Audit of the payment of medical-related foreign service directives

Global Affairs Canada
Office of the Chief Audit Executive

Tabling Date
September 2018

Executive summary

The Government of Canada comprises employees that work in Canada as well as locally engaged staff (LES) and Canada-based staff (CBS) that work abroad. These CBS are federal public servants who rotate into positions at missions around the world. In addition to their salaries, CBS are eligible to receive allowances and benefits under the authority of Foreign Service Directives (FSDs).

These directives are co-developed by bargaining agents and public service employers at the National Joint Council (NJC) of the Public Service of Canada and form part of the employees’ collective agreements. A Cyclical Review of these directives is currently underway. FSDs reflect three principles: comparability with life in Canada, incentive-inducement to serve abroad, and program-related needs.

Why it is important

In 2016-17, Global Affairs Canada (the Department) disbursed FSD payments of approximately $154^Footnote 1 million in allowances and reimbursements of expenses and $15 million in accountable advances and posting loans. These are significant amounts paid either to or on behalf of 2,194 CBS and their eligible dependants at 177² missions located in 109^Footnote 2 countries.

The Office of the Chief Audit Executive undertook an audit of selected FSDs in accordance with its approved Risk-Based Audit Plan for 2017-2020. Based on an assessment of the various categories of FSDs and related processes including consultation with management, the audit focused on medical-related FSDs. The Department disbursed approximately $4.9¹ million in medical-related FSD payments in 2016-17.

What was examined

The objective of the audit was to provide reasonable assurance that key controls over the payment of medical-related FSDs are in place and operating effectively. The audit examined the application of two types of medical-related FSDs: accountable advances (FSDs 4 and 42); and allowances or reimbursement of expenses (FSDs 9, 38, 39, 40, 41 and 54) for the period from April 1, 2014 to March 31, 2017.

Employees of Global Affairs Canada review and approve FSD payments to Government of Canada employees who are posted overseas from 19 federal departments. Only those FSDs processed by the Department were examined.

What was found

The results of testing 226 financial transactions related to FSD payments/advances indicated that 212 transactions were found to be non-compliant with NJC directives. Out of the 212 non-compliant transactions, it was found that 113 payments were made to ineligible parties ($10,984 to LES and $947,933 to service providers directly) though the nature of the expenses was found to be legitimate.

The remaining 99 (212-113) CBS-related financial transactions were found to be non-compliant due to reimbursements that were made for ineligible expenses, unreasonable expenses or without supporting documentation; or FSD advances that were not consistently and timely tracked and collected. Some of the reasons for this significant number of non-compliant transactions are described below.

NJC directives relating to FSDs are a complex set of terms and conditions of benefits applicable to CBS.

As the administration of FSDs is carried out by various staff across 177 missions as well as Headquarters, it was expected that the Department would provide clear guidance and proper training to ensure compliance with and consistent application of NJC directives. What was found were instances of guidance being unclear, insufficiently detailed or misaligned with NJC directives. In addition, certain aspects of training required improvement, specifically to those responsible for administering FSDs. The audit team also found that some formal monitoring of FSD payments takes place at missions. However, at Headquarters and Common Service Delivery Points, no formal monitoring mechanisms were found for the medical-related FSD payments. As a result of these weaknesses, there are risks of untimely reimbursements of claims, overpayments and abuse.

Conclusion

Generally key controls over the payment of medical-related FSDs were not in place or not working effectively. The FSD Services and Policy Bureau was already aware of deficiencies in departmental guidance in terms of misalignment, insufficient detail and lack of clarity. At the time of this report, the Bureau was in the process of reviewing and revising procedures and tools. In addition, a significant number of instances of non-compliance with NJC directives was found resulting in payments: without sufficient supporting documentation; for ineligible expenses; or to ineligible parties. Improvements are necessary in the areas of training and monitoring of FSD payments to ensure the consistent application of medical-related FSDs and to mitigate the risk of untimely reimbursements, overpayments as well as abuse.

Recommendations are detailed in Section 5 of this report.

Statement of Conformance

In my professional judgment as Chief Audit Executive, this audit was conducted in conformance with the Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing and with the Treasury Board Policy and Directive on Internal Audit, as supported by the results of the quality assurance and improvement program. Sufficient and appropriate audit procedures were conducted, and evidence gathered, to support the accuracy of the findings and conclusion in this report, and to provide an audit level of assurance. The findings and conclusion 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 and are only applicable to the entity examined and for the scope and time period covered by the audit.

1. Background

The Government of Canada comprises employees that work in Canada as well as locally engaged staff (LES) and Canada-based staff (CBS) that work abroad. These CBS are federal public servants who rotate into positions at 177 missions located in 109 countries. In addition to their salaries, these employees are eligible to receive allowances and benefits under the authority of Foreign Service Directives (FSDs). The provisions of the directives recognize differences among regions, countries and cities such as living conditions, cost of living and health care. FSDs reflect three principles: comparability with life in Canada, incentive-inducement to serve abroad and program-related needs.

The National Joint Council (NJC) of the Public Service of Canada is responsible for the development and oversight of FSDs. These directives are negotiated with the collective bargaining units and go through a cyclical review process. The Department provides input to the NJC on content and any potential issues with the application of FSDs through its participation in the NJC FSD Committee. In 2016-17, the Department disbursed FSD payments of approximately $154 million in allowances and reimbursements of expenses and $15 million in accountable advances and posting loans either to or on behalf of 2,194 CBS and their eligible dependants.

The Office of the Chief Audit Executive undertook an audit of selected FSDs in accordance with its approved Risk-Based Audit Plan for 2017-2020. Based on an assessment of the various categories of FSDs and related processes including consultation with management, the audit focused on medical-related FSDs, including dental examinations and treatments. These health-related directives are designed to ensure that CBS and their dependants are medically fit for service abroad and that they have access to necessary and suitable health care throughout the posting period. CBS and their dependants must be covered under the employee’s Public Service Health Care Plan (PSHCP) and the Public Service Dental Care Plan (PSDCP) in order for these health provisions to apply.

Description of Medical-related FSDs

Since April 2018, the Human Resources Branch (HCM) at Global Affairs Canada (the Department) has been responsible for administering and interpreting the FSDs to Government of Canada employees who are posted overseas from 19 federal departments. Some FSDs are administered at missions, some at Headquarters (HQ), while others are a shared responsibility between missions and HQ. There are two types of medical-related FSD payments made to CBS: accountable advances; and allowances or reimbursements of expenses. Accountable advances, related to FSD 4 and FSD 42, are amounts disbursed as loans that CBS are expected to repay within a prescribed timeframe. Allowances or expense reimbursements are amounts that CBS are entitled to receive for medical-related FSDs 9, 38, 39, 40, 41 and 54. For the three-year period from 2014-15 to 2016-17, the Department disbursed $14.3^Footnote 3 million in medical-related FSD payments ($7.8 million in accountable advances and $6.5 million in allowances/reimbursements). See Appendix A for departmental expenditures incurred during this period.

Prior to each posting, CBS and their accompanying dependants may be required to undergo medical examinations, covered under FSD 9, to ensure that they are medically fit for service abroad. While living abroad, CBS and their dependants may be entitled to receive medical examinations, immunizations against communicable diseases and preventive medicines under FSD 38. FSD 39 and 41 provide financial assistance to CBS and their dependants who incur health care expenses outside Canada which exceed reimbursements under the PSHCP and PSDCP or require access to necessary and suitable health care facilities and services. In cases of accouchement, a five-day spousal allowance may be authorized to cover travelling and living expenses of the CBS or the spouse to be present at the birth of a child. In addition, CBS can request advances under FSD 42 or FSD 4 to cover payments in advance for medical/dental or travel/living expenses at the treatment location respectively. Also, when CBS incur expenses arising from serious illnesses or death of dependants or close family members, which exceed those that would have been incurred had the CBS been serving at HQ, they can request allowances using FSD 54. Further, dependants that are separated from CBS and living in Canada can claim the cost of provincial health insurance premiums under FSD 40.

FSD Administration at Global Affairs Canada

FSD Services and Policy Bureau

In April 2018, the FSD Services and Policy Bureau (HED) was transferred from the International Platform Branch (ACM) to the Human Resources Branch (HCM). The FSD Services and Policy Bureau is responsible for providing services related to FSDs to employees who are assigned abroad in support of the Department's main business lines and other programs of the Government of Canada. The FSD Bureau has two divisions through which its mandate is carried out: the FSD Client Services Centre (HEA) and the FSD Policy and Monitoring Division (HEP).

The FSD Client Services Centre consists of 18 FSD Client Advisors who are assigned to various missions and are responsible for providing advice and administering FSDs to CBS and their dependants. The FSD Policy and Monitoring Division, comprising a deputy director and four FSD coordinators, is responsible for clarifying policies and providing policy interpretations, including developing guidelines and procedures. It is also responsible for monitoring FSD expenditures.

Missions

Heads of Mission (HOMs) are involved in the strategic planning and decision-making process of all programs including FSDs. Although HOMs normally assign the responsibility of the administration of FSDs to Management and Consular Officers (MCOs), the HOMs remain accountable. While the majority of medical-related FSDs, included in the scope of this audit, are administered and approved at missions, there are exceptions in which the initiation of certain FSD expenses can only be authorized by HQ. One example is the approval of FSD 39, 41 and 54 for HOMs and their dependants which is done by Client Advisors in the FSD Client Services Centre at HQ.

The Assignments and Executive Management Bureau

The Assignments and Executive Management Bureau (HFD) is responsible for issuing Posting Confirmation Forms (PCF) which are official documents that confirm assignments abroad for GAC employees and include specific information on which FSD eligibility is based. PCFs can only be issued once medical clearances have been granted by a Health Canada physician for CBS and their eligible dependants. Other government departments issue PCFs or equivalent documents to their employees posted abroad.

Interdepartmental Coordinating Committee (Working Group B):

Working Group B, located at Headquarters, is chaired by the Director of the FSD Policy and Monitoring Division and is composed of representatives from six other government departments. It meets on a monthly basis and provides a forum for discussion about the interpretation and application of certain FSDs. Its goals are to ensure consistent interpretation and application; to discuss and recommend possible solutions to specific concerns and issues on a case-by-case basis; and to provide departmental administrators a venue to exchange information. With respect to medical-related FSDs, Working Group B may be involved in the approval of FSD 39 cases.

Health Canada’s Public Service Occupational Health Program

Health Canada clinicians provide medical opinions of fitness for service abroad as per FSD 9. Health Canada may also be involved in medical-related FSDs when Client Advisors or mission management require professional medical advice. For example, upon request from missions or the FSD Services and Policy Bureau, Health Canada clinicians can make recommendations relating to medical travel under FSD 41.

Insurance Provider

An insurance provider is responsible for administering the Comprehensive Plan of the PSHCP and PSDCP, which applies to employees working outside of Canada. As such, CBS must submit a claim to the insurance provider when eligible medical expenses are incurred abroad. The insurance provider will adjudicate the claim and determine the admissible reimbursement. When CBS receive reimbursements from the insurance provider, explanations of benefits statements are attached. These statements include codes that provide information about the eligibility for reimbursements and the amounts in excess of costs not reimbursed or denied under the basic health care provisions of PSHCP or PSDCP.

2. Audit objective and scope

The objective of this audit was to provide reasonable assurance that key controls over the payment of medical-related Foreign Service Directives are in place and operating effectively. The audit criteria are outlined in Appendix B.

The audit focused on the administration and payment of medical-related FSDs (4, 9, 38, 39, 40, 41, 42 and 54) for the period from April 1, 2014 to March 31, 2017.

3. Observations

This section sets out the key audit findings and observations, divided into three general themes: Guidance and Training; Compliance with NJC Directives and Departmental Procedures; and Monitoring.

Audit results were derived from the examination of relevant documentation, walk-throughs of key processes, 26 questionnaires sent to MCOs with a response rate of 58% and interviews with HQ management and staff. In addition, the audit team performed detailed testing of a sample of cases (beneficiaries) that were selected based on a judgmental sampling methodology. Since the sample selected was judgmental and not random, results cannot be extrapolated to the population. Within each

selected case, the most recent financial transactions (both payments and repayments of advances) with the highest dollar value were selected for testing. The audit sample was divided into two sub-samples: 127 financial transactions related to CBS in the amount of $1,362,401 and 113 financial transactions related to non-CBS in the amount of $958,917, as shown in the table below. A description of the sample and the sampling methodology are outlined in Appendix C.

Table 1: Description of the Sample

3.1 Guidance and Training

3.1.1 Departmental Guidance (Procedures, Tools and HQ Support)

It was expected that departmental guidance documents would be aligned with NJC directives which are the authoritative source for FSDs. It was also expected that departmental guidance, which includes procedures, tools and HQ support, would be clear and communicated to stakeholders. This would help ensure that FSD payments and advances are made based on eligibility, sufficient supporting documentation and appropriate approvals.

The audit team compared departmental guidelines to NJC directives and found that they are not fully aligned. For example, the NJC directive states that expenses incurred by CBS pursuant to FSD 38 (preventive medical services expenses) shall not be charged against CBS’ health and hospitalization insurance plans. However, the departmental procedures for FSD 38 include instructions for submitting claims to the PSHCP. This contradictory guidance can lead to confusion. File testing revealed one case in which an FSD 38 expense had been claimed and reimbursed by the PSHCP’s service provider which is contradictory to NJC directives.

The audit team found that for each FSD, guidelines and procedures are spread across numerous documents developed by the FSD Policy and Monitoring Division, including a Foreign Service Handbook and a Frequently Asked Questions (FAQs) document. In addition to guidance developed by HQ, it was noted that some missions have developed mission-specific FSD procedures. The audit team found five different sources for guidance on FSD 41 (Health Care Travel). In addition, several discrepancies were found among departmental documents relating to definitions and procedures. For example, the Foreign Service Handbook indicates that employees are required to attach original receipts and provide proof of payment for FSD 39 claims. However, guidance on the departmental intranet does not mention this requirement. Based on responses from questionnaires sent to missions, MCOs were aware of the existence and location of departmental guidance on the Department’s intranet; however they indicated that it would be useful to have guidance on the roles and responsibilities of missions and to have all FSD related guidelines tools consolidated in a handbook or wiki page.

FSD claim forms are available on the departmental intranet. However, there is no form to request an advance under FSD 4 for health care travel. As a result, it was found through file testing that the necessary requirements to approve advances were not always fulfilled across the missions. The audit team also noted a lack of guidance and processes related to the recording, tracking and settlement of advances.

Every mission is supported by a designated FSD Client Advisor who is available to provide information on the eligibility and application for various FSDs. The majority of MCO questionnaire respondents indicated that they receive sufficient guidance and support from their Client Advisor to assist their decision-making. Other MCOs noted challenges such as timeliness of responses and inconsistent information among Client Advisors. The audit team noted instances in which Client Advisors provided advice that was not aligned with NJC directives.

NJC directives relating to FSDs are a set of complex terms and conditions of benefits for CBS; therefore, it is critical to have departmental guidance and tools that are: aligned to NJC directives, written in plain and clear language, and sufficiently-detailed so that all 177 missions and relevant staff at HQ apply FSDs in the same manner. However, the audit team found too many sources of procedural documents and instances of misalignment and lack of clarity. Consequently, FSDs were found to be interpreted and applied inconsistently resulting in untimely repayment of advances, overpayments and opportunities for abuse. At the time of this report, the FSD Services and Policy Bureau was aware of the need to improve overall FSD guidance and had started the process to improve medical-related FSD procedures and tools.

3.1.2 Departmental Training

It was expected that employees responsible for administering medical-related FSDs would receive adequate training to fulfill their responsibilities and accountabilities.

The audit team noted that HOMs and MCOs have the same financial authorities to administer medical-related FSDs of mission staff. Although this function is usually carried out by MCOs, accountability rests with HOMs. Therefore, it is important for HOMs as well as MCOs to receive adequate training. The audit team found that the pre-posting training curriculum includes mandatory one-hour training for HOMs and one-day training for MCOs on FSD administration including medical-related FSDs. The audit team reviewed the training material and found that, while it provides a good overview and description of each FSD, it does not provide sufficient information on the roles and responsibilities of HOMs and MCOs with regard to the administration of FSDs and related financial authorities. In addition, other CBS and their dependants receive some FSD related information as part of their pre-departure training. The audit team reviewed the 2018-19 FSD training material for CBS and found that while information about eligible expenses was provided, specific examples of ineligible expenses were not given. Providing more balanced information would be beneficial to increase CBS awareness and reduce the burden on FSD administrators when reviewing claims.

Nearly all MCO questionnaire respondents indicated that they had completed FSD training prior to their first posting; however, approximately half indicated that they had not received any recent refresher-type training. Twenty-nine percent of MCO respondents indicated that more than ten years had passed since their most recent FSD training. Without adequate training, there is a risk that HOMs and MCOs may not have the necessary knowledge and understanding to fulfill their FSD-related responsibilities and accountabilities.

Based on interviews, FSD Client Advisors indicated receiving an adequate level of training in the form of initial training for new employees and on-going bi-weekly sessions to share knowledge and up-to-date information. In addition, FSD Client Advisors have user manuals and access to guidance on the departmental intranet. However, due to high turnover in their division, corporate knowledge is not retained and requires continuous rebuilding.

3.2 Compliance with NJC directives and departmental procedures

It was expected that controls would be in place to ensure that FSD payments were in compliance with NJC directives and departmental procedures. Since departmental procedures and guidance were found to be not fully aligned with NJC directives, the audit team used the NJC directives to identify requirements for medical-related FSDs and determine compliance. A sample of 240 financial transactions relating to 15 non-CBS and 44 CBS cases were selected, representing 113 transactions related to payments/advances to non-CBS in the amount of $958,917 and 127 CBS-related transactions in the amount of $1,362,401. No documentation could be provided to support 14 of the 127 financial transactions related to CBS cases in the amount of $136,362. Consequently, these 14 transactions could not be tested to assess whether FSD payments were eligible and/or compliant with NJC directives and the departmental Delegation of Financial and Contractual Signing Authorities Instrument for FSDs. Consequently, 226 (240 – 14) transactions were tested (113 transactions for non-CBS and 113 transactions for CBS).

3.2.1 Compliance with NJC directives

While CBS and their dependants should be the only eligible beneficiaries of FSDs, FSD payments or advances were found to be made to non-CBS from April 1, 2014 to March 31, 2017: $10,984 to LES and $947,933 directly to medical and accommodation service providers rather than to CBS. From this population of payments made to non-CBS, the audit team sampled 15 beneficiaries in which there were 113 related financial transactions and determined that although the nature of the expenses was legitimate, they were non-compliant. Any advance to a non-CBS has a higher inherent risk of non-repayment since they are not subject to the same ramification as CBS (i.e. any outstanding advances to a CBS must be reviewed prior to a rotation). In addition, direct advances made to service providers increase the risk of duplicate payments as the Department could pay for the same service directly to service providers and through CBS claims.

For the 113 tested transactions for CBS amounting to $1,226,038, 88% were found to be non-compliant with NJC directives as detailed below. The purpose of each FSD, as described in NJC directives, is provided as an introduction to each FSD section.

FSDs 4 & 42 - Medical-related FSD Advances

Employees are entitled to request a medical and/or dental expense advance under FSD 42 and can use FSD 4 to request an accountable advance for other FSDs, such as FSD 41.

To be eligible for an advance for medical expenses under FSD 42, CBS must be able to demonstrate that expenses will be reimbursed by PSHCP or PSDCP. In addition, CBS can request an advance using FSD 4 for travel and living expenses related to FSD 41. For both of these advances, CBS must submit estimates of costs prior to travel and then reimburse the Department within the timeframe prescribed in the directives. Therefore, the audit team expected to find cost estimates of eligible expenses and FSD

advances repaid in a timely manner. During the scope of the audit, a total of $1,464,367 (FSD 4 and FSD 42) advances was paid. Based on a sample of 38 advances made to CBS in the amount of $725,988 (10 advances under FSD 4 and 28 advances under FSD 42), audit results showed that all of the FSD 4 transactions were non-compliant. Out of 28 FSD 42 advances, five could not be assessed due to insufficient documentation, 21 were non-compliant and the remaining two were compliant. Specific findings are detailed below:

• Eight out of ten FSD 4 advances and 12 out of 28 FSD 42 advances had not been repaid within the timeframes established in the NJC directives while no assessment could be made for four FSD 42 advances due to insufficient documentation;
• 47% of the requests for advances were not supported by estimates of the medical and/or travel costs;
• 46% of FSD 42 advances lacked evidence from the insurance provider to confirm eligibility of expenses, which is a prerequisite to approve advances under FSD 42;
• Five of the reimbursements of FSD 42 advances were not done in the same currency as the estimate of costs from the health care provider while nine advances could not be assessed. This stipulation under FSD 42 exists to protect against gains/losses realized as a result of exchange rate fluctuations; and
• Since there is no standard form to request advances for medical travel under FSD 4, the requirements were not always met.

FSD 41 – Health Care Travel Expenses

Employees and/or dependants are entitled to request financial assistance for travel expenses incurred to access necessary and suitable health care facilities and services on a cost-effective basis where the standards of medical care and the extent of treatment facilities are inadequate or where costs are excessive.

Overall, 100% of the 33 financial transactions (related to 19 cases) were non-compliant as detailed below.

To be eligible for FSD 41, one requirement is that qualified medical practitioners must make recommendations for health care travel and when applicable, certify the need for an escort to accompany the patient. Accordingly, it was expected that beneficiaries (CBS, dependants or escorts) would be eligible for health care travel and would be reimbursed for eligible travel and living costs.

Results of testing are as follows:

• In 14 cases, documentation was missing in files to demonstrate eligibility for health care travel (e.g. lack of medical recommendations to justify medical travel or the need for escorts to accompany patients);
• In 10 cases, CBS were reimbursed for ineligible travel and living expenses in the amount of $15,920 (e.g., bank fees, car rental and fuel costs, excess baggage fees, home schooling tuition fees, and furniture insurance deposit); and
• In two cases, living expenses, in the amount of $23,814, were reimbursed despite ineligibility given the CBS/dependants’ status at the time (e.g. during vacation periods or dependant not residing at post).

As required for FSD 41, estimated travel and living costs should be submitted prior to travel and must be assessed for reasonability. Upon return, CBS are entitled to claim actual and reasonable travel and living expenses. Accordingly, the audit team expected to find an assessment of the reasonability of costs prior to the approval of the trip as well as supporting documentation. Of the 19 cases examined, 11 cases did not have evidence of any assessments of costs performed prior to travel to determine reasonability.

Since there is no departmental guidance on how to assess reasonability, the audit team used the NJC Travel Directive, which is used by the Government of Canada to ensure fair and reasonable travel practices, to test the reasonability of actual travel and living expenses claimed by CBS. It was found that 17 out of 19 cases were not in compliance with FSD 41 in the amount of $192,240 due to missing receipts or due to travel and living costs that exceeded the rates as per the NJC Travel Directive.

In relation to FSD 41.3 (travel allowance for CBS/spouses to attend the birth of a child), CBS must submit a request for a five-day travel and living allowance, including cost estimates to their FSD Client Advisor.

Upon return, CBS are not required to submit receipts for actual expenditures but must submit an FSD 70 form certifying that the funds were spent for the intended purpose and retain the receipts for seven years. Based on 12 sampled cases, the audit team found that CBS did not request allowances or submit cost estimates prior to travel. Instead, reimbursements were made to CBS based on actual travel and living costs. As such, this practice prevents the Department from assessing reasonability of costs prior to travel.

FSD 39 – Health Care Expenses

Employees and/or dependants are entitled to receive financial assistance when health care expenses are incurred outside of Canada that exceed those permissible under PSHCP or PSDCP, subject to certain conditions. The eligibility of health care expenses is determined by the insurance provider.

The excess of eligible costs not reimbursed by the insurance provider can be claimed by CBS and processed by missions and Client Advisors. However, for those services that may be denied by the insurance provider, CBS must submit the claim to Working Group B rather than to the mission for approval. The audit team expected to find, as part of the FSD claim, proof of eligibility from the insurance provider or a decision from Working Group B, and proof of payments by CBS related to the expenses incurred. The audit team found 24 out of 25 (96%) sampled financial transactions to be non-compliant. Specific findings are detailed below:

• 96% of the eligible transactions did not have evidence of proof of payments to support amounts paid and claimed by CBS; and
• An instance in which a medical expense in the amount of $120 was claimed and paid twice.

Interviews with staff from the FSD Services and Policy Bureau indicated that there is an assumption that original receipts are submitted by CBS to the insurance provider to support claims. For this reason, the Department was reimbursing FSD 39 claims based only on the insurance provider’s Statements of Benefits as confirmed by audit findings. Upon follow-up with the insurance provider, the audit team obtained confirmation that not all of the medical-related expenses, examined during the audit scope period, were reimbursed based on proof of payments. Consequently, if the Department continues to reimburse FSD 39 claims based solely on expenses deemed eligible according to the Statements of Benefits, there is an increased risk of overpayment to CBS.

As per NJC requirements, when CBS receive treatments comparable to those offered in Ontario that would have been free of charge, CBS can submit claims to Working Group B for a decision. It was expected that reimbursements would be made based on Working Group B decisions. The audit team found one on-going case in which a CBS submitted a combination of actual and estimated costs for various services to Working Group B for approval. After Working Group B members exercised a challenge function, a decision was made with the expectation that a follow-up decision would be requested once all actual costs are available. However, no subsequent submission to Working Group B was made. Nonetheless, the CBS was reimbursed for actual expenditures that exceeded the amounts conditionally approved by approximately $70,000 for the audit scope period. It is important that claims are supported by documented Working Group B decisions and reimbursements are aligned accordingly.

FSD 9 – Medical and Dental Examinations

Employees and their dependants are entitled to receive full reimbursements for costs related to medical and/or dental examinations as a condition of their postings.

As per NJC requirements, CBS are entitled to claim actual and reasonable medical and/or dental examination expenses. As such, the audit team expected to find, as part of the FSD 9 claim, proof of payments related to the expenses incurred. The audit team found that four of seven (57%) sampled financial transactions were supported by proof of payment (i.e. receipt or invoice marked “paid”).

FSD 38 – Preventive Medical Services Expenses

Employees, their dependants and domestic personnel are entitled to receive full reimbursements for costs related to medical examinations, immunizations against communicable diseases and preventive medicines.

To be eligible for reimbursements under FSD 38, the preventive medical services must be recommended by Health Canada. In addition, for domestic personnel, preventive medical costs are eligible for reimbursement if they are not covered by the local health care system. Based on a sample of six financial transactions in the amount of $7,023, 50% were found to be non-compliant (e.g., no evidence on file to support the eligibility of the patient or of the treatment received).

FSD 40 – Provincial Health Insurance Premiums

Employees with dependants who remain in Canada may be eligible for reimbursement of any excess health insurance premiums paid for them.

CBS are entitled to claim the excess costs of premiums for family health insurance coverage for eligible dependants not at posts based on receipts. The audit team expected to find documentation to support reimbursement claims. During the three-year period covered by the audit scope, only one FSD 40 transaction was made and results of the test showed that neither the claim form nor the supporting information to justify the expense was found on file.

FSD 54 – Compassionate Travel

Employees may be eligible to receive financial assistance for those expenditures arising from the serious illness or death of dependants or close family members, which are over and above those that would have been incurred had the employees been serving at HQ.

FSD 54 stipulates that claims can be made for expenses relating to certain circumstances surrounding members of a defined family unit. Therefore, the audit team expected to find the situations and identified family members to meet the prescribed definitions. Based on a review of three FSD 54 claims, all were determined to be compliant.

Summary of Testing Results

The following table shows that 94% of the financial transactions tested (96% of the value of the amount tested) were non-compliant resulting in potential overpayments or reimbursements of ineligible expenses.

Table 2: Summary of Testing Results, by FSD

3.2.2 Compliance with departmental delegation of authorities

The audit team tested a sample of FSD transactions to verify whether they were approved in compliance with the Financial Administration Act and the departmental Delegation of Financial and Contractual Signing Authorities Instrument for FSDs, updated in July 2017. Overall, based on the 113 CBS financial transactions, the audit team found one instance where the FSD claim was not approved by the appropriate Section 34 authority. In addition, for FSD 9 (Medical and Dental Examinations), all of the seven tested transactions were not in compliance with the departmental delegation of authorities since there was no evidence to support that the expenditures were initiated by the FSD Services and Policy Bureau. Further, six of the transactions were approved at missions rather than the FSD Services and Policy Bureau and for the remaining one transaction; there was a lack of information to conclude whether the Section 34 signatory had the appropriate authority.

3.3 Monitoring

The audit team expected that monitoring mechanisms would be in place to ensure that the NJC Foreign Service Directives are consistently and appropriately applied.

The audit team found that there is no formal monitoring function to ensure that the medical-related FSDs are consistently and appropriately applied in compliance with NJC directives. Any monitoring that may take place is ad hoc. Interviews with staff of the FSD Services and Policy Bureau confirmed that they do not conduct any monitoring activities of FSD payments and advances that are issued at missions.

3.3.1 FSD Advances

Based on results from questionnaires sent to MCOs, several indicated that FSD advances are recorded and monitored using an “asset and liability” account similar to other recoverable amounts. At year end, there is a certification process attesting that these mission accounts have been reconciled. Ideally, if all amounts are recovered, the account balance should be zero and if not, then this exercise should trigger a reminder to collect outstanding amounts. This provides an opportunity for the MCO to track and settle FSD advances if carried out diligently. In addition, MCO questionnaire respondents indicated that a review is performed prior to CBS’ departure from missions to determine whether any amounts, including advances, are outstanding. Other than these mission activities, there is no monitoring mechanism at HQ to ensure timely settlement of FSD advances. Consequently, as indicated earlier, 20 of the 38 sampled advances were not repaid within prescribed timelines.

3.3.2 FSD Payments

The audit team was informed that the Internal Control unit at HQ reviews the controls related to FSDs on a periodic basis. However, since the materiality of medical-related FSDs is low, these FSDs were not included in a recent testing for which results were reported in June 2018.

Further, the audit team was informed that no account verification is performed prior to FSD payments (Section 33 of the Financial Administration Act) processed at HQ or Common Service Delivery Points. Due to inadequate monitoring mechanisms in place at missions and HQ for FSD payments and advances, there is a risk that non-compliant FSD payments are not identified and mitigated.

4. Conclusion

Generally key controls over the payment of medical-related FSDs were not in place or not working effectively. The FSD Services and Policy Bureau was already aware of deficiencies in departmental guidance in terms of alignment, insufficient detail and lack of clarity. At the time of this report, the Bureau was in the process of reviewing and revising procedures and tools related to medical-related FSDs. In addition, a significant number of instances of non-compliance with NJC directives was found resulting in payments: without sufficient supporting documentation; for ineligible expenses; or to ineligible parties. Improvements are necessary in the areas of training and monitoring of FSD payments to ensure the consistent application of medical-related FSDs and to mitigate the risk of untimely reimbursements, overpayments as well as abuse.

5. Recommendations

Recommendation 1:

The Assistant Deputy Minister of Human Resources (HCM) should: clarify and communicate roles and responsibilities of all key stakeholders involved in FSDs; and streamline departmental FSD procedures, guidance and tools to ensure they are aligned with the National Joint Council Foreign Service Directives.

Recommendation 2:

The Assistant Deputy Minister of Human Resources (HCM) should consult with Treasury Board Secretariat and the Administration Authority of Public Service Health Care Plan to ensure that the insurance provider has in place sufficient controls to reimburse claims based on proof of payments. In the interim, proper measures should be implemented to ensure reimbursement of medical expenses is based on actual amounts paid and supporting documentation is kept on file.

Recommendation 3:

The Assistant Deputy Minister of Human Resources (HCM) should provide targeted FSD training based on needs to all relevant staff at Headquarters, Common Service Delivery Points and missions.

Recommendation 4:

The Assistant Deputy Minister of Human Resources (HCM) should implement monitoring mechanisms to ensure that medical-related FSDs are administered in compliance with NJC directives and departmental procedures and guidance.

Recommendation 5:

The Assistant Deputy Minister and Chief Financial Officer, Corporate Planning, Finance and Information Technology Branch should include verification mechanisms of payments of medical-related FSDs into their account verification processes (Section 33 of the Financial Administration Act) commensurate with complexity and risks, and put in place a mechanism to monitor outstanding accountable advances.

Appendix A: Financial data

Table 1: Total FSD Payments in 2016-17^Footnote 4

Table 2: Allowances and Reimbursements of Medical-related Expenses

Table 3: Accountable Advances⁵

Appendix B: About the audit

Objective:

The objective of this audit was to provide reasonable assurance that key controls over the payment of medical-related Foreign Service Directives are in place and operating effectively.

Scope:

The audit focused on the application of medical-related FSDs (4, 9, 38, 39, 40, 41, 42 and 54). This audit covered the three-year period from April 1, 2014 to March 31, 2017.

Criteria:

The following criteria were developed based on a detailed risk assessment:

1. Controls are in place to ensure that FSD payments are appropriately approved, sufficiently supported, legitimate and in compliance with the Foreign Service Directives.
2. Monitoring mechanisms are in place to ensure that the Foreign Service Directives are consistently and appropriately applied.
3. FSD payments are recorded, tracked and settled in an accurate and timely manner.

Approach and Methodology:

In order to conclude on the above criteria, and based on identified and assessed key risks and internal controls associated with the related business processes, the audit methodology included the following:

• Policy analysis;
• Data mining and analysis;
• Process review and mapping;
• Testing of a sample of FSD payments;
• Tracking of FSD advances;
• Interviews with departmental management and staff; and
• Questionnaires sent to selected MCOs.

Appendix C: Sample description

Sampling Methodology

In order to select a sample for testing, the audit team defined the population. This population comprised all FSD medical-related financial transactions (payments of allowances, reimbursement of expenses and advances) recorded in the financial administration system (FAS) during the period of three fiscal years from April 1, 2014 to March 31, 2017. Using a judgmental sampling methodology, a sample of beneficiaries/cases (both individuals and third parties) were chosen and transactions within these cases were selected for testing. The following risk factors were taken into consideration for selecting the sample:

• High transaction amounts paid to beneficiaries;
• High transaction amounts processed by missions;
• Representation from the significant FSD spending groups (FSD 9, 38, 39, 41, etc.);
• Representation in terms of missions, vendors and CBS;
• Representation of both accountable advances and allowances;
• FSDs that are vulnerable to fraud risk or abuse;
• FSDs which have an increased risk of double payments, over or under payments;
• Any FSDs payments made to ineligible beneficiaries; and
• Total amount received by a CBS for medical FSDs greater than $2,000.

Since the sample selected was judgmental and not random, results cannot be extrapolated to the full population.

Sample Description

Within each selected case, the most recent financial transactions with the highest dollar value were chosen for testing. Therefore, the audit sample is composed of two sub-samples: 127 financial transactions related to CBS in the amount of $1,362,401 and 113 financial transactions related to non-CBS in the amount of $958,917, as shown in the table below.

Table 1: Description of the Sample

Table 2: Detailed Description of the Sample

Appendix D: Acronyms and symbols

ACM

International Platform Branch

ADM

Assistant Deputy Minister

CBS

Canada-based Staff

FAQ

Frequently Asked Questions

FAS

Financial Administration System

FSD

Foreign Service Directive

HCM

Human Resources Branch

HEA

FSD Client Services Centre

HED

FSD Services and Policy Bureau

HEP

FSD Policy and Monitoring Division

HFD

Assignments and Executive Management Bureau

HOM

Head of Mission

HQ

Headquarters

LES

Locally Engaged Staff

MCO

Management and Consular Officer

NJC

National Joint Council

PCF

Post Confirmation Form

PSDCP

Public Service Dental Care Plan

PSHCP

Public Service Health Care Plan

Appendix E: Management action plan