Item - 2017.AU9.11

The Audit Committee recommends that:

1.  City Council receive for information, the following:

a.  The transmittal letter (June 16, 2017) from the Chief Financial and Administration Officer, Toronto Transit Commission.

b.  The report (May 15, 2017) from the Auditor General, headed "Review of Toronto Transit Commission Procurement Policies and Practices: Improving Materials Management and Purchasing Policies Can Result in Significant Savings".

2.  City Council request the Toronto Transit Commission Board to request the Chief Executive Officer, TTC, to consider hiring an external consultant with expertise in customized transit parts when implementing Recommendations 1-3 and 11 in the report (May 15, 2017) from the Auditor General.

3.  City Council request the Toronto Transit Commission Board to report to the Audit Committee in spring 2018, on what improvements were made to achieve Recommendations 1-3 and 11 in the report (May 15, 2017) from the Auditor General.

The following persons gave presentations to the Audit Committee on this Item:

-  Jane Ying, Assistant Auditor General

-  Ted Zlotnik, Head, Materials and Procurement, Toronto Transit Commission

-  Rich Wong, Head, Streetcar Maintenance, Toronto Transit Commission.

At its meeting on June 15, 2017 the TTC Board considered the report entitled "Auditor General's Report -Review of Toronto Transit Commission Procurement Policies and Practices: Improving Materials Management and Purchasing Policies Can Result in Significant Savings".

The Board adopted the recommendations in the Audit General's report and approved forwarding the item to City Council for information through the City's Audit Committee.

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The Auditor General's report advises that the Toronto Transit Commission (TTC) procures over $300 million worth of goods and services annually for its day-to-day operations through the Materials and Procurement (M&P) Department. The Department is comprised of three areas:

-  Purchasing and Sales – purchases goods and services for TTC’s day-to-day operations

-  Materials Management– manages TTC’s inventory assets

-  Project Procurement – procures vehicles, construction, engineering, and consulting services, and provides contract administration services.

This audit included an in-depth review of Purchasing and Sales and extended into areas of Materials Management. We did not audit the Project Procurement Section.

The main customers of Purchasing and Sales and Materials Management are TTC's maintenance departments, including the Bus Maintenance & Shops, the Streetcar Maintenance and Infrastructure, and the Rail Cars & Shop Departments.

The objective of our audit was to assess whether TTC's procurement policies, procedures and practices are fair, transparent, cost effective, and achieving the best overall value.

Overall, we found that many aspects of TTC's procurement policies and practices need to be substantially improved or revamped for it to achieve efficient and effective operations and the best overall value. We also identified a few significant cost savings opportunities, and inventory management issues that negatively impact TTC’s day-today customer service.