Archived - Audit of Pay and Related Benefits

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Assurance Statement

The Internal Audit and Evaluation (IAE) of the Department of Finance Canada (the Department) has completed the Audit of Pay and Related Benefits*within the Department.  The objective of the audit was to provide assurance on the adequacy and effectiveness of the control framework in place and used for the administration of pay and related benefits to ensure the accuracy and compliance of the processed pay and related benefits transactions with relevant legislation, regulations, terms and conditions of employment, collective agreements, Treasury Board policies and directives.  The audit approach and methodology followed the International Standards for the Professional Practice of Internal Auditing as defined by the Institute of Internal Auditors and the Internal Auditing Standards for the Government of Canada as required under Treasury Board's Policy on Internal Audit.

The examination was conducted during the period of June through November 2008, and covered the transactions processed and controls in place during the fiscal year ending March 31, 2008. 

The audit consisted of the following: a review of applicable authorities; an assessment of the existing control framework for pay and related benefits against criteria, process walkthroughs; an examination of certain key controls to validate their existence and effectiveness; and an examination of pay transactions selected using a statistical random sampling methodology to verify accuracy and compliance with relevant authorities.  The audit evidence gathered is sufficient to provide senior management with reasonable (high) assurance concerning the results derived from this audit.

IAE concludes with a high level of assurance that with the exceptions identified below, the overall control framework for the administration of pay and related benefits in place and used within the Department during the fiscal year ending March 31, 2008 was adequate and effective to ensure the accuracy and compliance of the pay transactions processed with relevant authorities.  Control weaknesses were found relating to interdepartmental recoveries and reimbursements of pay and to the verification of user/employee access rights to the Regional Pay System.  Please refer to the body of this report for further details regarding the audit findings.

In the professional judgment of the Chief Audit Executive, sufficient and appropriate audit procedures have been conducted and evidence has been gathered to support the accuracy of the opinion provided in this report.  This opinion is based on a comparison of the conditions, as they existed at the time of the audit, against pre-established audit criteria.  The opinion is only applicable to the entity examined and for the scope and time period covered by the audit.

Executive Summary

Background

The audit of Pay and Related Benefits is an assurance engagement that was part of the approved Department of Finance Canada Three-Year Risk Based Audit Plan (Fiscal Years 2007-2008 to 2009-2010).  The Internal Audit and Evaluation (IAE) of the Department conducted the audit engagement.

Pay is an amount of money given to an entitled employee, for services rendered during a specific period in accordance with the relevant terms and conditions of employment, applicable rate of pay determined in a collective agreement or approved by Treasury Board for the group and level of the employee's classification.  Benefits relate to the various health, dental, disability, long-term disability and life insurance plans available to and sometimes compulsory for an employee during his or her employment in the public service, for which the employer (and sometimes the employee) pays a premium.  A public servant is also entitled to receive pension benefits after retirement which the individual and the employer will have contributed to throughout the period of employment in the public service.  Such benefit and pension plans are not covered in the scope of this audit.

Pay related benefits are those that are manifested in pay transactions and result in a payment issued to an entitled employee such as maternity or parental allowance, bilingual bonus, and severance pay. This audit report deals only with pay and pay related benefits.

The administration of pay and related benefits within the federal public service is complex and is governed by several authorities, the main ones being the Public Service Employment Act and the Financial Administration Act (FAA), and related regulations, terms and conditions of employment, collective agreements, and Treasury Board policies and directives which must be complied with in order to pay an employee the compensation he/she is entitled to receive.  The Policy Framework for the Management of Compensation sets out broad administrative principles for the government overall. The Comptrollership Policy on Pay Administration and Circulars 1977-37 & 1979-35 set the overall responsibilities of a department with regards to the administration of pay and related benefits for its employees.

According to the Department's Integrated Human Resources Plan 2008-11 as of December 31, 2007, the Department had approximately 1,052 full-time equivalent employees in 14 occupational groups represented by eight different collective agreements.  The departmental unaudited financial statements for fiscal year ending March 31, 2008 reported a total of $83,980,000 for Pay and Benefits Expenses.

Objective and Scope

The objective of the audit was to give assurance on the adequacy and effectiveness of the control framework in place and used within the Department for the administration of pay and related benefits to ensure the accuracy and compliance of the processed pay transactions with relevant legislation, regulations, terms and conditions of employment, collective agreements and Treasury Board policies and directives.

The scope of the audit consisted of an assessment of the existing control framework for the administration of most types of pay transactions such as regular pay, acting pay, and performance pay, and related benefits, which result in a payment issued to an employee such as for maternity or parental allowance, bilingual bonus, and severance pay.  The audit did not examine the controls nor did it test the pay transactions relating to leave (with pay) and overtime, as these had been the subject of a separate audit conducted by IAE.  The report for the other audit was finalized in December 2008.

The audit covered the fiscal year ending March 31, 2008 and the examination phase was conducted between June and November 2008.

As previously mentioned, only employee benefits which manifest themselves in a pay transaction and result in a payment issued to an employee such as maternity or parental allowance, bilingual bonus, and severance pay were under the scope of the audit.  The audit did not cover the administration of employee benefits and related transactions; expenses related to the employer's contribution to employee pension plans; and premiums paid for employee health care and other insurance.  These transactions were not included in the scope, as they are managed centrally for the entire federal public service by the Pension and Benefits sector of the Treasury Board of Canada Secretariat (the Secretariat).

The audit did not include a validation of internal controls within the related business applications in Human Resources System and in the Salary Forecasting System (replaced as of April 1, 2008 by the Salary Forecasting Tool).  Only the internal controls of the Regional Pay System (RPS) under the direct responsibilities of Human Resources Division and Financial Management Directorate were subject to the audit as the overall management of the RPS is the responsibility of the Compensation Sector of Public Works and Government Services Canada.

Overall Results and Key Findings

IAE concludes with a high level of assurance that with the exceptions identified below, the overall control framework for the administration of pay and related benefits in place and used within the Department for the period examined was adequate and effective to ensure the accuracy and compliance of the pay transactions processed with relevant authorities.  Control weaknesses were found relating to interdepartmental recoveries and reimbursements of pay and to the verification of user/employee access rights to RPS.

At the time of this audit, a transfer of specific corporate services, including those relating to pay and benefits, from the Department to the Secretariat was planned.  As a result, IAE directs specific recommendations addressing the findings contained in the body of the report to the Corporate Services Sector of the Secretariat(Refer to Appendix 3 for details on the Recommendations).


* For the purposes of this report, related benefits are those that are manifested in pay transactions and result in a payment issued to an entitled employee such as maternity or parental allowance, bilingual bonus, and severance pay.