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.



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