ARCHIVED - Report on Audit of Pay and Related Benefits

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Introduction

The Audit of Pay and Related Benefits was part of the approved Treasury Board of Canada Secretariat Three-Year Risk Based Audit Plan (for fiscal years 2007-2008 to 2009-2010).  It was selected based on risks associated with the significant materiality of the annual and recurring pay and benefits expenses for the Treasury Board of Canada Secretariat (the Secretariat) and the extent of compliance requirementsembedded in legislation, collective agreements, and Treasury Board policies and directives, governing the administration of the pay and related benefits within the federal public service. The Internal Audit and Evaluation Bureau (IAEB) of the Secretariat conducted the audit engagement.

Background

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, at the applicable rate as determined in a collective agreement or approved by Treasury Board for the group and level of the employee's classification.  Benefits relates 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 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, the Financial Administration Act (FAA)and related regulations, terms and conditions of employment, collective agreements, and Treasury Board policies and directives.  These must be complied with in order to pay an employee the compensation he/she is entitled to receive (Refer to Appendix 2 for details on Treasury Board Policies and Directives.).  The Policy Framework for the Management of Compensation sets out the broad administrative principles for the federal public service 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 of its employees.

During the fiscal year ending March 31, 2008, the Corporate Services Branch (CSB) of the Department of Finance Canada was providing services and support to the Secretariat for information management and information technology, human resources, financial and administrative management, information management and information technology, including the administration of pay and related benefits.  The Compensation and Benefits (CAB) group of the Human Resources Division (HRD) and the Financial Management Directorate (FMD) are the organizations within CSB which are most involved with the administration of pay and related benefits.

At the time of this audit a transfer to the Secretariat of specific corporate services, including those relating to pay and related benefits, was planned. As a result,all recommendations are directed to the Corporate Services Sector (CSS) of the Secretariat. 

Description of Systems and Processes

The following systems and processes are used in the administration of pay and related benefits to issue payments to employees, record and account for related pay expenses, and manage the pay cycle.

• Regional Pay System (RPS) is the central pay system for the Government of Canada.  Public Works and Government Services Canada (PWGSC) is responsible for the development, maintenance and operation of the RPS and conducts the following pay administration activities:
  
  
  • calculates employee remuneration (e.g., regular salary, including statutory and other deductions, over-time, non-salary benefits such as insurances, etc.);
  • calculates gross to net pay;
  • calculates retroactive payment revisions upon signing of back-dated collective agreements;
  • conducts year-end processing and issues tax slips;
  • remits deductions to third parties such as the Canada/Quebec Pension Plan, Canada Revenue Agency, etc.;
  • implements the rules of the Treasury Board and separate employer collective agreements and policies and legislation; and
  • provides training and advisory services to departmental compensation advisors.

  Compensation advisors of CAB's group provide pay and related benefits services to Secretariat's employees and enter pay transactions into RPS.  They are responsible for the accuracy, integrity, verification and timeliness of pay transactions.

  The employee salary payments, calculated by RPS are issued by the Receiver General's Standard Payment System (SPS).

  PWGSC maintains the Payroll System General Ledger that provides Payroll Control Account Balance, Control Data, and Internal Journal Voucher reports that departments utilize in the reconciliation of their Payroll Control Account prior to submission of their respective Trial Balance to the Central Financial Management Reporting System.

  The CAB group has a direct role in all of the following processes relating to compensation with the exception of item 7 (payroll run) and item 9 (management review of payroll expenses):

  1. Appointments and new hires (taken-on-strength)
  2. Transfer-in from other government department (OGD)
  3. RPS data input for appointments and new hires
  4. Changes to individual pay file required to apply updated information on pay related transactions or new terms of collective agreements
  5. Transfer-out to OGDs
  6. Departing personnel (struck-off-strength)
  7. Payroll run
  8. Pay distribution
  9. Management review of payroll expenses
     
     
• Integrated Financial and Material Systems - SAP (IFMS-SAP)is the financial system (based on the SAP software) used by the Secretariat to record and account all financial transactions in the General Ledger.  This system is fed with transactions processed by the Receiver General's treasury systems (such as SPS) and RPS, which are controlled through a series of accounts maintained by the Receiver General and reconciled by departments.
  
  
• Salary Forecasting System (SFS) was the management tool in use until March 31, 2008, for forecasting and monitoring actual personnel costs on an employee-by-employee basis.  In SFS, employee information was collected from the human resource system People Soft (see below) and combined with salary information, such as budget and actual expenditures, from IFMS- SAP.  This information was then combined with the planned data from the SFS input application to create salary forecast reports.

  As of April 1, 2008, the SFS was replaced by the new Salary Forecasting Tool (SFT).  SFT is a module of SAP that serves the same purpose as the SFS, but is more flexible and has better reporting capabilities. According to CSB, this new system will provide more timely and accurate forecasts for the managers of fund centers, as all the employee salary information is now entered into SFT independently of People Soft and is no longer affected by the lengthy time lag between the new employee starting date and the date his or her salary data was entered into People Soft, as was the case with SFS.
  
  

• People Soft is the departmental human resource system managed by the HRD to store employee information.  It is also used by employees to request leave and by managers to approve leave requests.  It is not a financial system. 

As of March 31, 2008, the Secretariat had approximately 1,332 full-time equivalent employees in 13 occupational groups represented by seven different collective agreements.  The Secretariat's unaudited financial statements for fiscal year ending March 31, 2008 reported a total annual pay and benefits expenses of $138,056,000 as part of its operating expenses as follows:

Expenses	Amount
Pay (Referred to as Salaries and Wages)	$120,424,000
Benefits (Contributions to Employees' Benefits and Pension Plans)	$17,632,000
Total Pay and Benefits Expenses	$138,056,000

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