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Pay Files - Internal Audit 2008

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Pay Files - Internal Audit 2008 - December 2008 [PDF 44 KB]

2008 INTERNAL AUDIT

PAY FILES

December 2008

A.F. (Tony) Mitchel
Internal Audit Advisor

General Outline

A) Reviewed with Group Leader, Compensation Operations the tests performed by the Auditor General in prior years.

B) Reviewed schedules provided by the group Leader

  • Payroll Description
  • System Description
  • Schedule of 2007 Hires and Terminations
  • Schedule of Weekly Hours 2007-2008 (Q1 and Q2)
  • Random Overtime Sample Dec 31 2007 year end
  • Schedule of delayed Time Sheets
  • T4 Summary Data 2007

Reviewed Collective Agreement

C) Reviewed Process for

  • Adding employees
  • Terminating Employees
  • Changing Pay Grades - See summary from JJ
  • Interviewed the Group Leader and 2 of the Compensation Advisors
  • Viewed and questioned actual actions performed by the Group Leader and the compensation Advisors

D) Performed detailed review of Overtime hours charged across Business Units at the Board during 2008

  • Gained access to the TIME system from the Group Leader
  • Reviewed, by BU, hours and patterns of O/T charged and approved
  • Reviewed large sample of O/T claims approved
  • Interviewed Operations and Applications Business Unit Leaders and a selection of Team Leaders in both OPS and APPS
    • Developed and used standard questionnaire
    • Queried BUL's and T/L's as to possible improvements in process
  • Interviewed sample of employees claiming large hours of overtime

E) Results, Findings, Observations and Recommendations

A) Prior to commencing the audit the Group Leader, Compensation Operations was interviewed as to the scope of the annual Cost Recovery audit performed by the Auditor General. The AG's audit is thorough and focused on overall reasonableness. After this interview and considering all risks it was decided to concentrate Internal Audit efforts on:

  1. Testing the controls in place for hiring and terminating employees and for salary actions (promotions, annual increments) during 2008,
  2. Reviewing timeliness of timesheet submissions and approvals,
  3. Examining the process of claiming and approving Overtime payments which was the main focus of the audit.

B) The documents and schedules listed on the General Outline page were obtained from Compensation. The Payroll Description and System Description are attached to this report but the other listed documents are confidential and will remain in Internal Audit files.

  1. The Payroll and Time System Descriptions are adequate. The descriptions are updated each year for the Cost Recovery audit with changes highlighted from year to year.
  2. Reviewed the schedule of 2007 Hires and Terminations and tested system inputs. No issues were identified.
  3. Reviewed the schedule of Weekly Hours for unusual items. No issues identified.
  4. Reviewed schedule of delayed Time sheets and discussed with Compensation. Improvements have been made in recent years.
  5. The T4 Summary Data for 2007 was perused for unusual items (such as previously terminated employees) and for reasonableness. No issues were identified.
  6. The following policies/procedures were also reviewed:
    1. NEB Salary Determination Guidelines
    2. Collective Agreement - NEB & PIPSC
    3. Time System Description
    4. Hours of Work and Business Hours Policy
    5. Treasury Board Secretariat - Maximum Hours of Work Policy
    6. An excerpt from the Canada Labour Code

C) In testing the processes for adding, terminating and changing pay grades, the Group Leader, Compensation Operations and Compensation Advisors were interviewed as to their respective roles and their knowledge of policy and processes. Live actions were examined as the Group Leader, Compensation Operations approved and implemented changes to pay grades and added and terminated employees from the system. Controls are well defined and are fully understood by the Group Leader and the Advisors. Any variance from the process or lack of required information is referred back to the appropriate person for corrective action before any action is undertaken. It should be especially noted that not only is the process excellent and documented but also that the Group Leader and the Advisors are thorough in their application of the process. Checks and re-checks of each other's inputs are diligently implemented.

D) The control and use of overtime represented the most effort and time in this audit. Various aspects of overtime were examined. Not only was the amount, nature and business unit usage of overtime examined, particular attention was paid to the process by which overtime was approved and paid.

  1. For the period January 1, 2008 to October 29, 2008 13,800 hours of overtime was incurred with the majority of hours charged in Operations (5785 hours) and Applications (2960 hours). Most of Operations overtime related to audits and inspections. Applications overtime was mostly related to hearings in progress.
  2. The complete list of overtime by individual was examined and, on a test basis, individual overtime claims were examined for patterns. Special attention was paid to individuals who had a pattern of overtime claims in the range of 20+ hours per week.
  3. In examining the list, unusual patterns of overtime usage were also examined. This included individuals who had small amounts of overtime hours in per week over a longer period of time and not related to any particular project.

An examination of the explanations / reasons noted on Time Sheets for overtime was undertaken. In this extended test it was confirmed that all Time Sheets had been authorized.

A short questionnaire was developed and the Business Unit Leaders in Operations and Applications and a large sample of Team Leaders were interviewed as to their practices in regard to pre-authorizing and authorizing overtime. The questionnaire and interviews also tested the attention and importance leaders assign to safety and quality of life issues with respect to overtime usage.

E) Results, Findings, Observations and Recommendations

Positive and full cooperation was provided by staff in Compensation and in Operations and Applications. All staff were generous with their time and suggestions.

Overtime

Discussed with leaders the need for overtime and whether there means for reducing the number of hours on a year over year basis.

It was the general belief that while some hours were as a result of staffing issues that overtime with respect to inspections and audits in Operations and with respect to hearings in Applications were demand driven. In the case of inspections, inspectors were generally required to be on site while the contractor was working and that was then followed up by report writing in the evening and meetings with the contractors prior to the start of the work day the next morning. Staff involved agreed with this need.

Leaders had concerns that there were potential safety and health issues among staff with heavy overtime demands. All tried to manage these issues mainly by close contact with those staff. Staff interviewed generally, with one exception, had no concerns and managed their own time very well, with among other things, driving long distances after a full day. The one exception also volunteered that the amount of overtime earned was a large part of the reason he liked his role.

Pursued with Leaders the question of "Overtime: Burden or Benefit?" The response was generally neutral but overtime is held out as a benefit often when trying to hire professionals from industry, i.e., while the NEB can not always match the compensation in industry the NEB does pay for overtime.

Correspondence between the Compensation Advisors and employees or Team Leaders was reviewed. Team Leaders rely on the Compensation Advisors to catch any claims that do not follow policy or that are otherwise unusual. For example in one case an employee had a unique pattern of hours claimed including earning banked time and claiming lots of overtime on a consistent basis. At the same time for any days off he was using banked time, not taking any vacation time and requesting payout of his accrued vacation. The Hours of Work Policy states that banked time should not normally result in any additional costs such as vacation payout or overtime. While this may have been a case of a new employee being a very busy person and not being aware of the rules, it might have been an attempt to "work the system" and claim more than entitled hours. This was only caught and corrected when the pattern was noticed and reported to the Team Leader by the Group Leader, Compensation Operations.

Recommendation

While they should continue their review of all TIME reported prior to final approval, Team Leaders need to be reminded that they do approve time sheets and therefore they have the primary responsibility for approving all payments from the payroll system.

All Leaders interviewed insisted on pre-approving any overtime by staff reporting to them. There was no formal or consistent process, with most expecting an email from the staff member, but in some cases approval was given verbally. If overtime was to exceed the amount of time pre-authorized, Leaders expected to be updated but were not too concerned with minor variances.

Observation

Based on need, there is no advantage seen to recommending a more formal process for pre-approval of overtime.

TIME has the facility to record the justification / reason for overtime claimed, but this is used by some staff some of the time and not used by others. It would be very difficult to perform a qualitative analysis of overtime usage due to the haphazard nature of the explanations.

Recommendation

It is recommended that TIME require an explanation for each period in which overtime is claimed by a staff member. The software has this facility and Leaders see value in having this function activated.

Observation

Most employees now receive their pay bi-weekly by means of electronic deposit to their bank account. At the same time enveloped paper copies of the pay stub are delivered to Finance where they are sorted by team. On the day the pay is deposited, Finance delivers the pay stubs to the appropriate team administrative assistant who then hand delivers the stubs to each employee in their respective teams. If that staff member is not in their office, the assistant will send an email to the employee directing them to retrieve the pay stub from the assistant.

This extended process can be time consuming and adds no value either for control purposes, confidentiality or otherwise.

Recommendation

Pay stubs are available electronically at Public Works and Government Services Canada - Compensation Sector.

It is recommended that staff be directed to that site to retrieve pay stubs. In the alternative, instead of the PWGSC delivering the pay stubs to Finance, deliver them (as noted they are in window envelopes) to the mail room for sorting and delivery to staff.

 

 

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Date Modified:
2011-10-28