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2. Internal Audits

Regional Operations Audit

Approved February 7, 2008

Table of Contents

• Executive Summary
  • Context
  • Rationale
  • Objectives
  • Conclusion
• 1. Introduction
• 2. Background
• 3. Risks
• 4. Objectives
• 5. Scope
• 6. Statement of assurance
• 7. Methodology
• 8.0 Observations and recommendations
  • Preliminary survey observations
  • Examination observations - Security
  • Asset management
  • Finance
  • Cost recovery
  • Performance reporting
  • Service standards
• Conclusion
• Annexes
  • A. Audit Criteria - Regional Operations Audit
  • B. Glossary

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Executive Summary

Context

The regional offices of the Public Service Commission (PSC) are the front line of service delivery and the face of the PSC to the public and other government departments and agencies. The PSC has seven regional offices across Canada, mainly composed of Staffing and Assessment Services Branch (SASB) staff. They are collectively responsible for delivering programs and services to federal departments, agencies and employees as well as to members of the Canadian public and providing select oversight functions. The regional offices have approximately 300 employees.

Rationale

An audit of the regional offices has not been conducted in the last eight years. During this time, the regional presence has been reduced and the type of work conducted has been changing to reflect new legislation and business processes, including more revenue-dependency. This combination of challenges increases the need for reliable, responsive management processes.

Objectives

To assess the adequacy of the controls used for managing regional operations and the processes used in their implementation in the field, with respect to planning, reporting, organization, monitoring and compliance to branch and corporate policy and directives.

Conclusion

Overall, regional management procedures and controls were operating at a satisfactorily level, although in some areas they required attention. Administrative functions were generally adequately run, but with some inconsistency or localized weaknesses. More attention is particularly required concerning processes and procedures for asset management and cost recovery. As well, requirements for performance and service standards reporting need to be better established and used. It will be necessary for SASB to lead the strengthening of processes and procedures for regional operations, in conjunction with the Finance and Administration Directorate's expertise.

Management has given due consideration to the observations from this audit and has provided sound action plans to address each of the audit recommendations.

1. Introduction

In May 2007, the Internal Audit Committee (IAC) of the Public Service Commission (PSC) approved the Regional Operations Audit as part of the Internal Audit Plan for the fiscal year 2007-2008. The planning phase for this audit commenced in June 2007. Examinations were completed in January 2008.

2. Background

The PSC has seven regional offices, mainly composed of Staffing and Assessment Services Branch (SASB) staff. They are collectively responsible for delivering programs and services to federal departments, agencies and employees as well as to members of the Canadian public, and providing select oversight functions. The regional offices are: National Capital and Eastern Ontario (Ottawa); Toronto; Quebec (Montréal); Atlantic (Halifax); Central Prairies and Nunavut (Winnipeg); British Columbia and Yukon (Vancouver); Alberta and Northwest Territories (Edmonton), with approximately 300 employees for all regions.

These offices, and the services and programs delivered through them, provide the Canadian public with full access to public service employment opportunities. The PSC's Regional Directors General (RDG) are responsible for adapting the PSC's programs and services to specific regional needs. The reorganization of each regional office over the last several years allows for more efficient and effective delivery of PSC's products and services. The co-location of the oversight function and services branches brings in additional complexity. The offices differ from each other in terms of the lines of business conducted from each. The last audit of regional operations was conducted almost eight years ago and had a limited scope.

SASB services cover the delivery of staffing and assessment processes. The services offered by the regional offices include, but are not limited to: general recruitment to the public service of Canada, post-secondary recruitment, Federal Student Work Experience Program, various assessment services and second language evaluation (SLE). A Transformation Team was initiated in the branch as a result of a planned redesign and expansion of services to be provided in the regions.

Investigators provide an oversight function and help the PSC monitor the staffing system and the non-partisanship of the public service. They are located in the Halifax, Toronto, Winnipeg, Edmonton and Montréal offices. They can amend an appointment, decide not to appoint a candidate or take any corrective action if there was an error, an omission, fraud, improper conduct or involvement in political activities during an appointment process.

Regional Policy Branch employees provide an oversight function. Strategic Consultants in the regions (located in Halifax, Montréal, Winnipeg, and Edmonton) perform oversight functions by providing staffing advice to organizations, developing and presenting SmartShops and managing delegation instruments. More recently, the Strategic Consultants have also adopted oversight responsibilities for analyzing the requests of public servants who seek permission from the PSC to be candidates in federal, provincial, territorial and municipal elections. The Priority Administration Officers in the regions (located in Halifax, Montréal, Toronto, Edmonton, and Vancouver) develop operational policies and guidelines, deliver training, provide advice, ensure that all eligible persons are registered into a priority inventory and refer priority persons to positions for which they are potentially qualified. These activities contribute to the PSC's oversight mandate by ensuring that persons' statutory and regulatory priority entitlements are respected.

3. Risks

Regional administration operations have been challenged over the past few years. Of note, the reorganization of SASB regions led to closure of smaller offices and realignment of functions. As well, financial management is one area of inherent risk, due to the distance of most offices from Headquarters (HQ) and their inability to justify extensive financial expertise. Concerns had also been raised by PSC's management in other administrative matters, including human resources (HR), security and asset management. Performance management is also becoming more important, particularly because of increasing revenue-dependency in SASB.

Regional operations were identified as an audit priority during the annual IA planning phase. Operations were rated high in risk for most of the risk-rating criteria. SASB management was also concerned as this area had not been looked at in quite some time.

4. Objectives

The objective of this audit was to assess the adequacy of the controls used for managing regional operations and the processes used in their implementation in the field with respect to planning, reporting, organization, monitoring and compliance with branch and corporate policy and directives. (Detailed criteria are shown in Annex A.)

5. Scope

The audit spanned the period 2006-2007 and 2007-2008. This audit covered the management of regional operations and specifically tested the operations of PSC's regional offices of the National Capital and Eastern Ontario Region (NCEOR), Quebec Region, Atlantic Region and Alberta and Northwest Territories Region under the new Public Service Employment Act. Information and samples were gathered from both HQ and regional offices. Both program delivery and administrative operations were covered in the audit work. However, this audit did not look at matters relating to program mandate or design, SLE operations, governance or centralization/decentralization decisions.

6. Statement of assurance

The internal audit was conducted in accordance with the PSC standards, based on Institute of Internal Auditors' standards and Treasury Board (TB) policy. This unit is working towards full compliance with all applicable standards. We have examined sufficient evidence and collected information necessary to arrive at the conclusions made. In some cases, the evidence sought was not available, resulting in an observation to this effect.

7. Methodology

The audit was conducted under standard internal audit processes. Methodologies included: interviews with management and staff; walk-through of the premises; reviews and analysis of documents, including systems-generated reports and financial data; and testing of transactions and records.

The PSC standard audit process includes three principal phases:

• the preliminary survey phase;
• the detailed examination phase; and
• the reporting phase.

During the preliminary survey phase, the Internal Audit Directorate (IAD) examined existing procedures and reports. Preliminary survey objectives were determined through document analysis, along with interviews of key management and operational staff, including branch executives and functional specialists of the Finance and Administration Directorate (FAD). The IAD then carried out limited testing, including at the NCEOR and Quebec regional offices.

At the completion of the preliminary survey phase, the IAD decided to proceed with the detailed examination phase using certain criteria. This was based primarily on the assessment of the adequacy of the control frameworks and whether control effectiveness needed to be examined further. Potential issues for further examination were identified. The audit was completed using IAD internal resources.

All deliverables were reviewed and signed off by the Director, Internal Audit. Briefings and validations of observations were ongoing during the course of the audit with the various Vice-Presidents and/or their representatives as part of the audit process.

8.0 Observations and recommendations

Preliminary survey observations

The preliminary survey review was done in the NCEOR and the Quebec offices. It indicated areas where controls were assessed and areas where further work would be needed. Generally sound controls were found for budget control over salaries, Memoranda of Understanding (MOU) with other departments and agencies, and telecommunication and video conferencing equipment usage. Further audit work, however, was needed primarily in security, asset management, budgeting and financial processes, cost recovery, performance reporting and service standard monitoring.

Examination observations - Security

The security environment of the regional offices was reviewed for compliance to PSC and government-wide security standards.

The review of the PSC's regional offices sampled demonstrated that these locations have generally well-established and reliable security systems. The access to the offices sampled was restricted by physical location (not on ground floor) and supplementary means, such as building security guards, locks or electronic cards. Expensive equipment, such as servers and video conference monitors, were secured. Security sweeps of regional offices were done once this past year by HQ personnel. As well, some regions conduct their own security sweeps at various intervals. This is a good practice because it reinforces security awareness and practices, especially for new staff. The auditors did not find any protected documentation left unattended in areas accessible to all employees.

A security clearance confirmation for new employees was received prior to issuing the letter of offer. Specifically, a review of 10 staffing files for recently hired employees revealed nine had security clearance approval before the starting date. One file was not assessed as the security clearance information was unavailable. In one region, unlike the others, the Security Officer was not the only individual who was initiating security verification by headquarters on individuals prior to hiring. The Financial Accounting Officers (FAO) indicated this function was performed by others, but was unsure who they were. The inconsistencies noted at the two offices indicated some lack of awareness about security clearance processes.

Overall, the regions had most of the elements of a good security environment in place.

1. Recommendation

SASB's Integrated Services Directorate (ISD) should ensure a standardized process is utilized on key security measures, such as security sweeps, including in those regions not visited during this audit.

Asset management

A review of PSC's assets was conducted to assess if they were properly secured, accounted for and safeguarded against theft or accidental loss.

Interviews with RDGs on potential or known problems with assets indicated that the RDGs relied mainly on support staff for this function. PSC equipment is inventoried through a tracking system, and information is forwarded to HQ for inventory listing adjustments. Due to time constraints, reporting of surpluses and deficiencies, stocktaking and listing adjustment did not always receive the attention needed to keep lists fully reliable.

The audit found that the PSC's inventory management processes were not uniformly adhered to regarding both inventory levels and records. Asset management assigned to inventory account holders through inventory material lists are in place with the respective individual accountability for assets held by their region. It was noted that some loan agreements for equipment issued to employees were not properly maintained or recorded in the system (Form Selector) for automated monitoring and approval. In addition, some individuals had simultaneous control access to the ordering, receiving and the inventory for information technology (IT) equipment. The FAD confirms physical inventory on a three-to-four year cycle, but does occasionally remind custodians of the need to be informed of inventory adjustments.

A verification of recorded inventory items to actual holdings revealed surpluses and deficiencies as inventory was only updated periodically. Of the 125 items tested in four offices, it was noted that during fieldwork:

• Twelve items (aside from phones and Blackberries) were on loan to individuals but without a loan agreement;
• Six were surplus, but still on central inventory; and
• Nine were not found.

The problems found were localized office practices (e.g. non-use of loan agreements) and may be attributed to recent changes in staff and office consolidations. However, all offices had at least one type of inventory error.

Of particular interest was a recent purchase of IT equipment (Cisco switches). These items were put on the NCEOR's office inventory, but could not be located by regional staff. HQ staff later located them. A cursory cross-reference to the PSC Master Asset List could only locate one of these routers, which varied in price from approximately $3,100 to $5,500, but were all inventoried on regional listings at $4,950, as indicated values. However, one of the items valued above $5,000 (capital threshold) could be identified on the HQ depreciable asset list at a different value. This practice presented a problem in verifying inventory.

In summary, regional offices were maintaining inventory records, but the level of errors in these records indicated further attention is needed.

2. Recommendation

It is recommended SASB ISD, with FAD assistance, should ensure that standard basic processes in place for asset management are understood, complied with and monitored, e.g. surplusing obsolete equipment, maintaining accurate and complete records, division of duties and monitoring for adherence.

Finance

The audit examined budgeting and financial inputs to determine if they were made correctly and in a timely manner.

One of the tools used in the budgetary function is the Salary Management System (SMS). The SMS is a management tool that helps monitoring, controlling, accounting for and forecasting staff-related costs. It is designed to provide forecast and budget variance information for the current year, thereby facilitating analysis and decision-making.

Fieldwork showed that the SMS is being updated monthly and that reports for individual branches are being reviewed at HQ on a regular basis. A vacancy management undertaking was implemented by the Vice-President SASB, requiring regions to obtain HQ approval prior to staffing any positions. Thus, the turnover of staff in the regions is not particularly high, thereby not demanding a great deal of work to maintain the information. However, monthly detailed reports are bulky and difficult to read. To make the SMS information better suited for managerial purposes, two regional offices developed their own summary spreadsheet which showed all the employees on the payroll, their to-date payment levels, and projected expenditures to the end of financial year. This was a good practice, which might be helpful elsewhere as well.

Examination of 88 budgetary expenditures in the regions revealed that controls were generally good, with the exception of standardization in maintaining documentation. Whereas most regions maintained back-up copies of documentation concerning payments, one region, for example, did not maintain copies at all, having noticed that the expenditure had been processed by HQ. The lack of temporary backup information means a region would face multiple problems should records be lost in transit or local staff need to refer to the information.

Testing of contract transactions indicated that most offices were adhering to the requirement of entering a contract before start of work. However, one region was contracting for services without a contract first in place; small contracts were raised after the fact, contrary to contracting rules, in the belief that this was acceptable.

In addition, regional FAOs are tasked with the majority of administrative tasks (asset management, SMS, contracting, security, budgeting, etc). In some cases there is no individual to replace the FAOs should they be absent. The lack of back-up presents risks to the organization, and also puts pressure on the incumbent.

Overall, the finance and contracting operations were functioning adequately, although some weak practices were noted in some locales. This we attribute to lack of knowledge.

3. Recommendation

It is recommended that SASB's ISD, with FAD assistance ensure:

1. financial accounting records maintenance requirements are specified and understood;
2. contracting officers are knowledgeable on raising of contracts, including when after-the-fact contracting is allowed; and
3. training requirements are identified and how these will be met for newly appointed FAOs, or those whose duties have been altered.

Cost recovery

The auditors examined cost recovery processes for revenues earned by regions to determine if they were accurately tracked by a reliable, consistent process and could be compared to sales forecasting.

The use of cost recovery at the PSC will be growing in the near future, making SASB much more revenue dependent. Cost recovery at present is only authorized to be used for certain assessment work by the Personnel Psychology Centre (PPC). The PPC presently has a pricing chart, with template MOUs to be used when confirming business dealings with user departments and agencies. For this audit, only two of the regions visited had cost recovery operations, with differences between them in processing recoveries noted.

Current cost recovery practices support only a minimum level of billing, and with low levels of completeness and reliability controls. The budgeting process isn't well understood by the participants. Auditors heard conflicting opinions on how often the budget information should be submitted to HQ. Also, forecasting revenues is hampered by the lack of a historical base to build upon (for example, no historical data is kept in one region by psychologists). As a result, when there is little activity during part of the year, the psychologists do not submit any forecasts to HQ. At other times volume picks up, which stretches resources to keep up with the demand. Without forecasting of revenue at the local level, the Branch cannot reliably predict whether its market demand forecast remains unchanged. This makes cash management difficult. Another concern was the completeness of the information requested by HQ. Auditors received information that in the past some potential business was turned down because of insufficient resources, but no information on lost clients was kept and HQ was only informed "verbally". As well, activity logs for the psychologists are not necessarily available, so completeness of billings cannot readily be verified.

The SASB has not yet established cost recovery processes which are well communicated, understood and supported by systems. During discussions with the RDGs, their support staff and HQ staff on the current and upcoming implementation of cost recovery for SASB, it was noted that there was very little (if any) documentation to support business plans or processes on how new billing will roll out. The audit team requested either completed or draft documents for such things as processes to be used, monitoring, follow-up, implementation timelines, etc., but none were received. Cost recovery is going to be key not only for the success of SASB, but to the PSC as a whole, and the capacity of SASB to ramp up this activity in an efficient and effective manner is not yet established.

4. Recommendation

The SASB Director of Financial Management, with FAD assistance, should ensure that documentation and processes required for the cost recovery function are complete, communicated to users of the process and training provided, where necessary.

Performance reporting

The audit examined the availability and use of performance reporting at the regional offices and HQ for monitoring activity and managing workloads.

Regional offices for SASB prepare some performance reports and submit limited information to HQ. Some volume or activity reports existed before (for example, the number of SLE tests), and some were recently initiated (for example, reporting on outreach activities), but none are tied to a global report summarizing all activities. The various regions each view performance reporting differently, with some collecting their own statistics such as reception activities, and others not collecting any. Data on overall volumes is available through the databases, e.g. the Public Service Resourcing System (PSRS), and then disseminated to regions by HQ.

RDGs are aware of the lack of performance reporting for services. There is no requirement from HQ to submit reports, although the Vice-President expected regional offices to maintain such reports. HQ does not have a defined performance reporting structure yet, although there is activity in SASB to address this situation. HQ has provided neither software tools nor templates for collecting data on specific performance indicators. The auditors saw examples of good reports prepared by regions, and those could serve as models for others. At present, performance measurement is only available through various sub-systems such as PSRS, Internet hits, and financial systems, and through informal discussions between regional offices. The overall gaps in management reporting reduce management's ability to optimize workloads and manage performance.

The auditors noted that Investigations Branch maintains a centralized control process over regional work and compiles data on performance per investigation. For Policy Branch, all regional employees were required to update a national "dashboard" performance report for monthly reporting on their regional activities.

5. Recommendation

SASB should identify performance indicators that RDGs and HQ need to manage operations, in consultation with regional staff, and ensure necessary reporting processes are put in place.

Service standards

The audit reviewed whether service standard definitions and targets were in place and being monitored.

There are national service standards. However, there is considerable variability between regions in terms of what service standards are set and monitored. Overall there is little measurement. For example, one region has no measures as it is waiting for HQ to set new standards once new services are offered. Another region posts some service standards on a plasma screen at the reception area (this is a good practice). It also prepares some service reports for regional use, e.g. on reception. Another region will set specific standards in agreement with other departments and agencies, but otherwise no general standards are used. Regions attribute this variability to lack of uniform national expectations.

6. Recommendation

SASB should determine service standards, in consultation with regional staff, which can be used both for client communication and performance management.

Conclusion

Overall, regional management procedures and controls were operating at a satisfactory level, although in some areas they required attention. Administrative functions were generally adequately run, but with some inconsistency or localized weaknesses. More attention is required, particularly concerning processes and procedures for asset management and cost recovery. As well, requirements for performance and service standards reporting need to be better established and used. It will be necessary for SASB to lead the strengthening of processes and procedures for regional operations, in conjunction with FAD's expertise.

Management has given due consideration to the observations from this audit and has provided sound action plans to address each of the audit recommendations.

Annexes

Annex A   Audit Criteria - Regional Operations Audit

The audit examination consisted of the following Control Objectives and Criteria:

Control Objective 1: Security of regional offices complies with PSC and government-wide security standards. This includes the following:

• authorized entry;
• protection of equipment and information; and
• equipment loans

Control Objective 2: Assets are properly secured, accounted for and safeguarded, with good controls specifically for:

• inventory listing accuracy; and
• inventory monitoring.

Control Objective 3: Budgets and financial inputs are made correctly and in a timely manner, and Financial Accounting Officers (FAO) can always be replaced by a back up person. This includes a review of the following:

• Salary Management System (SMS) inputs are timely and accurate;
• authorized and timely transactions; and
• support individuals have been delegated.

Control Objective 4: Cost recovery revenues received by regional offices are accurately tracked by a reliable, consistent process and can be compared to their sales forecasting. This includes controls for:

• completeness of billing;
• accuracy;
• compliance to MOUs; and
• monitored against forecasts.

Control Objective 5: Performance reporting at the level of regional offices and HQ is available for monitoring activity and managing workloads. This includes the following:

• tools to gather workload information (actual and projected);
• processes for monitoring workload distribution; and
• processes to adjust workloads.

Control Objective 6: Service standard data are being captured and used for management purposes, including:

• service standards for key areas exist;
• tracking systems are in place; and
• reporting and monitoring is timely and accurate.

Annex B   Glossary

• FAD - Finance and Administration Directorate
• FAO - Financial Accounting Officer
• HQ - Headquarters
• HR - Human Resources
• IAC - Internal Audit Committee
• IAD - Internal Audit Directorate
• ISD - Integrated Services Directorate
• MOU - Memorandum of Understanding
• NCEOR - National Capital and Eastern Ontario Region
• OPI - Office of Principal (or Primary) Interest
• PPC - Personnel Psychology Center
• PSC - Public Service Commission
• PSEA - Public Service Employment Act
• PSRS - Public Service Resourcing System
• RDG - Regional Director General
• SASB - Staffing and Assessment Services Branch
• SLE - Second Language Evaluation
• SMS - Salary Management System
• TB - Treasury Board

The PSC SmartShops are workshops aimed at HR professionals who are required to provide advice and guidance to hiring managers, particularly with regard to the PSEA.

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Date Modified:

2008-03-04