Audit of Overtime Claims from Moscow

Final Report

Foreign Affairs and International Trade Canada
Office of Audit, Evaluation, and Inspection

May 2013

Executive Summary

At the request of the Assistant Deputy Minister of Global Issues, Strategic Policy, Europe, and Middle East, the Inspector General and Chief Audit Executive of the Department of Foreign Affairs and International Trade (DFAIT) undertook a review of overtime claims submitted by Moscow Mission staff in relation to supporting Canada's involvement in the Asia-Pacific Economic Cooperation (APEC) Summit held in Vladivostok, Russia in September 2012.

The Asia-Pacific Economic Cooperation (APEC) is an intergovernmental forum, consisting of 21 member economies, dedicated to promoting free trade and investment, economic growth, development and cooperation in the Asia-Pacific region. The International Economic Relations and Summit Division of DFAIT is the lead division responsible for Canada's participation in the APEC Leaders' Summit. The summit participants were supported by staff of the Moscow Mission.

This audit was undertaken to determine if the authorization and payment of overtime claims in support of the summit was appropriate and identify any options available to senior management at this time. This work will be beneficial to:

• Determine options for management with respect to these claims;
• Assist management in making determinations of how to handle similar situations in the future; and,
• Assist the auditors in preparing for the upcoming audit of Canada Based Staff leave and overtime currently planned for 2013-2014.

Why is this important?

DFAIT is involved in planning and supporting a number of international summits including the G8, G20, Francophonie and APEC summits. There is value in ensuring that established and appropriate management practices are applied to these events including the management of overtime by employees who support these events.

What did we examine?

The review assessed the procedures and controls in place for managing overtime as well as reviewing each overtime and meal claim for compliance. Specifically, it examined:

• Pre-authorization and budget management;
• Due diligence on section 32 and section 34 of the Financial Administration Act;
• Compliance with Treasury Board and DFAIT policies and directives as well as stipulations in the collective agreements (i.e. meals, travel, normal overtime); and,
• Reasonableness of the costs claimed and comparability among the various employees.

The complete audit objectives, criteria, scope, and methodology are included in Appendix A: About the Audit.

What did we find?

There was no overtime budget authorized to support this event.

While there was indication from mission management that there would be financial pressures in support of this summit and acknowledgement from DFAIT Headquarters that reasonable overtime would be required and approved, what was considered reasonable was not made clear. As well, who would be paying (the fund centre) for the additional amount of overtime at DFAIT Headquarters was also not identified in advance of the summit.

There was non-compliance with controls over Section 32 of the Financial Administration Act.

The Moscow Mission signed off on section 32 of the Financial Administration Act which signalled that sufficient funds were available within the budget for overtime. This was not the case. Effective section 32 control would have triggered a formal transfer of funds from the Headquarters or alternatively, it would have triggered a sign-off by the responsible budget holder at headquarters rather than at the Mission. This did not happen.

Due diligence of overtime claims in support of section 34 of the Financial Administration Act was not exercised.

Three employees submitted overtime claims with an error rate in excess of 30%. The errors included both over-claimed and under-claimed amounts. Section 34 of the Financial Administration Act was signed off by the Moscow Mission despite the high degree of errors in the claims. This does not demonstrate due diligence in exercising this authority.

Section 33 was properly conducted by Compensation Personnel in most cases.

Compensation Services properly performed the account verification and Section 33 of these overtime claims and caught the majority of these errors. Auditors did discuss the errors in claims with Compensation personnel. They explained, and we agree, that they did not have access to all of the information necessary to complete a sound verification of these claims.

Key Recommendations

The report makes several recommendations to address the budgeting and planning of salary resources for key events such as summits. The focus is also on monitoring by management of overtime expenses as they come in and the verification of these claims prior to their approval.

1. The Summit Office, in conjunction with the Geographic divisions and the Protocol Office, should develop a documented process for financially managing future summit events with clear identification about who is responsible for overtime expenses and a pre-authorized budget provided to missions as required.
2. Mission management should ensure that all overtime requests are pre-approved and tracked to ensure there is sufficient budget to cover these costs, and training should be provided on due diligence procedures for managing overtime claims.
3. Compensation Services should obtain access to all information that would allow them to effectively perform Section 33 of the Financial Administration Act and should recover the overpayments of overtime made to employees.
4. Mission management and the Geographic Division for Global Issues, Europe and the Middle East should investigate the claims of the two employees charging for meals on both their overtime and travel claims to confirm that this repeated error was due to a misinterpretation of the travel and overtime rules and take any necessary disciplinary actions.

Conclusion

Incurring significant amounts of overtime in support of an international summit is expected. Given that many more summits will be held by DFAIT, there is a value, at the early planning stage of a summit, for the Department to provide guidance and complete planning information to the host Mission on which to base estimated overtime costs. As well, key controls, within the Missions, of forecasting, pre-authorization of overtime claims and effective review of overtime claims prior to approval need to apply to demonstrate sound stewardship of public funds.

Statement of Assurance

In my professional judgment as Chief Audit Executive, sufficient and appropriate audit procedures have been conducted and evidence gathered to support a high level of assurance on the accuracy of the information in this report. The results are based on a comparison of the conditions, as they existed at the time, against pre-established audit criteria that were agreed upon with management. The results are applicable only to the processes examined. The evidence was gathered in compliance with Treasury Board Policy, Directives, and Standards on internal audit for the Government of Canada.

Yves Vaillancourt,
Inspector General and Chief Audit Executive

1.0 Background

The Inspector General and Chief Audit Executive, DFAIT, was requested by the Assistant Deputy Minister of Global Issues, Strategic Policy, Europe, and Middle East to undertake a review of overtime claims submitted by Moscow Mission staff in relation to supporting Canada's involvement at the Asia-Pacific Economic Cooperation (APEC) Summit held in Vladivostok, Russia in September 2012. This audit work was carried out from January 2013 to March 2013.

The Asia-Pacific Economic Cooperation

The Asia-Pacific Economic Cooperation (APEC) is an intergovernmental forum, consisting of 21 member economies, dedicated to promoting free trade and investment, economic growth, development, and cooperation in the Asia-Pacific region. Annual summits are held with representatives from all member economies. Canada is a founding member of APEC.

The APEC 2012 Summit, hosted by the Russian Federation, involved several meetings. These included three Senior Officials' Meetings, twelve Sectoral Ministerial Meetings, an APEC CEO Summit, a Youth Festival, and the APEC Economic Leaders Meeting.

DFAIT's Role in APEC

The International Economic Relations and Summit Division (the Summit Office), operating within Foreign Affairs and International Trade Canada (DFAIT), is the lead division responsible for Canada's participation at APEC Summits. The Summit Office coordinates Canada's overall engagement and works closely with the DFAIT divisions involved in the preparation of the summit and other government departments to ensure Canadian officials are well prepared. The Summit Office reports to the Assistant Deputy Minister of the Global Issues, Strategic Policy, Europe, and Middle East Branch.

The Canadian Mission abroad with responsibility for the geographic area holding the APEC Summit executes instructions received from various DFAIT and other government departments. The Moscow Mission was responsible for APEC 2012.

APEC Overtime

In support of the APEC Summit, it was expected that overtime would be used in order to provide key support to meetings held outside of regular office hours, for travel to and from meeting locations, and to respond to increases in workload resulting from multiple demands. The following positions incurred overtime in support of the APEC Summit.

Authorities

Compensation and conditions for the use of overtime by Canada-Based Staff (CBS) are regulated by collective agreements. Locally Engaged Staff (LES) overtime is regulated by the Terms and Conditions of Employment. Management approval and authority for payment of overtime is delegated through sections 32, 33, and 34 of the Financial Administration Act.

2.0 Observations and Recommendations

2.1 Planning and Budget Management

Key elements of effective budget management for summit preparation is to first, plan and budget, that is to develop the summit plans and priorities and to align the summit budget with plans recognizing funding constraints. This is followed by reporting and analysis, that is to report on actual expenditures and commitments relative to these plans and then to move to a budget re-allocation should forecasted expenditures exceed by the actual expenditures planned. For summits, it is key to estimate based on available information and then to assign "cost ownership" of a best effort quantified budget. Applying these key elements avoids any surprises or conflict with regards to who is funding and who is spending. It provides a foundation for monitoring.

The auditors recognize that situations such as the APEC Summit in Vladivostok, Russia make it difficult to accurately estimate overtime due to extreme travel distances, as well as the various possible security issues, logistical constraints, and unknown developments that are difficult to foresee. For DFAIT, there are however, a number of similar events that have been staged which could have provided a base upon which to estimate the overtime for this event.

Planning and budgeting processes for overtime were not applied.

The International Conferences Allotment (ICA), centralized in the budget of the Office of Protocol, provides funding for Canadian participation in major multilateral international conferences outside of Canada. However, overtime costs incurred by Canada-based or Mission staff in support of an ICA-funded event (such as this summit) cannot be charged to the ICA.

The International Economic Relations and Summit Division (the Summit Office), the lead division responsible for APEC, allocated a budget for Headquarters-based overtime based on historical data. The Mission identified that overtime would be required to support this event, however, did not prepare an overtime budget.

In advance of the summit, the Mission advised Headquarters of a lack of funds to cover additional costs falling outside of regular Mission operations. The Mission received communication, via the Senior APEC Official, that "reasonable" expenses would be reimbursed. As a result, the Summit Division and the Mission did not establish a concrete agreement about what amount was considered "reasonable" or which group would pay for what expenses related to the summit.

The absence of an approved overtime budget led to non-compliance with section 32 of the Financial Administration Act.

Signing section 32 of the Financial Administration Act certifies that sufficient funds are available to incur an expense. An approved overtime budget and the transfer of funds to the Mission would have provided the Mission Financial Management Officer with the conditions required to exercise section 32 of the Financial Administration Act appropriately.

As these were absent, there was insufficient information to exercise section 32 of the Financial Administration Act. The Overtime Authorization and Payment Report form (EXT 995) requires section 32 certification. This certification was signed by the Mission Financial Management Officer on thirteen of the fourteen overtime claims examined.

The Mission Financial Management Officer exercised section 32 of the Financial Administration Act based upon the verbal assurances and direction he received even though funds were not available and committed. This control weakness exposed the Mission to the financial risk of a budget shortfall.

Recommendation:

1. The Summit Office in conjunction with the Geographic divisions and the Protocol Office should develop a documented process for financially managing future summit events with clear identification about who is responsible for overtime expenses and a pre-authorized budget provided to missions as required.

2.2 Compliance of Overtime Claims and Payments

The auditors conducted a detailed review of each overtime claim for compliance with the appropriate collective agreement, the Terms and Conditions of Employment and the Financial Administration Act. The full amount of the claims totalled $99,114. Claims were submitted by seven different employees. There were 14 overtime forms in total comprised of 298 line entries.

There was a high rate of errors on overtime claims submitted by employees.

The review of overtime claims pointed to a very high error rate. 71 of the 298 line entries contained errors.

The average error rate for all claims together was 24%. As shown below, 3 of the 7 employees reviewed had significant error rates (from 34% to 40%).

The following table describes the types of errors and the percentage across all overtime claims.

Two employees claimed for meals on both their overtime and travel claims.

The auditors also conducted a detailed review of each meal claim entered on the overtime claim form for compliance with collective agreements and the National Joint Council (NJC) Travel Directive.

Meal allowances are regulated so that employees are prevented from making multiple claims for the same meal.

• Collective agreements allow an employee to claim an overtime meal allowance after a certain number of hours have been worked.
• Collective agreements stipulate that overtime meal allowance clauses do not apply to employees in travel status, as employees in travel status are entitled to a separate meal allowance under the National Joint Council (NJC) Travel Directive.
• The NJC Travel Directive stipulates that employees in travel status are not paid a meal allowance for meals that are provided.

The two employees claimed for a total of 109 meals on their overtime forms. Compensation Services reviewed the claims and reduced eligibility to 67 meals based upon the number of hours worked. Compensation Services, however, did not have access to the travel authorizations/claims for these employees and therefore, were not aware that these employees also claimed for meals via their travel expense claims.

The auditors reviewed the overtime meal allowances claimed against the travel status. This further reduced eligibility for overtime meal allowances to 19 meals from the original 109 meals claimed.

It is also noted that of these 109 meals, 30 were claimed over 16 different days where, for the same period of day, a meal was claimed on their travel expense forms. The employees signed their travel and overtime claims on the same day thereby reducing the probability that this was an oversight.

We add that, in verifying under the criteria of ineligible hours, we found on 13 occasions that the two employees charged overtime for working through a lunch period as well as charging for meals on their travel claims.

There is a need to ensure that management approaches each employee in question to discuss how these claims were incorrectly filled out and then to review with the employee the source of the misinterpretation of the rules regarding meal claims for overtime, travel status and the meals claimed under this status as well as clarity on reporting eligible hours.

Mission management did not demonstrate due diligence in exercising section 34 of the Financial Administration Act.

The Overtime Authorization and Payment Report (Form EXT995) requires certification under section 34 of the Financial Administration Act that "this employee was instructed to work overtime, and did work overtime on the days indicated and for the number of hours shown, and that he/she did not control the duration of the overtime he/she worked." Managers with delegated authority are responsible for signing under section 34 before payments can be made.

Explicit pre-authorization for specific hours of overtime was not given. This would include the employee requesting to work overtime in order to undertake a particular task and receiving the authority to do so. The Mission asserted that the overtime was granted and worked under the commonly understood and articulated roles and responsibilities in accordance with standard operating instructions to make the summit a success. Provisions in the collective agreements do permit overtime to be performed "in accordance with standard operating instructions" rather than through precise direction. The lack of pre-authorization, coupled with the lack of an overtime budget, would challenge the mission in controlling the amount of overtime incurred.

As well, given the high number of errors on the submitted/authorized/paid overtime claims, there is no evidence that Mission management demonstrated due diligence in authorizing the claims.

There are weaknesses in the due diligence in exercising section 33 of the Financial Administration Act.

Certification under section 33 of the Financial Administration Act must be provided before payments can be made. Persons who sign under section 33 are responsible for approving payments and charging the appropriation after ascertaining the legality of the payment. Section 33 signing authority is delegated to officers who can independently verify how managers exercise spending authority under section 34 of the Financial Administration Act.

Compensation Services provides section 33 certification for overtime payments via an electronic signature process in the Regional Pay System; this is the final approval that initiates payment. Although Compensation Services have the authority to validate section 34 certifications, they currently lack access to signature cards and/or indication of delegated authority, making due diligence impossible. As mentioned above, they also lack access to the travel authorities and travel expense forms. While they can perform some aspects of section 33 verification, they are not equipped to carry out all necessary steps in order to provide appropriate certification.

Recommendations:

2. Mission management should ensure that all overtime requests are pre-approved and tracked to ensure there is sufficient budget to cover these costs and training should be provided on due diligence procedures for managing overtime claims.
3. Compensation Services should obtain access to all information that would allow them to effectively perform Section 33 of the Financial Administration Act and should recover the overpayments of overtime made to employees.
4. Mission management and the Geographic Division for Global Issues, Europe and the Middle East should investigate the claims of the two employees charging for meals on both their overtime and travel claims to confirm that this repeated error was due to a misinterpretation of the travel and overtime rules and take any necessary disciplinary actions.

2.3 Reasonableness

In order to assess the reasonableness of overtime claims, the auditors looked at several factors. These included whether:

• Overtime costs in line with similar types of events under similar circumstances;
• Overall allocation of overtime hours aligned with the job description/roles of the individual; and
• The number of hours claimed are at the same period of time of the day and overtime hours claimed are consistent with flight schedules.

Comparisons to other similar events could not be tested for reasonableness.

The auditors assessed reasonableness of the total overtime amount by making comparisons to overtime expenses from two previous APEC summits. A comparison is shown in the following table:

Although the overtime costs related to the Vladivostok summit are significantly higher in proportion to the preliminary budgets of the previous two APEC summits, conclusions of unreasonableness could not be drawn due to key differences in comparing the operating environments of Yokohama and Honolulu with those found at this summit:

• Physical Geography: distance from Mission to the summit location.
• Transportation Infrastructure: ease of transporting people/equipment to summit locations.
• Political/Security Environment: delays in moving people/equipment due to local conditions.
• Technology Environment: ease of implementing information technology/ communications requirements.
• Inexperience: level of experience/relationships in summit location.
• Mission Workload: varying/uncontrollable requests from Protocol, Ministers, Other Government Departments (OGDs).
• Mission Workload: varying workload unrelated to APEC summit.

Overtime was allocated in accordance with assigned role and responsibilities.

Another element of reasonableness is that employees with significant support roles in the summit would have submitted the larger share of the overtime expenses. The three employees who claimed the most overtime were the Mission Team Coordinator, the Mission Logistics Coordinator and the person responsible for Information Technology and Communications. Lower amounts of overtime were used by the Moscow Team Coordinator (with responsibility for the Prime Minister’s Program), Public Affairs and Media Relations and Cargo Super Handlers. There was no information which indicated that this allocation amongst staff was not reasonable.

Overtime hours were claimed at the same period of the day and travel schedules were consistent.

In cases where more than one employee worked overtime, the period of the day at which this overtime was claimed was similar and therefore, there was nothing that the auditors considered unreasonable.

For consistent schedules, we only note that on September 9, 2012, the final day of the summit, two employees claimed overtime from 7:00 a.m. until 11:00 p.m. The wrap up event (“wheels up” party) commenced at roughly 9:30 p.m. meaning that overtime should have ceased by this point. It is uncertain whether the employees continued to work (i.e. cleaning up) or participated in the celebratory event. If it was the latter, the auditors would not consider this claim for period of overtime claim to be reasonable.

The table shows our assessment of overtime hours and the distribution between reasonable, unreasonable, and requiring further assessment.

It is unclear if overtime was required to conduct specific activities.

Although the number of overtime hours claimed by each employee was determined to be reasonable in relation to the other employees under review (as discussed above), the auditors were unable to assess if the specific overtime activities completed by individual employees were necessary. It was difficult to analyze if specific overtime activities were required given that each employee had a separate role which requires different tasks and completion times. Moscow Mission Management is best positioned to review the activities we have noted in the above table as requiring further assessments and to determine through an assessment whether overtime was reasonable.

3. Conclusion

As summits are held each year, DFAIT’s missions will continue to lead these events and ensure their success. Part of this success is demonstrating sound planning and budgeting for the event followed by prudent management of expenses incurred.

Management must set the expectation for these events in terms of key controls. These key controls remain: an approved budget forecast to manage against; having funds fully committed and then tracked against budget; communicating to employees the requirement of pre-authorization for overtime; and, approving these claims knowing they are fully supported by documents and in compliance with overtime rules.

Appendix A: About the Audit

Objective

The objective of this audit was to assess the procedures and controls in place for managing overtime in this situation as well as to review each overtime and meal claim for compliance.

Criteria

Specifically this audit assessed:

Audit Criteria 1

Pre-authorization and budget management.

Management Accountability Framework- Key Elements: Stewardship: ST-1

Audit Criteria 2

Due diligence on Section 32 and Section 34 – ensuring that information was consistently and accurately reported throughout the process.

Management Accountability Framework- Key Elements: Stewardship: ST-13

Audit Criteria 3

Compliance with Treasury Board and DFAIT policies and directives as well as stipulations in the collective agreements (i.e. meals, travel, normal overtime)

Management Accountability Framework- Key Elements: Stewardship: ST-5

Audit Criteria 4

Reasonableness of the costs claimed and comparability among the various employees.

Management Accountability Framework- Key Elements:Stewardship: ST-9

Scope

The scope of this audit included the review of all pertinent documents related to claims for overtime and meals for the seven Moscow employees working in support of the APEC Summit in in Vladivostok, Russia. The claims covered the period of August and September 2012.

There were no travel requirements identified to complete this audit work.

Methodology

The audit was conducted in conformity with the Government of Canada Policy on Internal Audit.

The following Collective Agreements and policies were consulted during the audit:

• FS (Foreign Service) collective agreement;
• AS (Program and Administrative Services) collective agreement;
• CS (Computer Systems) collective agreement;
• LES (locally-engaged staff) terms and conditions of employment; and,
• Treasury Board and DFAIT policies and directives.

In order to provide assurance that the employees’ collective agreements were adhered to and appropriately applied, and that Treasury Board DFAIT policies were followed, the following methods were used to gather audit evidence in order to conclude on each audit criterion:

• Transaction testing and analysis – including Form 995 Overtime Authorization and Payment Report, employee time tracking sheets, and all corresponding travel and meal receipts;
• Controls analysis;
• Document and correspondence review; and,
• Interviews, where required.

Appendix B: Management Action Plan

Audit Recommendation 1

The Summit Office in conjunction with the Geographic Divisions and the Protocol Office should develop a documented process for financially managing future summit events with clear identification about who is responsible for overtime expenses and a pre-authorized budget provided to missions as required.

Management Action: The Summit Office, the Geographic Divisions and the Protocol Office will review and document its current process for managing events and ensure that roles and responsibilities for the management of financial resources for future events are clearly outlined.

Area Responsible: Summit Office / Geographic Divisions / Protocol Office

Expected Completion Date: Complete

Audit Recommendation 2

Mission Management should ensure that all overtime requests are pre-approved and tracked to ensure there is sufficient budget to cover these costs and training should be provided on due diligence procedures for managing overtime claims.

Management Action: The Head of Mission at Moscow will procure training to all individuals with responsibilities over human resources to ensure they understand the requirements for pre-approvals of overtime and exercising due diligence over overtime claims.

Area Responsible: Moscow Mission

Expected Completion Date: Complete

Audit Recommendation 3

Compensation Services should obtain access to all information that would allow them to effectively perform section 33 of the Financial Administration Act and should recover the overpayments of overtime made to employees.

Management Action: Compensation Services will work with the CFO group to obtain the necessary information needed to exercise 33 and will begin recovering overpayments to employees.

Area Responsible: Compensation Services

Expected Completion Date: Complete

Audit Recommendation 4

Mission management and the Geographic Division for Global Issues, Europe and the Middle East should investigate the claims of the two employees charging for meals on both their overtime and travel claims to confirm that this repeated error was due to a misinterpretation of the travel and overtime rules and take any necessary disciplinary actions.

Management Action: Mission Management and the Geographic Division for Global Issues, Europe and the Middle East will work together to investigate this situation and take any necessary actions.

Area Responsible: Moscow Mission and the Geographic Division for Global Issues, Europe and the Middle East

Expected Completion Date: Complete