Item - 2009.AU10.2

The Audit Committee recommends that:

1.         City Council request the City Manager to direct management staff to regularly review and evaluate the adequacy of internal controls within their area of responsibility.  Where appropriate, action be taken to strengthen controls, with a view to preventing and detecting instances of fraud and other wrongdoing.

The Audit Committee:

1.         requested the City Manager to report to the Audit Committee:

             a.        on the policy changes required in order to allow for recoveries made as a result of investigations by the Auditor General to be allocated to a general reserve fund, instead of being returned to the subject division where the losses occurred; and

             b.        with policy guidelines respecting termination of employees due to integrity issues, such as the ones described in the 2008 Fraud and Waste Hotline report; and

2.         requested the Auditor General to consider reporting to the Audit Committee:

             a.        for its next meeting, on incidents, by division, agency, board or commission, which have substantiated complaints; and

             b.        with any follow-up information respecting the Manulife Financial issues.

The Audit Committee met in closed session to consider this Item as it relates to:

1.         personal matters about identifiable individuals, including municipal or local board employees;

2.         labour relations and employee negotiations; and

3.         litigation or potential litigation affecting the municipality or local board.

In June 2000, Audit Committee requested that the Auditor General submit an annual report on the status of fraud and related matters.  This report represents the Auditor General’s eighth annual report on the activities of the Fraud and Waste Hotline Program for the period of January 1, 2008 to December 31, 2008.

Managing the risk of fraud or other wrongdoing must be a continuous and collective effort involving all levels of staff.  The primary responsibility for maintaining appropriate internal controls to prevent and detect wrongdoing remains with divisional management.

The risk of fraud and wrongdoing is an inherent part of conducting business in all organizations including the public sector.

Often fundamental and basic internal controls that help reduce the risk of wrongdoing are overlooked when controls are not regularly reviewed.  Inadequate internal controls are a primary contributing factor to the occurrence of fraud while the lack of management review and the override of existing controls are also factors.

Corrective controls, such as improved policies and procedures, are key to remedying problems that are discovered ensuring that future wrongdoing is better prevented and detected, especially in areas subject to greater levels of risk.

In 2008, based on our review of complaints, a number of substantiated complaints may have been mitigated through the active application of internal controls, policies and procedures.  In these cases, basic controls were disregarded and their effectiveness not actively monitored.  The recommendation made in this report will re-emphasize management’s responsibility to regularly review and re-evaluate internal controls.