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Transportation Safety Board of Canada - Internal Audit - Audit of Overtime - Audit Report

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32 pages
TRANSPORTATION SAFETY BOARD OF CANADA AUDIT OF OVERTIME AUDIT REPORT SUBMITTED TO: TRANSPORTATION SAFETY BOARD OF CANADA 200, PROMENADE DU PORTAGE, 4E ÉTAGE GATINEAU, CANADA K1A 1K8 SUBMITTED BY: SAMSON & ASSOCIATES 85, RUE VICTORIA GATINEAU, QUEBEC, J8X 2A3 WWW.SAMSON.CA SAMSON@SAMSON.CA OCTOBER 6, 2008 TABLE OF CONTENTS EXECUTIVE SUMMARY .........................................................................................................................................1 I. BACKGROUND .....................................................................................................................1 1.1 ORGANIZATIONAL STRUCTURE...................................................................................................................1 1.2 TSB OVERTIME USAGE.................................................................................................................................1 II. AUDIT OBJECTIVE, CRITERIA AND SCOPE ...........................................................................................2 2.1 AUDIT OBJECTIVE.........2 2.2 AUDIT CRITERIA...........2 2.3 SCOPE............................3 III. METHODOLOGY.............................................................................................................................................4 3.1 PRELIMINARY PHASE....4 3.2 VERIFICATION PHASE....4 IV. AUDIT ...
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   TRANSPORTATION SAFETY BOARD OF CANADA  AUDIT OF OVERTIME   AUDITREPORT   SUBMITTED TO:  TRANSPORTATIONSAFETYBOARD OFCANADA 200,PROMENADE DUPORTAGE, 4E ÉTAGE GATINEAU, CANADA K1A 1K8   SUBMITTED BY: SAMSON& ASSOCIATES 85,RUEVICTORIA GATINEAU, QUEBEC, J8X 2A3 WWW.SAMSON.CA SAMSON@SAMSON.CA   OCTOBER6, 2008    
      
  
  
 
 TABLE OF CONTENTS  EXECUTIVE SUMMARY .........................................................................................................................................1  I. BACKGROUND ................................................................................................................................................1  1.1 ORGANIZATIONALSTRUCTURE................................................................................................................1... 1.2 TSBOVERTIME USAGE1.................................................................................................................................  II. AUDIT OBJECTIVE, CRITERIA AND SCOPE ...........................................................................................2  2.1 AUDITOBJECTIVE.2....................................................................................................................................... 2.2 AUDITCRITERIA..2........................................................................................................................................ 2.3 SCOPE......................................................................................................................3.....................................  III. .....................................................................................................Y.G........................MDOLOETHO...........4....  3.1 PRELIMINARY PHASE................................................................................................4................................... 3.2 VERIFICATION PHASE....4...............................................................................................................................  IV. AUDIT RESULTS..............................................................................................................................................4  4.1 EXTENT OF COMPLIANCE WITH APPLICABLE COLLECTIVE AGREEMENTS,TERMS AND CONDITIONS OF EMPLOYMENT,AND RELEVANTTSBPOLICIES.........................5..................................................................  4.1.1 Calculation of the compensation for overtime in accordance with the provision of applicable collective agreements and relevant terms and conditions of employment .............................................5 4.1.2  ...................................Application of standby and call-back provisionsError! Bookmark not defined.   4.2 EFFECTIVENESS OF MANAGEMENT PRACTICES AND CONTROLS........6.........................................................  4.2.1  ..........................................................................................................................6Overtime authorization 4.2.2 is adequately considered in the approval of overtime...............................8Employee health and safety  4.2.3 timely, and detailed information on overtime forManagement access to complete, accurate, planning, organizing and controlling overtime work within their respective area of responsibility .....9 4.2.4 Managers properly exercise their delegated authority under Section 34 of the FAA to approve and authorize overtime compensation for employees working outside normal working hours ..................11 4.2.5 and manage accumulated compensatory leave credits ........................12Managers effectively monitor  4.2.6 Inadequate completion of the EDPRA form.........................................................................................13 4.2.7 Peer Review .........................................................................................................................................14  4.3 EFFICIENT ANDEFFECTIVE USE OFFINANCIAL ANDHUMANRESOURCES5...1...........................................  4.3.1 Cost-effective alternatives solutions are considered by managers to mitigate the need for overtime expenditures.........................................................................................................................................15  Appendix I:  Testing Results on Anomalies   Appendix II: Case Study Summary    
 
TRANSPORTATIONSAFETYBOARD OFCANADA  AUDITREPORT AUDIT OFOVERTIME      EXECUTIVE SUMMARY  The Transportation Safety Board (TSB) undertook a compliance audit of overtime. The services of Samson & Associates were retained to conduct the audit.  This compliance audit had for objective to assess the extent of compliance of overtime payments with applicable collective agreements, terms and conditions of employment, and relevant Treasury Board (TB) and TSB policies; the effectiveness of management practices and controls over the authorization of overtime; and the efficiency and effectiveness of use of financial and human resources.  The audit was conducted in accordance with the Treasury Board Policy on Internal Audit and the Standards of the Institute of Internal Auditors for the Professional Practice of Internal Auditing were applied. The audit took place from February 19 to April 30, 2008.  The audit included two major components: a testing of 104 overtime transactions selected across the country and the completion of three case studies covering overtime expenditures and practices for three branches: Air, Marine and Rail. The audit scope dealt with employees working at Head Office and in regional offices that incurred overtime expenditures in the past two fiscal years (2005-2006 and 2006-2007). The audit concludes that: Compliance with applicable collective agreements, terms and conditions of employment, and relevant TSB policies needs strengthening with regard to: 1. Peer review/verification, a process where a reviewer (colleague) ensures verification of transactions initiated by a compensation advisor. The Audit noted that this process is not always evidenced. Due to the number of errors that our tests disclosed, the audit team believes that this control is critical and should be present at all times.  2. Exceptions to TB Policy on Maximum Hours of Work. All exceptions should be properly documented and should present evidence of management approvals. One of the exceptions mentioned in the TB Policy refers to the nature of the work that necessitates irregular distribution or periodic fluctuations of an employee's hours of work which are over the maximum of 48 hours a week. The Policy requires that departments maintain records on all exceptions authorized.  3. The Extra Duty Pay Report and Authorization (EDPRA) form. The form does not always present evidence of the Section 34 of the FAA. When certifying pay documents that relate to overtime under Section 34 of the FAA, TSB Managers should ensure that they have taken into consideration the dispositions of the following TB Policies:   the terms and conditions of the respective collective agreements;  the TB Policy on Terms and Conditions of Employment; and  the TB Comptrollership Policy on Pay Administration;  
 
TRANSPORTATIONSAFETYBOARD OFCANADA  AUDITREPORT AUDIT OFOVERTIME      4. Our tests disclosed a total of 19 deficiencies and a total of 146 anomalies that related to 16 criteria which addressed compliance and data accuracy. Two lists of testing results on Deficiencies and Anomalies are presented in Appendix I. Of these deficiencies, 11 were for the period of 2005/2006 and 8 for the period of 2006/2007. The number of deficiencies and anomalies reported in the Appendix I is larger than the number of files reviewed (104) since a specific transaction could present more than one deficiency or anomaly.  5. Our tests of the accumulated compensatory leave credits, which included the review of 11 employees’ files, that involved the review of approximately 77 overtime transactions, disclosed an error rate of 7% (six deficiencies).
Management practices and controls should be more effective:
6. is most of the time provided verbally. This practice does notApproval of overtime requests allow for formal and verifiable evidence of approval of overtime. We recommend that TSB managers demonstrate to the extent possible that overtime requests were approved by maintaining documentation to substantiate instances where authorization was not possible (i.e. emergency responses to accidents or incidents) and review periodically the approval practices to ensure they comply with the procedures governing approval of overtime.  7. The Human Resources Division (HRD) should take advantage of the full Human Resources Information System (HRIS) functionality. HR staff came to believe that the system erased all detailed compensatory time-off information pertaining to the previous fiscal year on March 31 of each year, when in fact the information is archived and easily retrievable. The current HR practice, which consists on relying on original paper documents when there is a need to consult prior year’s data, is inefficient and time consuming.  The efficiency and effectiveness of use of financial and human resources could be improved:  8. Standby payments amount to $450,000 a year, almost half the total overtime payments at the TSB. Standby is required to ensure availability of resources and timely response to occurrences. This involves having constantly from 18 to 19 investigators on standby after working hours (4:00 P.M. to 8:00 A.M. and 24 hr on weekend for 16 hours of overtime a week per individual on standby). Branches apply standby differently across the TSB. We recommend that the DG Investigation Operations, in conjunction with Branch Directors and the Senior Financial Officer, investigate cost-effective alternative solutions to the present standby system to mitigate the need for overtime expenditures.
 
TRANSPORTATIONSAFETYBOARD OFCANADA  AUDITREPORT AUDIT OFOVERTIME      I. BACKGROUND The TSB is a small agency of the federal government created in 1990 with a mandate to advance safety in the marine, rail, pipeline, and aviation modes of transportation by:   investigations and, if necessary, public inquiries intoconducting independent transportation occurrences in order to make findings as to their causes and contributing factors;  publicly on its investigations and public inquiries and on the related findings;reporting  identifying safety deficiencies as evidenced by transportation occurrences; and  making recommendations designed to eliminate or reduce any such safety deficiencies.  The TSB operates independently from other government departments and agencies and reports to Parliament through the President of the Privy Council. The TSB has approximately 230 employees of which 125 work at the Head Office in Gatineau, Quebec, 25 work at the Engineering Laboratory in Ottawa, Ontario, and the remainder work in the 8 regional offices located across the country. 1.1 ORGANIZATIONALSTRUCTURE The TSB organizational structure includes the Chairperson, the Board, the Executive Director and various Directors General (DGs) and Directors. Reporting to the Executive Director is a level of senior management comprising of the DG, Investigation Operations; the DG, Corporate Services; and the Manager, Communications.  Investigation Operations is responsible for investigations performed by Air, Marine and Rail and Pipeline Branches as well as Engineering, Human Performance and Macro Analysis Services. Corporate Services is comprised of Finance and Administration, Human Resources, Information Management, Informatics, and Corporate Planning and Reporting. Communications with the public are ensured by the Communications Division.  1.2 TSB OVERTIMEUSAGE Overtime in the TSB is governed by various collective agreements, the terms and conditions of employment for unrepresented employee, and the TSB Policy on Application of Standby and Call-Back Provisions. Overtime is defined as “authorized time worked by an employee in excess of the standard daily or weekly hours of work and for which the employee may be entitled to compensation pursuant to the provisions of a collective agreement or a Treasury Board authority”.   The terms and rates governing overtime compensation, for work performed outside of an employee’s regular hours at the employer’s request, are provided for in the various collective     
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TRANSPORTATIONSAFETYBOARD OFCANADA  AUDITREPORT AUDIT OFOVERTIME      agreements. In 2006-2007, a total of $1,160,129 was paid out to employees in compensation for overtime worked. In 2005-2006, a total of $1,554,118 was paid for overtime worked. The value of claims paid for overtime as a % of total salaries was 6.1% in 2006-2007 and 8.4% in 2005-2006. In 2006-2007, 139 or 61.5% of the 226 employees working for the TSB submitted claims for overtime compensation. In 2005-2006, 152 or 64.9% of the 234 employees working for the TSB submitted claims for overtime compensation.  II. AUDIT OBJECTIVE, CRITERIA AND SCOPE 2.1 AUDITOBJECTIVE The objectives of this audit were to assess:   extent of compliance with applicable collective agreements, terms and conditions ofthe employment, and relevant TSB policies;  the effectiveness of management practices and controls;  the efficiency and effectiveness of use of financial and human resources. 2.2 AUDITCRITERIA The compliance audit adopted the criteria listed below:  Criterion 1 - Extent of Compliance   the compensation for overtime is correctly calculated in accordance with the provision of applicable collective agreements and relevant terms and conditions of employment;   the TSB Policy onApplication of Standby and Call-Back Provisions properly is implemented.  Criterion 2 – Management Practices and Controls   Overtime is properly authorized by managers:  o its occurrence, unless otherwise justified, by a person with properbefore delegated authority; and o when the work or service is considered essential.   employee health and safety is adequately considered in the approval of overtime;   managers have access to complete, accurate, timely, detailed information on overtime for planning, organizing and controlling overtime work within their respective area of responsibility;      
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TRANSPORTATIONSAFETYBOARD OFCANADA  AUDITREPORT AUDIT OFOVERTIME       managers properly exercise their delegated authority under Sections 32 and 34 of the Financial Administration Act(FAA) to approve and authorize overtime compensation for employees working outside normal working hours; and   managers effectively monitor and manage accumulated compensatory leave credits.  Criterion 3 – Efficient and Effectiveuse of Financial and Human Resources   cost-effective alternative solutions are considered by managers to mitigate the need for overtime expenditures; 2.3 SCOPE The audit included employees working at Head Office and in regional offices that incurred overtime expenditures in the past two fiscal years (2005-2006 and 2006-2007). The audit reviewed the adequacy of internal controls and practices for ensuring that:   TSB practices are compliant with applicable collective agreements, terms and conditions of employment, and the TSB Policy onApplication of Standby and Call-Back Provisions;  under Sections 32 and 34 of the FAA;managers properly exercise their responsibilities  employees are properly compensated for approved overtime in accordance with the provisions of the applicable collective agreements; and  overtime costs are well managed and cost-effective alternative solutions are considered by managers to mitigate the need for overtime expenditures.  Scope Exclusions  The audit did not include:   an examination of the impact of overtime on operational services or program performance;  the use of consultants although it is recognized that short term consulting contracts can represent an alternative to overtime;  the EX Group and other employees on performance pay who are not entitled to overtime compensation;  the examination of planning documents such as costed work plans;  officers properly exercise their responsibilities under Section 33 of the FAA;  overall integrity, accuracy and completeness of the data recorded inan attestation of the the HRIS and GX systems;  an examination of cases of authorized and informal flexible working arrangements where an employee occasionally work outside normal working hours for short periods of time; and  the identification of the extent, dollar value, and impact of unrecorded overtime.
    
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TRANSPORTATIONSAFETYBOARD OFCANADA  AUDITREPORT AUDIT OFOVERTIME      III.METHODOLOGY The audit involved three phases: a preliminary review phase, an execution phase, which involved the review of a sample of transactions and the completion of three case studies, and a reporting phase that is this document. 3.1 PRELIMINARY PHASE The preliminary phase included the review of background information and interviews with key personnel and finance managers. This phase resulted in the development of:   policy framework document which included a summary of the key Treasury Board anda the TSB policy requirements applicable to overtime entitlements. This policy framework was used in the confirmation of the suggested audit criteria;  a detailed process flowchart and control mapping of the overtime process at the TSB. This was to determine if the controls and practices in place were designed to ensure that expenditures incurred are complete, accurate, properly authorized and in compliance with existing authorities related to the following: roles and responsibilities; segregation of duties; expenditure verification; and delegations of authority; and  a Preliminary Survey report highlighting areas of high risk and describing the testing methodology.  3.2 EXECUTION PHASE The verification of a representative sample of overtime transactions was to determine the effectiveness of the controls in place for various overtime entitlements: standby, call-back, overtime, travel time and accumulated overtime.  To ensure a balanced coverage of overtime data, the testing included a random sampling and a judgemental sampling of overtime transactions (cash payments and compensatory leaves). The testing assessed the adequacy of management practices and processes for the approval, certification and processing of claims for overtime compensation.  The random sampling reflected the audit criteria. The judgemental sampling was based on a selection of high-risk transactions.  Three case studies were also completed in responsibility centres of high overtime intensity: Air, Marine and Rail. This involved more extensive data analysis and interviews with the managers who are responsible for the approval of overtime and for ensuring that financial and human resources are utilized in an efficient manner.  IV. AUDIT RESULTS
    
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TRANSPORTATIONSAFETYBOARD OFCANADA  AUDITREPORT AUDIT OFOVERTIME      The Audit Team’s conclusions presented in this report are first based on tests performed on overtime transactions and the completion of case studies. Tests involved a review of 104 overtime transactions, 54 transactions that occurred during the period of 2005/2006 and 50 transactions that occurred during the period of 2006/2007.  Our tests disclosed a total of 19 deficiencies and a total of 146 anomalies that related to 16 criteria which addressed compliance and data accuracy. Two lists ofTesting results on Deficiencies and Anomaliesare presented in Appendix I. Of these deficiencies, 11 were for the period of 2005/2006 and 8 for the period of 2006/2007. The number of deficiencies and anomalies reported in the Appendix I is larger than the number of files reviewed (104) since a specific transaction could present more than one deficiency or anomaly.  Case studies were completed through interviews with managers, information they provided to us during the audit and extensive review of financial and personnel information.  4.1 EXTENT OF COMPLIANCE WITH APPLICABLE COLLECTIVE AGREEMENTS, AND TERMS CONDITIONS OF EMPLOYMENT,AND RELEVANTTSBPOLICIES  4.1.1 Calculation of the compensation for overtime in accordance with the provision of applicable collective agreements and relevant terms and conditions of employment  Minor errors in the overtime calculation or the application of applicable rates were found.  The audit team noted four instances were there were minor errors in the overtime calculation or the application of applicable rate. In three instances, the employee was not compensated enough for the overtime time worked due to miscalculations. Each of these three instances presented an error of less than one hour in the total duration of time worked. In one instance, the employee was compensated of one extra hour due to miscalculations. In the last instance, the employee was paid at time and one half for five hours of overtime but the calculation was based on the classification prescribed in the certificate of appointment of his or her acting position starting weeks after the period of overtime worked.  Collective agreements stipulations were not adequately applied in four instances. Two of these instances related to the Technical Services (TI) group within the Marine Branch:   In one instance, the employee who claimed 10 ½ hours of overtime was compensated a half additional hour at the double rate due to an error in the recording of the work done at the rate of time and one-half (for 7 hours instead of 7 ½ hours) and double time (3 ½ hours instead of 3 hours);  
    
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TRANSPORTATIONSAFETYBOARD OFCANADA  AUDITREPORT AUDIT OFOVERTIME       In another instance, a senior investigator who claimed 12 ½ hours of overtime did not receive the right compensation amount due to the fact that he was compensated for 10 ½ hours at time and one half instead 7 ½ hours as required and the subsequent 2 hours at the double time rate instead 5 hours at the double time rate as required.  One senior investigator within the Air Branch received more than what he was entitled to as per the stipulation of the collective agreement of Aircraft Operations (AO):   The employee who worked overtime during a designated Holiday was compensated at double time for each hour of overtime worked after fifteen hours work instead of being compensated at time and one-half for every hour worked.   An employee was compensated for 24-hour standby periods which occurred during regular working weekdays.  Management has been provided with the detailed information on these minor errors in overtime calculation. Although these errors have a low dollar impact, they are an indication that points to a weakness in internal controls. This item is discussed in section 4.2 of the report.  RECOMMENDATION:  1. The Manager, Human Resources, should initiate pay adjustments where warranted.  4.2EFFECTIVENESS OF MANAGEMENT PRACTICES AND CONTROLS 4.2.1 Overtime authorization  Approval of most overtime requests is provided verbally and does not usually constitute a formal, verifiable practice.  Managers who have delegated signing authority for overtime and extra duty entitlements, in accordance with Section 32 and 34 of the FAA, are required to ensure that:  there is clear justification to have employees work in excess of the standard hours and that overtime is managed in an efficient and cost effective manner; and   overtime and extra duty entitlements are approved in advance and in accordance with the collective agreements.  TB Circular 1977-37 on Pay Administration stipulates in Annex B, Financial Aspects of Pay Administration Process, the certification process of Section 32 of the FAA for overtime. Section 32 of the FAA over extra duty pay is made when a manager instructs or gives permission to an employee to work extra duty. The control that satisfies the Section 32 of the FAA with regard to extra duty pay is the financial reports which show the manager the amount expended against the amount budgeted. Another control would be an auditable evidence, such as the EDPRA form     
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