Report to: General Committee Report Date: September 20, 2007

SUBJECT: Auditor General Position

PREPARED BY: Barb Cribbett, Ext. 4735

RECOMMENDATION:

That the presentation “Auditor General Position” be received:

And That an Audit Committee be re-established, comprised of some or all Members of Council:

And That Council considers the addition of one or more external Citizen members to the Audit Committee:

And That Markham’s Auditor General report directly to the Audit Committee:

And That the Auditor General position shall be filled initially with a two year full-time contract:

And That the Auditor General’s responsibility shall be to carry out financial, compliance, and performance audits:

And That the Auditor General shall semi-annually submit a six month audit plan to the Audit Committee:

And That no deletions or amendments to the six month audit plan be made except by the Auditor General, other than Council may add to the audit plan by a two thirds majority vote:

And That the Auditor General report out to Audit Committee quarterly at a minimum:

And That the appointment of a person to the position of the Auditor General be made, suspended or revoked by a two-thirds majority vote of Council

And That an Auditor General Interview Committee be established, comprised of Mayor Scarpitti, Chair of the Finance Committee, Councillor Joe Virgilio and Chair of the Budget Sub-Committee, Councillor Dan Horchik

And that Staff be authorized and directed to do all things necessary to give effect to this resolution.

EXECUTIVE SUMMARY:

Not applicable

1. Purpose 2. Background 3. Discussion 4. Financial

5. Others (Environmental, Accessibility, Engage 21st, Affected Units) 6. Attachment(s)

PURPOSE:

The purpose of this report is to clarify the role of an Auditor General position for the Town of Markham, establish base terms of reference for the position and recommend the re-establishment of an Audit Committee

BACKGROUND:

Bill 130 – Amendments to the Municipal Act, 2001, came into force and effect on January 1^st, 2007. New provisions in Bill 130 authorize municipalities to appoint Integrity Officers, including, an Integrity Commissioner, an Ombudsman, an Auditor General and a Closed Meeting Investigator. The Town of Markham has included an Auditor General position in the 2007 Operating Budget.

Staff have gathered data on municipal auditor general positions, as well as municipal internal auditor functions. Staff also met with Jeffrey Griffiths, Auditor General for the City of Toronto, and Paul Duggan, Director of Audit Services for the Region of York.

The first element of the municipal audit framework is the external auditor, which is required by the Municipal Act. The external auditor must be a licensed accountant, not an employee of the municipality, and appointed by Council. The external auditor provides an audit opinion on a set of financial statements, and a management letter to the Town’s senior administration.

Discretionary elements of the municipal audit framework for Ontario municipalities (other than the City of Toronto) are the internal audit and Auditor General functions.

Municipal internal auditors have traditionally reported to either Council, the Chief Administrative Officer, a Commissioner or the Treasurer. Some Ontario municipalities with internal audit functions are:

Mississauga	Brampton
Ottawa	London
Region of Peel	Vaughan
Region of York	Windsor
Region of Waterloo	Newmarket
Region of Halton	Aurora
Hamilton	East Gwillimbury
Sudbury	Oshawa
Welland	Toronto

More recently, Section 223:19 of the Municipal Act was amended by Bill 130 to authorize municipalities to:

“appoint an Auditor General who reports to council and is responsible for assisting the council in holding itself and its administrators accountable for the quality of stewardship over public funds and for achievement of value for money in municipal operations”

In Ontario, the City of Toronto, the City of Ottawa and the Town of Oshawa currently have appointed Auditor General positions,(the City of Toronto, through the City of Toronto Act, is required to appoint an Auditor General, however for all other Ontario municipalities it is discretionary).

The Auditor General (AG) mandates and responsibilities for the Cities of Toronto and Ottawa are very similar. Both have a high level of independence, in that

• The AG reports both functionally and administratively to the Audit Committee (or appropriate standing committee or Council),
• The AG budget is approved directly by Council (does not go through the same administrative process as the balance of the municipal departments)
• The annual work plan developed by the AG cannot have deletions or additions except by the AG, other than Council may add to the annual work plan by a two thirds majority vote.
• Both AG positions focus on financial, compliance and performance (“value for money” when combined with financial audits) audits, and do not provide internal consulting services to departments (such as review and recommendations for new processes). Internal consulting services are more commonly seen within Internal Audit functions.

Appendix “A” to the report includes examples of reports issued by each city.

OPTIONS/ DISCUSSION:

The Auditor General position, as articulated in the Municipal Act, is an independent position with broad powers. A few relevant details in the Municipal Act relating to the Auditor General position are:

• The responsibilities of the Auditor General do not include the matters for which the external auditor is responsible
• The Auditor General is not required to be a municipal employee
• The municipality, its local boards and municipally-controlled corporations shall provide to the Auditor General any information the Auditor General believes to be necessary to perform his or her duties
• The Auditor General is entitled to have free access to anything the Auditor General believes is necessary to perform his or her duties
• The Auditor General may examine any person on oath on any matter pertinent to an audit or examination

In alignment with the Municipal Act, and generally following the City of Toronto model, staff proposes a number of recommendations. It is recommended that the Town of Markham Auditor General position report to a re-constituted Audit Committee. In order to allow more flexibility to Council, it is also recommended that the position be filled with a two year full time contract. Similar to Toronto and Ottawa, staff recommends that the independence of the Auditor General position be maintained by providing control of the audit work plan to the Auditor General. Independence can still be maintained if Council adds items to the work plan through a two-thirds majority vote of Council.

Staff also recommends that the responsibilities of the Auditor General position be similar to the Toronto and Ottawa positions, in that the focus is on carrying out financial, compliance, and performance audits.

The attached Terms of Reference (Appendix B) contain these recommendations, additional recommended reporting requirements and the recommendation that Council be authorized to make, suspend or revoke the appointment of a person to the Auditor General position.

Audit Committee

The Town of Markham does not currently have an Audit Committee. Previously, the Audit Committee was a sub-committee of the Finance and Administration Committee, and was composed of all Council members.

It is recommended that an Audit Committee be re-established. It is anticipated that the new role of Auditor General will result in a more frequent and longer Audit Committee meetings. In preparation for the re-establishment of this committee, staff have done some research into where audit committees are used and what the composition of audit committees are:

Municipality	Audit Committee Makeup
Toronto	Council Members
Ottawa	No Audit Committee - Auditor General reports directly to Council
Winnipeg	Council Members
Oshawa	No Audit Committee - Auditor General reports directly to C.O.W.
Richmond Hill	3 Members of Council including the Mayor
Oakville	Sub Committee Admin Service Committee - 6 members of Council
London	4 Council Members and one Citizen
Mississauga	Three Members of Council
Vaughan	Council Members
Burlington	4 Council Members and two Citizens
Hamilton	7 Council Members

The Town of Markham’s most recent Audit Committee was a sub-committee of the Finance Committee, and included all Council Members who sat on the Finance Committee. As noted above, two of the municipalities surveyed include citizen members on the audit committee. Although this does not appear to be a common practice, staff recommend that Council consider the appointment of an external citizen to the Audit Committee concurrently with the implementation of the Auditor General function.

FINANCIAL CONSIDERATIONS AND TEMPLATE: (external link)

The 2007 Operating Budget was increased to provide $150,000 in funding for the Auditor General position.

ENVIRONMENTAL CONSIDERATIONS:

Not applicable

ACCESSIBILITY CONSIDERATIONS:

Not applicable

ENGAGE 21^ST CONSIDERATIONS:

Not applicable

BUSINESS UNITS CONSULTED AND AFFECTED:

Not applicable

RECOMMENDED

BY: ________________________ ________________________

Barb Cribbett, Treasurer Andy Taylor, Commissioner Corporate Services

ATTACHMENTS:

Appendix A – Sample Auditor General Reports

Appendix B – Terms of Reference

APPENDIX A - SAMPLE REPORTS

Examples of Toronto Auditor General Reports:

• Toronto Fire Services – Operational Review

• Toronto Public Library – Fines and Income Review

• Management of Construction Contracts

• Fleet Operations Review

• Corporate Finance Division Review

• Payroll Processing Review

• Corporate Absenteeism/Attendance Follow-up review

• Review of Parks and Recreation Revenue and Cash Control

• Review of Sole Source Contracts

• Review of City Employee Internet Access

Examples of Ottawa Auditor General Reports:

• Drinking water

• Compliance – Rural & Urban System

• Distribution and Billing

• Selected Capital Projects – Compliance, Project and Financial Management

• Financial Internal control environment

• Purpose, Commitment, Capability, Monitoring & Learning

• Public Health

• Mandatory vs. Discretionary Programs

• Procurement

• Compliance with By-law

• Professional Services & Consulting Expenses

• Real Property Management

• Real Estate Portfolio Management

• Business Resumption Planning

• ITS Disaster Recovery, Public Works/Utilities Recovery, Public Safety

• By-law Services

• Compliance, Efficiency, Effectiveness

• Overtime

• Usage and Management Control

• Internet Usage Controls

• Adequacy, Reliability, Compliance

• Ottawa Police Service

• Governance

• Budget Development Process

• Contingency

• To absorb unexpected costs and respond to Council Requests

Appendix B

RECOMMENDED TERMS OF REFERENCE.

• Markham’s Auditor General report to the Audit Committee

• The Auditor General position be filled initially with a two year full-time contract

• Responsible for carrying out financial, compliance, and performance audits

• The Auditor General shall semi-annually submit a six month audit plan to the Audit Committee

• No deletions or amendments to the six month audit plan shall be made except by the Auditor General, other than Council may add to the audit plan by a two-thirds majority vote

• The Auditor General will report out to Audit Committee quarterly at a minimum

• The appointment of a person to the position of Auditor General may be made, suspended or revoked only by a two-thirds majority vote of Council