Leave Management Audit

Final Report

Corporate Audit and Evaluation Branch
October 2011


Executive Summary

Background: The Canada Revenue Agency (CRA) must ensure that the recording and approving of leave is in accordance with relevant Collective Agreements and Terms and Conditions of Employment.

All employees in the CRA are held accountable for the accurate recording of their leave. The appropriate recording and approval of employee leave is the primary accountability and responsibility of the employee’s manager [Footnote 1], in accordance with the authorities delegated by the Commissioner of the CRA. Managers with the delegated authority to approve leave are further accountable through their reports and to each Assistant Commissioner as to the appropriate recording and usage of leave. This accountability forms part of each manager’s performance agreement, as it relates to the execution of their Human Resources authorities, and is part of each Assistant Commissioner’s accountability.

The Workplace Relations and Compensation Directorate (WRCD) in the Human Resources Branch (HRB) provides corporate advice relating to leave management and is further responsible for ensuring that appropriate administrative processes, procedures and controls are in place for the secure, accurate and timely application and administration of leave within the CRA.

Objective: The objective of this audit was to determine whether controls were in place and functioning as intended to allow for accurate and consistent administration of leave and adequate oversight of leave that supports management decision-making.

Conclusion: HRB has provided employees with the information and tools required to record the various types of leave. Daily administration of the rules that govern leave is functioning well; however, formal monitoring at a higher level requires increased attention.

To address this issue, the role of overseeing leave management at the senior level should be clarified to include the following: Agency-level risk assessments specific to the administration and management of leave; strategic review of approaches regarding the presentation of resource materials and training; and, tracking and reporting functional performance to ensure adherence to policies and procedures.

Action Plan: HRB agrees with the audit recommendations and have developed action plans to address the findings.

HRB will establish processes, procedures and guidelines to support the Agency Management Committee (AMC) in its strategic oversight role with respect to the overall administration and management of leave. This will include the development of a monitoring framework to review the usage of leave at the Agency, Branch and Regional levels and a mechanism to identify emerging trends and the assessment of potential risks.

HRB will also review the presentation of current leave-related resource materials available on InfoZone with the view of improving integration and accessibility.

Finally, HRB will re-examine managerial training to ensure that managers have access to appropriate training on the use of their leave accountabilities.

Introduction

The Workplace Relations and Compensation Directorate (WRCD) in the Human Resources Branch (HRB) has corporate responsibility for the establishment of appropriate administrative processes, procedures and controls for the secure, accurate and timely application and administration of leave within the Canada Revenue Agency (CRA). However, the responsibility for the administration of leave also involves all managers [Footnote 2] and employees, other directorates within HRB, the Finance and Administration (F&A) and Information Technology (IT) Branches. In accordance with the authorities delegated by the Commissioner of the CRA, the approval of leave is the responsibility of the employee’s manager.

The requirement to provide service and support to employees and their families in the area of compensation and benefits is included in the mandate of WRCD. There are 39 leave with pay absence types and 22 leave without pay absence types which are administered in accordance with the provisions set out in the respective Collective Agreements and Terms and Conditions of Employment.

Focus of the Audit

In the spring 2010, Corporate Audit and Evaluation Branch (CAEB) conducted preliminary audit research and interviews with various CRA personnel and management in order to determine the scope and focus of the planned audit. The Assignment Planning Memorandum was approved at the October 22, 2010 meeting of the Management Audit and Evaluation Committee.

The objective of this audit was to determine whether controls were in place and functioning as intended to allow for accurate and consistent administration of leave and adequate oversight of leave that supports management decision-making. This is the first national audit of leave management in the CRA.

Methodology

Extensive data analysis was conducted in order to identify anomalies in leave code usage (covering the fiscal years 2005-2006 to 2009-2010).

Online questionnaires were sent out to a representative number of CRA employees and managers in all regions including Headquarters. A total of 1300 employees and managers [Footnote 3] were randomly chosen to receive the questionnaires; 858 (65%) of the questionnaires were completed and returned.

Between October 2010 and March 2011, interviews were conducted in selected offices across all regions and in Headquarters. In total, 287 employees and managers were consulted in order to determine their understanding of how leave was administered and managed in the CRA.

The audit was conducted in accordance with the International Standards for the Professional Practice of Internal Auditing.

Findings, Recommendations and Action Plans

1.0 Accountability and Oversight

To effectively oversee leave, the CRA has an obligation to first establish clear accountabilities for the recording and approving of leave and then to create a mechanism to ensure that all employees are discharging their duties fairly and consistently.

1.1 Strategic Oversight

Controls need to be in place and functioning as intended for the CRA to perform adequate strategic oversight of all aspects of leave that supports management decisions, including the day-to-day recording and approving of leave, as well as higher level monitoring and reporting.

A review of information on the CRA InfoZone was conducted in order to determine how the CRA had addressed the oversight role regarding leave. Although there was no specific reference to leave management, the WRCD is identified as the corporate authority for labour relations. Section 6 of the Treasury Board (TB) Directive on Leave and Special Working Arrangements charges all organizations under their control to establish a strategic oversight function at the organizational level. While the CRA is not subject to the requirements of Section 6 of the TB directive, the Agency strives to respect the intent of the directive.

The Executive Compensation Policy and Services Division of HRB provides the Agency with some oversight over the use of executive leave. They conduct summary analyses of specific leave types for the purposes of establishing performance pay and to identify possible cost exposure to the CRA (i.e., pay-outs of accumulated vacation leave credits).

The responsibility for administering the day-to-day activities regarding leave rests with managers. They oversee the leave activities of their own teams and are expected to investigate any trends or anomalies that arise. However, there is little formal oversight beyond the team level.

No one area in the CRA has been given sole responsibility for overseeing leave management on behalf of the Agency.

A clearly established strategic oversight process is important to reduce the Agency’s exposure to undue risk. For example, trends identifying inappropriate leave usage may go undetected.

Recommendation

The CRA, with HRB as the office of primary interest, should establish clear direction for a strategic oversight role.

Action Plan

HRB will develop procedures and guidelines to formalize the process of strategic oversight of leave usage and present its proposal to the Agency Management Committee (AMC) for approval by April 1, 2012. Subject to AMC approval of appropriate procedures and processes, an action plan will be put in place to provide a first annual report on leave usage to AMC by November 2012.

1.2 Internal Controls for the Prevention and Detection of Fraud

Internal controls for the prevention and detection of fraud should be established and implemented to assist in the prevention of intentional or unintentional misuse of leave entitlements. Clear authorities and guidelines should be in place for the entering and approving of leave, to identify possible misuse and to provide appropriate steps to take if corrective measures are necessary.

In 2010, the Agency introduced an Internal Fraud Control Policy which established clear guidelines for identifying possible abuse and resulting corrective actions that managers should follow. The Discipline Policy and the Discipline Policy Guidelines present a logical approach to identifying, documenting and taking steps to correct misconduct which would include inappropriate use of leave.

The CRA also requires that all employees annually review and electronically sign off on the Code of Ethics and Conduct. This document specifically identifies the employees’ obligations as they relate to recording leave. The document also links to the disciplinary actions employees would be subject to for any potential wrongdoings.

The process for reporting and approving leave in Employee Self Service (ESS) and Manager Self Service (MSS) have controls to ensure that employees and managers are properly discharging their responsibilities. In addition, the Delegation of Human Resources Authorities clearly specifies the levels of management that are required in order to approve different leave entitlements.

During interviews, some managers stated that they were assigning alternates to approve employee time recording on their behalf. The designation of an alternate, referred to in MSS as Create Designate/Delegate, is an approved action in MSS. The guidelines state that it is intended to be a temporary assignment used only during periods of absence of the manager. Data analysis suggests that this is not the case. For the year 2009-2010, 52% of all CRA managers assigned alternates for extended periods of time. The data does not include the reasons behind the assigning of these alternates. Many of these may be attributed to legitimate long term absences; however, given the frequency of assigning alternates, this may be an indication that the guidelines are not fully understood.

With the exception of the assigning of alternates, no other weaknesses in the internal controls for the prevention and detection of fraud were noted.

Recommendation

HRB should review the MSS guidelines for Create Designate/Delegate, revise if necessary and communicate with managers on how and when to use this functionality.

Action Plan

HRB (Compensation Division of WRCD) will review the current guidelines for the Designate/Delegate function in MSS to determine if further remedial action is required to ensure that designates/delegates are appropriately assigned and periodically reviewed by the responsible delegated manager. A communication / information tool and revised user guidelines will be developed by the end of the 2011-2012 fiscal year.

1.3 Monitoring and Reporting

In order to ensure that leave is properly managed in the CRA, an adequate process must exist to track and report on emerging patterns and anomalies on an Agency, branch and regional level. This would include full data analysis across the Agency with comparisons at both the regional and national levels. Controls should be in place to support a robust approach to monitoring and reporting. Systems should capture sufficient and appropriate data to provide management with a clear understanding of leave usage in the CRA.

As previously stated, the process for tracking daily entries of leave is working well. Managers are tracking and monitoring their teams’ usage through MSS. They analyze individual usage of leave and perform summaries in order to identify any patterns that might indicate misuse. Reporting on total leave is primarily for budgetary and operational requirements.

Although the MSS has a reporting functionality to assist managers to perform different types of analysis of leave, comments from interviews and results from the online questionnaire indicate that not all managers are familiar with the various reports available from the MSS. Survey results show that only one in three managers use MSS reports and only 20% of those that use the functionality find it to be user friendly.

A formal/cyclical Agency-wide process for monitoring and reporting of leave would reduce the risk that the Agency may not properly identify, in a timely manner, possible areas of concern, such as trends that may indicate problems in specific parts of the Agency.

Recommendation

HRB should establish and implement a monitoring framework on the usage of leave on an Agency, Branch and Regional basis to facilitate timely identification of emerging trends and patterns.

HRB should review the MSS reporting functionality as it relates to tracking and monitoring leave and communicate to managers on the use of this functionality.

Action Plan

The HRB, through Workplace Relations and Compensation Directorate (WRCD) and Executive Personnel Programs Directorate (EPPD) will develop procedures, processes and guidelines to assist all Assistant Commissioners (AC) to identify any concerns or trends in leave usage. Any identified issues and trends will be reported to HRB for further analysis and form part of an overall annual report on leave usage. The first report will be presented to AMC by November 2012.

HRB (Compensation Division of WRCD), will develop an information tool and user guide for managers to better assist them on the use of MSS to track and monitor the use of employee leave. The information tool and user guide will be developed and implemented by the end of the 2011-2012 fiscal year.

2.0 Administration of Leave

Controls for the administration of leave include clear goals and objectives; roles and responsibilities for all stakeholders; training and support; and continuous risk analysis.

2.1 Goals and Objectives

The overall goal for administering leave in the CRA is to allow the Agency to carry out its functions while respecting the Collective Agreements and the Terms and Conditions of Employment and by offering employees the best possible work-life balance.

Controls are in place to support the achievement of the overall goal. Guidelines for administering leave are included in manager’s performance agreements. Comments from interviews confirmed that managers are fully aware of the need to respect the leave entitlements and facilitate a work-life balance to employees while maintaining operations and respecting the collective agreements and terms and conditions of employment.

2.2 Roles and Responsibilities

Responsibility for the administration of leave rests with the employees to record their time away from work and with managers to approve the various leave entitlements. Managers must understand the rules and take ownership for enforcing them fairly and consistently. It is equally as important that employees have an awareness of the various leave codes and entitlements and that they report their time accurately.

Interview and online questionnaire results indicate that employees and managers understand their roles regarding the administration of leave in the CRA.

2.3 Policies and Procedures

The policies and procedures that govern and support the administration of leave are in place. They are based on the entitlements established through collective bargaining that form the basis for the Collective Agreements and Terms and Conditions of Employment.

2.4 Capacity (Training, Guidance and Resources)

For employees and managers to have a clear understanding of leave, all resources that provide guidance must be available, accessible and adequate. This includes levels of support and a formal process for identifying and delivering training requirements.

A review of the material available on the InfoZone indicates that sufficient leave information is available to guide managers in their research. However, the information is not centralized for easy access and as a result can be very difficult to find.

In the area of guidance and resources, HRB has initiated efforts to establish appropriate controls to respond to concerns over the application of leave entitlements. Responses from the online questionnaires confirmed that the majority of employees and managers know where to go for guidance and consider the assistance they receive to be useful and adequate. However, during interviews, more than half of all managers indicated that they would like to have more real life examples on how to interpret the more complex leave situations. Although they acknowledge that each employees’ situation may be slightly different and require a unique decision, these examples would assist them in approving or denying leave requests.

Several training products for managers have been created with direct references to leave. On October 27, 2010, an Agency-wide communiqué announced a new online tool entitled Manager Onboarding to assist in training new managers. The tool contains a section related to leave, Employee Entitlements and Leave Application. A review of this section confirmed that it covers the basic elements on the application of leave.

However, a more structured approach to training managers on leave related issues was not evident. Interviews and results from the online questionnaire identified two particular concerns, including the availability and wait time for training. The Management Learning Program (MGLP) contains a specific segment on leave. Managers in permanent positions are often given a higher priority over those in acting assignments for MGLP training. In addition, the lack of available seating may cause delays of up to eighteen months.

Over one half (52%) of managers surveyed in the online questionnaire indicated that they have not received any formal training on leave. Formal training for managers would ensure consistent application of the rules for managing leave.

Recommendations

HRB should review the leave related information available on InfoZone and consider centralizing the information to facilitate accessibility.

HRB should undertake a training needs analysis for new and existing managers as it relates to leave. The strategy should include a formal training schedule to ensure that courses and tools for the administration and management of leave support informed and consistent decision-making.

Action Plan

HRB will create a working group to review leave related information available on InfoZone in order to consider an approach to consolidate and centralize the information. Recommendations will be provided to the AC of HRB by the end of the fiscal year 2011-2012. The working group will also look at ways to improve accessibility. HRB will consider the options and implement action plans during the 2012-2013 fiscal year.

As part of the current MGLP, “leave” is included in the unit on Labour Relations. As part of the current MGLP review, compensation (including leave) was identified as an area where additional managerial training is required. Over the coming months, a needs analysis will be conducted in conjunction with other areas within HRB to determine the scope and extent of managerial training required. The needs analysis will be completed by the end of fiscal 2011-2012. An action plan will be developed to further integrate and enhance leave training requirements as part of the Agency’s management training and development program during the course of the 2012-2013 fiscal year.

2.5 System Controls

System controls are one of the key methods for ensuring that entries are made within established guidelines. Where feasible, the controls should restrict entries based on predetermined limitations or quotas.

In 2005 MSS and ESS were implemented, automating the capture of leave and time-recording data.

Leave is entered by employees into ESS and approved by managers in MSS. Controls should be in place to restrict the entry of leave based on the quotas or entitlements as set forth in the Collective Agreements, Terms and Conditions of Employment or for leave codes that are based on directives that are outside of the agreements (e.g. medical/dental appointments).

Audit tests and data analysis confirmed that the controls are in place and functioning as intended. The systems for capturing and approving leave are linked, where possible, to the leave code entitlements as established in the various agreements or directives.

For leave codes that are not subject to limitations, managers perform regular reviews of leave entries to mitigate any possible misuse. In addition, they are analyzing trends throughout the year to identify possible areas of concern and to take appropriate action.

2.6 Risk Management

The Enterprise Risk Management Branch (ERMB) offers guidance towards a holistic approach for identifying and managing risk. Risk management allows an organization to be proactive in responding to issues by providing relevant information that supports effective decision making. The CRA has made a commitment through its ERM policy to adopt this approach at the strategic, corporate, operational, program and project levels. As a result, all branches, including HRB, are expected to effectively manage their exposure to risk, including those risks associated with lost opportunities.

Comments from interviews indicated that risk management techniques are applied on a day-to-day basis by managers at the operational level. Managers review daily attendance records to identify potential trends in leave usage. While this may help to mitigate the risk of future occurrences, there is no formal connection to managing such risks at the national or regional levels.

Summary assessments of leave usage are completed for each round of contract negotiations primarily to support changes to collective agreements, not as a formal approach to managing risk on an enterprise level. A formal risk assessment specific to the administration and management of leave across the CRA would contribute to better productivity.

Recommendation

HRB should complete an Agency-wide risk assessment specific to the administration and management of leave to ensure risks are identified, analyzed, addressed through action plans and monitored.

Action Plan

As part of the processes and procedures to be established for an oversight and monitoring/reporting framework (reference Sections 1.1 and 1.3), each Branch and Region will be provided information and data on leave usage within their areas of responsibility and requested to review the data with the view to identifying any potential areas of risk associated with the management of leave within their area of jurisdiction. Identified areas of risk will be reported to HRB for further analysis.

HRB will then perform an overall risk assessment to identify, analyze and address any potential Agency wide risks associated with the management of leave by the end of fiscal 2012-2013.

Conclusion

HRB has provided employees with the information and tools required to record the various types of leave. Daily administration of the rules that govern leave is functioning well; however, formal monitoring at a higher level requires increased attention.

To address this issue, the role of overseeing leave management at the senior level should be clarified to include the following: Agency-level risk assessments specific to the administration and management of leave; strategic review of approaches regarding the presentation of resource materials and training; and, tracking and reporting functional performance to ensure adherence to policies and procedures.


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