City auditor finds deficiencies in expense reporting, whistleblower policies

City of Nanaimo employees who raised concerns were disciplined, says KPMG

The City of Nanaimo’s auditor is recommending that the municipality strengthen its whistleblower policies and review its expense reporting.

KPMG provided a 2017 audit findings report to the city on Monday to be formally presented at the finance committee meeting on Wednesday, May 9.

The auditor found that the city’s financial statements “present fairly, in all material respects, the consolidated financial position of the city,” but went on to identify other areas of concern.

The report found “significant deficiencies in internal control over financial reporting” and outlined problems in respectful workplace and serious misconduct reporting; expense report review, authorization and policies; consistency of hiring practices; and governance understanding and responsibilities.

In regards to whistleblower policies, KPMG found that employees “raised concerns regarding the appropriate usage of city funds and the ability to collect funds owed to the city,” and while their initial concerns were said to be handled effectively, when the issue was raised a second time, “disciplinary letters were placed in the complainants’ employee files.” According to the report, the respectful workplace policy was revised five times between January 2017 and January 2018 and “three of the revisions related to the individuals designated to manage complaints.”

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KPMG recommends city council review its respectful workplace and reporting serious misconduct policies, and suggests complaints against senior leadership should be reviewed by the mayor or a designate.

KPMG also found deficiencies in expense reporting, as the city’s chief administrative officer and chief financial officer reviewed and approved each other’s expenses.

“This cross approval process provides for the opportunity of collusion between the two parties and is not an appropriate internal control,” the report notes.

On hiring practices, the auditor’s report found that the city has a “well-established hiring protocol,” but found in some situations, “steps in the process have been bypassed at the senior management level, that advice from human resources was not followed, and that candidates have been hired into positions without having met all the usual screening requirements.”

KPMG noted that at the start of the audit process, there was discussion with the city about “significant risk of management override of controls” and that was one of the focus areas in the audit.

John Van Horne, the city’s director of human resources, said in an e-mail that the audit report is being reviewed.

Asked about his concerns, he said the city wishes to provide clear guidelines and supportive processes for employees, “so it’s unfortunate when a shortcoming of any policy is identified.”

He said the city will work to “shore up the policies” to address concerns raised by the auditor.

“The finance and audit committee, through council, may provide some direction to staff but generally we do any necessary updates to operational policies at the staff level,” Van Horne said. “KPMG has recommended that particular policies fall under council’s approval, an idea which I think has a lot of merit as well.”

The audit findings report is accompanied by a staff report authored by Laura Mercer, deputy chief financial officer, and dated May 9.

Her report notes that “the city’s auditors, KPMG, have completed the audit work and are prepared to issue an unqualified opinion that the financial statements fairly represent the financial position of the city.”

Staff’s recommendation is that the finance and audit committee recommend council approve the City of Nanaimo’s 2017 annual financial statements.

RELATED: City investigating ‘allegation of significant concern’



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