THE REGIONAL MUNICIPALITY OF PEEL

AUDIT SUBCOMMITTEE

M I N U T E S ASC-2003-3

The Audit Subcommittee met on June 12, 2003, at 8:45 a.m. in the Council Chambers, Regional Administrative Headquarters, 10 Peel Centre Dr., Brampton.

Members Present: E. Kolb, G. Miles, P. Mullin, R. Whitehead
   
Members Absent: Nil
   
Also Present:

Councillor M. Prentice; R. Maloney, Chief Administrative Officer; D. Labrecque, Treasurer and Commissioner of Finance; M. Zamojc, Commissioner of Public Works; N. Tunnacliffe, Commissioner of Planning; L. Hawes, Director, Internal Audit; S. Runowski, Manager, Environmental Control; I. Murray, Engagement Partner, KPMG;
K. Travers, Audit Senior Manager, KPMG; E. Corazzola, Legislative Co-ordinator

Councillor Whitehead assumed the Chair.


1. DECLARATIONS OF CONFLICTS OF INTEREST


2
. APPROVAL OF AGENDA

RECOMMENDATION ASC-6-2003:

That the agenda for June 12, 2003 Audit Subcommittee meeting be approved.


3. DELEGATIONS/PRESENTATIONS

Items 4.a to 4.e were dealt with.

4. REPORTS

a) Update Terms of Reference for Audit Subcommittee Operations

Deferred to the October 9, 2003 Audit Subcommittee meeting

Larry Hawes, Director, Internal Audit advised the subcommittee that the original terms of reference were prepared in 1995. The report of the Chief Administrative Officer, dated June 2, 2003, titled "Update Terms of Reference for Audit Subcommittee Operations" outlines updated terms which incorporate any procedural changes and refocus the subcommittee on its responsibilities. The previous terms of reference, he stated, contained information on auditing and financial practices as examples for members. The revision focuses on what the Subcommittee needs to do, not what the auditors need to do.

Larry Hawes noted that there are changes being mandated to the private sector audit committees and he expects that changes will also be proposed for public sector committees as well. As a result, the revised terms of reference are being submitted to commence this updating process.

Chairman Kolb noted that the Region's Internal Audit department did a fair amount of work for the Police and felt it may be beneficial for the Police to be more closely tied to internal auditing. He suggested that staff make note of that in their report and invite a representative of the Police to participate in the Audit Subcommittee meetings. Chairman Kolb noted that the Police Chief was supportive of the internal auditing process as a way to identify inefficiencies.

Chairman Kolb questioned whether it would be appropriate for Council to be more involved in police issues in light of the fact that they receive funding from the Region. He stated that, in the long-term, it may be important for the functioning of this organization to be incorporated into the Region's auditing process.

Larry Hawes, Director, Internal Audit, responded by advising that staff could review the proposed terms of reference and include a relatively broad reference to the Police, as well as other agencies that receive funding from the Region.

The Subcommittee members agreed that the subject report should be referred back to staff to incorporate the suggested changes and outline the broadened function.

b) Internal Audit Charter

Deferred to the October 9, 2003 Audit Subcommittee meeting

c) Review of Engineering and Infrastructure Planning Practices in Public Works

RECOMMENDATION ASC-7-2003:

That staff prepare a report disclosing the policy on front end financing for works on developer property and report back to the September 11, 2003 General Committee meeting.

Mitch Zamojc, Commissioner of Public Works noted that the report of the Director, Internal Audit, dated May 28, 2003, titled "Review of Engineering and Infrastructure Practices in Public Works" before Subcommittee represented an audit of the Engineering and Infrastructure Planning section of the Engineering and Construction Division of Public Works. He outlined the three functions of the Engineering and Infrastructure Planning section, namely, Engineering and Development; Capital Programming and Infrastructure Management, and; Project Planning and Studies. The Audit report notes a need for improvement in the area relating to front end financing agreements.

Mitch Zamojc advised that the recommendations contained in the subject report involve developing a more comprehensive policy on dealing with front end financing agreements. He noted that the Public Works department was working toward implementing the recommendations and that a working group had already been established.

Councillor Mullin expressed her concern that the Region did not have more control over an issue as important as front end financing. She further expressed concern in regard to the report highlight which stated that "…there is minimal direction and overall accountability in place to control the current process." She noted the management action plan which was in place and inquired as to when the working group had been established. Mitch Zamojc, Commissioner of Public Works advised that the workgroup was formed almost one year ago.

Councillor Mullin further questioned why it took an audit to identify the problems with this process and noted other areas of concern with the report. She asked whether the Commissioner of Public Works or the Treasurer and Commissioner of Finance could provide some assurance that there would be no liability concerns.

In response, Dan Labrecque, Treasurer and Commissioner of Finance confirmed the issue is relatively complex. He noted that front end financing was a general term used primarily in reference to development agreements. He stated that the areas of discussion in the audit report were at issue a number of years ago. He noted that, within the last year or so, all front end financing agreements have been reviewed by four departments (Legal, Finance, Public Works and Planning) and that each transaction came back before Subcommittee and Council for approval. In his opinion, the current protocols are controlling the Region's liability, however, it is recognized that these protocols have to be formalized, and that is part of the function of the working group.

Dan Labrecque advised that the period of review for the audit was some time ago and that the process is better controlled today. He stated that a policy to ensure protection will be brought back to the Subcommittee for adoption. He noted that the departments originally recognized the problems and then involved the external and internal auditors in the issue. He assured Councillor Mullin that the Purchasing department was involved in the work done on the public side of developments. He advised that the Region had no control over works done on the private side but stated that they were looking at transferring responsibility of setting a price for those works to Purchasing as well.

Councillor Prentice, while noting that she was not a member of the Subcommittee, expressed her discomfort with the report. She understood, given the scope of the work the Region undertakes, why front end financing agreements were important, but, she questioned what expense was involved and how much money was lost where agreements were not followed up on in the past.

Mitch Zamojc, Commissioner of Public Works, assured the Subcommittee that no money had been lost. He stated that the developers finance the works and the Region is responsible for repayment. In the past developers would oversize a project and Council would have agreed upon a dollar value for the repayment in advance. This was the process up until the Development Charges By-law came into effect. Currently, the by-law enables the Region to enter into front end financing agreements which continue to permit oversized works but specify conditions that must be fulfilled prior to repayment. He stated that the issue is not one of overpayment but, more specifically, related to having a mechanism in place to pay them according to terms developed by the Region.

Dan Labrecque, Treasurer and Commissioner of Finance contributed to the discussion by advising that all of the risk was transferred to the developer. He noted that the developer is responsible for constructing the works with knowledge of the established price and that they will not be repaid until all conditions are satisfied. In the past the issue surrounded the recording of the liability. Today the amount is identified up front as a future liability.

Councillor Prentice stated that this was a very important issue and requested that a policy on how this issue was to be addressed be brought before Council as soon as possible. She stated that it is critical that this issue be resolved.

Councillor Miles noted that, while the report references concerns about current procedures, the feedback the Subcommittee was receiving from staff at the meeting appears to suggest that the current process is acceptable. She questioned the disparity between the audit report and staff comments.

Larry Hawes, Director, Internal Audit responded by noting that the Management Action Plan details the various concerns, who should be addressing those concerns and the time frame in which they are to do so. As the department heads point out, he submitted, while some of the ground work has been done, the overall policy has not yet been presented for approval. The working group is expected to deliver that policy within the time committed to their review.

In response to Councillor Miles' question about timing of the policy, Roger Maloney, Chief Administrative Officer, stated that the agreed upon process was being followed and that the principals of front end financing were still to be established and debated by Council. He stated that staff would be following through quickly on developing the plans.

Councillor Miles made reference to previous discussions surrounding a program that would allow anyone interested to track the status of major projects. She questioned whether the technology had been developed and implemented. In response, Mitch Zamojc, Commissioner of Public Works and Dan Labrecque, Treasurer and Commissioner of Finance advised of the implementation of the IPFS system. They elaborated on the function and operation of the system advising that, while not everyone would has access to it, Public Works staff should be able to track the status of projects using that technology. Dan Labrecque suggested that, if requested, a demonstration to the Subcommittee could be provided.

At the conclusion of discussions, the subcommittee members received the subject report and requested that a further report and recommendation be brought to General Committee in September of 2003 outlining the policy for front end financing. In formulating this policy staff were encouraged to continue to involve area municipal staff.


d) Review of Water Quality Sampling and Analysis in Water and Wastewater Treatment

RECOMMENDATION ASC-8-2003:

That staff bring forward a follow-up report detailing the process involved in ensuring water quality to address issues raised in the report of the Director, Internal Audit, dated May 28, 2003, titled "Review of Water Quality Sampling and Analysis in Water and Wastewater Treatment" and addressing the issue of security for the ground water system.

Councillor Mullin addressed the report of the Director, Internal Audit, dated May 28, 2003, titled "Review of Water Quality Sampling and Analysis in Water and Wastewater Treatment" and requested an explanation for why the results of the test were not communicated for 17 days after the samples were taken.

Mitch Zamojc, Commissioner of Public Works responded by pointing out that it was a nitrate sample which was at issue and at no point was there any health concern. He advised that the sample had been taken in the middle of summer and during an organizational change. Unfortunately, he stated, it appears as though the matter just "fell through the cracks".

Steve Runowski, Manager, Environmental Control confirmed the Commissioner of Public Works analysis of the situation noting workload and staff turnaround as contributing factors in the delay. He also stated that there was a rapid change in legislation to which staff was responding at the time. He acknowledged that the results of the test should have been reported earlier and stated that this was a one time occurrence - adverse test results should be reported immediately he stated.

Steve Runowski continued by appraising subcommittee members on the process and timing involved in testing water samples for various contaminants and assured members that procedures were currently in place to ensure rapid reporting of results, even when test results have not yet been verified.

Councillor Whitehead suggested that the subject report be received and requested a further, detailed report, on the process and rectification of issues/problems raised in Report 4.d. He further requested that the follow-up report include reference to how security of the ground water system is being addressed.

e) Accounting for Water Supplied by Fire Hydrant Connection Permits

Deferred to the October 9, 2003 Audit Subcommittee meeting

3. DELEGATIONS/PRESENTATIONS

a) Fiscal Responsibility and Accountability of the Region, and the Role of the Internal and External Auditors
Presentation by Dan Labrecque, Treasurer and Commissioner of Finance, Larry Hawes, Director, Internal Audit and Ian Murray, Engagement Partner, KPMG

Deferred to the October 9, 2003 Audit Subcommittee meeting

By way of introduction to the presentation, Roger Maloney, Chief Administrative Officer addressed the Subcommittee advising that the intended presentation was in response to Council Resolution 2003-101 which requested a report to Council outlining the fiscal responsibility and accountability of the Region and the role of the internal and external auditors, as well as a report on the measures the Region takes to monitor the organization.

Roger Maloney stated that the operations of the Audit Subcommittee hold the Region accountable. He noted that all major financial management policies were considered by the Subcommittee. He submitted that this function allows subcommittee members and Council to be confident that the region is fiscally responsible.

Councillor Mullin requested that the Subcommittee consider dealing with the reports listed on the agenda in advance of the presentation. She noted that time was running short and that it may be more important to address the reports at this point in the meeting.


4. REPORTS

a) Update Terms of Reference for Audit Subcommittee Operations

This item was dealt with earlier in the meeting

b) Internal Audit Charter

This item was dealt with earlier in the meeting

c) Review of Engineering and Infrastructure Planning Practices in Public Works

This item was dealt with earlier in the meeting


d) Review of Water Quality Sampling and Analysis in Water and Wastewater Treatment

This item was dealt with earlier in the meeting

e) Accounting for Water Supplied by Fire Hydrant Connection Permits

This item was dealt with earlier in the meeting

5. SCHEDULE OF FUTURE MEETINGS


6. OTHER BUSINESS


7. ADJOURNMENT

The meeting adjourned at 9:43 a.m.