ARCHIVED - Audit of the Management of the Public Service Disability Insurance Plan

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3.  Audit Results

Each area of focus was assessed against audit objectives and related criteria. The audit results are presented by area of focus.

3.1  Roles, responsibilities and accountabilities

3.1.1  Definition, communication and understanding

Roles, responsibilities and accountabilities relating to DI Plan management are complex and formally defined in seven documents maintained by the Secretariat, PWGSC and the National Joint Council, as follows:

• Secretariat
  • Financial Administration Act;
  • The insurance policy (contract) and two related amendments;
  • Treasury Board's Policy on the Administration of the Public Service Pension Plan and Group Insurance and Other Benefits Programs;
  • The Disability Insurance Plan document which includes Treasury Board's Directives Respecting the Disability Insurance Plan Established for Certain Persons Employed in the Public Service;
• PWGSC
  • Department of Public Works and Government Services Act (DPWGS Act);
  • Insurance Administration Manual; and
• National Joint Council
  • Terms of reference for the Disability Insurance Board of Management.

These were found to be adequately communicated to delivery stakeholders. Five documents are posted on the internet and therefore available to all delivery stakeholders. The remaining two documents (the insurance policy and the Disability Insurance Board of Management terms of reference) were made available to the appropriate parties.

Interviews conducted by the audit team with delivery partner representatives indicated that respective roles, responsibilities and accountabilities as currently defined were generally understood by those entities.

In the Pensions and Benefits Sector, it was found that staff understood and performed their roles as currently defined.^[5] It was also found that Pensions and Benefits Sector officials reasonably understood the roles, responsibilities and accountabilities of the various delivery stakeholders.

3.1.2  Currency and clarity of roles, responsibilities and accountabilities

The audit identified areas in need of updating and/or clarification, particularly regarding roles, responsibilities and accountabilities for the Secretariat and PWGSC. There is also a need to formalize service expectations between delivery stakeholders and the Secretariat.

Role of the Secretariat

As per the documentation reviewed, many of the roles, responsibilities and accountabilities relating to the DI Plan are attributed to Treasury Board or the President of the Treasury Board. However, the role of the Secretariat in supporting Treasury Board is not formally defined for the management of the DI Plan. Currently, the Secretariat's defined role in this regard is to provide direction to PWGSC in accordance with Treasury Board's Policy on the Administration of the Public Service Pension Plan and Group Insurance and Other Benefit Programs, which came into effect May 17, 2007. Given the activities currently undertaken by the Secretariat in support of DI Plan management, further clarification and documentation of its role would be beneficial to ensure that decision making is at the appropriate level of accountability.

Role of PWGSC

The role of PWGSC is defined in Treasury Board's Policy on the Administration of the Public Service Pension Plan and Group Insurance and Other Benefits Programs. As per this policy, PWGSC is an information provider under the direction of the Secretariat; however, PWGSC's role as specified in the policy differs from that outlined in both the DPWGS Act and the Insurance Administration Manual. Both the DPWGS Act and the Insurance Administration Manual define PWGSC's role as that of providing administration and other services. The audit found that PWGSC is performing its role in accordance with the legislation and the Insurance Administration Manual. Nevertheless, its role in supporting administration of the DI Plan should be consistently defined to facilitate a common understanding.

Services provided by delivery stakeholders

It was noted that Memoranda of Understanding are not in place for OSFI or PWGSC regarding their roles vis-à-vis the Secretariat and the services to be provided. Such agreements would ensure that stakeholders clearly understand their roles and responsibilities in the delivery of the DI Plan and would support the Secretariat's role in monitoring DI Plan delivery.

3.1.3  Authorities and delegations for DI Plan Management

The audit identified the need to update authorities and delegations relating to DI Plan management. Specifically, current delegation instruments do not provide adequate delegation for DI Plan delivery stakeholders who perform activities on behalf of Treasury Board or the President of the Treasury Board. As part of efforts to address this issue, the Secretariat is currently reviewing and drafting new delegation instruments.

3.1.4  Knowledge and skills management

The audit also included a review of the overall processes in place to identify and maintain appropriate knowledge and skills in support of the Secretariat's roles, responsibilities and accountabilities in managing the DI Plan.

Identification of required knowledge and skills

The Pensions and Benefits Sector has identified the need to recruit employees with policy and strategic advisory backgrounds as well as employees with insurance and pension experience, where possible. These recruitment requirements were identified in the latest Human Resources Plan^[6] and confirmed with Pensions and Benefits Sector officials. Recruitment of individuals with previous experience in the insurance and pension industries was highlighted as challenging.

In the latest Human Resources Plan, the Pensions and Benefits Sector has identified the following activities to strengthen the identification of required knowledge and skills and the recruitment of new employees:

• Regularly reviewing Statements of Merit Criteria for key positions and obtaining input from the various communities in the private sector to help determine job requirements; and
• Shifting the Pensions and Benefits Sector's recruitment strategy to explore new ways of recruiting from the private sector insurance and pension community.

There is evidence that, in a recent competition, the development of the Statement of Merit Criteria has taken into consideration the overall recruitment requirements identified in the latest Human Resources Plan. Given the complexity of insurance benefits programs such as the DI Plan, it would be beneficial to formally articulate specific recruitment needs and strategies so that these can be efficiently and effectively implemented.

Maintaining knowledge and skills

While standard and mandatory training requirements are not in place, the audit team was informed that Pensions and Benefits Sector employees are provided with opportunities to participate in a variety of in-house and external training related to insurance benefits programs in order to maintain and enhance knowledge and skills.

General training opportunities within the Secretariat

• Secretariat Boot Camp

Training specific to insurance benefits programs

• One-day, in-house training on Treasury Board's insurance benefits programs and how they operate; 
• Training from other government departments that provide benefits programs;
• Training from insurers; and
• Certification from Humber College

Pensions and Benefits Sector employees indicated that sharing knowledge plays an important part in the execution of their roles and responsibilities. In support of knowledge sharing, the Pensions and Benefits Sector provides informal cross-training for employees for insurance benefits programs, as well as informal on-the-job training and continued support by more experienced staff.

In terms of succession planning, the Pensions and Benefits Sector identified a number of ongoing activities in the latest Human Resources Plan, as follows:

• Identification of critical positions and back-up personnel;
• Steps to address knowledge transfer in advance of employee departures; and
• Provision of training to potential successors.

While a formal training program is not in place, there is evidence that Pensions and Benefits Sector employees have access to a number of training opportunities. Overall requirements for succession planning were outlined in the latest Human Resources Plan. However, there is a need to develop and implement formal tools and processes to support succession planning given the complexity of insurance benefits programs and the specialized skills required to manage them.

3.1.5  Conclusion—Roles, responsibilities and accountabilities

Roles, responsibilities and accountabilities are formally defined, and there is evidence of sufficient communication and understanding among delivery stakeholders. However, these roles, responsibilities and accountabilities are dispersed among a number of documents and require adjustment and clarification in some cases. Clearly defined roles, responsibilities and accountabilities are key to ensuring effective and efficient DI Plan management. They are critical to ensuring continuity when employees occupying key positions change employment or retire. 

Delegations and authorities are currently being reviewed, and new delegation instruments are being drafted.

While elements of a process are in place to identify and maintain the knowledge and skills necessary for DI Plan management at the Secretariat, an enhanced approach to recruitment and succession planning is necessary given the complexity and specialized skills required to manage the DI Plan.

3.2  Monitoring and oversight

3.2.1  Definition and communication of Disability Insurance Plan objectives

DI Plan objectives help ensure alignment of activities among delivery stakeholders and can provide an overall basis for monitoring.

The DI Plan objectives and related statements are contained in two documents posted on the Secretariat's website: the Disability Insurance Plan document and Treasury Board's Policy on the Administration of the Public Service Pension Plan and Group Insurance and Other Benefit Programs. Relevant excerpts from these documents are presented in Appendix 2.

The overall objective of the DI Plan is broadly defined in the Disability Insurance Plan document. DI Plan management objectives, such as those relating to accountability, transparency, decision making and minimizing errors, can be inferred from their inclusion in the above-mentioned Treasury Board policy and can be used to help guide monitoring activities.

3.2.2  Monitoring

The process for monitoring achievement of DI Plan objectives and compliance to relevant authorities is not formally defined. 

Even though they are broadly defined, the DI Plan objectives could provide a basis for ongoing monitoring of the DI Plan.

Regarding compliance, while there are no legislative requirements for the management of the DI Plan, other mandatory requirements are outlined in Treasury Board policy, Treasury Board directives, as well as in the insurance policy (contract).

While a monitoring process is not formally defined, the Pensions and Benefits Sector undertakes a number of monitoring activities in support of managing the DI Plan. These are largely focused on the activities of two delivery stakeholders, as follows.

Monitoring and reporting contractor activities

In monitoring contractor activities, the Secretariat is supported by the information it receives from Sun Life, the contractor.

We found that reporting requirements for the contractor have been clearly defined in the insurance policy (contract), including the provision of various reports at specific times that relate to the financial health of the plan. These include the following:

• Monthly Financial Position Reports;
• Annual Summary Financial Report including required exhibits;
• Annual Detailed Financial Report including required exhibits; and
• Asset Reports annually and as requested.

These reports are reviewed and analyzed at the macro level by the Pensions and Benefits Sector as a means to monitor the financial health of the plan. Since the intent of the audit was to determine whether a process exists for ensuring that DI Plan management objectives were met, the audit team did not assess whether the analysis was sufficient or adequate.

While we found that information provided by the contractor meets the requirements of the contract, this information is not verified consistently for accuracy by the Pensions and Benefits Sector. In particular, there is no payment verification conducted. The Pensions and Benefits Sector has initiated a financial audit of the contractor for the year ending December 31, 2007; however, the audit report has not yet been finalized. In addition, there is no confirmation that financial audits of the contractor will be repeated on an ongoing basis.

Monthly meetings are held with the contractor to review performance and to discuss issues that may arise in the delivery of the DI Plan. The minutes, prepared by the contractor and provided to the Secretariat, outline issues identified in managing the DI Plan and progress on their resolution.

As noted previously, the process of monitoring the achievement of DI Plan objectives is not formally defined. The absence of a formal framework that identifies key monitoring activities limits the ability of the Secretariat to determine whether the current monitoring activities are appropriate and sufficient in achieving the DI Plan management objectives.

Monitoring and reporting PWGSC activities

The audit found that regular meetings were not formally scheduled between the Secretariat and PWGSC to discuss specific aspects of PWGSC's role in DI Plan delivery.

However, meetings with PWGSC were held as required to discuss issues that impacted
DI Plan delivery. In addition, there was evidence that the issues identified were resolved through email exchanges or during meetings. If consultations with additional delivery stakeholders were required to resolve issues, there was evidence that this was done.

While formal reporting requirements exist for the contractor, they have not been defined for PWGSC. Therefore, the Secretariat does not receive pre-specified information from PWGSC on a regular basis for monitoring purposes.

PWGSC calculates and remits Treasury Board's employer share of premiums on behalf of the President of the Treasury Board to the contractor along with the employees' share. Treasury Board's share is ultimately charged to Treasury Board Vote 20—Public Service Insurance. However, detailed information regarding Treasury Board's share recovered by PWGSC and charged to Treasury Board Vote 20 has not been pre-defined to ensure that the Secretariat can assess whether the charge is appropriate and accurate. The availability of such information as the number of employees contributing Disability Insurance premiums, the amount of monthly employee deductions, and the amounts remitted to the contractor would facilitate the payment verification process at the Secretariat.

The audit team was informed that discussions with PWGSC have been underway since January 2010 to address the need for additional information.

3.2.3  Reporting process

In addition to reviewing the reporting process by external stakeholders (discussed in Section 3.2.2 as part of monitoring), the audit also examined DI Plan reporting from the following perspectives:

• The Secretariat's reporting to Treasury Board; and
• Internal reporting within the Secretariat.

Secretariat's reporting to Treasury Board

There is currently no mandatory or formal requirement for the Secretariat to report to Treasury Board on the DI Plan.

In addition to clarifying the role of the Secretariat in supporting Treasury Board (discussed in Section 3.1.2 of this report), articulation of clear reporting requirements to Treasury Board regarding DI Plan delivery would be beneficial given the Secretariat's role of managing the DI Plan on behalf of Treasury Board.  

Internal reporting within the Secretariat

The audit examined the extent of internal reporting within the Secretariat regarding
DI Plan delivery. It was found that internal reporting requirements have not been formally defined. Rather, reporting to Senior Management on the activities of the DI Plan has been done on an issues-driven basis.

3.2.4  Conclusion—Monitoring and reporting

While the Secretariat conducts numerous monitoring activities that are critical to DI Plan management, there is a need to develop a formal monitoring framework that defines key monitoring objectives, activities, frequency and responsibility. Such a framework would provide assurance that all necessary monitoring activities are being conducted at the appropriate times and in support of key aspects of DI Plan delivery.

Enhancements are also necessary for ensuring the accuracy of information relating to other DI Plan delivery stakeholders that is used for monitoring and decision-making purposes. This includes the verification of payments made to the contractor by PWGSC on behalf of the President of the Treasury Board.

Formal reporting requirements are in place between the contractor and the Secretariat, and the information provided meets the requirements of the contract. However, there is a need to formally define reporting requirements for all stakeholders involved in DI Plan delivery, including those internal to the Secretariat.

3.3  Risk management

As per the Treasury Board Risk Management Policy, federal departments are expected to:

• identify the potential perils, factors, and types of risk to which their assets, program activities, and interests are exposed; and
• analyze and assess the risks identified and design and implement cost-effective risk prevention, reduction, or avoidance control measures.

In assessing the Secretariat's management of risks relating to the DI Plan, the audit team reviewed a number of documents, such as the following:

• Office of the Chief Human Resources Officer 2010–11 Business Plan;
• Office of the Chief Human Resources Officer 2010–11 Human Resources Plan;
• Business Impact Analysis, dated October 24, 2008;
• Sector and directorate input to the Departmental Business Continuity Plan for Infrastructure Outages (October 30 and September 24, 2009).

These documents identified a number of risks and issues that could potentially hinder the Secretariat's capacity to perform its duties related to the DI Plan. The Pensions and Benefits Sector's input into the Secretariat's Business Continuity Plan for Infrastructure Outages involved a formal and systematic approach to risk management. However, other risks were dealt with in a less structured and complete manner, focusing largely on human resources-related issues.

In addition, the Pensions and Benefits Sector is performing financial risk analysis. Specifically, financial information provided by the contractor is reviewed, and trends and variance analysis is conducted.

However, there was no formal documentation of the identification, acceptance and mitigation of financial risks.

3.3  Conclusion—Risk management

A comprehensive and systematic process has not been formally defined for identifying, assessing and responding to the full spectrum of risks associated with managing the
DI Plan. Currently, a number of risks and issues relating to DI Plan management are identified and addressed through various means, such as the Business Continuity Plan for Infrastructure Outages, the annual business plan, and financial risk analysis performed by a senior advisor in the Pensions and Benefits Sector.

A formal risk management approach would include the identification and assessment of legal, operational, financial and reputational risks—from both internal and external sources—to be conducted on a periodic basis (at least once a year) and monitored. A formal response to risk would include the following:

• Specific mitigation strategies and associated timelines;
• Owners for each mitigation strategy; and
• Communication of risks and strategies to relevant parties.

3.4  Contract administration

3.4.1  Supporting documentation—contract and amendment approvals

The original insurance policy (contract) with Sun Life for the DI Plan became effective in 1970. The contract was updated in 1997 and was followed by two amendments: the first effective in 2000, the second in 2007.

The audit team found that the documented justification on file for the most recent amendment was appropriate. However, similar support for the 1997 contract update and the first amendment was not available for review.

As per section 7.1(1) of the Financial Administration Act and in the absence of other formal delegation instruments, Treasury Board is the appropriate authority for approving the insurance policy (contract) and its amendments. However, the audit team found that the 1997 contract and subsequent amendments were signed by the President of the Treasury Board and in one instance the Chief Human Resources Officer. There is therefore a need to update either the approval process or the authorities relating to the DI Plan contract prior to proceeding with future changes to the existing contract. The audit team was informed that the Secretariat is currently reviewing and drafting new delegation instruments.

3.4.2  Contract oversight

As discussed in Section 3.2.2 (Monitoring and reporting contractor activities), the Secretariat undertakes a number of activities in support of monitoring the requirements of the contract. Specifically, the Pensions and Benefits Sector holds monthly meetings with the contractor to discuss issues. The Sector also monitors the financial health of the DI Plan through the review of reports provided by the contractor.

Overall, monitoring activities were found to be adequate to ensure that contract deliverables (e.g., financial reports) were provided by the contractor and that issues were resolved appropriately and in a timely manner. However, there are no other performance measures in place against which to assess the performance of the contractor. The Pensions and Benefits Sector is aware of this issue and has included specific performance measures in the recent retendering of another insurance benefits plan contract.

Regarding the level of documentation on file to support contract management, it was found that, overall, sufficient information was available on file for day-to-day contract administration. This included the following:

• Information provided by the contractor as per the contract (e.g., financial reports, such as income statement); and
• Documentation on the identification, monitoring and resolving of issues that arose.

3.4.3  Payment verification

Employer share of premiums

As mentioned earlier in the report, the cost of the DI Plan comprises monthly premiums paid to the contractor that are shared between the employer (85 percent) and the employee (15 percent). The scope of this audit was limited to Treasury Board's employer share of premiums only.

The audit team was informed that there is currently no process in place to confirm the accuracy of the Treasury Board's employer share of premiums against information provided by the contractor.

Claims administration fee

The contractor is paid a claims administration fee as outlined in the negotiated contract.

The audit team was informed that there is currently no process in place to confirm the accuracy of the claims administration fee.

Notwithstanding this, some degree of assurance has recently been provided regarding the claims administration fee paid to the contractor. Specifically, an external financial audit was conducted that provided an independent audit opinion on the annual financial reports of the DI Plan provided by the contractor for the year ended December 31, 2007. The financial audit included a review of the processes and controls supporting financial reporting and provided observations and recommendations on any identified deficiencies. The preliminary findings from that audit indicated that there were no issues regarding the accuracy of the information contained in the financial reports for that year, including the amount of claims administration fee paid to the contractor. However, the audit report was not finalized.  

3.4.4  Conclusion—Contract administration

There is evidence of contract oversight activity; however, the current contract does not contain specific performance measures against which to assess the contractor.

While file documentation regarding the day-to-day administration of the contract was found to be complete, some documentation in support of past contract changes was not available for review by the audit team. There is a need to ensure that key contractual documents and related justifications are retained on file in order to support decision making and to allow for adequate corporate memory when turnover occurs.

There is a need to update either the approvals process or the authorities relating to the DI Plan contract prior to proceeding with future changes to the existing contract. The audit team was informed that an updated delegation framework is underway.

A formal process is not currently in place to verify the accuracy of the employer share of premiums and claim administration fees against the information provided by the contractor.

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