Committee discussion on this matter included the following:
- Concerns regarding the current Internal Audit reporting structure to the CAO, and the potential impact on the independence of the audit function
- Importance of ensuring the audit function is independent and a suggestion that the audit function report directly to the Audit Committee
- Opinions that an Auditor General model would restore and enhance the independence of the audit function
- Consideration of a hybrid Auditor General model, and the need to review potential additional resources and transitional costs
D. Barrick, CAO, referenced industry standards and advised that an Internal Audit Function Review was previously performed by KPMG LLP. Mr. Barrick advised that Nick Rolfe, Partner, KPMG LLP, was present in the meeting to respond to questions from Committee regarding this review.
In response to a question from Committee, information was provided on the timeline of the KPMG review in relation to the staff report on the new Internal Audit Charter, presented to Audit Committee on September 8, 2020.
In response to further questions from Committee, Mr. Rolfe provided information on the Internal Audit Function Review performed by KPMG, the role of Internal Audit Directors to ensure the independence of the audit function, and the role of management in reviewing audit findings. In addition, Mr. Rolfe responded to questions regarding the appropriateness of the current Internal Audit reporting structure, as outlined in the Charter.
Committee discussion took place with respect to the following:
- Differences between the Auditor General and Internal Audit model functions
- Hybrid Auditor General and Internal Audit model in the City of Hamilton
- Auditor General models in other municipalities, including contracted services and budgets
- Internal Audit Office operating budget
- Process and timelines for moving to an Auditor General model
- Internal Audit reporting structure under the previous and current Audit Charter
- Indication from staff that the Audit Charter was revised to align with the Municipal Act, in accordance with direction from the Audit Committee
- Indication that a reconsideration of the approval of the Audit Charter can occur at Council
- The need to address concerns regarding the independence of the Internal Audit function and a suggestion to reinstate the previous Audit Charter
- Concerns that the appointment, dismissal and remuneration of the Internal Audit Director is under the responsibility of the CAO, due to the potential impact on the independence and objectivity of the internal audit function
- Request that the Audit Committee Chair and Vice Chair be advised when external agencies are invited to future Audit Committee meetings
A point of order was raised by City Councillor Bowman. The Chair gave leave for the point of order. In response to information provided by staff, Councillor Bowman clarified that the Audit Committee did not provide direction for changes made to the Audit Charter relating to the reporting structure of Internal Audit.
The following motion was considered.