Audit of Benefits and Allowances

Final Report: July 2014

This report has been reviewed in consideration of the Access to Information and Privacy Acts. The published information is UNCLASSIFIED.

Table of Contents

Acronyms and Abbreviations

D/COMMR
Deputy Commissioner
FSD
Foreign Service Directives
HRMIS
Human Resource Management Information System
IPD
International Policing Development
IPGHD
Isolated Posts and Government Housing Directive
MFSI
Military Foreign Service Instructions
PLA
Post Living Allowance
RCMP
Royal Canadian Mounted Police
SCPA
Senior Constable Provisional Allowance
TEAM
Departmental Financial Information System

Executive Summary

The Royal Canadian Mounted Police (RCMP) conducted an audit to assess whether current management processes support the accurate and timely payment of benefits and allowances.

This audit focussed on Foreign Service benefits and allowances, Senior Constable Provisional Allowance, and Isolated Posts and Government Housing Directive allowances. Despite significant recent investment in corporate information systems Footnote 1, the administration and processing of these benefits and allowances remain heavily dependent on paper-based documentation and manual intervention. Stove-piped and non-integrated processes make them difficult to administer. Another contributing factor is that management practices are being developed in isolation without an overarching view of the entire process. As well, staff must be provided with the proper tools to enable them to perform their duties in the most efficient manner.

Consolidation and simplification is needed. Many steps currently in place to administer and monitor the benefits and allowances could be leveraged through the use of technology, such as developing data analytics to assess their reasonableness and eligibility. Such measures would reduce the administration involved in managing the benefits and allowances while also increasing compliance with policies and directives. As well, management should identify steps that add limited value and that can be eliminated. This would avoid the situation where these benefits and allowances are over-administered, yet under managed.

Current policies and processes need to be re-examined. This should include identifying and validating the underlying principles and revisiting our approach to ensure that objectives are indeed being achieved.

This audit includes recommendations that seek to improve management practices and monitoring and oversight activities that will lead to more efficient and effective processing of benefits and allowances. The management response demonstrates the commitment from senior management to address the findings and recommendations. A detailed management action plan is currently being developed. Once approved, RCMP Internal Audit will monitor its implementation and undertake a follow-up audit if warranted.

Management's Response to the Audit

I am pleased to offer my comments on the Audit of Benefits and Allowances.

The RCMP has in fact begun taking steps to address the issues presented in the report. In Federal Policing, a review is under way to determine if it would be beneficial to move the Benefits and Allowances specialists in International Policing to the RCMP Corporate Management Branch. In Human Resources, as a result of Deficit Reduction Action Plan-related efficiency measures, all regional compensation offices were consolidated into a single unit, based out of Ottawa. This consolidation has already had several impacts. We anticipate that the full benefits to be derived from the consolidation may take some time. In order to minimize any adverse short-term impacts on service excellence that consolidation may have, training sessions are currently being offered to all staff. Furthermore, National Compensation Services has also begun providing quarterly refreshers on specific subjects where the benefits and allowances issues identified in the audit will be addressed on a priority basis. The audit also revealed deficiencies in tools used by compensation advisors, and these deficiencies will also be addressed on a priority basis. A subject matter expert will soon assist us to develop a risk-based approach to monitoring compensation and benefits. In addition, RCMP Internal Audit will assist National Compensation Services in developing automated tools that will enhance the efficiency and effectiveness of monitoring activities.

We appreciate the feedback provided by this audit, and we commit to drafting a detailed action plan by September 15, 2014. This action plan will contain specific time lines and milestones to which the RCMP will adhere.

D.G.J. (Daniel) Dubeau, D/Commr.
Chief Human Resources Officer

1. Background

In April 2013, the Commissioner approved the 2013-16 Risk-Based Audit Plan, which included an engagement on Benefits and Allowances. This engagement also included a follow-up to the International Peace Operations - Benefits Audit completed in May 2010. This previous audit focussed on the benefits and allowances paid to Canadian police officers deployed to international peace missions, and assessed their accuracy, timeliness and compliance. The audit concluded that, while timely, improvements to the accuracy of the payments were required. A number of recommendations were made and action plans were implemented. Given the significant complexity and manual interventions required to administer these benefits, this audit included a follow-up to determine if the RCMP had implemented corrective actions that adequately address the initial recommendations.

RCMP employees are eligible to receive a number of benefits and allowances with a variety of policy objectives and conditions. Certain benefits and allowances are difficult for RCMP employees to administer due to the complexity of the directives, policies and financial calculations that govern them, some of which require significant manual intervention to initiate, terminate and determine payments. These complexities and manual interventions increase the likelihood of errors. A risk-based assessment of all benefits and allowances was conducted, and it was determined that the following would be included in this audit:

  • Foreign Service Benefits and Allowances;
  • Senior Constable Provisional Allowance (SCPA); and
  • Isolated Posts and Government Housing Directive (IPGHD) Allowances.

Foreign Service Benefits and Allowances

Foreign services benefits and allowances are paid to those deployed to international policing operations that are aimed at enhancing cooperation between Canadian and foreign law enforcement agencies, assisting in the fight against global criminal activity, and ensuring the safety and security of Canadians at home. There are a multitude of foreign service benefits and allowances, including but not limited to shelter, education, compensation and travel. The entitlements are specified in the Treasury Board Foreign Service Directives (FSD) and the National Defence and Canadian Armed Forces' Compensation and Benefits Instructions Chapter 10: Military Foreign Service Instructions (MFSI). These policy frameworks are complex and difficult to administer since entitlements depend on many factors. For example, entitlements are affected by the hardship, risk and cost of living in other countries, the duration and frequency of postings, and the family profile of employees serving abroad. Changes to the personal situation of each employee also impact the amount of foreign service payments on a case-by-case basis.

Within Federal Policing, the International Policing Development (IPD) branch is responsible for the deployment of Canadian police officers under the MFSI to various missions around the world. The majority of those posted abroad are not RCMP members. The terms and conditions for their deployments are documented in a letter of agreement between the RCMP and their respective police force. IPD interprets and calculates the foreign service entitlements for those deployed. The payments of the entitlement are processed by Pay Operations within Human Resources for RCMP members, and by Accounting Operations within Corporate Management and Comptrollership for non-RCMP police officers.

Also within Federal Policing, the International Liaison and Coordination Centre is responsible for the deployments under the FSD, but is not involved in the interpretation, calculation or payment of the entitlements. Pay Operations and Accounting Operations interpret, calculate and administer these foreign service entitlements depending on the applicable section of the FSD that they are responsible for. Accounting Operations is supported by the Foreign Service Policy Centre within Corporate Management and Comptrollership in the administration of certain FSD entitlements. Upon request, the Foreign Service Policy Centre may provide advice to Pay Operations.

Senior Constable Provisional Allowance

The SCPA promotes and entices long standing service in the RCMP for those at the Constable rank and is administered by Pay Operations. The Pay Policy Centre within National Compensation Services provides the policy direction related to the SCPA. In the period under review, the SCPA was an annual entitlement of either 2% or 4% of a Constable's salary, when certain criteria are met. Manual intervention is required to initiate and terminate the SCPA.

Isolated Posts and Government Housing Directive Allowances

The purpose of Treasury Board's IPGHD is to facilitate the recruitment and retention of staff delivering government programs in isolated locations. Its' provisions are designed to recognize the inherent disadvantages and abnormally higher costs of living and working in isolated posts, as well as to ensure that employees in government housing are treated in a manner equivalent to employees owning or renting similar accommodation from private or commercial sources.

There are various types of IPGHD allowances with specific options and exceptions, all of which are also administered by Pay Operations and supported by the Pay Policy Centre. Similarly to the other benefits and allowances under review, significant manual intervention is required to initiate, terminate and adjust these allowances on an ongoing basis.

2. Objective, Scope and Methodology and Statement of Conformance

2.1 Objective

The audit objective was to assess whether current management processes support the accurate and timely payment of benefits and allowances.

2.2 Scope

The audit scope consisted of an assessment of the existing management processes for the administration and processing of payments made between April 1, 2012 and March 31, 2013 for the following benefits and allowances:

  • Foreign service benefit and allowance payments made to Canadian police officers who are subject to the MFSI and/or FSD;
  • SCPA payments made to Constables with long standing service in the RCMP; and
  • IPGHD allowance payments made to RCMP members working and living in isolated post locations.

The audit excluded payments made in relation to relocation, medical and operational travel expenditures.

2.3 Methodology

Planning for the audit was completed in January 2014. In this phase, the audit team conducted interviews and examined relevant legislation, policies, directives, procedures and related management practices. The audit team documented and validated processes by performing walkthroughs of specific processes, and identified key controls for the administration and processing of the selected benefits and allowances. Previous engagements performed by other government departments and professionals were also reviewed. These included the gap assessment developed by an external consultant for the implementation of the Treasury Board Policy on Internal Control, and the 2012-13 Post-Payment Verification Report produced by Corporate Management and Comptrollership's Internal Control section.

Sources used to develop audit criteria included RCMP policies and Treasury Board directives. In addition, they were complemented by criteria based on the Core Management Controls issued by the Office of the Comptroller General of Canada, which focus on the Federal Government's Management Accountability Framework. Audit objective and criteria are available in Appendix A. Policy references are available in Appendix B.

The examination phase, which concluded in April 2014, employed various auditing techniques including data extractions and analytics using corporate information systems to identify anomalies based on eligibility. A judgmental methodology was used to select a sample of files for testing. Audit procedures included tracing entitlements to relevant original documents retained on file, verifying payment accuracy and compliance with applicable federal directives and RCMP policies, and reviewing transaction authorization by delegated officers in accordance with sections 33 and 34 of the Financial Administration Act. Upon completion of the examination phase, the audit team held meetings to validate findings with personnel and debriefed senior management of the relevant findings.

2.4 Statement of Conformance

The audit engagement conforms with the Internal Auditing Standards for the Government of Canada, as supported by the results of the quality assurance and improvement program.

3. Audit Findings

3.1 Eligibility, Accuracy and Timeliness

While the recipients were entitled to the benefits and allowances that they received, improvements are needed to ensure that payment amounts are accurate.

Payments were deemed accurate and timely if the right amount was paid in a reasonable time frame. However, the question of eligibility was central in supporting payment entitlements. Even if an amount was calculated accurately and paid in a timely fashion, the eligibility needed to be validated by supporting documentation retained on file that demonstrated compliance with relevant policies and directives. Professional judgment was used in assessing the timeliness of payments as no benchmarks were in place.

In general, recipients were entitled to the benefits and allowances reviewed. However, errors in amounts paid due to miscalculations, policy misinterpretation, or the wrong rates applied by the various groups involved in the administration of the benefits and allowances were observed. While some errors were previously identified and corrected by the administrators, others were detected during audit testing and reported for corrective action. When errors are identified, corrections must be initiated, creating not only a financial impact on the individual but an additional administrative burden to the organization. Moreover, in the event of an error affecting a non-RCMP police officer, manual efforts are required to recover overpayments and may impact relationships with other police partners.

The risk of errors increases significantly for the benefits and allowances reviewed as they are subject to manual processes for the initiation, termination, and the administration of ongoing rate changes and related adjustments.

Foreign Service Benefits and Allowances

In general, recipients were entitled to the foreign service benefits and allowances that they received. The complexities of the directives, the varying duration of the posting, and the personal situation of each employee compounded by the significant manual intervention previously described, make it difficult to ensure that payment amounts are accurate.

Furthermore, the International Peace Operations - Benefits Audit (May 2010) identified the need for improvements to the accuracy of payments. A quality assurance function was to be implemented that would increase accuracy and ensure compliance with the MFSI prior to issuing the last payment to Canadian police officers serving abroad. While this quality assurance function had been implemented, this current audit confirmed that it was no longer being performed. As expected, the payment of several benefits and allowances were not accurate. In addition to calculation errors, other administrative errors relating to particular entitlements were identified.

Post Living Allowance (PLA)
The PLA is provided on a monthly basis to compensate for the higher costs of purchasing goods and services at foreign post locations. An employee's base salary is used to determine the PLA amount. Pay Operations and IPD had different interpretations of the base salary definition. A tool used by Pay Operations inappropriately prompted amounts to be added to the base salary, thus increasing the amount of the PLA. A different tool used by IPD aligned with the directive; however, documentation retained on file often differed from the base salary applied in the PLA calculation. Although the base salary was readily available for RCMP Regular Members, the correct amount was not always used. Moreover, while the PLA is to be adjusted to reflect changes in an employee's salary, the manual processes made it difficult to ensure that increments were added to the salary. It should be noted that while such inconsistencies exist, the PLA is capped when an employee's base salary is $100,000 or more. As long as the proper base salary amount is used in the PLA calculation, the risk of overstated amounts exists only for those deployed with base salaries less than this threshold.
Shelter Assistance
The current process to administer shelter assistance does not align with the FSD. An employee serving abroad may be eligible to claim shelter assistance for their dependant(s) enrolled in post-secondary education to help maintain a stable student residence until the end of the academic year. The FSD specifies that reimbursement is to be provided upon receipt of evidence of actual costs and of full-time attendance until the end of the academic year. The current process by Accounting Operations is to advance a payment after receiving proof of enrolment for a dependant, yet no evidence of completion of the academic year is being requested. Accordingly, there is currently no mechanism in place to verify the full entitlement in a situation where a dependant who was enrolled full-time subsequently withdraws or changes to part-time status after shelter assistance has been paid.

Senior Constable Provisional Allowance

As previously mentioned, the SCPA is an annual entitlement of either 2% or 4% of a Constable's salary, when certain criteria are met. To be eligible for the 2% SCPA, a Constable must have eleven years of service in the Force. For the 4% SCPA, a Constable must have seven years of service in the Force and have successfully completed the Job Simulation Exercise needed for promotion to the Corporal rank.

The most significant errors observed were when the eligibility criteria were misinterpreted. At times, the years of service in other Canadian policing organizations were improperly included in the determination of the SCPA eligibility for police officers who transferred and became RCMP members. Although management had been informed of findings, the termination of some SCPA and the recoveries of others remain outstanding. While the years of service in other Canadian policing organizations is recognized for the eligibility to write the Corporal Job Simulation Exercise for promotional purposes, it is not accepted for eligibility of the SCPA. The SCPA policy needs to be clarified as the years of service criterion continues to generate confusion.

Constables who qualify for the SCPA are identified through various manual processes. The majority are identified in a monthly HRMIS report. Pay Operations manually compares this report with the previous month's to identify the Constables who have since become eligible. However, this process is not sufficient to detect all entitlements and fails to identify those that do not qualify and yet are receiving the allowance. As part of the audit testing, data analytics were performed and confirmed some cases where Constables met all eligibility criteria and should have been receiving the SCPA. Another directed sample confirmed other cases where RCMP members continued to receive the SCPA after promotion above the Constable rank. A third example affecting timeliness related to one Constable that was listed in the monthly report six times prior to the initiation of the SCPA.

Aside from the review function that occurs upon initiation, there are no mechanisms to monitor and detect such errors. The potential and likelihood for error persists.

Isolated Posts and Government Housing Directive Allowances

In general, RCMP members in the directed sample who were receiving these allowances were located at an isolated post. As previously mentioned, manual processes are utilized in the administration of these allowances. For the most part, allowances paid were accurate, though minor calculation errors were noted. A few eligibility issues were noted where RCMP members who were living in government quarters were receiving the shelter cost differential associated with private accommodation, or were receiving the fuel and utilities differential allowance when these charges were included in the rent.

Once any IPGHD allowances are initiated, the over- or underpayments could perpetuate and, if not detected, could become significant. Once more, there are no mechanisms in place to monitor and detect errors. All errors identified were validated by Pay Operations and results were provided for corrective action.

Payment accuracy and timeliness were dependent on the current manual administration, supervision and review activities carried out by the various groups. Generally, once an entitlement was identified, payment processing was initiated in a timely fashion.

3.2 Management Practices

Despite significant investment in corporate information systems, management practices are too reliant on manual intervention, making it difficult to ensure that benefits and allowances are properly managed.

Policies and procedures including clearly defined roles and responsibilities of the different sections of an organization help to ensure that management directives are carried out as intended. As previously mentioned, current management practices within all groups rely heavily on manual intervention. This increases the risk of errors and creates an additional administrative burden. Given the complexity of the policies and directives, compounded with the manual processes involved, the current environment needs to be more efficient and effective.

Specific to foreign service benefits and allowances, it is difficult to promote consistency when there are many administrators and the roles, responsibilities and accountabilities of each are not sufficiently clear among the various groups involved. The Foreign Service Policy Centre is responsible for providing advice and communicating policy revisions in regards to the FSD. This policy centre actively supports Accounting Operations in their administration of foreign service payments under the FSD. However, there is no clear accountability from a policy centre perspective regarding policy updates for the MFSI, and there is limited to no guidance provided to Pay Operations and IPD for their administration of the foreign service payments under the MFSI and/or FSD, as applicable. This current void requires that IPD liaise directly with the Department of National Defence and Treasury Board Secretariat for interpretations and clarifications when needed.

The RCMP's procedures for foreign service allowances are stipulated in the Pay Procedures Manual. These procedures are outdated, and contain incomplete and inconsistent information in comparison to the FSD and MFSI. National Compensation Services is the originator of this manual; however, they do not support international policing operations. Interviews and audit observations revealed that the various groups were not referring to the procedures for direction. These groups created their own processes and procedures, many of which were not formalized, although the majority aligned with the FSD and/or MFSI. The formalization of procedures and a procedural review would promote consistency and enhanced alignment with these complex directives and provide clear guidelines to administrators.

As stated earlier, the RCMP is responsible for administering foreign service benefits and allowances for those deployed on international policing operations. Although entitlements under the FSD and MFSI are different, synergies may be possible between the various groups involved in the administration of these benefits and allowances, and efficiencies may be identified. The current Federal Reengineering initiative underway within Federal Policing may impact existing programs and management practices as well as address the issues observed.

According to the findings of this audit, the root cause of most errors observed are processes that require excessive manual intervention as well as policies and directives that are not clear and therefore lead to inconsistent applications. Making matters worse is the fact that roles, responsibilities and accountabilities are not sufficiently clear.

3.3 Monitoring and Oversight

Ongoing monitoring and oversight activities are not in place to assess whether payments are made in an accurate and timely fashion.

Monitoring and oversight are essential to assess whether payments are made in a timely and accurate manner. They are also useful in detecting anomalies and evaluating the performance of current management practices and processes. However, it was determined that limited to no monitoring and oversight were performed.

While management had access to payroll reports, these reports provide limited value in assessing the accuracy of payments and the eligibility of recipients. Using corporate information systems Footnote 2, data analytics should be used to monitor trends and assist management with the following:

  • detecting issues and anomalies with pay and benefits;
  • assessing the reasonableness of payments made;
  • determining effectiveness of payment processing and review activities;
  • providing direction for policy updates and continuous improvement;
  • identifying training requirements;
  • evaluating the integrity of key data elements captured in corporate information systems; and
  • reporting on performance metrics.

Ongoing monitoring and oversight using corporate information systems may proactively identify employee entitlements and detect anomalies. For example, as the SCPA is either 2% or 4% of a Constable's salary, a simple script could be run with TEAM data extracts to identify those receiving more than the maximum allowable amount. Eligibility could also be confirmed with HRMIS data and anomalies could be identified. Data analytics will lead to improvements and allow for timely corrective action where necessary. A risk-based approach including tolerance thresholds may be pragmatic.

Management must be mindful that further analysis needs to be performed of any data extractions as analytics used in testing confirmed issues with data integrity. As an example, HRMIS data regarding isolated posts was not consistent with the eligible isolated post locations specified in the IPGHD. A lack of data integrity has an impact on monitoring activities. However, data analytics would help management identify and address such data integrity issues in a timely manner. With complete and accurate data, management can develop more efficient processes to monitor current management practices, detect anomalies or proactively identify entitlements. Identifying and recording essential data elements in corporate information systems would facilitate more efficient monitoring and enhance decision-making.

Monitoring and oversight would also ensure that current management processes are aligned with complex federal directives and policy requirements, as well as ensure consistency and effectiveness in their application. As mentioned previously, the two different methods of calculating the PLA created misalignment and inaccuracies. Review activities that currently exist independently of each other did not capture this or similar issues with compliance that ongoing monitoring and oversight activities using data analytics could detect.

Risk-based monitoring and oversight activities using data analytics is an efficient way to help determine the reasonableness of benefits and allowances on an ongoing basis. This would be beneficial in evaluating current management practices and processes, and in identifying systemic issues for informed decision-making.

4. Recommendations

Recommendation 1
The D/Commr. Federal Policing, in consultation with the Chief Financial and Administrative Officer and the Chief Human Resources Officer, should clarify roles, responsibilities and accountabilities to ensure coordinated management of foreign service benefits and allowances.
Recommendation 2
The Chief Human Resources Officer, in consultation with the D/Commr. Federal Policing and the Chief Financial and Administrative Officer, should identify and ensure that key data elements required for the sound management of benefits and allowances are captured in corporate information systems.
Recommendation 3
The Chief Human Resources Officer, in consultation with the D/Commr. Federal Policing and the Chief Financial and Administrative Officer, should develop risk-based quality assurance and monitoring activities, with an emphasis on technology-driven reports, to identify anomalies and evaluate performance of management practices related to the administration of benefits and allowances.

5. Conclusion

Although payments of benefits and allowances were generally considered timely, current management processes must be strengthened by the use of monitoring activities. This would serve to improve the accuracy and quality of benefit and allowance transactions, while enhancing information available for financial reporting and decision-making by senior management.

Review activities that are in place to detect errors and non-compliance are, for the most part, manual. More robust execution of risk-smart quality assurance activities and the implementation of an efficient monitoring function will help ensure on an ongoing basis that payments are accurate and compliant with policies.

The issues observed during this audit are not limited to the benefits and allowances under review. The issues that increase the risk of inaccuracies are also present for other benefits and allowances administered by the RCMP. Clarification of roles, responsibilities and accountabilities among the various policy centres and administrators of pay and benefits would result in more efficient and effective processing of benefits and allowances.

Appendix A - Audit Objective and Criteria

The audit objective was to assess whether current management processes support the accurate and timely payment of benefits and allowances.

Criterion 1:
The payment process for benefits and allowances was well-defined with sound controls in place.
Criterion 2:
Payments were accurate, timely and compliant with relevant policy.

Appendix B - Policy References

Federal Policy and Directives

Isolated Posts and Government Housing Directive

Foreign Service Directives

National Defence and the Canadian Armed Forces Compensation and Benefits Instructions, Chapter 10 - Military Foreign Service Instructions

RCMP Policy

National Compensation Manual Part 2 - Terms and Conditions of Employment for Regular and Civilian Members, Section 8: Allowances

  • Subsection 5: Isolated Posts and Government Housing Allowances
  • Subsection 8: Senior Constable Provisional Allowance

Pay Procedures Manual Part VI - Special Procedures, Section 7: Foreign Service Allowances

Office of the Comptroller General of Canada

Audit Criteria related to the Management Accountability Framework: A Tool for Internal Auditors, March 2011

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