ARCHIVED - Report on Audit of Pay and Related Benefits

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Audit Objective and Scope

The objective of the audit was to give assurance on the adequacy and effectiveness of the control framework in place and used within the Secretariat for the administration of pay and related benefits to ensure the accuracy and compliance of the processed pay transactions with relevant authorities.

The scope of the audit consisted of an assessment of the existing control framework for the administration of most types of pay such as regular pay, acting pay, and performance pay and related benefits, which result in a payment issued to an employee such as for maternity or parental allowance, bilingual bonus, and severance pay.  In addition, detailed audit tests on the most material types (where annual expenses exceed $100,000) of pay transactions and expenses as described in Table I were conducted to verify the accuracy of the amount paid in compliance with legislation, regulations, terms and conditions of employment, collective agreements, and Treasury Board policies and directives. 

Table I:  General Ledger (GL) Accounts and Pay Expenses Subject to Detailed Audit Tests on Accuracy and Compliance

G/L Account No.	Description of Type of Pay Transaction/Expenses	Account Balance for Fiscal Year ending March 31, 2008($)
1010	Indeterminate-Basic pay	89,393,694
1646	Executive interchange	3,280,660
1210	Term-Casual-Part time basic pay	3,225,162
1011	Indeterminate-Performance award	2,031,005
1048	Severance pay	1,771,144
1642	Maternity-Parental allowance	1,508,810
1024	Indeterminate-Bilingual bonus	565,635
1810	Student-Basic pay	368,648
1660	Other allowances	149,155
1034	Indeterminate-Retroactive basic current year	142,569
1016	Terminable allowance	113,994
	Total	102,550,476

The audit covered the administration of pay activities and transactions, including related data and expenses for the fiscal year ending March 31, 2008. The examination phase was conducted between June and November 2008.

The audit did not examine the controls nor test the pay transactions relating to leave (with pay) and overtime, as these had been the subject of a separate audit conducted by IAEB.  The report for this audit was finalized in December 2008.

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

In addition, the audit did not include a validation of internal controls within the related business applications in People Soft or in the SFS (replaced as of April 1, 2008 by the SFT).  Only the internal controls of RPS under the direct responsibilities of HRD and FMD were subject to the audit as PWGSC is responsible for the overall administration of RPS.

Audit Criteria

The audit criteria used to assess the adequacy and effectiveness of the Secretariat's control framework were developed based on the authorities governing pay and related benefits in the federal public service.  In addition, these were complemented by criteria developed based on the Core Management Controls document issued by the Office of the Comptroller General, which focus on the federal government's Management Accountability Framework (MAF) in the Stewardship and People categories (Refer to Appendix 1 for details.).  Appendix 2 contains the list of the relevant authorities.

Approach and Methodology

The audit approach and methodology is risk-based and is consistent with the International Standards for the Professional Practice of Internal Auditing and the Internal Auditing Standards for the Government of Canada as required under Treasury Board's Policy on Internal Audit.  These standards require that the audit be planned and performed in such a way as to obtain reasonable assurance that the audit objective is achieved.  The audit was conducted in accordance with an audit program that defined audit tasks to assess each criterion after a preliminary survey was conducted to identify key risk elements.

The approach used in carrying out the audit included the following:

• a review of applicable legislation, policies, directives, procedures, and other information related to the processing of pay and related benefits and to related management practices;
• interviews with management and staff of CSB, and fund center managers;
• document through a flowchart of the overall control framework for the administration of pay and related benefits and comparing against current processes;
• performing walkthroughs to observe specific detailed processes and controls for:
  • processing, review and authorization of pay transactions and paying employees using the RPS;
  • recording pay expenses; processing; monitoring; and reconciliation processes between RPS and the Receiver General's central systems with the Secretariat's IFMS-SAP;
  • reimbursing the pay of a newly appointed employee to his/her former department using an interdepartmental settlement (IS), up until the time the employee's file is transferred and processed within the Secretariat;
  • recovering the pay of an employee who departed the Secretariat from its new department using an IS, up until the time the employee's file is completely transferred and processed to the former employee's new department; and
  • management reviews and monitoring of pay expenses at the fund center level;
• assessing the control framework against the criteria/control objectives and identifying the key internal controls;
• performing detailed audit tests on the following key internal controls to validate their existence and assess their effectiveness:
  • access security controls to RPS;
  • reconciliation processes between RPS and IFMS-SAP; and
  • reviews and monitoring of the pay expenses performed by fund center managers;
• obtaining an electronic extraction of the pay transactions recorded in IFMS-SAP for fiscal year ending March, 31 2008 from the auditee and using computer-assisted audit techniques for data analysis and sampling;
• preparing a sampling plan and statistically selecting, using a confidence level of 95 %, a random sample of 67 employee pay files as recorded and accounted for in the General Ledger accounts under the scope of the audit (Refer to Table I above for details.); and
• performing detailed audit test procedures on a random sample of 67 employees' total pay for the fiscal year ending March, 31 2008 consisting of a total of 4,634 individual pay transactions for each employee's yearly pay, all of the pay transactions were subject to detailed audit procedures such as the following:
  • tracing to relevant original documents contained in the employee file or elsewhere for compliance with the control framework; and
  • verifying the accuracy of the calculations of the amounts paid and compliance with applicable terms and conditions of employment, collective agreements, and other applicable Treasury Board policies and directives.

Of the 67 files, 57 were employees (non-executives), 8 were EX (executives) and two were students.  Any of the files could exhibit one or more of the characteristics, as outlined in the following Table.

Table II: Characteristics of the employees files selected

Characteristics	Number of files
Regular pay	58
Bilingual bonus	33
Hired and deployment appointments	21
Promotions (three to executive level)	8
Acting pay	9
Performance pay	7
Maternity and parental benefit, Illness disability, Leave with income averaging, and leave without pay	7
Pay recoveries from another department or reimbursements of pay to another department performed with an Interdepartmental Settlement (IS)	28

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