ARCHIVED - Audit of the Treasury Board of Canada Secretariat's Management Control Framework of the Public Service Pension Plan

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3. Audit Results

3.1. Roles and Responsibilities

We examined pension enabling legislation,^[6] Treasury Board policy,^[7] the pension plan's annual report and communication materials (used within the Secretariat, as well as shared with external stakeholders). We also consulted with officials from within the Secretariat and from external stakeholder organizations. These consultations focused on roles and responsibilities associated with key pension plan activities identified through our discussions with management and our review of enabling legislation. The activities included the following:

• Advising on the day-to-day administration of the plan;
• Charging administrative expenses;
• Communicating with plan members and beneficiaries;
• Creating and interpreting statutes and regulations;
• Developing funding policy;
• Establishing policy for the Public Service Pension Plan;
• Recovering and remitting employer contributions;
• Setting employee contribution rates;
• Setting employer contribution rates;
• Supporting the annual actuarial valuation for accounting purposes;
• Supporting triennial actuarial valuation for funding purposes; and
• Producing and tabling an annual report.

Our review of the enabling legislation for the Public Service Pension Plan found that it is silent on the Secretariat's role. Nevertheless, the Secretariat has assumed certain roles and responsibilities in support of the Treasury Board and the President of the Treasury Board; both have specific roles and responsibilities defined in this legislation. The Secretariat undertakes these roles and responsibilities under the broad authority of sections 5 to 13 of the Financial Administration Act, which provides the Treasury Board and/or its President with the authority to delegate its responsibilities to the Secretary of the Treasury Board.

Because of the broad authority granted by the Financial Administration Act, we expected that further documentation would be needed to delineate operational roles and responsibilities in support of the pension plan. The audit found that the key sectors had in fact developed their operational roles and responsibilities in greater detail, as the following examples demonstrate:

• The Pensions and Benefits Sector describes its responsibilities at a high level in the pension plan's annual report, as well as internally in its business plans and in presentations used for communication purposes with other sectors. At the detailed level, written procedures exist for some processes such as annual reporting and regulatory submissions;
• The Office of the Comptroller General articulates its responsibilities at a high level in the pension plan's annual report, as well as in material distributed to the participants of the Interdepartmental Committee on Pension Accounting; and
• The Corporate Services Sector has detailed written procedures for its activities in support of the recovery and remittance of employer contributions from government departments to Public Works and Government Services Canada.

While these descriptions are generally at a high level, they are in most cases sufficient. In correlation with this opinion, the audit also found that the Secretariat's employees generally understand their roles and responsibilities. This understanding results from the use of documents and techniques other than process or procedure manuals. For example, employees in the Pensions and Benefits Sector indicated they refer to their work plans and performance agreements. Techniques used across the Secretariat include job shadowing, mentoring and the review of past years' files.

Similarly, we found that employees at the Secretariat and its external stakeholders have a clear and common understanding of shared roles and responsibilities for the key pension plan activities identified above, despite limited formal agreements or procedures. Employees in Public Works and Government Services Canada and the Office of the Chief Actuary—the two organizations that collaborate frequently with the Secretariat—clearly described their roles and responsibilities for relevant activities, as did employees in organizations where collaboration is less frequent. Moreover, their understanding is consistent with descriptions of the roles and responsibilities provided by the Secretariat's employees for relevant activities.

In addition to this clear understanding, there is evidence that these roles and responsibilities are carried out and that there is compliance with legislative and policy requirements.

As mentioned earlier, roles and responsibilities are generally well understood; however, some areas require further clarity. Specifically, these areas relate to the Secretariat's oversight role and the Secretariat's financial advisory role.

• The Secretariat's oversight role. The Policy on the Administration of the Public Service Pension Plan and Group Insurance and Other Benefit Programs and the March 31, 2010, report on the Public Service Pension Plan state that the Secretariat exercises an oversight function for the plan. However, the extent and nature of this oversight is not formally documented. The audit found that the Secretariat's oversight role is not clear. Questions were raised within the Secretariat about the extent to which it provides oversight over the pension plan and over other parties involved in the management of the pension plan. This raises questions about the extent to which an oversight function exists or should exist, particularly in relation to the Public Sector Pension Investment Board. In the absence of such clarification, there is a risk that stakeholders will hold differing beliefs about the extent of the oversight currently being carried out, which may limit the Secretariat's ability to exercise oversight or to intervene when required.
• Financial advisory role over financial statements. Public Works and Government Services Canada is responsible for maintaining the plan's books of account and the financial statements that appear in the annual report on the Public Service Pension Plan. The Secretary of the Treasury Board co-signs^[8] the financial statements following internal review and approval.^[9] At present, the Chief Financial Officer is not formally involved in reviewing and approving the financial statements. However, according to the Treasury Board's Policy on Financial Management Governance, the Chief Financial Officer's responsibilities include signing off on all financial and related reports requiring approval of the deputy head. At the same time, the extent to which the Secretariat can verify the accuracy of the financial statements is limited because the information rests with Public Works and Government Services Canada. To date, the Pensions and Benefits Sector has been the primary advisor to the Secretary for plan-related financial matters.

The audit did not identify any major operational issues or risks in the short term. However, it found that limited definition of roles and responsibilities could pose longer-term risks to the Secretariat.

For example, rapid staff turnover in an environment that relies heavily on collaboration and working relationships could cause inefficiencies and delays. Furthermore, in an environment of increasing resource constraints, organizations may attempt to scale back on their responsibilities or transfer their risks to other organizations. Where roles and responsibilities are open to interpretation, conflicts could arise between sectors, as well as with external stakeholder organizations.

The audit acknowledges that the Pensions and Benefits Sector has established a Public Service Pension Plan governance working group, whose mandate is to document and review the governance structure and processes of this pension plan and make proposals for their improvement as needed. The working group had developed a draft governance document in 2010, which was still in the process of being reviewed during the period of the audit. While aspects of the Secretariat's oversight and financial advisory roles are discussed in this draft governance document, further work would be required to clarify these roles.

It is recommended that the Secretariat continue to formally define its roles and responsibilities, with particular emphasis on the Secretariat's oversight and financial advisory roles. Specifically:

• The Secretariat should develop a formal definition of its oversight role over the Public Service Pension Plan and/or over the organizations that support this plan. Once approved, the definition should be communicated to the appropriate stakeholders; and
• The Secretariat should clarify the appropriate financial advisory roles within the Secretariat to ensure that appropriate financial advice is provided to support the Secretary's approval of the pension plan's financial statements.

3.2. Oversight, Monitoring and Reporting

We expected to find mechanisms to oversee and ensure compliance with legislative and policy requirements. These include processes for monitoring external and internal environments to obtain information that management requires for decision making and mechanisms for ongoing communication and reporting with the President and committees.

As noted earlier, responsibility for the plan is shared by five organizations (the Secretariat, Public Works and Government Services Canada, the Public Sector Pension Investment Board, the Office of the Chief Actuary and the Public Service Pension Advisory Committee). The audit found that, given this environment of shared responsibility, a collaborative approach is being taken to ensure compliance with legislative and policy requirements.

There is consistent evidence that the plan's legislative and policy requirements are well understood by the five organizations that share responsibility for them, and that all parties work to ensure compliance with them.

Processes to ensure compliance with legislative and policy requirements are carried out by two teams in the Secretariat's Pensions and Benefits Sector: the Pension Program Management and Regulatory Policy team; and the Legislation, Authorities and Litigation Management team. The Pension Program Management and Regulatory Policy team provides advice on the interpretation of legislative and policy requirements to the plan administrator—Public Works and Government Services Canada. The audit found consistent evidence of a good working relationship and ongoing communication between this team and the plan administrator. The administrator readily contacts the team to clarify legislative and policy issues and interpretations. The Sector's Legislation, Authorities and Litigation Management team supports this process as required.

The audit found that changes in the plan's external and internal environments are regularly monitored. For example, the Secretariat's Pensions and Benefits Sector:

• Monitors legislative changes that could impact pension legislation and regulations;
• Conducted a survey in 2009 of active and retired pension plan members to assess plan members' level of knowledge and awareness of pension plan benefits, as well as to solicit their feedback on information and communication needs;
• Participates in semi-annual meetings between federal and provincial pension authorities and in annual meetings with federal pension authorities, where information on pension issues and challenges is shared;
• Participates in the Secretariat's annual compensation plan exercise where demographic factors such as population and wage growth are discussed; and
• Has documented a three-year business plan that presents an overview of the external environment in which it operates.

In addition, Public Works and Government Services Canada led benchmarking studies that compared the Public Service Pension Plan against 68 international pension administration organizations and against 7 major Canadian public sector pension plans. The results of these studies were presented to the Public Service Pension Advisory Committee in 2010, which has a legislative mandate to advise and assist the President of the Treasury Board on matters related to the plan's administration, benefits design and funding.

The audit found that there are mechanisms for ongoing reporting and communication with the President and the committees to inform them of significant issues. Formal processes exist to inform the President of the Treasury Board of key activities in support of the pension plan. These processes, which involve consultations, briefing notes and formal sign-off from various sector and deputy heads, apply to the Secretariat's recommendation to the President for approval on the following:

• The Annual Report on the Public Service Pension Plan;
• The triennial Actuarial Valuation Report; and
• Employer contribution rates.

The Public Service Pension Advisory Committee is also informed of these activities. This key stakeholder committee meets four times a year, which includes two regular meetings, one annual retreat and one special purpose meeting to review the Public Sector Pension Investment Board's annual report. Additional meetings may be scheduled as deemed necessary by the chair. There is ongoing and transparent communication within the committee, as evidenced by its use of agendas, records of discussion and presentations as tools of communication, all of which are enabled by the Pensions and Benefits Sector's committee secretariat. The chair of the Public Service Pension Advisory Committee sends letters to the President to inform him of key recommendations made by the committee (e.g., contribution rates). In tandem with this process, the Pensions and Benefits Sector prepares briefing memos outlining the Secretariat's viewpoint to the President.

There is also ongoing, timely communication between the President of the Treasury Board, senior officials in the Secretariat (the Secretary, the Chief Human Resources Officer and the Assistant Deputy Minister, Pensions and Benefits Sector) and the Public Sector Pension Investment Board. In addition to what is required by legislation (e.g., quarterly and annual financial reporting), there are quarterly and semi-annual meetings and briefing sessions for sharing information.

In summary, other than the need to further clarify the Secretariat's oversight role, as previously discussed, no additional recommendations are required.

3.3. Risk Management and Strategic and Operational Planning

The Pensions and Benefits Sector, as well as the rest of the Secretariat, operates in an environment of increasingly limited resources and expanding requirements. The need to embed risk information into decision making and integrate risk-based approaches into business planning is fundamental to effective public administration. We therefore expected to find that the Sector has in place operational plans and objectives aimed at achieving its strategic objectives, and that its strategic and operational planning processes identify and assess risks, and develop mitigation strategies to address them.

The audit found that the Sector has established its strategic direction, objectives and priorities, and documented them in its Five-Year Strategic Plan 2011–16. The plan's themes align with the Office of the Chief Human Resources Officer's business plan priorities and the Secretariat's “enabler” role, and there are plans to perform ongoing monitoring and to measure progress toward achieving the Sector's strategic objectives.

All key functions in the Sector were involved in establishing its strategic objectives, and the strategic plan was communicated to Sector staff through a variety of mechanisms (e.g., focus groups and all-staff consultations).

The strategic plan provided context for the preparation of the Sector Business Plan for 2011–14. The business plan incorporates:

• A scan of the external and internal environment;
• Explicit identification and assessment of risks at the corporate and sector levels, and risk mitigation strategies; and
• A human resources plan.

The business plan's operational priorities are clearly linked to the strategic objectives presented in the Sector's Five-Year Strategic Plan 2011–16.

Within the Sector, the Pension Policy and Programs team also maintains its own operational business plan. This plan includes supporting work plans for each director, with specific projects, resources and timelines identified. Progress against the key business and management commitments of the team's business plan is reviewed and documented at mid-year.

The audit found that the risk mitigation strategies identified in the Sector business plan are high level statements without owners or timelines. It is the audit team's opinion that, without owners who are responsible for enacting the mitigation strategies according to a defined schedule, there is a risk that required actions will not be carried out, or not be carried out in a timely manner, thereby compromising the mitigation strategies.

It is recommended that the Assistant Deputy Minister, Pensions and Benefits Sector, ensure that a responsible manager and a schedule are assigned to each of the mitigation strategies identified in the Sector Business Plan for 2011–14.

3.4. Knowledge Management

The Public Service Pension Plan is complex, and its management and administration requires highly specialized knowledge and expertise. We therefore expected to find processes in the Pensions and Benefits Sector for managing this knowledge and expertise, including provisions for ensuring its employees have the necessary training, tools, resources and information. Since the Sector is the secretariat to the Public Service Pension Advisory Committee, we also expected to find mechanisms that would ensure that committee members have sufficient knowledge to participate fully and perform their roles effectively.

The audit found that the Sector provides a wide array of training and professional development that is well received by staff. It combines classroom training through formal courses with other orientation and professional development processes to support knowledge transfer, information management and sharing among its employees.

Two types of formal courses are available to employees who are new to the Sector and who do not have a background in public sector pension plan management and administration:

• Humber College's Certificate in Pension Plan Administration; and
• In-house developed training.

The formal courses are complemented by other orientation and professional development processes that include regularly scheduled meetings at various employee and management levels, job shadowing and on-the-job learning by employees who are assigned to files based on skill set and expressed interest. The staff assigned to files use the filed and indexed results of the Sector's policy analysis and guidance as a basic research resource and also consult superiors, colleagues and business partners. There was reliable evidence that these processes are effective: several Sector employees consulted by the audit team compared the mechanisms in place in the Sector to those they had experienced in other organizations and stated that the Sector's mechanisms were superior.

There are also formal communication processes and mechanisms to share timely, relevant and reliable information with external stakeholders. These consist of regularly scheduled meetings, participation in working groups, attendance at committee meetings, and email exchanges and telephone follow-ups as required. These processes were found to be sufficient by the audit team.

The Sector has developed a specialized, four-module training program for members of the Public Service Pension Advisory Committee, based on consultations with its members concerning their training needs. The audit team observed that the first module of the program was delivered at the February 7, 2011, committee meeting and that there is a plan to deliver the other three modules at subsequent meetings. Consultation with the committee chair made it clear that members were satisfied with the training received to date, as well as with the training plan that is being implemented.

The Sector's processes for managing its knowledge and expertise are underpinned by its business and human resources plans. The audit found that training and professional development figure prominently in these plans and that the human resources plan, in particular, addresses most of the key elements expected in such a plan, including succession and talent management. Succession plans have been developed for the senior management team, but not for other levels in the Sector.

The Sector's individual learning plans are part of an integrated process linking the performance management agreements and work assignments that align with and form part of the Sector's business plan.

A draft Knowledge Transfer and Succession Planning presentation, which includes draft tools, has also been developed to help preserve the corporate knowledge of the Sector's soon-to-be-retiring experts. The audit team regards this as a particularly valuable component of the Sector's commitment to knowledge management, but notes that it needs to be approved, resourced and implemented to realize its potential.

As well, given the need for Sector employees to have highly specialized knowledge, a training and development road map would help ensure that limited resources are allocated as prudently as possible. This road map would consist of competency profiles for key positions and a curriculum that maps which skills, courses and other learning experiences are required for each position. Without such a road map, there is a risk that employees will be provided with formal or informal training and development opportunities, without the appropriate foundation.

We recognize senior management's challenges regarding its limited capacity to allocate resources for job shadowing and mentoring, while balancing management work plans and priorities. We also acknowledge that investing the time and resources to actualize knowledge transfer and succession plans is ongoing.

It is recommended that the Assistant Deputy Minister, Pensions and Benefits Sector, ensure the following:

• Succession plans are developed for key positions at levels below the senior management team;
• A training and development road map is developed; and
• The methods and tools identified in the Knowledge Transfer and Succession Planning presentation are approved and resourced, and responsibility for implementing them is assigned.

3.5. Overall Conclusion

We conclude with a reasonable level of assurance that the management control framework currently in place is adequate and effective in most respects and serves to ensure that legislative and policy requirements for the Public Service Pension Plan are being met. Specifically:

• The Secretariat's roles and responsibilities in this area are generally well understood and communicated, despite the limited extent to which they are formally defined;
• Oversight, monitoring and reporting mechanisms are in place and working effectively;
• A formal and systematic approach for identifying and assessing risks and mitigation strategies is in place in the Pensions and Benefits Sector and is working effectively; and
• Knowledge is adequately managed in the Pensions and Benefits Sector in support of the pension plan.

Notwithstanding the above conclusions, attention is required to continue to formally define the Secretariat's roles and responsibilities, in particular its oversight role and financial advisory role. Opportunities also exist to improve the Pensions and Benefits Sector's otherwise sound risk, planning and knowledge management practices.

3.6. Recommendations

The following is a summary of the recommendations already discussed in the audit results section:

1. It is recommended that the Secretariat continue to formally define its roles and responsibilities, with particular emphasis on its oversight and financial advisory roles. Specifically:
   1. The Secretariat should develop a formal definition of its oversight role over the Public Service Pension Plan and/or over the organizations that support this plan. Once approved, it should be communicated to the appropriate stakeholders. Priority ranking: High
   2. The Secretariat should clarify the appropriate financial advisory roles within the Secretariat to ensure that appropriate financial advice is provided to support the Secretary's approval of the pension plan's financial statements. Priority ranking: High
2. It is recommended that the Assistant Deputy Minister, Pensions and Benefits Sector, address the following operational issues:
   1. Ensure that a responsible manager and a schedule are assigned to each of the mitigation strategies identified in the Pensions and Benefits Sector Business Plan for 2011–14. Priority ranking: High
   2. Develop succession plans for key positions at levels below the senior management team. Priority ranking: Medium
   3. Develop a training and development road map. Priority ranking: Medium
   4. Approve, resource and assign responsibility for implementing the methods and tools identified in the Knowledge Transfer and Succession Planning presentation. Priority ranking: Medium

The management action plan is outlined in Appendix 3 of this report.

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