Audit of Foreign Service Directive 15 - Relocation

Final report

Global Affairs Canada
Office of the Chief Audit Executive

Tabling Date
January 2021

Acronyms and symbols

CBS

Canada-Based Staff

CRS

Central Removal System

FAA

Financial Administration Act

FAS

Financial and Administration System

FSD

Foreign Service Directive

GAC

Global Affairs Canada

HEA

FSD Client Services Centre

HED

FSD Services and Policy Bureau

HEP

FSD Policy and Monitoring Division

HHE

Household Effects

HQ

Headquarters

LTS

Long Term Storage

MCO

Management Consular Officer

NJC

National Joint Council

PCF

Posting Confirmation Form

PMV

Private Motor Vehicle

PSPC

Public Services and Procurement Canada

RTA

Relocation Travel Allowance

SSC

Specimen Signature Card

Executive summary

In accordance with Global Affairs Canada’s approved 2019-20 Risk-based Audit Plan, the Office of the Chief Audit Executive conducted an audit of FSD 15 - Relocation.

Why it is important

Global Affairs Canada (the Department) administers the Foreign Service Directives (FSDs) for its Canada based staff (CBS) and employees of other government departments serving at Canada’s 178 missions around the world. The FSDs provide a system of allowances, benefits, and conditions of employment that reflect three principles: comparability with life in Canada, incentive-inducement to serve abroad, and program-related needs. FSD 15 – Relocation (FSD 15 or the Directive) provides for relocation related expenses. During the 2019 relocation season, the Department oversaw 1,178 international and domestic (United States and Mexico) relocations for a total disbursement of approximately $36.9 million.

In October 2018, the Department’s approach to international shipping and storage changed when the Department awarded a new contract to two companies., indicating the end of a shipping regime where for decades nine service providers and hundreds of local moving companies, for pack-up services and local delivery, had to be engaged.

What was examined

The objective of the audit was to determine whether key controls over the administration and management of FSD 15 were in place and operating effectively.

The audit examined the design and effectiveness of the administrative processes, systems, and procedures used to administer and manage FSD 15 related transactions and payments that occurred between April 1, 2019 and March 31, 2020.

Areas of Enquiry

• Payment Administration
• Consistent Application of FSD 15
• Implementation of the New Shipping Contract

What was found

Key controls over the management of FSD 15 are generally in place but there are opportunities to improve the operating effectiveness of these controls including the adoption of a risk-based monitoring approach and the development of a performance measurement strategy to track the overall performance of the new shipping contract.

Recommendations

1. The Assistant Deputy Minister of Human Resources should strengthen internal controls in the areas of eligibility assessment, authority and supporting documentation for payment to ensure that FSD 15 payments are made in accordance with the Directive.
2. The Assistant Deputy Minister of Human Resources should develop and update reference materials and tools to reduce the risk of inconsistent application of the Directive
3. The Assistant Deputy Minister of Human Resources should ensure that all FSD Client Advisors and Coordinators who are responsible for authorizing FSD payments have the required training on financial signing authority.
4. The Assistant Deputy Minister of Human Resources should build on the established risk management framework to identify the areas of highest risk and devote resources to conduct the monitoring activities.
5. The Assistant Deputy Minister of Human Resources should develop a performance measurement strategy for the new shipping contract to ensure relocation service delivery standards are tracked and monitored for future improvement.

Statement of Conformance

The 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.

1. Observations and Recommendations

This section sets out the key findings. It is divided into three areas: payment administration; consistent application of FSD 15; and the implementation of the new shipping contract.

1.1 Payment Administration

It was expected that controls would be in place to ensure that FSD relocation allowances and reimbursement of expenses were provided to eligible CBS and that payments were eligible, appropriately authorized, accurate, supported and recorded. The impact of having weak or absent controls in these areas is twofold. First, it may lead to ineligible CBS receiving FSD 15 reimbursements and second, it may lead to eligible CBS receiving incorrect or ineligible FSD 15 payments.

In order to assess if expected controls were appropriately designed and effective, the audit team used a combination of sample testing and selected population testing methods. A detailed breakdown of the number of issues by each FSD 15 - Relocation provision is presented in Appendix A.

Eligibility

Eligibility for FSD relocation payments was assessed in terms of mandatory pre-approval for relocation related expenditures such as shipping and moving household effects, house hunting trips, local transportation, and temporary accommodation. Eligibility assessments are a key control to ensure that CBS are only reimbursed for the related expenditures if pre-approved. While this control is appropriately designed, its operating effectiveness could be strengthened based on the following key findings:

• 77% of local transportation eligibility forms were approved after expenses had been incurred;
• 69% of house hunting trips did not have documented cost-effective analyses for the required eligibility and necessity assessment;
• 65% of temporary accommodation claims over two nights did not have documented pre-approval;
• 18% of local transportation claims were missing eligibility forms; and
• 6% of house hunting trips were taken before the eligibility form was approved.

Authorization

Both FSD Client Advisors and FSD Coordinators must exercise Section 34 of the Financial Administration Act (FAA) for payment authorization before reimbursements and allowances are paid to CBS and invoices are paid to contractors. They must certify that the services have been rendered, the terms and conditions of the Directive and contracts have been met, and that either the CBS or contractor is entitled to payment. In general, the controls associated with authorization are largely manual, which increases the risk of inconsistent practices.

The results of sample testing show that numerous payment transactions linked to various FSD relocation provisions were not appropriately authorized. More specifically:

• 50% of extra moving fees invoiced by contractors did not have documented pre-authorization;
• 10% of authorized expenditures were not reasonable or exceeded policy limit;
• 10% of financial authorizations by FSD Client Advisors were inappropriate, invalid, or above their authority; and
• 7% of posting confirmation forms were authorized after the incidental relocation expense allowance or relocation travel allowance.

In addition, in 31% of cases the maximum allowable shipment weight recorded in the third party-managed system Central Removal System (CRS) was higher than what was authorized by the FSD Client Advisor in the relocation message. As CRS is connected to the contractors’ system, there is a risk that the incorrect weight may be used as a reference and charged by the shipping company.

Accuracy

The audit team looked for discrepancies between actual payment information in the Department’s Financial and Administration System (FAS) and the corresponding authorized allowances and expense claims. Accuracy of information used for payment was also assessed.

The sample testing results showed that the majority of payments to CBS were accurate. There were four cases of over or under payment and three duplicate payments identified through population testing. While testing identified only four duplicate payments at a cost of approximately $15,000 there was a lack of system controls in place to prevent these transactions.

With regard to shipment invoices, except for one case, all invoices were accurately paid and recorded in the system. Sample testing did identify one duplicate payment relating to long-term storage. Management is aware of these duplicate payments and has begun the process of recovering the funds. At the time of the audit reporting, none have been recorded in the system.

Supporting Documentation

Prior to making payments for FSD 15 expenditures, FSD Client Advisors and FSD Coordinators review and verify related supporting documentation in the form of original invoices, receipts, proof of payment, forms, and emails. The verification process is to ensure that these supporting documents are valid, sufficient, and include the correct payment rate defined in the pertinent contract and in compliance with the Directive. While the testing results demonstrate that most expense claims were accompanied by valid and complete receipts with correct amount, there were four cases where the supporting documents for payments were not valid.

The requirement for providing proof of travel by CBS who receive an RTA for business class travel (not required for economy class) or a cross-posting with a stopover at Headquarters (Ottawa, Canada) is part of the agreement signed by both the CBS and the FSD Client Advisors. However, 18% of the proof of travel was not available for review at the request of the audit team. In the case of house hunting trip reimbursement, the requirement for providing proof of travel to demonstrate that effort was made to find a residence during the trip is also part of the signed agreement. However, 25% of the documented proof was not available.

Shipping documentation provided by contractors varied significantly and in 42% cases was incomplete. Notably, 25% of the invoices were not accompanied by scale tickets or alternative documents that documented the actual net weight to allow the FSD Coordinator to verify if the billing weight on the invoice was accurate.

Overall, the audit determined that while controls exist to ensure relocation related FSD payments made to both individuals and contractors were eligible, appropriately approved, accurate and supported, testing found numerous issues indicating that some of the key controls were not operating as intended, especially in the areas of eligibility assessment, payment authorization and provision of supporting documents.

Recommendation 1

The Assistant Deputy Minister of Human Resources should strengthen internal controls in the areas of eligibility assessment, authority and supporting documentation for payment to ensure that FSD 15 payments are made in accordance with the Directive.

1.2 Consistent Application of FSD 15 - Relocation

It was expected that FSD Client Advisors and FSD Coordinators would consistently apply the Directive using in-house procedures, guidance, training, and tools. It was also expected that the monitoring activities would detect and correct any payment transaction errors.

FSD 15 is one of the most complex FSDs. Furthermore, the conditions of the application of FSD 15 stipulated in some provisions are not always straightforward and are open to interpretation. This allows FSD Client Advisors to exercise a limited amount of flexibility based on their professional judgement and the Directive when they authorize expenses. Under exceptional circumstances and for some provisions of the Directive, claims may require managerial discretion or consultation with Working Group B or A. These working groups are for coordination and consultation on the interpretation and application of FSDs with representation from several federal government departments. The mandates of each working group are detailed in Appendix B. The audit reviewed all 2019 FSD 15 Working Group B decisions and determined that the Directive was applied accurately and the decisions were consistent with the testing results.

The sample testing results showed that the majority of transactions complied with the Directive. Nevertheless, some instances of inconsistent application of the Directive among the FSD Client Advisors were observed. These instances include FSD 15 Relocation related payments to both individuals and contractors presented in Section 1 “Payment Administration” of this report. For example, required supporting documentation was not always obtained and filed by all FSD Client Advisors and Coordinators. The inconsistent application of the Directive increases the risk that the FSDs underlying principles may not be respected.

Procedures, Guidance, Training and Tools

The Foreign Service Directives Bureau (HED) has established the FSD Procedures Deskbook for FSD Client Advisors to help with the consistent application of FSD 15. The Deskbook includes background information about the FSDs and procedural details on their administration and application. Other guidelines and tools available to FSD Client Advisors include the Pre-Move Information Booklet for GAC Relocations, Guidelines and Information on the Shipment of Household Effects and Private Motor Vehicles, Policy on Relocation of Household Effects, and List of All Air Missions for Relocation of Household Effects.

The audit team reviewed these documents to assess if they were aligned with the current Directive (April 1, 2019). The review indicated that the Deskbook and other reference materials have not been updated to reflect the changes. Interviews with select FSD Client Advisors revealed that policy and procedure changes and updates were not always communicated to them in a consistent and timely manner. This may hinder FSD Client Advisors from consistently applying the Directive.

Training and job shadowing also help the FSD Client Advisors to gain a common understanding and interpretation of the Directive, as well as to keep up to date on any policy and requirement changes. The training provided to the FSD Client Advisors consists of informal sessions with the training coordinator as well as weekly questions and answers session with Directors and Deputy Directors to share information. In practice, inquiry from peers, job shadowing and tools such as the FSD Deskbook, the FSD Portal and CRS were their primary source of training and knowledge. As for the mandatory training organized and tracked by the Department for Section 34, a review of a sample of Section 34 signature cards showed that most (68%) of the FSD Client Advisors did not have this required training. This increases the risk that the FSD relocation payments may not be appropriately authorized and made in accordance with the Directive.

Recommendation 2

The Assistant Deputy Minister of Human Resources should develop and update reference materials and tools to reduce the risk of inconsistent application of the Directive.

Recommendation 3

The Assistant Deputy Minister of Human Resources should ensure that all FSD Client Advisors and Coordinators who are responsible for authorizing FSD payments have the required training on financial signing authority.

Monitoring

It was expected that a risk based monitoring process would be in place to track and monitor expenditures and the administration of FSD 15.

The audit team examined the monitoring activities that were performed by a designated monitoring officer and other responsible officers. Although some monitoring activities have been carried out, their design and effectiveness were limited in terms of monitoring area selection basis, coverage and timeliness.

Since 2018 there has been one junior Officer assigned to monitoring the application of all FSD payments, including FSD 15 - Relocation. However, relocation has not been an area subject to routine monitoring.  Monitoring has focused on CBS travel allowances related to business class travel and cross-postings. In 2016 Corporate Planning, Performance and Risk Management Bureau (SRD) prepared a risk assessment of all FSDs to assist in developing a risk management framework but the auditors did not find evidence of a comprehensive risk assessment specifically for all provisions of FSD 15 and how this framework was used to guide the monitoring activities.

In addition to these two FSD provisions, the audit team identified other provisions during the risk assessment exercise at the audit planning phase, which may also benefit from monitoring, such as private motor vehicle, house hunting trip, temporary accommodation, and local transportation.

At the time of the audit, this monitoring had only been performed for the 2018 relocation season. The monitoring results for the 2018 relocation season revealed that approximately 20% of all business and cross-posting travel allowances did not have a valid boarding pass to demonstrate that the provided travel allowance was accounted for in accordance with FSD 15. These exceptions had been presented to management for action. The audit sample testing resulted in similar findings.

Other tools have also been developed to support the monitoring of FSD Relocation expenditures. For example, a master list of long term storage (LTS) is being used to track CBS’s personal effects that are kept at their home city while being posted. The Department pays the contractor directly and any storage charges beyond 60 days, after the CBS’s return from mission, should be recovered from the CBS according to FSD Relocation. Therefore, a complete, accurate and updated tracking document would be a key monitoring tool to ensure the administration of the LTS payments comply with the Directive. However, a review of the LTS master list indicated that some of the key information such as storage-out dates and extension dates were incomplete or inaccurate. Additionally, there was no reconciliation performed between the storage-in and storage-out checklists to assess whether LTS are being managed according to the original schedules or extended.

Regular risk-based monitoring could support the consistent and administration FSD payments and strengthen compliance.

Recommendation 4

The Assistant Deputy Minister of Human Resources should build on the established risk management framework  to identify the areas of highest risk and devote resources to conduct the monitoring activities.

1.3 New Shipping Contract Implementation  

It was expected that the implementation of the new shipping and moving contract would allow for more efficient and effective relocation process.

Prior to October 2018, both HQ and missions were responsible for arranging local movers at the departure and destination locations, storage, and freight forwarding. Due to multiple international service providers and hundreds of local contractors engaged at 178 missions, service delivery tracking and measurement were difficult to achieve, which had led to challenges for effective management oversight and monitoring.

In October 2018, the Department’s approach to shipping and storage changed upon signing a new shipping contract with two service providers. Relocation services are now provided from door to door under a single contract. Consequently, the number of international service providers was consolidated from nine to two and hundreds of local movers were phased out, which should increase consistency between moves, simplified administrative process and reduced mission’s workload. Furthermore, this new shipping arrangement has provided the Department with a turnkey solution and key management oversight for the delivery of household effects and private motor vehicles to its CBS.

Nevertheless, it has created unavoidable challenges for FSD management by introducing new contractors who were not familiar with unique and complex international diplomatic shipments.

Service Delivery

The audit team issued a questionnaire to 127 CBS who were relocated during 2018-19 using the new shipping and moving contractors and received 55 responses. With the understanding that multiple factors might have impacted the quality of service delivery, 75% of respondents expressed that they experienced service disruptions, delayed shipments, and delivery failures. The most common concern was unclear and insufficient communication and coordination between headquarters, missions, CBS, and logistical companies.  In addition, several Management Consular Officers (MCO) expressed challenges around their redefined roles and responsibilities, and a lack of instructions or tools to understand the new shipping arrangements.

No formal tool or system was in place to track, measure and communicate service delivery failures. Without a record of existing challenges, it is difficult to assess where the greatest challenges are and to develop solutions to improve the implementation of the new contract. This service performance information could also support the quality evaluation survey, as one of the criteria to be used to determine each contractor’s business share as per the international shipping contract.

Process Efficiency

Under the old contracting regime, each relocation transaction required contracts with three local movers at origin for pack-up, freight forwarding from origin to destination and, mission contracts with local movers at destination. This involved nine international and hundreds of local service contractors, which, among other things, made it very challenging to achieve process efficiency for shipping administration.

Some MCOs noted improvements with international shipments, particularly the simplified process and resource saving for mission management, despite the dissatisfaction of some CBS noted above. The audit team performed an analysis of the actual shipping and moving related expenditures between the fiscal year 2019-20 and the previous year. The results show that although the number of moves increased by 30 CBS, the total expenditures decreased by more than $3 million (see Appendix C). This may be seen as an initial sign of potential cost savings under the new contract regime that took effect in October 2018. However, further analysis is required.

Recommendation 5

The Assistant Deputy Minister of Human Resources should develop a performance measurement strategy for the new shipping contract to ensure relocation service delivery standards are tracked and monitored for future improvement.

2. Conclusion

Key controls over the management of FSD 15 are generally in place. There are opportunities to improve the effectiveness of these controls, adoption of risk-based monitoring approach, and the development of a performance measurement strategy for the new shipping contract.

Appendix A: Testing Results Summary

To properly address the audit objective, the audit team performed transaction testing through selected sample and entire population in order to gather sufficient audit evidence to draw audit conclusions on the audit criteria and sub-criteria through the following methods:

1. Identify and assess the effectiveness of key controls;
2. Perform data analysis and select samples of transactions for testing;
3. Conduct other tests as deemed necessary.

Sample Testing

A sample of 50 relocated CBS were selected for detailed testing, including the 251 corresponding financial transactions totaling $2.04 million, representing approximately 10% of the population in payment value. The sample CBS were selected based on risk, materiality, and regional (i.e. international and domestic) and directional (i.e. outgoing, incoming, and cross-posting) representation. Sample testing criteria were derived from the NJC directives, departmental policies and procedures, and the departmental Delegation of Financial and Contractual Signing Authorities Instrument for FSDs. Since the sample was selected using a judgmental sampling method, the results cannot be extrapolated to the population.

The transactions range from April 1 to October 31, 2019, the period from which the samples were selected.

The following table summarizes the number and types of issues found in transaction testing.

Populatio Testing

Population testing was based on key risk areas identified in the course of the audit. The audit team used data analytics tools to match and join the transactions that occurred in the period of April 1 to October 31, 2019 to the corresponding FSD Portal data on allowances and claims. This enabled population-wide analyses, including identifying anomalies, across the joined data. Among other things, three duplicated payments were identified.

Appendix B: Working Group Descriptions and National Joint Council Definitions

Interdepartmental Coordinating Committee, Working Group A is a Foreign Service interdepartmental coordinating committee that is chaired by the TBS and is composed of representatives from five other federal government departments in additional to Global Affairs Canada. Its mandate is to ensure consistent interdepartmental interpretation and application of the FSDs; to maintain continuous liaison with separate employers, departments and agencies on matter related to FSD provisions; and to recommend changes to the NJC FSD Committee and the President of the Treasury Board.

Working Group B is a sub-committee of Working Group A and is a forum for interdepartmental consultation by departmental representatives on the interpretation and application of the FSDs. It is chaired by the Director of the FSD Policy and Monitoring Division and is composed of representatives from seven other federal government departments. Its objectives 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 with a venue to exchange information. With respect to FSD relocation-related decisions, the Committee reviews and approves expense claims that are made under exceptional circumstances.

Excerpts from FSD 2 – Definitions and FSD 15 - Relocation

Accountable relocation travel option (option de voyage de réinstallation soumise à justification) is an accountable option provided to an employee for relocation travel from the old place of duty to the new place of duty for which the employee must submit an expense claim for actual and reasonable relocation travel expenses as outlined in this directive within 30 days after travel has occurred and for which an employee may request an advance, subject to FSD 4 – Accountable Advances.

Cross-posting (affectation d’un poste à l’étranger à un autre) means the assignment of an employee from one post to another post.

Crown-held accommodation (logement de l'État) means accommodation owned, leased, or controlled by the Crown and includes accommodation provided directly to an employee by the host government.

Employee (fonctionnaire) means a person to whom the Foreign Service Directives apply in accordance with FSD 3 - Application.

Employee-couple (couple de fonctionnaires) means two individuals assigned to the same post, or to different posts, who are married to each other or who have signed the declaration in Appendix A of this directive where:

• both individuals are employees; or
• one individual is an employee and the other is eligible to claim foreign service entitlements from the Government of Canada (e.g., military personnel).

Household effects (effets mobiliers) means the furniture, household equipment and personal articles of employees and their dependants (including motorcycles) but does not include other private motor vehicles (PMV), livestock or pets.

Living expenses (frais de subsistance) means actual and reasonable expenses for accommodation, meals, laundry, dry cleaning and valet services and attendant gratuities.

Official routing (trajet officiel) is the most direct and practical routing as determined by the deputy head for one way travel from the old place of duty to the new place of duty

Relocation (réinstallation) refers to the authorized geographic move of an employee and/or dependant between a place of duty in Canada and a place of duty at a post, or between a place of duty at one post and a place of duty at another post.

Relocation expenses (frais de réinstallation) means the cost as applicable of either:

• travelling expenses of the employee and a dependant, and/or packing, crating, cartage, transportation and unpacking of an employee's household effects, and/or long-term storage of household effects where the deputy head has not authorized shipment of such effects to the employee's post, or necessary incidental storage of those household effects which the deputy head has authorized for shipment for a period not exceeding twelve months; or
• the various expenses for which provision is made in FSD 15 - Relocation.

Relocation travel allowance (indemnité de voyage de réinstallation) is a non-accountable allowance provided to an employee for relocation travel from the old place of duty to the new place of duty and includes the travel allocation as well as expenses which will be incurred at the old and new place of duty.

Travel allocation (allocation de voyage) is the amount which will be provided to the employee for travel by air, private motor vehicle (PMV) or sea from the old place of duty to the new place of duty and may include the expenses as outlined in subsection 15.6.2 relating to an authorized stopover where the deputy head determines that one is required

Travel leave (congé de déplacement) means a period of absence with pay authorized by the deputy head to cover travelling time for a journey and during which the employee is deemed to be on duty for the purpose of any applicable accident compensation.

Travelling expenses (frais de voyages) except as provided for under the Relocation Travel portion of FSD 15 - Relocation for travel under that directive and/or FSD 64 - Emergency Evacuation and Loss, means expenses for air transportation and local transportation to and from airports at the points of departure and destination and, when authorized in advance by the deputy head, for accommodation, meals and local transportation to and from the airport for a necessary stopover, where it is not possible or practicable to arrange an itinerary which will permit continuing travel to the approved destination.

Appendix C: Summary of FSD 15 - Relocation Expenditures

Appendix D: About the Audit

Objective

The objective of this audit was to determine whether key controls over the administration and management of relocation-related FSDs are in place and operating effectively.

Scope

The audit scope focused on FSD relocation-related administrative processes, systems, and procedures, from which payments/transactions were initiated, authorized, processed. The audit also examined if the associated controls were in place and operational to ensure the eligibility and accuracy of the payments, satisfaction of the service delivery and compliance with the Directive. For the purpose of transaction testing, the audit covered CBS moves that took place between April 1 and October 30, 2019, and associated FSD Relocation payments that were recorded in the Department’s Financial Administration System between April 01, 2019 and March 31, 2020.

However, to gain a more complete understanding of the subject matter of the audit, relevant material and data outside this period were also reviewed and analyzed.

Criteria

The criteria were developed following the completion of the detailed risk assessment and considered the audit criteria related to the Management Accountability Framework developed by the Office of Comptroller General of the Treasury Board Secretariat. The audit criteria were discussed and agreed upon with the auditees. The detailed criteria are presented as follows.

Audit Criteria

1. The Department has controls in place to ensure that payments made to CBS are accurate and in compliance with FSD 15.
2. The Department has controls in place to ensure that payments made to contractors are legitimate, accurate and respect the related shipping, moving and storage contracts.
3. The Department applies FSD 15 appropriately and consistently.

Approach and Methodology

The audit was conducted in conformity 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. These standards require that the audit be planned and performed in such a way as to obtain reasonable assurance that the audit objective is achieved. 

Appendix E: Recommendations and Management Action Plan