Archived - Audit of Non-Routine Pay: Overtime and Payments made under Workforce Adjustment
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- 1.0 Executive Summary
- 1.0 Introduction
- 2.0 Findings and Recommendations
- 2.1 Management and Administration of Overtime
- 2.2 Management and Administration of Workforce Adjustment Payments
- Appendix A: Audit Criteria
- Appendix B: Management Response and Action Plan
1.0 Executive Summary
The Canadian Food Inspection Agency (CFIA, the Agency) plays a key role in maintaining Canada's food safety system. The many important functions the Agency performs include inspection activities to verify industry compliance with the requirements of legislation. The nature of CFIA's business and the requirement to provide industry with inspection coverage has resulted in overtime becoming a means by which the workload of front-line workers is addressed; approximately 88% of the CFIA's overtime is incurred within the Operations Branch. Some level of overtime is expected, normal, and justified (due to longer shift lengths, covering unplanned staff absences and industry requirements). The nature of the business poses complex resourcing and scheduling demands for the management of front line operations. Effective management of overtime is to some extent dependent on the effective management of staff and workload.
The focus of this audit was the management of overtime, in part to ensure that the provisions of the Collective Bargaining Agreements (CBAs) and the Agency's Authorization of Overtime Policy are respected, but also to establish if the Agency is actively managing overtime with a view to minimizing it. As a government agency, the CFIA is accountable to the public for using resources effectively and efficiently. Localized strategies to improve resource management with the objective of reducing overtime, and National guidance for the allocation of existing inspection resources in federally registered slaughter establishments were noted. Initiatives such as these are important in establishing an expectation of active management rather than passive acceptance.
The audit also focused on payments made to non-EX employees under Workforce Adjustment (WFA). As a result of Budget 2012, the Agency identified a total of 309 surplus positions. Employees occupying surplus positions are entitled to WFA with the right to choose from a number of different options, in addition to rights under their Collective Bargaining Agreements. Payments made under WFA were included in the audit as a timely review to ensure compliance with CBAs and that adequate control is in place over payments which are significant from a personal recipient point of view.
Key Findings and Conclusion
The audit found that the Agency has measures in place to ensure overtime payments are made in accordance with Collective Bargaining Agreements and guidance documents. However, opportunities exist to strengthen the management and monitoring of overtime. There is a current tendency to accept overtime as inevitable and unavoidable given the requirement to service industry in a timely manner, although some locations have taken a more proactive stance. In order to effectively manage overtime, an understanding of the drivers, resource requirements for the regular workday, strategies in place at similar locations, relevant provisions of the Collective Bargaining Agreements and overtime data analysis and monitoring are required.
The audit also found that the Agency has put in place the necessary processes and controls to administer workforce adjustment payments in accordance with collective bargaining agreements in response to Budget 2012, although guidance related to claims for education allowances could be strengthened.
In conclusion, while the Agency has measures in place to support overtime payment and processes in compliance with Collective Bargaining Agreements and the Agency's Authorization of Overtime Policy, adoption of improved management practices may lead to a reduced overall annual overtime cost, and those funds could be used for other higher priority purposes. The report includes five recommendations to address overtime management practices where improvements are required.
Further, although processes and controls are in place to administer workforce adjustment payments, the report includes one recommendation to strengthen guidance related to claims for education allowances.
The Canadian Food Inspection Agency's (the CFIA or the Agency) salaries and employee benefits expenses comprise the majority (74%) of total operating expenses. In 2012-13, of the total $613M paid in salaries and benefits, $14.4M (2%) was paid out in overtime.
The nature of CFIA's business and the requirement to provide industry with required inspection coverage has resulted in overtimeFootnote 1 becoming a means by which the workload of front-line workers is addressed; approximately 88% of the CFIA's overtime is incurred within the Operations Branch. Under the User Fee Act, overtime may be recoverable for inspection staff working in third-party premises. Further, some overtime occurs in response to emergency situations. These are by nature unpredictable, and by necessity are managed as they occur.
Prior to August 1, 2012, Area Compensation Advisors were responsible for reviewing overtime forms from their Area prior to processing. This review included compliance with the terms and conditions of Collective Bargaining Agreements (CBAs) and appropriate authorization. Effective August 1st, 2012, a phased-in approach was introduced to centralize the processing of overtime forms at the 1-888-HR Service Centre unit in Moncton, New Brunswick. Area Compensation Advisors no longer review overtime forms.
Also, in 2012 the Government introduced a five year Public Works and Government Services Canada (PWGSC) Transformation of Pay Administration Initiative to transfer pay administration services for federal government departments and agencies to a Centre of Expertise within PWGSC located in Miramichi, New Brunswick. The movement of Extra Duty Pay (which includes overtime) pay services from CFIA to PWGSC occurred in October 2013.
CFIA managers will continue to have accountability and responsibility for reviewing and authorizing compensation requests, including overtime and leave.
Payments made under Workforce Adjustment (WFA) are considered non-routine. As a result of Budget 2012, cost reductions of $2.1 million in 2012-13, $10 million in 2013-14, and $56 million in 2014-15 are expected. As part of these reductions, the Agency identified a total of 309 surplus positions. Employees occupying surplus positions are entitled to Workforce Adjustment involving options such as lump sum payments, educational allowances or priority period to secure a reasonable job offer.
Transition support measure payments, or lump sum payments, made upon a surplus employee's departure under WFA can range from four (4) to fifty-two (52) weeks of the opting employee's salary. Agency WFA payments excluding the education allowance or severance amounts totaled approximately $7 M in respect of 131 surplused employees.
The Agency's Audit Committee approved an audit of Non-Routine Pay Transactions, including Overtime and WFA Payments as part of the 2013/14 to 2015/16 Risk-Based Audit Plan.
The objective of this audit was to provide assurance on the adequacy of management practices and control activities, including controls to ensure compliance with CBAs, with respect to the Agency's:
- overtime processes, including payment processes; and
- WFA payments and processes as they pertain to surplus employees identified as a result of Budget 2012.
The scope of the audit included management practices and control activities regarding overtime incurred and paid, and WFA payments and related processes related to surplus non-executive employees identified as a result of Budget 2012.
Administration and management of overtime included scheduling arrangements, authorization, processing and recording, and monitoring of overtime. Testing of completed overtime forms against the Agency's Authorization of Overtime Policy and CBAs was on a sample basis of overtime incurred during fiscal year 2012/13 and current year to end of June and recorded in the Agency's books of record, i.e.: PeopleSoft and SAP.
Testing of WFA payments and related processes was on a sample basis. WFA payments included Transition Support Measures (TSM), severance pay, education allowance and unused vacation leave.
The audit scope did not include an assessment of:
- the management or payout of compensatory leave;
- recoverable fees associated with overtime; or
- IT system controls within related business applications.
The audit took place at the Human Resources Branch and Corporate Management Branch at Agency headquarters, the 1-888-HR Service Centre in Moncton, NB and through teleconference calls with a small number of Operations locations where overtime is incurred or managed.
1.4 Methodology and Approach
Lines of enquiry and detailed audit criteria (see Appendix A) were developed to serve as standards against which our assessment could be made, and form a basis for the conduct of the audit. The criteria were developed from the Agency's Authorization of Overtime Policy and key controls set out in the Government of Canada Pay Administration Control Framework Tool and the Office of the Comptroller General's Audit Criteria related to the Management Accountability Framework: A Tool for Internal Auditors.
The audit criteria are organized under two lines of enquiry (LOE):
LOE 1: Management and Administration of Overtime
LOE 2: Management and Administration of Work Force Adjustment Payments
A review of overtime incurred at the Agency indicated Operations Branch had the highest level of overtime, and the highest ratio of overtime to regular salary. This was further analyzed to determine which locations incurred high levels of overtime; high overtime in relation to regular salary; and individuals with high overtime earnings. Ten sites were selected for further examination on this basis; covering seven slaughter establishments, and three district inspection offices.
A total of 90 overtime claims were reviewed. Of these, 48 were randomly selected from the Agency's 1-888-HR Service Centre and 42 were judgmentally selected from locations.
A sample of 20 surplus employees receiving pay in lieu (15.27% of total surplus employees) was selected to achieve representative coverage across WFA options and across NCR and Areas.
Of the 21 employees who made claims for education expenses (total claim amount of $119,492), 12 employees were selected (57.14% of the population of total employees). All employees who made claims of the maximum amount ($10,000) were selected.
A total of 35 employees were still awaiting a reasonable job offer as at May 31, 2013. Of these, 5 employees were randomly selected.
The fieldwork for the audit was substantially completed October, 2013.
1.5 Statement of Conformance
The audit conforms to the Internal Auditing Standards for the Government of Canada, as supported by the results of CFIA's Internal Audit quality assurance and improvement program. Sufficient and appropriate auditing procedures were performed and evidence gathered in accordance with the Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing to provide a high level of assurance over the findings and conclusion in this report. The findings and conclusion expressed in this report are based on conditions as they existed at the time of the audit, and apply only to the entity examined.
2.0 Findings and Recommendations
2.1 Management and Administration of Overtime
2.1.1 Control Framework
Two aspects of the control framework for the management and administration of overtime were examined: guidance available to personnel to allow the discharge of duties; and monitoring by
- Managers of overtime usage within their control; and
- Quality Assurance of overtime transactions to ensure compliance with financial requirements.
Reference Material and Guidance
There is an opportunity to strengthen reference material and guidance relating to the management of overtime.
We expected the Agency to have reference material (policies, procedures, directives, standard operating procedures) and guidelines to support administrative support staff, and managers who are responsible for managing overtime (i.e. planning, authorization and approval activities). We also expected that guidance aimed at managing overtime would address the challenges presented by different overtime drivers (industry requirements, unforeseen absences, and unforeseen events).
We found that reference material and guidance in place to support administrative staff and managers consists of the Human Resources Branch overarching Authorization of Overtime Policy (July 1999), Collective Bargaining Agreements (CBAs), the June 2013 Operations Branch Operational Guidance for Staffing in Federally Registered Slaughter Establishments, and some procedural documentation. Local work shift agreements that set out hours of work are in place between the CFIA and third party sites.
The Authorization of Overtime Policy describes managers' responsibilities regarding pre-approval of overtime and authorization of payment for overtime hours worked. The Policy also states that overtime shall only be used when it is determined by management that overtime is the most appropriate and cost-effective way of producing the work or providing the service and that it is to be kept to an appropriate minimum.
We found procedural documentation is available and adequate regarding the process by which overtime is to be approved and submitted for payment; however, little guidance is given to effectively manage the workload, regular work day and overtime in order to ensure requirements regarding cost-effectiveness of overtime and minimizing overtime are met. In the absence of such guidance, there is a risk that strategies or best practices for managing the drivers of overtime are not shared or available and overtime is seen as an unavoidable aspect of servicing clients and is accepted rather than actively managed. Further, the Policy makes reference to the CBAs and we noted there is no Agency-wide interpretation of the CBAsFootnote 2.
The June 2013 Operational Guidance for Staffing in Federally Registered Slaughter Establishments lists high level roles and responsibilities for Area Executive Directors, Regional Directors, Inspection Managers and Supervisors. Guidance is given to implement a more integrated and streamlined planning approach for resource allocation and scheduling. While this is not directed to the management of overtime per se, it is an important initiative since much of the overtime incurred in Operations is due to the Meat Hygiene program, and a more efficient use of resources available could assist in the minimization of overtime. We note that the guidance is recent, and its impact cannot be assessed. However, expectations regarding timing of implementation and reporting on results have not been stated.
Recommendation (1): The Vice-President, Human Resources Branch in conjunction with senior management should ensure the Authorization of Overtime Policy and related documentation (including CBA interpretations) is reviewed and assessed to confirm it meets operational requirements, and includes the appropriate guidance to manage and minimize overtime.
Monitoring of Overtime
There is an opportunity to improve the monitoring of overtime.
We expected to find that monitoring of overtime is undertaken on a regular basis by Human Resources Branch and managers/supervisors with responsibility for managing overtime, and potential issues are identified and addressed. We expected monitoring of overtime to be financial, by program, by location and / or by individual.
We found that, within Operations Branch, Area Executive Directors and Regional Directors receive regular financial reports which include information on overtime expense incurred. This information is not routinely distributed to Inspection Managers, Supervisors or Vets in Charge who have day-to-day responsibility for managing overtime. A report on the Top 40 Overtime Earners was prepared nationally on an ad-hoc basis and distributed to the Areas for their information; while this is a useful report, there was no evidence of any review of the report or validations of the appropriateness of the amounts.
Audit testing (refer to section 2.1.3) identified a large error which should have been caught through the regular review of financial reports and/or the Top 40 Overtime Earners report. Without appropriate monitoring of this information, there is a risk that material errors may go undetected, trends or anomalies may not be identified and followed up, and overtime may not be well managed.
Recommendation (2): The Vice-President of Operations Branch should ensure overtime is regularly monitored by the appropriate management level using available tools.
QA Monitoring of the Payment Process
There is a Quality Assurance sampling plan in place; however, it could be strengthened and actioned timely.
We expected that there would be a Quality Assurance (QA) pay sampling plan in place in accordance with the requirements of the Treasury Board Directive on Account Verification, that the plan is executed as intended with results reported to senior management and appropriate corrective action taken.
We found that there is a plan in place for non-system generated payroll transactions, which distinguishes between high and medium/low risk items. High risk transactions are those that pertain to employees leaving the Agency, these are subject to 100% verification by Monitoring and Financial Controls in the Corporate Management Branch. Medium/low risk payroll transactions consist of all other payroll transactions with manual input (i.e. non-routine), including overtime payments. These transactions are subject to quality assurance verification by Corporate Compensation, HRB. The audit noted that the plan for medium/low risk payroll transactions was behind scheduleFootnote 3 and the plan is not designed to identify anomalies or high dollar value paymentsFootnote 4.
Without a well-designed risk-based QA plan, there is a risk that material errors or anomalies may go undetected.
Recommendation (3): The Vice-President, Human Resources Branch, in consultation with the Vice-President Corporate Management Branch, should revisit the Quality Assurance pay sampling plan to ensure that it is designed to identify anomalies or high dollar value payments.
2.1.2 Use and Management of Overtime
Management of overtime is, in some situations, dependent on the management of the regular workload.
We expected that overtime would be used and managed in relation to the workload in accordance with the Agency's Authorization of Overtime Policy and in accordance with CBAs.
We found that Inspection Managers and Supervisors are generally aware of the overtime provisions of the respective CBAs and the procedural requirements of the Authorization of Overtime Policy. We also noted that some measures, such as advance preparation of work schedules, sign-in/out sheets and rotation lists for overtime, were in place to assist in managing the overall workload.
The Policy states that overtime shall only be used when it is determined by management that overtime is the most appropriate and cost-effective way of producing the work or providing the service and that it is to be kept to an appropriate minimum. In order to address these aspects of the Policy, we expected that there would be active management evidenced by
- an understanding and active management of the resource requirements for the regular work day / work load;
- tracking and trend analysis of overtime by cause;
- a determination of what constitutes an "appropriate minimum";
- financial management of overtime by the people who have responsibility for day-to-day workload management; and
- a cost-benefit analysis of overtime vis-à-vis other staffing options.
Challenges related to managing the workload are recognized and differ at the local level depending on the program. The length of the workday within slaughter establishments can be longer than that specified by the work-shift agreement and the CBAs resulting in routine overtime. Travel overtime to serve border control points can be significant and incurred on demand. We found that actively managing the resource requirements for the regular work day / work load may, in certain circumstances, assist in the minimization of overtime. Some local strategies to manage the workload are in place, such as reviewing minimum staffing requirements, establishing inspector shifts to cover evenings and week-ends or assigning after-hours duties to the closest domiciled vet. Although the impact of these strategies could not be quantified due to the limitations in available data, it does suggest that a proactive approach to managing the requirement to service industry could be beneficial.
We found that there is a general perception that most overtime in Operations Branch is driven by industry demands rather than understaffing, employee absences or any other cause. The audit was unable to substantiate that this was the case. The information required to perform such an analysis is not easily available since overtime is not entered into the payroll system by driverFootnote 5.
We found a general acceptance that services required by industry to be performed outside of a regular shift are best addressed through overtime, and in some instances the audit found that overtime is the most cost-effective strategy available. The requirement to meet industry's needs, and the type of business to be serviced (e.g. slaughter establishment, border crossing), has a direct impact on the predictability, nature and extent of overtime and therefore on the Agency's ability to effectively manage or minimize it.
Overtime costs are not separated out in the overall Pay budget. Financial management of overtime, that is monitoring and forecasting, takes place at Area or Regional offices, not at the local levels where overtime is incurred or by the people who have responsibility for day-to-day work load management. Further, no formal cost-benefit analysis of overtime vis-à-vis other staffing options has been performed.
Without systematic practices at the local level, such as analysis of resource requirements, tracking and analysis of overtime incurred by cause, and cost-benefit analysis of resourcing options, it is difficult to demonstrate management and appropriate usage of overtime.
Recommendation (4): The Vice-President, Operations Branch should ensure systematic practices to manage overtime are communicated and in place between similar programs and locations.
2.1.3 Compliance with Collective Bargaining Agreements and Processes
Overtime claims were processed timely, however some errors were noted.
We expected to find that overtime hours are calculated in accordance with the relevant CBA, approved by the appropriate delegated authority, verified and recorded accurately in the HR system on a timely basis.
The 1-888-HR Service Centre performs no verification that overtime forms are authorized by the appropriate Financial Administration Act (FAA) Section 34 delegated authority due to volume. With approximately 96,000 transactions every year, it is not feasible to perform this check while providing a timely service. We also noted that although we found no instances of the same overtime claim submitted for both cash payout and compensatory leave within the sample, there is no system check in place to prevent this from occurring.
We examined 90 Attendance and Overtime Statement and Premium Reports for compliance with the Authorization of Overtime Policy and CBAs. The sample strategy included both random (48) and judgmental (42) samples.
We found that all forms had been processed on a timely basis. We also noted the following errors:
- Missing authorization by an individual with the appropriate FAA Section 34 delegated authority (5 instances).
- Incorrect amounts paid (3 instances). The errors were clerical in nature. Two were small (less than two hours); in one instance the same hours were claimed twice, in the other an additional hour was claimed. The third was a clerical error resulting in a large overpayment; this has been referred to Human Resources for action. The large item indicates a break down in controls at several levels. There are two verification steps at the 1-888-HR Service Centre; the individual appeared on the Top 40 Overtime Earners report; it should have been caught through ongoing review of monthly financial reports. Further, it indicates a lack of an edit check which, if in place, would have routed the large dollar-value item for further scrutiny.
- Missing details (40 instances). Incomplete "Work Week" section (32 instances). Without a statement of the regular work week, it is difficult for an off-site approver or reviewer to know if the hours claimed are in fact overtime. Reason for overtime missing (8 instances). Without knowing the reason for the overtime, management cannot track or analyze by cause.
We understand that the new PWGSC process for submission of an overtime cash payout claim, which was launched following our audit, is a web-based application, with some system controls in place for critical data. The new process will not be used at the outset for compensatory leave claims; there is a risk that the same overtime hours could be submitted for cash and time-in-lieu with no preventive system check.
Recommendation (5): The Vice-President, Human Resources Branch should review checks in place to ensure overtime submissions with high dollar value are routed for further scrutiny, and to capture duplicate overtime submissions.
2.2 Management and Administration of Workforce Adjustment Payments
2.2.1 Control Framework
The Agency has put in place the necessary processes and controls to administer workforce adjustment payment in accordance with collective bargaining agreements in response to Budget 2012.
We expected to find processes and controls in place to administer workforce adjustment payments in accordance with collective bargaining agreements, as a result of Budget 2012.
We examined the processes and controls put in place to administer those workforce adjustment payments. These included:
- Establishment of the Workforce Management Team within HRB to administer the workforce adjustment process, including preparation and distribution of letters signed by Branch Heads, as well as forms and templates to assist surplus employees.
- Use of the Employment Transition Management System to track the status of surplus employees.
- Multi-level review and/or quality assurance by HRB and CMB of calculations and payments made to surplus employees.
- Financial tracking and monitoring of committed and actual amounts for Transition Support Measure payments and education claims by CMB Corporate Finance System using the Salary Forecasting Tool.
CMB classifies compensation payments to departing employees as high risk, and consequently carries out QA verification of all amounts prior to payment. The audit confirmed that CMB consistently carried out this QA verification.
Claims for education allowances made by surplus employees are not classified as high risk, and are processed and approved by HRB without quality assurance verification by CMB. These claims may be subject to a post-payment QA review on a sample basis by Corporate Compensation, however due to the population and sample size it was noted that these expenditures would have a small chance of being selected.
2.2.2 Compliance with Collective Bargaining Agreements
Workforce adjustment payments were generally in compliance with collective bargaining agreements. Guidance related to claims for education allowances could be strengthened.
We expected to find payments made as a result of Workforce Adjustment under Budget 2012 to be in compliance with CBAs.
Payments to Surplus Employees on Departure:
A total of 131 surplus employees received Transition Support Measure payments totaling approximately $7.1 million, as well as other payments, upon their departure up to the end of May 2013. We selected a sample of 20 payments and found that all amounts were calculated in accordance with collective bargaining agreements. We also found that other agreement requirements and related delegation of authorities, such as the selection of options within prescribed time periods and Branch Head approvals, were met. This high level of compliance can be attributed to the processes and controls identified in Section 2.2.1 above.
Inclusion of Surplus Employees in Priority Administration System:
A total of 35 surplus employees with priority status were still awaiting a guaranteed job offer as at the end of May 2013. We selected a sample of five employees and found that all were included in the Priority Administration System, and collective bargaining agreement requirements and related delegation of authorities, such as the selection of options within prescribed time periods and Branch Head approvals, were met.
Claims for Education Allowances:
A total of 21 surplus employees submitted claims for education allowances totaling approximately $119,500 up to the end of May 2013. We selected a sample of 12 employees (representing 82% of the total amount claimed), including all employees who reached the maximum $10,000 cumulative claim limit. We found that claim limits were respected; and claims for reimbursement of expenditures were appropriately approved and supported by invoices and receipts, with two exceptions. These two exceptions were not appropriately approved by the delegated authority, and in one of these cases, supporting documentation was also lacking.
We also found that there is a need for clear interpretative guidance to assist HRB Compensation Advisors and delegated managers in making determinations that training equipment and deliverers of training courses meet the requirements of collective bargaining agreements for purposes of claims for education allowances. From our review of the 12 employees, we found three instances that could be interpreted as not meeting the requirements of collective bargaining agreements.
Recommendation (6): The Vice-President, Human Resources Branch should ensure that sufficient guidance is developed and reinforced for Human Resources Branch Compensation Advisors and delegated managers on claims for education allowances that address requirements for approval and supporting documentation, and interpretations for qualified deliverers of training courses and for qualified equipment for training purposes.
Appendix A: Audit Criteria
LOE #1 - Management and Administration of Overtime
- Criteria 1: Reference material (policies, procedures, directives, standard operating procedures) and guidelines exist to support administrative support staff, and managers who are responsible for managing overtime (i.e. planning, authorization and approval activities).
- Criteria 2: Employee overtime schedules are managed in relation to the workload in accordance with the Agency's Authorization of Overtime Policy and in accordance with CBAs.
- Criteria 3: Overtime hours are calculated in accordance with the relevant CBA, approved by the delegated authority, verified and recorded accurately in the HR system on a timely basis.
- Criteria 4: Monitoring of overtime and the overtime payment process is undertaken on a regular basis and potential issues are identified and addressed.
LOE #2 - Management and Administration of Work Force Adjustment Payments
- Criteria 1: WFA related processes comply with CBA requirements.
- Criteria 2: Payments made under WFA are calculated in accordance with appropriate CBAs, verified and appropriately approved.
- Date modified: