INTERNAL AUDIT REPORT

Transcription

1 LIMITED OPERATIONAL AUDIT ISSUE DATE: MAY 20, 2014 REPORT NO

2 TABLE OF CONTENTS Transmittal letter... 3 Executive Summary... 4 Backgrund... 5 Financial Highlights... 6 Audit Scpe and Methdlgy... 6 Cnclusin... 7 Schedule Of Findings And Recmmendatins MORE FORMALIZED COMMUNICATIONS AND COORDINATION EFFORTS ARE REQUIRED AMONG PORT DEPARTMENTS IN ORDER TO SUCCESSFULLY IMPLEMENT LABOR AGREEMENTS. 2 f 11

3 TRANSMITTAL LETTER Audit Cmmittee Prt f Seattle Seattle, Washingtn We have cmpleted an audit f Fire and Plice Departments Pay and Benefits Administratin. We reviewed infrmatin relating t the perid frm January 1, 2012 August 31, We cnducted the audit in accrdance with Generally Accepted Gvernment Auditing Standards and the Internatinal Standards fr the Prfessinal Practice f Internal Auditing. Thse standards require that we plan and perfrm the audit t btain sufficient, apprpriate evidence t prvide a reasnable basis fr ur findings and cnclusins based n ur audit bjectives. We believe that the evidence btained prvides a reasnable basis fr ur findings and cnclusins based n ur audit bjectives. We extend ur appreciatin t the Prt management and staff f the Fire & Plice Departments, as well as Accunting & Financial Reprting (AFR), Human Resurces & Develpment, and Labr Relatins, fr their assistance and cperatin during the audit. Jyce Kirangi, CPA, CGMA Directr, Internal Audit AUDIT TEAM Brian Nancekivell, Senir Auditr Jack Hutchinsn, Audit Manager RESPONSIBLE MANAGEMENT TEAM Dan Thmas, Chief Financial and Administrative Officer Wendy Reiter, Directr Aviatin Security and Emergency Preparedness 3 f 11

4 Audit Scpe and Objectives AUDIT SCOPE AND OBJECTIVES EXECUTIVE SUMMARY The purpse f the audit was t determine whether Fire and Plice management has implemented adequate cntrls t ensure: 1. Actual pay and benefits meet the terms f the unin agreements and applicable state laws and regulatins. 2. Payrll recrds at Fire and Plice Departments are accurate and cmplete. The scpe f ur audit cvered the perid frm January 1, August 31, We audited nly represented emplyees. Backgrund BACKGROUND The audit fcused n the Fire and Plice Departments Pay and Benefits Administratin. Hwever, ther Prt departments -- Labr Relatins, Human Resurces, and Payrll -- have an impact n the verall pay and benefits administratin prcesses, because they prvide infrmatin and/r input emplyee infrmatin int the PepleSft Human Capital Management (HCM) system. The Prt s Plice Department prvides law enfrcement and crime preventin services t bth the airprt and seaprt facilities. Its 131 emplyees are almst all represented by the Teamsters Lcal Unin #117 under 6 labr agreements. The Prt s Fire Department prvides aircraft rescue firefighting and emergency services at the airprt. Mst f its 73 emplyees are represented by the Firefighters Lcal Unin #1257. Pay and benefits are the mst significant expense fr bth departments. Per the labr agreements, unin emplyees are entitled t numerus pay rates and benefits based n their duties, shifts, specialties, vertime, lngevity, educatin, etc. These prvisins present significant cmplexity in the pay and benefits administratin prcesses, as cmpared t salaried, nn-represented Prt emplyees. Audit Result Summary AUDIT RESULT SUMMARY Fire and Plice Departments have implemented adequate cntrls t ensure their actual pay and benefits are reasnably accurate and cmplete. Hwever, the management f ther Prt departments invlved in pay and benefits administratin prcesses has nt designed r implemented adequate inter-department cmmunicatin cntrls, t ensure that actual pay and benefits administratin prcesses fully meet the terms f the unin agreements. Althugh the knwn errrs/versights have nt been financially significant, there have been numerus errrs and missins that have impacted a number f emplyees ver prlnged perids, as discussed in Finding 1. 4 f 11

5 Backgrund BACKGROUND The audit fcused n the Fire and Plice Departments Pay and Benefits Administratin. Hwever, ther Prt departments -- Labr Relatins, Human Resurces, and Payrll -- have an impact n the verall pay and benefits administratin prcesses, because they prvide infrmatin and/r input emplyee data int the PepleSft Human Capital Management (HCM) system. The Prt s Plice Department prvides law enfrcement and crime preventin services t bth the airprt and seaprt facilities. Its 131 emplyees are almst all represented by the Teamsters Lcal Unin #117, under 6 labr agreements by the type f psitin. The Prt s Fire Department prvides aircraft rescue firefighting and emergency services at the airprt. Mst f its 73 emplyees are represented by the Firefighters Lcal Unin #1257. Pay and benefits are the mst significant expense fr bth departments. Per the agreements, unin emplyees are entitled t numerus pay rates and benefits, based n their duties, shifts, specialties, vertime, lngevity, educatin, etc. These prvisins present significant cmplexity in the payrll prcess as cmpared t salaried, nn-represented Prt emplyees. Bth departments use a cmmercial sftware applicatin, TeleStaff, t schedule emplyee time. Actual emplyee time is recrded bi-weekly int a PepleSft mdule, Human Capital Management (HCM), fr prcessing and cmpensatin. As stated, multiple Prt departments are invlved in verall pay and benefits administratin, as fllws: Labr Relatins negtiates labr agreements and manages unin relatinships. Fire and Plice Departments input emplyee hurs and details f duty assignments. Human Resurces and Develpment (HRD) inputs emplyee infrmatin, the varius pay rates applicable t a grup f emplyees, and sme f the deductin rates. HRD als prcesses payments fr emplyer-prvided benefits. Accunting and Financial Reprting (AFR) inputs pay amunts specific t an individual and sme f the deductin rates fr calculating any retractive pay changes. AFR als prcesses the bi-weekly payrll. Infrmatin & Cmmunicatins Technlgy (ICT) maintains the PepleSft Human Capital Management mdule, perfrming rutine maintenance and facilitating sftware updates. 5 f 11

6 Financial FINANCIAL Highlights HIGHLIGHTS PORT FIRE AND POLICE SALARIES, WAGES, AND BENEFITS FIRE DEPARTMENT Actual Salaries, Wages, and Benefits $11.8 M Ttal Represented Emplyees (Lcal 1257) Fire Fighters 67 Ttal Emplyees* POLICE DEPARTMENT Actual Salaries, Wages, and Benefits $20.1 M Represented Emplyees (Lcal 117)** Officers 76 Sergeants 16 Dispatch 16 Cmmunicatin Specialist 8 Nn-Swrn Supervisrs 3 Cmmanders 5 TOTAL REPRESENTED 124 Ttal Emplyees* Data Surce: PepleSft Financials Data Nte: *As f December 31, 2012 **Each labr grup has a separate agreement under Lcal 117 Audit AUDIT Scpe SCOPE and AND Methdlgy METHODOLOGY We reviewed infrmatin fr the perid frm January 1, August 31, We utilized a risk-based audit apprach frm planning t testing. We gathered infrmatin thrugh dcument reviews, interviews, bservatins, and analytical prcedures, in rder t btain a cmplete understanding f peratins related t the Fire and Plice Departments Pay and Benefits Administratin. We assessed significant risks and identified cntrls t mitigate thse risks. We evaluated whether the cntrls were functining as intended. We applied additinal detailed audit prcedures t areas with the highest likelihd f significant negative impact as fllws: 1. T determine whether management implemented adequate cntrls t ensure that actual pay and benefits administratin prcesses meet the terms f the unin agreements and applicable state laws and regulatins. Due t the nature f the unin agreements, cmpliance effrts invlve a number f Prt departments -- Labr Relatins, Human Resurces, and AFR Payrll -- which have an impact n the verall pay and benefits administratin prcesses fr Fire and Plice. These departments are cllectively referred t as ther departments in the prcedure descriptins. The Plice and Fire Departments are referred t as perating departments. 6 f 11

7 We reviewed all unin agreements in detail t identify pay and benefit types and any terms and cnditins that culd be subject t interpretatin. We reviewed applicable prcesses in the perating departments, as well as prcesses in ther departments, specific t the perating departments pay and benefit administratin prcesses (e.g., calculatin and prcessing f retractive pay). We analyzed errrs/issues previusly identified by management in ther departments fr cmplete and timely prcessing. We tested a risk-based sample (based n an analysis f the pay cdes, in rder t sample as many pay types as pssible) f 20 firefighters and 30 plice fficers fr 3 pay perids, t determine whether: Base pay rates, psitins, and eligibility fr varius pay premiums were accurate. Reprted hurs agreed t scheduled hurs. Premium rates were accurate and agreed t re-calculated applicable pay. Emplyee deductins fr medical, unin, and ptinal legal fund dues were accurate. Prcesses fr calculating and paying emplyer cntributins fr emplyee benefit plans were adequate and cntributins were accurate. 2. T determine whether management implemented adequate cntrls t ensure that the pay and benefits administratin recrds at Fire & Plice were accurate and cmplete. We bserved and perfrmed walkthrughs f a cmplete departmental bi-weekly payrll prcess and verified the recnciliatin f recrded time in PepleSft HCM mdule t recrded time in TeleStaff. We reviewed access cntrls in TeleStaff fr apprpriate cntrls ver authrizatin f vertime. We reviewed persnnel files fr the abve sample f emplyees t verify psitin, educatin, and lngevity. Cnclusin CONCLUSION Fire and Plice Departments have implemented adequate cntrls t ensure their actual pay and benefits are reasnably accurate and cmplete. Hwever, the management f ther Prt departments invlved in pay and benefits administratin prcesses has nt designed r implemented adequate inter-department cmmunicatin cntrls t ensure that actual pay and benefits administratin prcesses fully meet the terms f the unin agreements. Althugh the knwn errrs/versights have nt been financially significant, there have been numerus errrs and missins that have impacted a number f emplyees ver prlnged perids, as discussed in Finding 1. 7 f 11

8 SCHEDULE OF FINDINGS AND RECOMMENDATIONS 1. MORE FORMALIZED COMMUNICATIONS AND COORDINATION EFFORTS ARE REQUIRED AMONG PORT DEPARTMENTS IN ORDER TO SUCCESSFULLY IMPLEMENT LABOR AGREEMENTS. The unin agreements fr Fire (1 agreement) and Plice (6 agreements) are typically fr a tw-year perid, and the agreements are subject t prlnged negtiatins. Final agreements are ften signed well after the start f the agreement term. These prtracted negtiatins necessitate retractive payrll changes fr the affected emplyees. The negtiated labr agreements have many cmplex terms and cnditins that affect payrll prcessing. Fr example, there are apprximately 180 agreement-related earnings cdes available fr the Plice payrll. These earnings cdes include patrl, lngevity, educatin, and specialty pays, etc. Additinally, there are multiple benefit cntributins and deductins payable by the Prt and emplyees. Several Prt departments are invlved in administering the pay and benefits and implementing changes t the unin agreements. The multiple prcess participants, cmbined with the cmplexity inherent in these unin agreements, require clearly defined prcesses and well-crdinated effrts, in rder t ensure cmplete and accurate applicatin f agreed-upn labr terms and cnditins. Further, if advance assessment f the PepleSft HCM system prcessing capabilities were cnsidered befre labr negtiatins, this assessment culd minimize labr agreement cmplexities and their implementatin, thereby reducing the risk f errrs. We bserved the fllwing inadequacies in pay and benefits administratin prcesses related t the implementatin f labr agreements: Ad-hc and inadequately dcumented plans, prcedures, and schedules f implementatin meetings. Unclear rles and respnsibilities amng the varius Prt departments invlved. Unclear verall prcess wners t ensure clear accuntability ver effective implementatin. Lack f advance assessment f the PepleSft HCM system prcessing capabilities. As a result f an inadequate implementatin prcess, there have been errrs, weak versight, prcessing incnsistencies, and pssible misunderstandings, as fllws: A. Unin Agreement implementatin errrs and weak versight The AFR Payrll Department has identified several implementatin errrs in the past that have impacted numerus emplyees ver prlnged perids. Fr example: Plice Officers: The wrk schedules changed in 2009, but the change was nt implemented in the system. As a result, vacatins were ver-accrued until recgnized in July The crrectin is still in prgress. 8 f 11

9 Plice Dispatchers: The emplyee share f premiums effective fr March 2013 was nt prperly deducted in accrdance with the 2012 agreement. The crrectin is still in prgress. Plice Specialists: The cst sharing f premiums fr Retiree Welfare Trust Benefits was agreed t in 2009, but nt discvered until 2011, resulting in verpayments t emplyees. B. Incnsistent payrll prcessing The Prt uses the PepleSft HCM system t autmatically prcess pay and benefits n a bi-weekly schedule. We bserved that the frequency f Fire and Plice allwances, deductins, and Prt cntributins des nt cnsistently cnfrm t the Prt s bi-weekly pay perids. Fr example, a mnthly deductin in unin agreements cannt be deducted mnthly because f the Prt s bi-weekly pay perid. T cmply with the mnthly deductin, additinal wrk has t be perfrmed. These are nt errrs, but pprtunities t reduce pay and benefits administratin prcessing cmplexity. Fr example, the mnthly/quarterly clthing allwance has t be individually prcessed, as ppsed t an autmatic calculatin. The fllwing are sme f the ut-f-sync items: One-time, lump-sum payment - paid n the first full pay perid in January. Clthing/cleaning allwance paid mnthly r quarterly, depending n psitin. Unin dues and team legal participatin - paid mnthly. Lng-Term Disability deductin frm each emplyee s secnd mnthly paycheck. C. Unclear labr agreement terminlgy There are several areas where the labr agreement prvisins may be subject t varying interpretatins. These are nt errrs but pprtunities t reduce any ptential misunderstandings and grievances. Date f Hire: Emplyees are eligible fr premiums fr lngevity, based n the date f hire. The date f hire culd be interpreted as: 1) an riginal hire date at the Prt, 2) a date f entry int the department, r 3) a date f entry int the current psitin. There was a grievance regarding this issue, which has subsequently been reslved. Premium Stacking: The Plice Officers agreement states: Officers are entitled t receive nly the tw (2) highest specialty/assignment premiums fr which they are eligible; hwever, the patrl shift premium is excluded frm this stacking premium. The agreement des nt clarify whether this limitatin applies t a shift, a day, r a pay perid. Officers can and d perfrm mre than ne specialty/assignment in a day and pay perid. Benefit Amunts: Sme benefits are nt clearly defined: Plice Life Insurance - Eligible emplyees are cvered fr an amunt f life insurance equal t frty percent (40%) f his/her annualized pay rate, but the annualized pay rate, as defined, is subject t interpretatin. It culd be a base pay rate nly r include premiums, f which there are many types. 9 f 11

10 Eye Care The Prt shall pay up t twenty-five dllars ($25.00) twards the AWC Visin Service Plan. The cntributin frequency is nt specified. Fire Life Insurance and AD&D prvided n the Assciatin f Washingtn Cities Plan C. The cntributin frequency and amunts are nt specified. A cmplete implementatin prcess invlving all applicable departments culd effectively mitigate the risk f errrs, missins, misunderstandings, and incnsistent prcesses in cmpliance with the unin agreements. Further, advance cnsideratin f the current PepleSft HCM system prcessing capabilities culd lead t reduced cmplexities in the labr agreements, if such an assessment were dne befre negtiatins. Recmmendatin We recmmend Prt management: Develp and implement a unin agreement implementatin prcess invlving all interested parties. Clearly define the rles and respnsibilities f all parties. Assign prcess wners fr each pay and benefit administratin prcess/activity. Management Respnse Thank yu fr Internal Audit s review f the pay and benefits administratin prcess fr the Fire and Plice departments. Prt management is cmmitted t ensure accurate and cmplete pay and benefits, which are cmpliant with the unin agreements. This respnse reflects the cllective insight frm the Fire and Plice departments, Labr Relatins, Human Resurces & Develpment, Accunting & Financial Reprting, the Cntinuus Prcess Imprvement Office. We strive t be errr free, each pay cycle, and wrk t make it a pririty t have accurate pay and benefits administratin fr all Prt emplyees. It is wrth nting, and as mentined in the audit reprt, that the Plice and Fire departments cllective bargaining agreements are very cmplex, the mst cmplex at the Prt. The cmplexity f these agreements is driven by the nature f the wrk perfrmed by emplyees in these departments, as well as industry standard ways f structuring their pay and benefits. Thrugh time, this has created challenges in administering pay and benefits errr free in certain instances. Nevertheless, Prt management has been and will cntinue t be practive t mitigate expsures. Prt management has fully dcumented and tracked Prt-wide pay/benefits administratin errrs since 2009, which facilitates the nging visibility and crrective actin t reslve irregularities. We acknwledge the issues nted in the audit reprt, as they are amng thse identified by Prt management as cntained in ur cmprehensive tracking lg prvided t the auditr. With the bjective f taking prgressive steps t understand the prcess challenges that cause pay/benefits administratin errrs, and t implement a new r imprved prcess that ensures timeliness and accuracy f pay and benefits fr unin emplyees, tw initiatives were undertaken. A Unin Benefits Task Frce cmprised f 10 f 11

11 leadership frm Labr Relatins, Human Resurces & Develpment (HRD), and Accunting & Financial Reprting (AFR), was frmed in late 2013 t fcus n ensuring timely payments and accurate administratin f benefits fr unin emplyees. Als in 2013, HRD began examining the HRD prcesses fr implementing new prvisins f cllective bargaining agreements and included Labr Relatins and AFR Payrll staff. The wrk identified pprtunities and resulted in imprved cmmunicatins between these three grups. This cllective team prvided the fcus necessary t effect immediate imprvements until a frmal Executive pririty Cntinuus Imprvement Prject (CPI) was initiated early this year By April 2014, ntable prgress has been made n this CPI fcus, including cmpletin f the Value Stream Mapping (VSM) phase that prvided detailed awareness f the Prt s pay/benefits administratin prcesses, including thse fr Fire and Plice, and identificatin f key pprtunities fr prcess imprvements and standardizatin. This time intensive endeavr als includes full participatin by the directrs f Labr Relatins, HRD and AFR. The next phase will fllw in early May 2014 where prcess imprvement initiatives and slutins will be decided upn fr implementatin. Thrugh this CPI fcus, Prt management has cmpleted a cmprehensive review and identified prcess challenges, their rt cause, and imprvements. These include pprtunities t reduce cmplexities in the unin cllective bargaining agreements (CBA), refine the CBA implementatin timelines and inter-department crdinatin, leverage the PepleSft HCM system technlgy mre t autmate pay/benefits data analysis and quality assurance cntrls, and further clarify rles between Prt departments bradly that are invlved with administering pay and benefits. This fcus includes further engaging stakehlder departments fr input, participatin and decisin making as we prgress. Prt management expects t cmplete an implementatin plan and start the prcess imprvement initiatives beginning summer This will build upn the wrk that has been underway. Sme steps have already been practively implemented, which als address pints nted in the audit including: crrecting the three errrs nted in the audit reprt; CBA pre-negtiatin meetings prir t the bargaining prcess t identify key refinements t imprve prcesses; CBA pre-implementatin meetings invlving Labr Relatins, HRD, AFR and stakehlder departments t ensure cnsistent understanding and accurate implementatin; further clarifying rles and imprving cmmunicatins between grups; and enhancing the usefulness f the errrs tracking lg. Additinally, the Fire Department has practively implemented ntable prcess imprvements including new reprts thrugh the Telestaff system t reduce manually entered data; an emplyee validatin prcesses fr Persnal Actin frms; a validatin prcess within Telestaff t reduce crrectin mems; a department audit twice per year t validate rates f pay fr accuracy; and prgress twards eliminating paper slips fr premium pay, acting pay and vacatin/sick leave. With regard t the recmmendatin/findings, it wuld als be helpful t receive mre clarity n which Prt department(s) they are fcused n s that prcess imprvements can be implemented at the apprpriate level with the apprpriate stakehlders. Sincere appreciatin is expressed t the Internal Audit team fr their prfessinalism and the valued insight prvided n the Prt s pay and benefits administratin prcess. 11 f 11