Cellular
Telephone Review,” “Turf Maintenance,” and “Drainage Efficiency Review.” The goal of
this portion of the total Closing the Gap project is to help the Administration identify the
1.5% ($10 million) efficiency gain and/or non-tax revenue increase required by Council’s
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2002 budget directives. Since the last Quarterly Report, the Project Team (led by the
OCA) has completed its planning and data collection. The team (including
representatives from Edmonton Police Service and Edmonton Public Library) is
currently conducting an overview of the data supplied by each Section in preparation for
interviews scheduled to begin the second week of June. These interviews have been
structured to solicit input from operational staff and to probe for opportunities that could
result in efficiency or non-tax revenue gains. The project team will evaluate each of
those opportunities prior to submission to SMT for their review and implementation. The
project team will be conducting interviews during the months of June, July and August in
order to submit identified savings to the Corporate Budget Office prior to budget
submission in the Fall.
Corporate Business Risk Planning (Enterprise Risk Management)
The OCA and the Office of the City Manager are jointly managing this project. Project
steering committee representatives have met with departmental management teams to
discuss the concepts and principles of enterprise risk management and its applicability
to the City’s businesses. Because of competing corporate projects, completion of the
project charter is now scheduled for early fall 2001. Since Corporate Business Risk
Planning (CBRP) must be intimately tied into the business planning cycle to reach
optimal effectiveness, this delay will allow better synchronization with that process. The
financial industry appears to be leading the way with this initiative with other publicly
traded companies following suit. Implementation in public sector agencies is just
beginning to gain a foothold. The benefits to the public sector are not as apparent as the
bottom line in the private sector, but include such things as improved cost control, more
efficient governance processes (resulting in better customer service), and defined risk
exposures and mitigation strategies (resulting in lowered overall costs).
Edmonton 2001 World Championships in Athletics
The Local Organizing Committee (LOC) and the City of Edmonton were selected to host
the Edmonton 2001 World Championships in Athletics. The Office of the City Auditor
(OCA) was requested by the City’s 2001 Championships Office to assess the efficiency
and effectiveness of the processes and systems put in place to protect the City’s
financial interests. In addition, the OCA reviews the quarterly financial and operating
reports that are issued by the LOC. This role has recently expanded to include
reviewing sponsorship and ticket revenue on an ongoing basis. As previously reported,
the LOC has stated that sponsorship revenue is on target. In addition, the LOC has
advised the City that they anticipate achieving their ticket sales target of $12.5M. The
OCA is receiving on a weekly basis a “Ticketmaster AUDIT Report” which tracks ticket
sales, percentage of tickets sold, unsold seats, and net revenue for each of the 10 days
of the games. Monitoring of this information will help determine whether ticket sales are
occurring at a rate that is likely to meet the projected budget.
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Cash Handling Reviews
Cash Handling Reviews determine whether cash resources are handled in a manner
consistent with established City requirements and safeguarded against loss, and assess
the adequacy and effectiveness of internal controls within the cash handling location.
Cash Handling Reviews consist of an objective review and evaluation of the cash
handling (including credit cards, cheques) practices and procedures relating to
receiving, transporting, storing, depositing and safeguarding City Money. The City
Auditor in conjunction with Corporate Services – Treasury Branch has selected six cash
handling projects (consisting of 11 cash handling areas with total revenue of
approximately $8M) for review in 2001. Projects were selected based on a number of
criteria including estimated revenue; volume of transactions processed; cash handling,
risk, date of previous audit, if any, undertaken in the area; and history of problems and
control weaknesses identified. The results of these reviews will be reported as the work
is concluded and summaries of the results will be included in the OCA’s Quarterly
reports to Special Executive Committee in November 2001 and January 2002.
Periodic Matters
Fraud Policy Update
City Policy A1431 (Conduct of Examinations into Allegations or Suspicions of
Fraudulent Acts) has been updated to reflect recent administrative changes. The City
Auditor and the City Manager are jointly charged with the responsibility of maintaining
this policy and the Code of Ethics Policy.
Budget Reporting
No significant variances noted to date. The City Auditor and Audit Director positions
were filled during this reporting period. Recruiting for an Audit Coordinator to complete
the staffing complement is underway.
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