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Internal Audit and Evaluation Documents



Prepared by Samson & Associates

FINAL REPORT

August 2006

Report tabled and approved by the A&E Committee

Table of Contents


Executive Summary

A salary management risk-based preliminary survey was conducted by Samson & Associates, in September 2004, to provide Parks Canada with an identification of potential areas of risk in the administration of compensation and benefits. Salary expenditures ($233.9M) represented approximately 39% of total Agency expenditures ($599.5M) for fiscal year 2004-05. The preliminary assessment of the salary management process was carried out in the National Office and two service centres (Quebec and Ontario).

Results of the preliminary survey identified seven areas of "high"risk:

  • organizational structure;
  • taken-on-strength (TOS) actions;
  • executive pay;
  • struck-off strength (SOS) actions;
  • Section 33, Financial Administration Act (FAA);
  • pay entitlements (allowances); and
  • leave without pay (LWOP)

Subsequent to the results of the preliminary survey, Human Resources senior management indicated some concerns with the management of leave and requested that a review of such be included in any further audit work. More than 156,000 leave transactions were processed for the period April 1, 2004 to November 30, 2005.

The Pay and Benefits Audit was included in Park's Canada's Internal Audit Plan for 2005-06. Samson and Associates was contracted to carry out the audit from November 2005 to March 31, 2006.

The objectives established for this audit were as follows:

  • To assess the adequacy of the organizational structure for the administration of compensation and benefits

  • To determine the adequacy of Parks Canada's systems and controls for the administration of compensation and benefits and to identify means for improving the efficiency and effectiveness of these systems and accuracy of the data (including taken-on-strength, Executive pay, struck-off-strength, allowances and leave without pay)

  • To determine the adequacy of Parks Canada's systems and controls for the management of leave, and identify means for improving the efficiency and effectiveness of these systems and accuracy of the data (including annual, sick, compensatory leave, family, volunteer, personal).

The scope of the audit included both PCX and non-PCX employees and was national in scope.

A total of 587,672 pay transactions were processed during the period April 1, 2004 to March 31, 2005 by approximately 50 compensation staff in the National Office (NO) and four service centres resulting in $233.8M in salary costs for the Agency. For the first nine months of fiscal year 2005-06 (as of November 30, 2005) a total of 452,633 pay transactions were processed resulting in $216.8M in salary costs. In addition, 156,000 leave transactions were also processed for the same time frame. A breakdown of these expenditures, by service centre, is presented in Section 1 - Table 1A, 1B and 2.

The audit was conducted in accordance with the standards set out in the TB Policy on Internal Audit. These standards require that the audit is planned and performed in a manner that allows the audit team to determine assurance of the audit findings. The audit team's conclusions are based on the assessment of findings against the objectives and criteria as defined in Section 2.0 and reflect the audit work conducted between December 2005 and March 2006.

In the audit team's opinion, sufficient audit work has been performed and the necessary evidence has been gathered to support the conclusions contained in this audit report. Debriefings were conducted by audit team members at which time audit findings were discussed. Some service centres have already taken action to address specific areas requiring improvement.

Employee pay entitlements and benefits deductions are governed by various Acts and regulations, the Parks Canada Agency Collective Agreement and Terms and Conditions of Employment Regulations. Compensation staff are challenged with applying the interpretations of these sometimes complex legislative requirements and guidelines. Compensation Advisors undergo an extensive combination of formal and on-the-job training with more complex files assigned to senior Compensation Advisors. The Compensation Advisors and Managers draw on an extensive library of compensation and benefits guidelines, directives, policies, procedures and manuals.

The Agency has an obligation to ensure that employees are receiving the correct rate of pay, in accordance with the Agency's collective agreement or terms and conditions of employment, that their pay is effected in a timely manner and that they are afforded an acceptable level of service with respect to their compensation and benefits related concerns.

Overall, with respect to regular pay, management can be provided with a good level of assurance that employees are being paid at the correct rate of pay in accordance with the Parks Canada collective agreement. We noted that while few errors of significance are occurring with regular pay transactions such as taken-on-strength (TOS), struck-off-strength (SOS) and pay increments, the controls over non-regular (supplementary) pay transactions such as acting pay/appointments and payment of allowances such as the bilingual bonus need improvement. We found that errors are occurring and going undetected and pay actions are not supported by adequate documentation.

A summary of our audit findings are categorized according to the Internal Audit Strategy & Plans' Audit Reporting Rating System and are presented below.

ORANGE

Significant Improvements Needed

Controls in place are weak. Several major issues were noted that could jeopardize the accomplishment of program/operational objectives. Immediate management actions need to be taken to address the control deficiencies noted.

  1. Controls over the payment of the bilingual bonus need improvement. Payment of the bilingual bonus to Agency employees totalled $732,000 in fiscal year 2004-05. We found in all service centres that employee files lacked sufficient evidence to support that the employee was entitled to the bilingual bonus. We did note however, that for more recent appointments, entitlement to the bilingual bonus was stipulated in the employee's letter of offer. For those employees who have remained in their substantive positions for a long period of time, evidence on the files was for the most part lacking. Of particular concern was the lack of evidence to support that an employee in an acting position was entitled to the bilingual bonus since in many instances, entitlement to the bilingual bonus was absent from acting pay forms and acting appointment letters. We are recommending that compensation staff ensure they receive the necessary documentation, on a timely basis, to support the commencement and cessation of the bilingual bonus. (Section 4.2.4)

  2. The Leave Reporting System (LRS) contains no system edits or checks to reconcile the total hours taken against the total time taken since there are too many variables that affect the relation of time periods i.e. compressed hours, part-time hours etc. For example, if an employee had taken vacation leave from April 1 to 2, the requisite leave credits should normally be reduced by 15 hours. If the employee inadvertently recorded 150 hours instead of 15 the leave transaction would not have been validated by the system and the employees leave would therefore be reduced by 150 hours. There is no monitoring mechanism in place to detect this type of error. We are recommending that: a leave monitoring system is implemented to identify and address data inaccuracies. (Section 4.3.2)

  3. The Agency has not implemented a leave monitoring system to identify and address inaccuracies or system weaknesses. Although we found mechanisms in place to monitor excess vacation leave beyond leave entitlements in accordance with the Parks Canada collective agreement, we found numerous anomalies with respect to sick leave, family related leave, other paid leave etc. In particular, we found that more than 6,500 hours of leave were recorded against "other paid leave" (code 699) which are beyond the leave entitlements of the collective agreement. The absence of an effective leave monitoring system has allowed leave usage beyond entitlements as per the collective agreement to go undetected. Given these weaknesses consideration should be given to conducting a more in-depth review of leave and overtime. We are recommending that a leave monitoring system is implemented to identify and address data inaccuracies, system weaknesses, potential abuse and trends and that use of other paid leave is assessed and it's use restricted to exception situations. (Section 4.3.3)

YELLOW

Moderate Improvements Needed

Some controls are in place and functioning. However, major issues were noted and need to be addressed. These issues could impact on the achievement or not of program/operational objectives.

  1. Accountability for the compensation and benefits function has not been clearly defined with three separate directorates having responsibility for the delivery of compensation and benefits. Compensation and benefits services are delivered through a fragmented organizational structure which has led to significant weaknesses in controls over the compensation and benefits function. In addition, we found existing guidelines are dated and do not clearly define and communicate the responsibilities of all individuals involved in the process for effecting pay actions, including the manager, supervisor, staffing officers/HR advisors and Compensation and Benefits advisors. This is resulting in errors going undetected and missed or untimely pay actions. We noted many instances where managers either lacked a sufficient knowledge of their responsibilities for ensuring the timely compensation of their employees or lacked an adequate knowledge of the Parks Canada collective agreement regarding entitlements such as leave. We are recommending that: the current organizational structure and accountability for the delivery of compensation and benefits services is reviewed and assessed so that the optimum level of compensation services is provided to all employees and; that existing service standards be updated and expanded to clearly define and communicate the responsibilities of the manager, supervisor, staffing officers/HR advisors and Compensation and Benefits advisors in the process for effecting pay actions, that these guidelines be communicated to managers and be supported by senior management. (Section 4.1.1)

  2. While we found no significant issues with respect to taken-on-strength (TOS) and struck-off-strength (SOS) actions, we found controls over the adequacy of documentation needed improvement. In many files reviewed, letters of offer were missing and/or the content and quality of the letters lacked key information such as entitlement to bilingual bonus, etc. We also noted that the majority of files for SOS'd employees did not contain employee clearance reports indicating financial certification that no money is owed the Agency. We did note improvements in the letters in the 2005 files with all service centres now using standard benefits letters available from the HR Library or Service Canada Virtual Pay website and that most service centres were using checklists although these varied in content. We are recommending that: employee files contain the adequate documentation which provide compensation staff with the authority to pay; that a common set of checklists are developed for TOS and SOS actions and; that employee clearance reports are received by compensation staff for all SOS actions. (Section 4.2.1)

  3. While we noted no significant anomalies during our review of Executive pay files, a key control in the pay verification process, namely adequate separation of duties, is not in place. The Executive Pay Compensation Advisor processes all PCX pay transactions as well as performing the pay verification process on the same transactions. Despite this situation we did find adequate evidence of pay verification, which was supported by pay documentation on each of the files reviewed. We are recommending that an independent pay verification process is in place for Executive pay transactions. (Section 4.2.2)

BLUE

Minor Improvements Needed

Many of the controls are functioning as intended. However, some minor changes are necessary to make the control environment more effective and efficient.

  1. Although there is evidence that pay transactions are being verified in accordance with Section 34 FAA, we found that financial officers do not always have supporting pay documentation readily available to them at the time of authorization. There is the risk that financial officers cannot provide the necessary level of assurance, as required by the FAA, that pay actions are valid and accurate. Guidelines for the authorization of pay transactions have not been established which has resulted in an inconsistent approach to FAA Section 34 authorization and the associated sampling process. We are recommending that: procedures for the authorization of pay transactions are developed and communicated; that a consistent approach to pay verification is implemented across the Agency and; that guidelines for service centre financial officers, which outline the pay transaction authorization process, associated sampling process, and documentation requirements are developed. (Section 4.2.3)

  2. In fiscal year 2004-05 more than 28,000 LWOP transactions were processed totalling a recovery of three million dollars. While no significant issues were identified, given the significance of the cost to the Agency, Compensation Managers should have an active role in monitoring these high risk cases. We are recommending that Compensation Managers have an active role in monitoring LWOP cases. (Section 4.2.5)

  3. The Agency has made a positive step forward in the management of leave and has undertaken a phased in approach over the past year to move from a manual leave recording process to an automated process with the Leave Request System (LRS). The LRS will significantly reduce, and eventually eliminate, the cumbersome and time consuming manual processing of leave requests and permit existing resources involved in the manual process to be used elsewhere. However, we found that most employees and managers have not been provided with formal training on the use of the LRS and that step-by-step procedures have not been developed. While there appears to be a positive uptake to using the LRS we found during the audit that all service centres are still processing manually prepared leave requests. We noted that although senior management is encouraging the use of the LRS, it has yet to be made a mandatory requirement. We are recommending that: use of the Leave Request System (LRS) becomes a mandatory requirement for the processing of leave requests and; that step-by-step procedures to access and use LRS are developed. (Section 4.3.1)

Report tabled and approved at the A&E Committee meeting on May 28, 2007