ADMINISTRATIVE REPORT Date: November 27, 1995 TO: Vancouver City Council FROM: Director of Operations Support SUBJECT: Staffing Needs - Internal Audit Division RECOMMENDATION THAT a regular full-time auditor position be established in the Internal Audit Division, at an estimated annual cost of $65,200, subject to classification by the General Manager of Human Resource Services. The position is to be funded by a corresponding reduction in the contract services account in the department's budget. GENERAL MANAGER'S COMMENTS The General Manager of Corporate Services RECOMMENDS approval of the foregoing. COUNCIL POLICY City Council, on February 3, 1994, resolved that during the term of the 1994-1996 Budget Management Program, any proposed increases in program and/or service levels be offset by corresponding spending reductions elsewhere in the City's operating budget, or increases in non-taxation revenues, subject to Council's discretion. PURPOSE Several weeks ago we reported to Council on a number of transitional changes in the senior management structure of Corporate Services. That report indicated Council would be receiving subsequent reports on further changes to the organization structure of Corporate Services arising from the process improvement work currently taking place. This present report reflects our continuing work in that direction and recommends the establishment of a permanent full-time auditor position to deal with appropriate internal control safeguards for the City's revised business procedures and practices associated with our Better City Government initiative.BACKGROUND As part of the 1994-1996 Budget Management Program, Council approved the reduction and refocusing of the Internal Audit Division. The internal audit staff are now directing their efforts to high risk and high priority areas, with operating departments being responsible for maintaining adequate internal control procedures over their ongoing operations. Funds have been retained to pay for the use of external resources, wherever it is appropriate, to supplement the work of city staff. All these changes have been implemented and the Internal Audit Division is now staffed by a team of two auditors. DISCUSSION At the time of the Budget Management actions, business systems in the City were reasonably stable, with only a small number of changes made at any time. Under these conditions, it was feasible to execute the Internal Audit function with two staff, as stable systems require less attention. However, on May 18, 1995, Council approved a package of four reports dealing with initiatives to improve City services. One of the four reports, the Better City Government - Next Steps, recommended a work program which involves the review of 15 major processes in the City. It is expected that as the result of these reviews, the ways the City conducts its business will be radically changed, moving away from a focus on internal control and more to a strong emphasis on improved customer service. Because of these changes, many of the internal control procedures used in City business processes will have to be re-designed in order to allow for re-aligned responsibilities and new ways of working. Re-designing control systems must be done in conjunction with the re-design of the business process. Corporate Services is one of the first business groups that embarked on the re-engineering review of its operations. Since 1993, extensive reviews have undertaken in Purchasing, Accounts Payable, Revenue & Treasury, and Payroll. Our experience with the changes implemented to date is that most processes can be improved, but improvements inevitably change the internal control procedures and structures. This can range from reducing the number of approvals required to eliminating redundant record keeping. It is important that during the change process, before steps are eliminated from the current procedures, careful consideration be given to ensure that an adequate control mechanisms are built into the new procedures to safeguard the City's assets. These new procedures will include methodologies to assist staff in assessing the adequacy of the proposed actions and the controls that should be in place in order to meet the business objectives. This is an on-going need which requires the technical knowledge and skill of an experienced auditor or accountant, and at the present time, cannot be performed either by the redesign teams or by the existing staff resources in the Internal Audit Division. The most cost effective solution is to establish an additional auditor position in the division which will have the sole responsibility to undertake this work, rather than using external contract services. The cost of the position, estimated to be $65,200, can be funded within the existing departmental budget, with a corresponding reduction to the contract services budget. CONCLUSION The Better City Government program will lead to a significant number of changes to City business processes. It is essential to ensure that cost-effective internal control procedures are built into the new systems. The level of activity in this area was not contemplated at the time of the Budget Management Program when the current Internal Audit office was reduced to two staff. In order to effectively deal with this emerging issue, the General Manager of Corporate Services recommends that a full-time auditor position be established, with funds to be taken from offsets within the existing budget. * * * * *