Audit of Leave and Overtime

April 15, 2016
Project Number: 80590-90

Executive Summary

Statistics Canada was established to ensure that Canadians have access to a trusted source of statistics on Canada to meet their highest-priority needs.

The agency's mandate derives primarily from the Statistics Act. The act requires that Statistics Canada collect, compile, analyze and publish statistical information on the economic, social and general conditions of the country and its people. It also requires that Statistics Canada conduct a census of population and a census of agriculture every fifth year, and that the agency protect the confidentiality of the information with which it is entrusted.

The agency's organizational priorities include the delivery of a comprehensive set of statistical programs in conformity with Statistics Canada's quality assurance framework. These programs provide Canadians with access to timely, relevant and quality statistical information on Canada's changing economy and society for the purposes of informed debate, research and decision making on social and economic issues. They include programs for economic statistics; social statistics; and census, demography and Aboriginal statistics.

The nature of the business creates complex resourcing and scheduling demands for managing timelines for publications that have set release dates. Teams that support the survey and census operations infrastructure are sometimes required to be available outside core business hours to respond to situations that may impair the achievement of operational objectives.

The objectives of the audit were to provide the chief statistician (CS) and the Departmental Audit Committee (DAC) with assurance on

  • the adequacy of the control framework in place to support the management of leave and overtime
  • the effectiveness of internal controls in ensuring compliance of leave and overtime transactions with relevant acts, Treasury Board (TB) policies, guidelines and collective agreements.

The focus of this audit was the management of leave and overtime, in part to ensure that TB policies, Statistics Canada guidelines and the provisions of collective agreements were respected, but also to establish whether the agency is managing overtime efficiently. As a federal government agency, Statistics Canada is accountable to the public for using resources effectively and efficiently.

The scope of the audit included the following elements of the management control framework: roles, responsibilities, accountabilities, authorities, policies, procedures and monitoring mechanisms, as they relate to sections 32, 33 and 34 of the Financial Administration Act (FAA) and to the management of collective agreements. Coverage included employees hired under the Public Service Employment Act (PSEA) and working at headquarters. The audit included transactions incurred during the period from October 2013 to November 2014, where 163,846 leave transactions were approved and employees earned $4,093,761 in overtime.

The audit was conducted by Internal Audit Division in accordance with the Government of Canada's Policy on Internal Audit.

Key Findings

The control framework for the pre-authorization and approval of leave is consistently applied and effective. Key controls are embedded into the corporate framework and the Time Management System (TMS), and ensure adequate oversight for the management of leave.

Results of analysis, testing and interviews revealed that leave transactions recorded in the TMS were approved by the appropriate individual, in compliance with applicable TB policies and within the limits of collective agreements. Transactions were accurate, valid and properly coded. The TMS is an effective tool for recording leave transactions.

There is an adequate control framework to support the management of overtime, and it is in line with the FAA, TB policies, Statistics Canada guidelines and the provisions of collective agreements; however, the control framework is not consistently applied across the agency.

Budget holders provide pre-authorization to work overtime in writing when operationally feasible or for planned projects, but pre-authorization to work overtime on short notice is mostly given verbally. Undocumented pre-authorization of overtime and a lack of diligence in the certification of work performed in overtime increase the risk of undetected errors and can lead to inefficient use of resources.

There were also instances from the sample selected where budget holders and supervisors do not actively monitor their employees' work hours or periodically review employee schedules for resource optimization purposes. Furthermore, several divisions manage overtime outside the control framework.

The management of overtime generated by standby duties requires strengthening. The need for standby coverage outside core hours is not always formally documented, approved or reviewed for relevance on a regular basis. Certification of eligibility and entitlement to compensation for standby activities (Section 34 of the FAA) is done by individuals with delegated authority, but greater diligence is required to manage standby schedules for resource optimization purposes.

Management and oversight bodies do not have clearly communicated mandates that include roles for the monitoring and day-to-day administration of overtime. Circumstances that drive overtime costs are not effectively identified, measured or addressed at the corporate level.

Overall Conclusion

The agency has implemented a framework that ensures adequate oversight of leave management and that is aligned with the requirements of the FAA, TB policies, Statistics Canada guidelines and the provisions of collective agreements.

The framework that supports the management of overtime is also aligned with the requirements of the FAA, TB policies, Statistics Canada guidelines and the provisions of collective agreements; however, it is not consistently applied across the agency. Strengthening of corporate monitoring activities and tools is required in order for oversight bodies and managers to effectively identify, assess, monitor and remedy potential overtime-related irregularities or trends. Documentation of pre-authorization for overtime needs to be retained, and greater diligence with respect to certification of work performed is required to bolster compliance with FAA requirements. Greater accountability of budget holders and managers is required, so that they are compelled to optimize resources where possible and preserve the integrity of information systems used by management for decision making.

Conformance with Professional Standards

The audit was conducted in accordance with the Internal Auditing Standards for the Government of Canada, which include the Institute of Internal Auditors (IIA) International Standards for the Professional Practice of Internal Auditing.

Sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy of the findings and conclusions in this report and to provide an audit level of assurance. The findings and conclusions are based on a comparison of the conditions, as they existed at the time, against pre-established audit criteria. The findings and conclusions are applicable to the entity examined and for the scope and time period covered by the audit.

Steven McRoberts
A/Chief Audit Executive

Introduction

Background

Statistics Canada was established to ensure that Canadians have access to a trusted source of statistics on Canada to meet their highest-priority needs.

The agency's mandate derives primarily from the Statistics Act. The act requires that Statistics Canada collect, compile, analyze and publish statistical information on the economic, social and general conditions of the country and its people. It also requires that Statistics Canada conduct a census of population and a census of agriculture every fifth year, and that the agency protect the confidentiality of the information with which it is entrusted.

The agency's organizational priorities include the delivery of a comprehensive set of statistical programs in conformity with Statistics Canada's quality assurance framework, in order to provide Canadians with access to timely, relevant and quality statistical information on Canada's changing economy and society for the purposes of informed debate, research and decision making on social and economic issues; economic statistics; social statistics; and census; demography and Aboriginal statistics.

Statistics Canada has an operating budget of approximately $400 million. The agency's statistical program is funded by two sources: direct parliamentary appropriations and cost-recovery activities. In recent years, 'respendable' cost-recovery revenues have contributed approximately $90 million to $100 million annually to its total resources. Federal departments are the source of a large portion of these revenues, which fund specific statistical projects.

Departmental Strength

The following table indicates the actual number of employees (including full-time and part-time employees) on strength at Statistics Canada as of September 30, 2014.Footnote 1

Table 1: Agency strength
Fields Number of employees
Field 1 – Chief Statistician's Office 41
Field 3 – Corporate Services 1,347
Field 5 – Economic Statistics 1,165
Field 6 – Analytical Studies, Methodology and Statistical Infrastructure 792
Field 7 – Census, Operations and Communications 1,127
Field 8 – Social, Health and Labour Statistics 783
Total – September 30, 2014 5,255

The majority of the agency's workforce is located at headquarters in Ottawa. Other locations that house Statistics Canada employees outside the main complex include:

  • regional offices located in Vancouver, Edmonton, Winnipeg, Sturgeon Falls, Toronto, Montréal, Sherbrooke and Halifax
  • twenty-seven research data centres located in universities across the country
  • the census Data Operations Centre located in Gatineau.

Between October 18, 2013, and September 30, 2014, a total of 163,846 leave transactions were approved. For the same period, employees earned $4,093,761 in overtime, which is equivalent to 11,681 days. This amount of overtime also includes overtime entries for standby duty claimed by 172 employees, which represent approximately 1,400 days of overtime.

The management of leave and overtime is governed by the PSEA, the FAA, and several TB policies and collective agreements. Employees are responsible for the timely and accurate submission of leave and overtime claims. Supervisors are responsible for ensuring that employees' leave provisions are used for the intended purposes, as set out in collective agreements, and are processed in accordance with policies and procedures, and that requests for leave take into consideration applicable operational requirements before they are approved.

Audit Objectives

The objectives of the audit were to provide the CS and the DAC with assurance on:

  • the adequacy of the control framework in place to support the management of leave and overtime
  • the effectiveness of internal controls in ensuring compliance of leave and overtime transactions with relevant acts, TB policies, guidelines and collective agreements.

Scope

The scope of the audit included the following elements of the management control framework: roles, responsibilities, accountabilities, authorities, policies, procedures and monitoring mechanisms, as they relate to sections 32, 33 and 34 of the FAA and to the management of collective agreements. Coverage included employees hired under the PSEA and working at headquarters. The audit included transactions incurred during the period from October 2013 to November 2014.

Approach and Methodology

The audit work consisted of an examination of documents, interviews with key senior management and personnel, and a review for compliance with relevant policies and guidelines. The field work included a review, an assessment and testing of the processes and procedures in place for leave and overtime management.

Samples of overtime and leave transactions were selected for testing purposes for this audit. A combination of random, stratified and judgmental sampling techniques were used to assess the effectiveness of various controls (i.e. that the controls are functioning as designed on a consistent basis over the period under examination). As such, results are not meant to be statistically representative when extrapolated over the population.

This audit was conducted in accordance with the Internal Auditing Standards for the Government of Canada, which include the IIA International Professional Practices Framework.

Authority

The audit was conducted under the authority of the approved Statistics Canada integrated Risk-based Audit and Evaluation Plan, 2014/2015–2018/2019.

Findings, Recommendations and Management Response

Management of Leave

The control framework for the pre-authorization and approval of leave is consistently applied and effective. Key controls are embedded into the corporate framework and the TMS, and ensure adequate oversight for the management of leave.

Results of analysis, testing and interviews revealed that leave transactions recorded in the TMS were approved by the appropriate individual, in compliance with applicable TB policies and within the limits of collective agreements. Transactions were accurate, valid and properly coded. The TMS is an effective tool for recording leave transactions.

To ensure that employee leave is managed effectively, an adequate control framework should be in place and be in line with the FAA, TB policies, Statistics Canada guidelines and the provisions of collective agreements.

At Statistics Canada, leave, such as vacation leave, sick leave, compensatory time off, family-related leave, and personal and volunteer leave, is approved by each employee's immediate supervisor or above. Other leave provisions that are granted under special circumstances must be approved at the director level or above. The TMS indicates to users which level of approval is required for each type of leave; however, each employee must manually select the appropriate supervisor with the suitable level of authority, as the system is not programmed to make the position linkage.

There are 43 categories of paid and non-paid leave available to employees. Between October 18, 2013, and September 30, 2014, a total of 163,846 leave transactions were approved. The two most used leave categories were paid vacation leave (35%) and uncertified sick leave (29.5%), representing approximately 64% of all Statistics Canada leave transactions for the period covered by the audit.

The TMS is an application that allows employees, supervisors and cost-centre managers to record, track and review daily project time charges, leave requests, extra duty (overtime) and employees' work schedules. Employees are required to account for their use of time by entering project time codes in the TMS. The system sends employees a reminder to enter their time codes if daily activities have not been populated. If a two-week gap in time reporting occurs, the TMS escalates reminders to the immediate supervisor and, subsequently, up to the next level, as a reminder to populate all time fields.

Tools and practices for corporate monitoring of leave are adequate

A corporate monitoring function should be in place to ensure that public funds and resources are used responsibly and that program managers are actively managing leave. Management and oversight bodies should have clearly communicated mandates that include roles for the monitoring and day-to-day administration of leave.

At Statistics Canada, there are corporate-led initiatives for monitoring, reviewing and reporting on leave transactions. The Human Resources (HR) Branch's Labour Relations team performs ongoing monitoring of requests for long-term leave without pay. The compensation unit receives requests for the different types of leave without pay, as pay adjustments are required. Various reports on sick leave are generated, and senior management review them at the agency level on an ad hoc basis.

When supervisors receive a leave request in the TMS, the following information is displayed: the type of leave requested, the dates, the number of hours of leave requested, any notes or remarks and the remaining leave balance or total amount of leave accumulated for the fiscal year. The TMS leaves an audit trail for each stage of the approval process, recording any modifications made to requests, and identifies the user who submitted or approved the transactions throughout the process.

The TMS allows supervisors to view the annual time charges for each project, all submitted leave requests, daily and monthly overtime claims, and employees' recorded work schedule. Supervisors can view information on their employees for the fiscal years in which the employees report to them; in other words, they do not have access to employees' previous history of work schedules, time charged against projects, leave and overtime transactions.

Finance employees, who are responsible for ensuring that leave requests are processed in a timely fashion, have access to several TMS monitoring reports on leave.

Leave is used for the intended purpose and in accordance with collective agreements

An effective control framework for managing leave should be consistently applied across the agency. When approving leave requests, managers and finance and HR employees must ensure that leave is used for the intended purpose and taken in accordance with the provisions of collective agreements.

The audit team performed a comprehensive analysis and conducted testing on the various types of leave to verify whether they were approved by the appropriate individuals. The overall population of 163,846 approved leave transactions was tested using a risk-based approach. For most leave types, a sample of 20 employees was randomly selected for testing purposes. Testing was conducted to verify the accuracy and validity of leave codes used and compliance with applicable TB policies and provisions of collective agreements.

The following fifteen types of leave were selected for analysis and testing:

  • vacation leave
  • uncertified sick leave
  • certified sick leave
  • special vacation leave
  • appointments for family members
  • care of family members
  • school functions
  • appointments with professionals
  • volunteer
  • personal
  • professional development 
  • personnel selection
  • medical appointments
  • other paid leave
  • compensatory leave.

Results of analysis, testing and interviews revealed that leave transactions recorded in the TMS were approved by the appropriate individuals, in compliance with applicable TB policies and within the limits of collective agreements. Transactions were accurate, valid and properly coded. The TMS is an effective tool for recording leave transactions.

The control framework for managing leave is consistently applied and is effective. Leave is used in accordance with collective agreements.

There are no recommendations for the management of leave.

Management of Overtime

There is an adequate control framework to support the management of overtime, and it is in line with the FAA, TB policies, Statistics Canada guidelines and the provisions of collective agreements; however, the control framework is not consistently applied across the agency.

Budget holders provide pre-authorization to work overtime in writing when operationally feasible or for planned projects, but pre-authorization to work overtime on short notice is mostly given verbally. Undocumented pre-authorization of overtime and a lack of diligence in the certification of work performed in overtime increase the risk of undetected errors and can lead to inefficient use of resources.

There were also instances from the sample selected where budget holders and supervisors do not actively monitor their employees' work hours or periodically review employee schedules for resource optimization purposes. Furthermore, several divisions manage overtime outside the control framework.

The management of overtime generated by standby duties requires strengthening. The need for standby coverage outside core hours is not always formally documented, approved or reviewed for relevance on a regular basis. Certification of eligibility and entitlement to compensation for standby activities (Section 34 of the FAA) is done by individuals with delegated authority, but greater diligence is required to manage standby schedules for resource optimization purposes.

Management and oversight bodies do not have clearly communicated mandates that include roles for the monitoring and day-to-day administration of overtime. Circumstances that drive overtime costs are not effectively identified, measured or addressed at the corporate level.

To ensure that overtime is managed effectively, an adequate control framework should be in place to ensure that it is pre-authorized and approved. The control framework should be aligned with the FAA, TB policies, Statistics Canada guidelines and the provisions of collective agreements.

Overtime is subject to specific conditions, which are outlined in the TB Directive on Terms and Conditions of Employment as follows:

A person is to be compensated for overtime, in accordance with the provision of the relevant collective agreement or terms and conditions of employment, only when the following conditions are in place:

  • the person with the delegated authority has required the person to work overtime
  • the person does not control the duration of the period that he or she works overtime
  • the person with the delegated authority has certified the duration of the overtime worked and has authorized compensation.

During fiscal year 2013/2014, employees earned a total of $4,093,761 in overtime, which is equivalent to 11,681 days. Of this total, compensation taken as time off amounted to $1,516,420, and $2,577,341 was paid as additional salary.

Roles, responsibilities and recommended procedures in the context of the FAA, other legislation, and Government of Canada policy instruments are described in the TB Guideline on Common Financial Management Business Process 5.1—Pay Administration. This guideline presents the recommended model for pay administration, including overtime.

At Statistics Canada, the management of overtime follows this guideline, as it includes the following three key controls exercised prior to payment: pre-authorization of overtime (FAA Section 32), certification of the work performed (FAA Section 34) and payment requisition (FAASection 33) if overtime is compensated by means of a payment to the employee.

The control framework requires the following:

  1. pre-authorization of overtime to be granted in advance of when overtime is actually worked (currently, collective agreements allow pre-authorization to be provided verbally or in writing either by chiefs, or in some cases by a client division, or by budget holders)
  2. certification of work performed; entitlement to applied overtime rates; and compliance with policies and collective agreements, which involves a three-level review process:
    • Level 1: certification of work performed, applied at the divisional level (recommended for approval by supervisors, then approval by budget holder); before approving overtime claims, budget holders must perform a review to certify that the hours submitted as overtime are valid and that the employee produced the expected deliverables during that time
    • Level 2: review of monthly claims by the Finance Branch; finance employees verify that the person who approved the claim has the proper delegation of authority.
    • Level 3: review of monthly claims by the Compensation unit; HR employees verify that the system calculates overtime at correct rates
  3. payment requisitions performed by finance employees who are delegated to ensure that the pre-authorization of expenses and the certification of work performed have been completed.

Supervisors and directors are responsible for managing overtime. It is expected that overtime be managed in accordance with policies, guidelines and collective agreements; be applied in a fair and consistent manner across the agency; and be in line with the organization's corporate goals, operational objectives, and values and ethics. Employees are responsible for ensuring that overtime worked is recorded in and submitted through the TMS.

Our analysis revealed that there is an adequate control framework to support the management of overtime, and it is compliant with the FAA, TB policies, Statistics Canada guidelines and the provisions of collective agreements. Key controls are embedded into the corporate framework and the TMS.

Monitoring tools and activities for managing overtime need to be strengthened and applied

An effective corporate monitoring function ensures that public funds and resources are used responsibly and that managers are actively managing overtime with a view to optimizing resources. Management and oversight bodies should have clearly communicated mandates that include roles for the monitoring and day-to-day administration of overtime. The establishment of budgets for overtime expenditures is an effective way to set operational targets and ensure that resources are used efficiently and for intended purposes, and that circumstances that drive overtime costs are identified, measured and addressed in a timely fashion.

At Statistics Canada, overtime is planned during the annual budget planning process and is monitored to ensure that sufficient program funds are available in the event that compensatory time earned by employees cannot be used as leave and must be paid out at the end of the fiscal year, as per collective agreements. Service-provider divisions set a budget for overtime based on the estimated cost of planned standby activities, as set out in their service agreements with client divisions.

The Finance Branch's Financial Reporting Division reviews pending overtime monthly reports in the TMS to ensure that they are processed in a timely fashion, and it ensures that overtime costs are approved by a person with the appropriate level of authority. The management variance reporting (MVR) process is a periodic financial review process that provides an opportunity for managers to review expenditures, and explain variances from forecasted expenditures. At period six (P6) each fiscal year (i.e. August), targets for line objects, including overtime, are adjusted to reflect newly projected forecasts. Forecasts set at P6 are the basis for decision making. At year end, actual costs are compared to the P6 forecasts and variances are justified.

To assess the effectiveness and relevance of these processes, interviews with managers and finance staff were conducted. Interviews revealed that variance analysis and forecasts are conducted at the divisional level, with guidance from financial management advisors through active financial management, for fund transfers throughout the year. The audit team also reviewed financial information available for overtime. For fiscal year 2013/2014, it was noted that the initial budget for overtime was set at $430,840, the P6 forecast was revised and increased to $1,332,000, and the actual total expense for overtime for the fiscal year was $1,516,420.

Corporate monitoring and support services provided to program divisions focus on the management of available funds. However, overtime expenditures are not effectively controlled throughout the year to ensure that actual total costs remain within budget. Even if fields across the agency are within their respective budget envelops and do justify variances with revised projections set at P6, program overtime costs exceeding the original budget are not explained or rationalized.

Without the establishment of reliable financial targets in the initial budget or corporate monitoring of these targets, there is a risk that material errors may go undetected and that trends or anomalies may not be identified or followed up.

Management should monitor the use of overtime against plans to ensure that costs are realistic. To support decision making, supervisors and directors should have access to complete and timely information to help identify operational and administrative issues and trends related to overtime.

The following information is available to supervisors and directors to support the management of overtime:

  • The TMS generates several reports for overtime, such as the pending overtime report, the excess compensatory leave report and the report on overtime not yet actioned by HR. These reports are available to finance and HR employees, who ensure that overtime requests are processed in a timely fashion and that compensatory time balances are paid out in accordance with the provisions of collective agreements.
  • The Financial Reporting System (FRS) is a web-based tool to access all essential financial information on divisional and program budgets, including recoverable projects. It allows financial information to be viewed from many different perspectives by enabling the user to navigate from high-level information to detailed transactions. 
  • Managers must request or create their own reports in the FRS based on their specific needs and preferences. While the information is available, additional pre-formatted reports could be developed to simplify access and analysis of useful indicators (e.g., top overtime earners or individual employees' overtime for previous fiscal years).
  • Managers are provided with their divisional budget, revised forecast based on trends and actuals at the divisional level with each monthly financial review package. The financial officers (FI) review and analyse the information for trends and as need be, discuss the requirement to adjust the forecasts with the managers.

Interviews confirmed that most budget holders are managing overtime with limited detailed information and rely on the analysis being completed by their financial management advisers. Most were aware that customized reports are available through the FRS; however, they were unfamiliar with how to build or request such reports. As a result, these budget holders use the TMS interface, which does not provide sufficient information to identify trends and irregularities, compare or challenge overtime being claimed, or identify outliers.

Management and oversight bodies do not have clearly communicated mandates that include roles for the monitoring and day-to-day administration of overtime. The establishment of budgets for overtime expenditures is not used to set operational targets or ensure that resources are used efficiently and for intended purposes. Circumstances that drive overtime costs are not effectively identified, measured or addressed at the corporate level.

Recommendation:

It is recommended that the Assistant Chief Statistician, Corporate Services/ CFO ensure that:

  • The corporate monitoring or quality assurance function is strengthened to ensure compliance with FAA requirements, collective agreements and Statistics Canada overtime processes.

Management Response:

Management agrees with the recommendation.

  • An additional monitoring/quality assurance process will be added to the existing functions to incorporate overtime transactions testing for compliance to FAA requirements, collective agreements and Statistics Canada processes. If instances of non-compliance or wrongdoing are found, management will undertake necessary steps and appropriate actions to address the issues (ex: recovery of funds, dismissal, and referral to the justice system).

    Deliverables and Timeline: The Director, Financial Reporting Division (FRD) will establish and implement a new sampling approach to review compliance of overtime transactions starting progressively in April 2016 and findings will be shared with the CFO on a monthly basis.

Pre-authorization of overtime is mostly given verbally, leaving no documented evidence

An effective control framework for the management of overtime should be consistently applied across the agency. When pre-authorizing and certifying overtime, program managers must ensure that it is used for the intended purpose and finance and HR employees must ensure that compensation is granted in compliance with the FAA and is applied in accordance with collective agreements.

Pre-authorization (Section 32 of the FAA)

Pre-authorization to work overtime is currently not managed or recorded through the TMS. Interviews confirmed that budget holders provide pre-authorization of overtime in writing when operationally feasible or for planned projects, but pre-authorization to work overtime on short notice is often delegated to assistant directors and chiefs and is mostly given verbally.

Activities supporting certification of work performed are ineffective

Certification of work performed and entitlement (Section 34 of the FAA)

Two judgmental samples were drawn to verify the effectiveness of key controls surrounding overtime:

  • A first sample of 30 employees was drawn from the top 100 overtime earners in the agency, which ensured coverage of all fields, including mission-critical and non-mission-critical survey programs, service-provider divisions and corporate functions.
  • A second sample of 14 employees was selected from the top 25 overtime earners who claimed significant amounts of overtime over a five-year period.

Sampling techniques used for this test were established in accordance with auditing standards to assess the effectiveness of various controls (i.e. that the controls are functioning as designed on a consistent basis over the period under examination). As such, results drawn from this test should not be extrapolated over the population, as the sample techniques are not statistically representative.

A total of 14 divisions were represented in these samples. Interviews were also conducted with selected directors and assistant directors, and with key finance and HR compensation employees to document the process at each of the three levels of review to certify overtime.

Audit procedures confirmed that budget holders have the means to monitor work performed and obtain evidence of measurable deliverables. Observed examples include review of outputs after the overtime period, email communications sent at the end of overtime periods and review of progress reports. While work performed can be monitored by budget holders, the following weaknesses in the process were noted:

  • Most budget holders did not, or were unable to, review evidence of pre-authorization, as it is mostly provided verbally.
  • Prior to approval, employee schedules are generally not reviewed for absenteeism, modified schedules or time off, which can lead to inefficient use of overtime.
  • Most budget holders interviewed stated that employees are generally encouraged to claim overtime as compensatory time off rather than as a cash payment, as a means to minimize its impact on budgets.
  • Testing revealed instances where employees who are required to be on the premises to perform their work had claimed overtime during periods when they were not present at work.
  • There were instances of leave and overtime claims being submitted and approved for the same day.

Undocumented pre-authorization of overtime and a lack of diligence in the certification of work performed in overtime increase the risk of undetected errors and can lead to inefficient use of resources. Furthermore, the lack of availability of any outputs generated as part of the verification process limits the review of opportunities for the payment requisition process (Section 33 of the FAA).

Recommendations:

It is recommended that the Assistant Chief Statistician, Corporate Services/ CFO ensure that:

  • a formal process is established for obtaining and documenting pre-authorization of overtime (Section 32 of the FAA)
  • a strengthenedprocess is established to support the certification of work performed (Section 34 of the FAA) to optimize the use of resources and to better support the payment requisition process (Section 33 of the FAA).

Management Response:

Management agrees with the recommendations.

  • A formal process for documenting overtime pre-authorization has been developed and will be communicated to all employees. A strengthened process for certification of work performed will be implemented as part of this process.

    Deliverables and Timeline: The Director, Financial Reporting Division (FRD) will establish a new requirement for obtaining written/email approval prior to overtime work being performed, including a short description of the work to be achieved and estimate of time necessary. This change will be communicated to all employees and the administrative portal will be updated to reflect this enhanced process by April 2016. Starting in April 2016, Managers certifying work performed (Section 34 of FAA) will be required to do so by confirming that overtime was pre-approved and that related deliverables were completed.

Budget holders and supervisors do not periodically review employee schedules for resource optimization purposes

Statistics Canada is accountable to the public for using resources in an effective and efficient manner. To ensure that public funds and resources are used responsibly, program managers should be actively managing overtime with a view to optimizing its use.

Statistics Canada supports employees and encourages a healthy work–life balance through a variety of mechanisms, such as variable hours of work and compressed work schedules. Such arrangements are subject to chiefs (or above) approval, are dependent on operational requirements and must comply with collective agreements and Statistics Canada guiding principles. Collective agreements also reference the implementation of variable work schedules, stating that their implementation "shall not result in any additional overtime work or additional payment by reason only of such variation." Once modified work hours are approved, the revised schedule must be entered in the TMS.

Approximately 1,000 employees were on some form of variable work schedule at some point between October 18, 2013, and November 28, 2014.

To assess the effectiveness of controls for managing overtime and variable work schedules, the audit team selected a sample of 14 employees from the top 25 overtime earners for review. Testing revealed the following findings, which were then tested against a larger sample across the organization:

  • Employees in the sample earned overtime on an annual basis over the previous five years totalling 40 days or more each year. The overtime earnings of half of these employees resulted in over 30% increases in their annual salary.
  • Variable work schedules or compressed work schedules lead to overtime being earned exponentially.
  • Significant amounts of overtime accumulated as compensatory time off lead to overtime being earned exponentially.
  • Overtime from standby duties led to six employees to be in the top 25 earners.
  • Claims for overtime on the second day of rest at the higher rate (2.0) despite not having worked on the first day of rest (1.5), without justification.

The EC collective agreement allows employees, with the consent of their supervisor, to work variable work hours. Section 28.01(d)(i) states that

(…) upon request of an employee and the concurrence of the Employer, an employee may complete his or her weekly hours of employment in a period other than five (5) full days provided that over a variable hour schedule the employee works an average of thirty seven decimal five (37.5) hours per week. As part of the provisions of this clause, attendance reporting shall be mutually agreed between the employee and the Employer. In every variable hour period, such an employee shall be granted days of rest on such days as are not scheduled as a normal workday for the employee.

This allows employees in the EC category to modify their work schedules in such a way that any extra hours worked can be accumulated as straight time for future use. Modified schedules must be entered in the TMS.

The TMS records modifications to employees' work schedules. When daily and total weekly hours differ from the standard daily 7.5 hours and weekly 37.5 hours, the system sends an email to notify the employee's supervisor of the change. Although the system records the number of hours entered into employees' schedules, it does not keep track of the total number of additional hours worked in any given period, nor does it calculate or identify gaps in core hours. For example, if an employee chooses to enter daily time totalling 9.5 hours over a five-day period, the TMS does not keep track that 10 hours were in excess of standard core hours and that the employee has accumulated 10 hours of straight time that can be taken at a later time. Interviews with finance and information technology staff confirmed that there is currently no mechanism to track hours for modified work schedules, other than the manager receiving email notification when a schedule is modified and employees keeping their own alternative ledger.

Systematically and accurately tracking employees' modified schedules would provide management with the ability to effectively monitor and optimize resources.

Directors interviewed stated that they do not review employees' requests for modified schedules in terms of impact on overtime costs to the agency and that concerns are not raised unless there are significant performance issues with an employee or deficits in the overall program budget.

Recommendations:

It is recommended that the Assistant Chief Statistician, Corporate Services/ CFO ensure that:

  • opportunities to develop functionalities in TMS are explored to strengthen supervisory accountability and to effectively manage and review variable work schedules, with a view to improve monitoring and optimize the use of resources.

Management Response:

Management agrees with the recommendation.

  • Opportunities to enhance the Time Management System will be explored to effectively manage variable work schedules and strengthen supervisory accountability.

    Deliverables and Timeline: The Director, Financial Reporting Division (FRD) will request, through a call letter sent at the beginning of each fiscal year, that employees and managers review their work schedules, starting in May 2016. Directors will also be informed annually on plans for variable work week schedules for their divisions. Increased awareness and better planning of these activities by directors will help achieve the expected results. Results of the analysis of TMS options for the management of schedules will be shared with Executive Management Board Starting in June 2016.

A number of employees do not work the daily extra time required under their compressed work agreements

Compressed work schedule arrangements are available to Statistics Canada employees. This enables them to arrange their schedule to work an extra 50 minutes every day, for example, which allows for one day off every two weeks. This day off is entered in the TMS as a modified day off. Approximately 600 employees were on a compressed work schedule at some point between October 18, 2013, and November 28, 2014.

The audit tested whether employees actually worked the additional daily time required as part of their arrangements. A sample of 23 employees was tested to confirm their physical presence on the premises for the required 8 hours and 20 minutes.

Sampling techniques used for this test were established in accordance with auditing standards to assess the effectiveness of various controls (i.e. that the controls are functioning as designed on a consistent basis over the period under examination). As such, results drawn from this test should not be extrapolated over the population, as the sample techniques are not statistically representative.

Results showed that 13 out of the 23 employees selected generally did not work the required extra time every day.

Interviews revealed that there is a culture of trust within the agency, and managers expect their employees to work their agreed upon hours with limited supervision.

Several divisions manage overtime outside the control framework

A number of anomalies and patterns were detected through audit testing. By comparing employees' time entries in the TMS with their actual presence on work premises, a significant number of discrepancies were noted.

Interviews were conducted with directors and employees of six divisions where anomalies were noted and confirmed that overtime is sometimes being managed outside the corporate TMS. Supervisors and employees enter into informal agreements with the understanding that overtime can be worked and that compensatory time off can be taken later, without recording the overtime entries in the TMS.

The following methods were observed:

  • Overtime is compensated by voiding an employee's previously taken leave in the TMS, with the approval of the supervisor, who is not necessarily the budget holder with delegated authority to approve overtime. As a result, the employee's leave balances are credited and the TMS is then populated with project time charges, when, in reality, the employee was off on compensatory leave.
  • An employee submits a leave request in the TMS for a date in the future, and then asks the supervisor not to approve the request, but to leave it pending until the day off is taken. Once the employee returns to work, the leave request is cancelled in the TMS. Audit testing revealed noticeable patterns of TMS entries used for this specific purpose. In some cases, remarks attached to the leave request were explicit about being compensation for overtime worked.

To estimate the extent to which overtime is managed outside the corporate TMS, the audit team tested a sample of voided and cancelled leave transactions, representing 72 employees, drawn from 43 out of the 77 divisions across all fields. Results revealed that nearly half of the reversed transactions followed the identified pattern used to track informal arrangements. Follow-up interviews were conducted with directors and assistant directors in the divisions with the most reversed leave transactions and confirmed that informal arrangements between chiefs and employees for overtime are a known practice for a number of divisions across all fields.

Although the TMS requires employees to account for the use of their time during core hours, it does not require supervisor approval. Approval of employees' bi-weekly time entries would be considered certification of work performed under Section 34 of the FAA in the context of payroll. As a result, supervisors are not obligated to review, attest and approve the project time codes entered in the TMS, actions that would certify the validity of time entered in the system and help detect errors, such as the omission of leave codes when an employee is absent.

The control framework for managing overtime is not consistently applied across the agency. There are weaknesses in the process for pre-authorizing overtime and for certifying that work has been performed. Managing overtime outside the control framework does not comply with the FAA and creates opportunities to circumvent provisions of collective agreements. It also underestimates actual overtime costs, and this compromises the integrity of the information used by management for decision making.

Recommendations:

It is recommended that the Assistant Chief Statistician, Corporate Services/ CFO ensure that:

  • a directive is developed and communicated to all employees, which clearly sets out the requirements to manage overtime within the established corporate control framework and to record overtime activities in the TMS.

Management Response:

Management agrees with the recommendation.

  • The requirement to manage overtime within the established corporate control framework and to record overtime activities in the TMS will be incorporated in a directive.

    Deliverables and Timeline: The Director, Financial Reporting Division (FRD) will develop a new directive, which will be communicated and posted by June 2016.

The management of overtime generated by standby duties requires strengthening

Overtime is also generated by requiring employees to be readily available during off-duty hours, which is referred to as 'standby.' Operational realities require a standby coverage program, and there are a number of advantages to having one; qualified employees are available on call to attend to urgent matters that could have a significant impact on core operations.

The conditions for and application of compensation for standby activities are stated in collective agreements. Generally, collective agreements require that employees who are on call be compensated at the rate of one half-hour for each four-hour period (or portion thereof) the employee is on standby. Collective agreements state that to be entitled to standby pay, employees must be designated by letter or by list, and no standby duty payment is to be granted if the employee is unable to report for duty when required.

Between April 1, 2013, and October 31, 2014, a total of 12,763 standby entries were approved for 172 employees. Pre-authorization and certification of standby activities is currently not supported by internal reference documentation or guidelines. To ensure compliance with the FAA and provisions of collective agreements, Statistics Canada has implemented the following common practice.

Pre-authorization of standby activities is established through two levels of authority:

  1. Directors, or budget holder, establish the need for coverage outside core hours of operation based on operational risks, document the rationale for this need and provide formal approval of the overarching schedule where coverage is needed through a signed service-level agreement (SLA) between the directors of the client-program division and service-provider division. Operational requirements and coverage needs should be reviewed for relevance, and the agreements should be renewed periodically.
  2. Assistant directors or chiefs, or managers at that level, identify qualified employees available to assume the required coverage. Standby schedules should be established and communicated to qualified staff members, based on their availability. This is the basis for establishing employees' eligibility and entitlement to compensation for standby.

Once an employee has completed his or her standby period in accordance with the schedules, he or she must record it in the TMS for approval and compensation. At the end of the month, an overtime report is generated and submitted to the employee's supervisor, who, in turn, recommends the claim for approval to the client program's director (if applicable). The claim is ultimately recommended to the budget holder for approval.

Before approving overtime for standby duties, financial responsibility centre managers should ensure that the hours on standby recorded by employees are consistent with the hours of coverage established in the SLA and standby schedules. They should also ensure that employees were available to perform their duties if called during that period. According to the delegated authorities, supervisors can manage standby schedules, but managers are required to have financial delegation for Section 34 of the FAA when approving overtime claims.

Standby coverage is not formally approved or reviewed for relevance on a regular basis

An effective control framework should be consistently applied when managing standby activities. When program managers pre-authorize coverage outside regular business hours and certify that employees are entitled to compensation for standby activities, they must ensure that standby coverage is claimed for the intended purpose and finance and HR employees must ensure that compensation is granted in compliance with the FAA and applied in accordance with collective agreements.

Pre-authorization (Section 32 of the FAA)

To verify whether standby activities are pre-authorized, the audit team selected a judgmental sample of 19 employees who claimed overtime from standby activities. The audit team also requested that directors who approved the overtime provide documentation supporting the need for coverage outside core hours and the rotational schedules used to support the amounts of standby hours claimed by these employees. A total of seven divisions were covered in the sample.

Results revealed that the need for coverage was established and documented in SLAs for five out of the seven divisions; however, only one of the agreements had been formally signed off by appropriate delegated authorities. For one division, the SLA was still in draft form and its contents had not been finalized. As required by collective agreements, the list of employees authorized to claim overtime for standby was documented for all seven divisions. Although rotational schedules were in place, standby overtime claims recorded by employees from three of the seven divisions were not consistent with the approved schedules. Testing also revealed that 17 employees with significant numbers of standby entries for the period (ranging between 125 and 425 entries) had no record of any call-back entries.

The need for standby coverage outside core hours is not always formally documented, approved or reviewed for relevance on a regular basis. When operational needs are not periodically reviewed, more optimal options for coverage outside core hours can be overlooked and opportunities for cost savings may be missed.

Certification of eligibility and entitlement to compensation for standby activities (Section 34 of the FAA) is done by individuals with delegated authority

Certification of eligibility and entitlement to compensation for standby activities must be signed off by a budget holder. Before approving overtime claims originating from standby activities, financial responsibility centre managers should ensure that standby hours recorded by employees are consistent with the hours of coverage established in the SLA, and that employees' recorded activities are consistent with the established schedules and that employees were available to perform their duties should they be called back during that period.

The same sample of 19 employees used to test pre-approval was used to test whether overtime claims had been approved by individuals with delegated authority. Results showed that in all cases, overtime claims were approved by the appropriate individuals through the TMS. However, the absence of supporting documentation identified in the pre-authorization process left gaps as to what was pre-approved under Section 32 of the FAA for standby, i.e., who, when, how much and for what service.

Greater diligence is required to manage standby schedules for resource optimization purposes

Statistics Canada's guidelines generally allow employees to select their work hours, as long as schedules do not create additional costs to the agency. Employees' schedules and hours of work should be taken into consideration before employees are assigned to standby duty, to ensure that they are available to provide the required services and that their hours of work do not create additional overtime costs.

To verify whether employees' standby schedules were managed effectively for resource optimization, analysis and testing of standby entries were performed for the period under review. The following observations were noted:

  • There were 12,763 standby entries in the TMS, and 3,072 entries (24%) resulted from standby periods with durations of one hour or less, which are paid at a rate of 30 minutes for each recorded entry, as per collective agreements.
  • Depending on the timing of employees' schedules (i.e., start and end time for work hours), entries for standby activity were for short periods of 10, 30, 45 and 60 minutes before the employees' start time or at the end of their work day. Every time an employee enters one of these short periods of standby activity, 30 minutes of overtime are paid to the employee.
  • Of the 172 employees who claimed standby activities during the period, 20 employees (11.6%) each claimed between 60 and 320 periods of standby activity of less than one hour. This resulted in the accumulation of between 4 and 21 days of overtime during the 13-month period.

Directors and assistant directors interviewed confirmed that they do not review or manage employees' schedules for resource optimization when planning and approving standby activities.

Testing also revealed several questionable claims in the TMS:

  • Instances where employees had claimed hours for standby activities on the same day they also took sick leave, or for periods during which they were out of the country on vacation. 
  • Instances where employees had claimed standby activities for periods during which they also recorded overtime. Many collective agreements contain a specific clause that prohibits pyramiding payments of overtime while also claiming standby.

The control framework for managing standby activities is not consistently applied. There are weaknesses in the process for pre-authorizing coverage outside regular business hours. Procedures applied by program managers and finance and HR employees do not ensure that standby activities are used for the intended purpose. Compensation for standby activities is granted in compliance with the FAA and applied in accordance with collective agreements.

Recommendation:

It is recommended that the Assistant Chief Statistician, Corporate Services/ CFO ensure that:

  • monitoring activities are established and carried out for managing standby overtime, to optimize resources.

Management Response:

Management agrees with the recommendation.

  • Monitoring activities will be established and carried out for the management of stand-by overtime, to optimize resources.

    Deliverables and Timeline: The Director, Financial Reporting Division (FRD) will establish and implement a new sampling approach to review resource optimization for stand-by activities by May 2016 and findings will be shared with the CFO on a monthly basis.

Appendices

Appendix A: Audit Criteria

Appendix A: Audit Criteria
Control Objective / Core Controls / Criteria Sub-criteria Policy Instruments
Objective 1: Statistics Canada has an adequate control framework in place to support the management of leave and overtime.
1.1 Statistics Canada has established a framework that is documented and adequately communicated to support strategic management of leave and overtime. 1.1.1 Strategic direction provided by senior management is documented and communicated to all relevant stakeholders.

1.1.2 An effective process exists for budgeting and monitoring leave and overtime.

1.1.3 Management meets regularly to monitor use of leave and overtime against plans, and ensure that costs are minimized.

1.1.4 Management receives complete and timely information related to operational and administrative concerns for leave and overtime, in support of decision making.
Statistics Act

Management Accountability Framework (MAF)

Various Statistics Canada guidelines

Various collective agreements

Treasury Board (TB) Directive on Terms and Conditions for Employment

TB Policy on Terms and Conditions for Employment

Financial Administration Act (FAA)
 
1.2 Management and oversight bodies have clearly communicated mandates that include, as appropriate, roles for the monitoring and day-to-day administration of leave and overtime. 1.2.1 Sufficient and relevant information has been developed and communicated in a timely manner to the appropriate stakeholders, enabling them to perform their assigned responsibilities.

1.2.2 Authority for the approval of leave and overtime is clearly defined, established at the appropriate level and communicated.

1.2.3 Issues, concerns and disputes are formally escalated to responsible authorities and are resolved in a timely manner.
Statistics Act

MAF

Various Statistics Canada guidelines

Various collective agreements

TB Directive on Terms and Conditions for Employment

TB Policy on Terms and Conditions for Employment

FAA
1.3 Statistics Canada has clear and comprehensive systems and procedures for effectively managing leave and overtime activities. 1.3.1 Formal systems and controls to capture, record, authorize, action (pre-approval) and report leave and overtime events are documented and communicated.

1.3.2 Systems and procedures for managing leave and overtime are documented and communicated.
Statistics Act

MAF

Various Statistics Canada guidelines

Various collective agreements

TB Directive on Terms and Conditions for Employment

TB Policy on Terms and Conditions for Employment

FAA
1.4 Statistics Canada has processes in place for effectively managing risks related to leave and overtime. 1.4.1 Mechanisms are in place to identify, assess and mitigate administrative and operational risks related to leave and overtime.

1.4.2 Employees are aware of values and ethics directives and understand to whom and where to report potential wrongdoing.
Statistics Act

MAF

Various Statistics Canada guidelines

Various collective agreements

TB Directive on Terms and Conditions for Employment

TB Policy on Terms and Conditions for Employment

FAA
Objective 2: Internal controls are effective in ensuring that leave and overtime are managed in compliance with collective agreements and applicable policies and directives.
2.1 Leave and overtime are earned and taken in accordance with applicable policies, directives, guidelines and collective agreements. 2.1.1 Leave and overtime transactions are recorded and managed through the TMS.

2.1.2 Overtime payments are authorized by a person with the required authority. Overtime pre-approval can be verified.

2.1.3 Leave and overtime are earned, taken or paid in compliance with policies, regulations, directives and collective agreements.
Statistics Act

MAF

Various Statistics Canada guidelines

Various collective agreements

TB Directive on Terms and Conditions for Employment

TB Policy on Terms and Conditions for Employment

FAA
2.2 Management organizes employee schedules and the agency workload in a manner that minimizes the amount of overtime required. 2.2.1 Managers receive information on the status of leave, overtime and employees with special work arrangements.

2.2.2 Management updates work schedules to ensure that adequate staff is available to conduct operations and the need for overtime is minimized.
Statistics Act

MAF

Various Statistics Canada guidelines

Various collective agreements

TB Directive on Terms and Conditions for Employment

TB Policy on Terms and Conditions for Employment

FAA
2.3 Transactions recorded in the TMS are accurate, valid and properly coded, in compliance with applicable policies. 2.3.1 Leave transactions recorded in the TMS are accurate, valid and properly coded, in compliance with applicable policies. Statistics Act

MAF

Various Statistics Canada guidelines

Various collective agreements

TB Directive on Terms and Conditions for Employment

TB Policy on Terms and Conditions for Employment

FAA

Appendix B: Acronyms

Appendix B: Acronyms
Acronym Description
CFO Chief Financial Officer
CS Chief statistician
DAC Departmental Audit Committee
FAA Financial Administration Act
FRC Financial responsibility centre
FRS Financial Reporting System
HR Human Resources
IIA Institute of Internal Auditors
MAF Management Accountability Framework
MRV Management Variance Report
PSEA Public Service Employment Act
SLA Service-level Agreement
TB Treasury Board
TMS Time Management System

Footnotes:

Footnote 1

Agency Strength Report, September 30, 2014.

Return to footnote 1 referrer

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