Review of the FASOU Data Gathering Process Financial Assistance Scheme

Transcription

1 16 August 2007 Review of the FASOU Data Gathering Process Financial Assistance Scheme Mercer Human Resource Consulting Limited is authorised and regulated by the Financial Services Authority Registered in England No Registered Office: 1 Tower Place West, Tower Place, London EC3R 5BU

2 Contents 1. Executive Summary Overview and background... 2 Background... 2 Review method Process map Findings/ observations/ recommendations in tabular format risk focused Summary and prioritisation of recommendations Significant recommendations Appendix A Interview and documentation details Review of cases Mercer Human Resource Consulting i

3 1 Executive Summary This document sets out the background, observations and recommendations covering a high level review of the data gathering process with the Financial Assistance Scheme Operations Unit (FASOU) in York. The review covered general controls and processes, however it did not re-perform any data manipulation nor did it review cases on a test basis. It does however set out our general opinion of the process, formed during a number of interviews and related documentation and process appraisal. It does not cover the process of making assistance payments. The process of gathering data to operate the Financial Assistance Scheme (FAS) is fit for purpose and is managed satisfactorily; FASOU staff are reasonably prompt at requesting data once a scheme has been qualified for the FAS. There have been high profile delays in making assistance payments to members and the causes remain much as set out in the DWP report in July last year ( Review of the Administration of the Financial Assistance Scheme ). That is, delays to obtaining and resolving high enough quality data to calculate payments are often caused by Trustees, Administrators and Insurance firms rather than FASOU processes. That said, FASOU ought now to be more forthright in obtaining data, and with its powers of sanction, staff should be more confident in asking for data to be supplied promptly. Deadlines should be seen as dates which should rarely be crossed and data and information must be requested as soon as possible and in any case no later than 6 months, or whichever deadline is appropriate. Diligent following-up of data requests should assist, as should high quality and relevant management statistics. Alongside this should be a clear and formal verification of data, along with peer reviews; given that data will drive payments that could be made for many tens of years, this will be a worthwhile investment. Mercer Human Resource Consulting 1

4 2 Overview and background Background In Mid-May 2007, FAS requested that Mercer carry out a process audit. This follows a longer-term contract that Mercer has been undertaking since late in 2006, covering advice and training which resulted in the report authored in April 2007 by Mercer. As part of that report, recommendations also included an internal process audit, and this report comes as a result of that. FAS was introduced as a result of the Pensions Act 2004 and broadly offers top-up payments to some members of schemes where the employer became insolvent. The calculation and payment of these top-up payments by the Financial Assistance Scheme Operations Unit (FASOU) rely heavily on the data provided by the Trustees of the scheme in wind-up, or indeed the insurance firm once the scheme is wound-up. Scheme data can often be difficult to retrieve (and this is also noted in the DWP report Review of the Administration of the Financial Assistance Scheme dated 24 July last year), and when data is retrieved, the data may well be less than complete. The scope of the process audit review we undertook was to look at the data gathering process, and therefore FASOU requested that the review had two objectives: examine the processes currently in place in FASOU to collect member data, and to critically assess the effectiveness of these processes to either Mercer Human Resource Consulting 2

5 certify that the processes are fit for purpose, or identify any shortcomings and recommend alternative action The review therefore excluded the set up of the payroll and the payment of beneficiaries. Review method The review was conducted over three site visits and included interviews with many of the the staff involved in delivering the FAS service. Further details are set out at Appendix 1. In addition documentation was reviewed on site, and this included reports, case files, scheme files and process supporting documentation. Again further details are set out at Appendix 1. The report output was then fed back to FAS for factual accuracy. Mercer Human Resource Consulting 3

6 3 Process map Set out below are the main steps from first scheme notification to the point of payment of assistance to beneficiaries. This is a very high level process map, but sets out our broad understanding of how FASOU operates. Most notifications and qualifications are now complete, and the primary focus for FASOU is that of data gathering, and commencing assistance payments to members of qualifying schemes. This process map also forms the structure for the observations, comments and recommendations made in Section 4. Mercer Human Resource Consulting 4

7 FASOU - MAIN DELIVERY PROCESS Notification and qualification Stakeholder Assessment Payroll Notify Qualification Wound up Approach data holder* to obtain member data FASOU checking and verification activities' Check data Sent to resource management Queries fed back via Stakeholder team Payroll commenced In wind-up Data approved for payment processing and loaded Test for interim payments Approach Trustees** to obtain member data *typically an annuity provider or insurance company. ** typically an Independent Trustee Mercer Human Resource Consulting 5

8 4 Findings/ observations/ recommendations in tabular format risk focused Observation Comment Recommendation Notification and Qualification 1 The majority of cases have now proceeded through the Notification and Qualification stage. At the time of our first visit,1245 schemes had been contacted; around 672 schemes had qualified (139 wound up, and 545 still in wind up) 187 schemes had not qualified, and 351 schemes chose not to pursue assistance through FAS, as a result generally of Trustees taking the view that the scheme had not qualified. 36 schemes were moving through qualification and 6 schemes had compromise agreements in place. FAS remains in communication with all schemes. 2 Difficult qualifications and assessments are referred to an appointed panel. As the process is ending it will be important to have accurate figures, particularly for release to the DWP and indeed the public domain. FAS conducted a rigorous exercise to help ensure all relevant schemes were brought into the scheme. The process of schemes coming into the FAS relied heavily upon Trustees contacting the OU to notify the schemes. This is likely to have picked many of the eligible schemes but not all. We note that FAS was about to commence strong sanctions against Trustees who were tardy in getting data across to FASOU. This is very important, and a rigororous application of this (with public profile if need be) ought to help promote the need for diligent compilation of data. No further comment. Ensure accurate statistics concerning the number and status of schemes involved with FAS remain accurate. Consider conducting further research to determine if any remaining schemes which have suffered an insolvency event have contacted FAS. Rigorous application of sanctions should be implemented to bring as many schemes as possible within the six month data return period, and therefore to be able to pay assistance to scheme members. No recommendation. Mercer Human Resource Consulting 6

9 Observation Comment Recommendation 3 Data gathering for Qualification is compiled using an evidence sheet FASOU5. Stakeholder 4 Gathering data from Trustees, administrators and insurance companies is difficult for a number of reasons: amongst others these include: No money available to undertake data gathering Other clients have higher priorities e.g. PPF Don t think members will get anything Don t like or understand the S1 form 5 In the case of one scheme reviewed, some contact requesting data was made with an advisor to the scheme rather than the Trustee. The control sheet appeared to be concise and complete. We noted that sign-off in the cases we observed was from senior members of the team, and that all supporting information was clearly set out. We note the willingness of the FASOU team to visit or meet with Trustees, administrators and insurance companies to help them complete the S1 form. Some parties have been unwilling to take up this offer. Data for wound-up schemes has been received in paper format via buyout schedules rather than the S1 format. This data has been returned to insurers to put into the S1 format (so that FAS can be more assured the data is correct) but insurers have been unwilling or unable to do so. It is to be noted that the ownership of the data is with the insurer. We understand that this was an early case dealt with by the FASOU but the Trustee is the person (or organisation) responsible for delivering data to FAS. It is important the Trustee is made aware of the data gathering process at all times, even if direct contact is made with another organisation such as the scheme administrator. We note that the formal process for data gathering has since been refined - the stakeholder team contact the Trustee for details of the administrator and for confirmation to approach the administrator for data. No recommendation. FASOU should consider an open day for data providers, to give the opportunity to fully explain the information required for the S1, and we note that this is in hand. If insurance company buyout schedules are deemed to be acceptable in place of S1 data, FASOU should seek a formal data sign-off document by the insurer. No further recommendation, but refer to observation 10 for comments about accountability for the quality of data provided. Mercer Human Resource Consulting 7

10 Observation Comment Recommendation 6 In the case of a second scheme reviewed, it seemed to take a long period to get the data from the Trustee, and in fact there was low confidence in good data being available. Assessment 7 We note that S1 data is received and logged in before analysis. 8 Precedent information is held electronically and physically in a central repository any member of the assessment or stakeholder team can view these. 9 Many of schemes that have been wound-up will be placed with insurance companies. Similarly many schemes in wind-up have common Independent Trustees and administrators. This is where industry knowledge would be valuable we understand that the scheme has been wound-up, and therefore it is likely that an insurance company is both paying the pensioner scheme members and holding useful data an earlier approach to the insurance company may have speeded up the assessment process. We also note that occasionally the CAM receives data via and in such a case undertake a quick review to raise queries with the Trustees rather than pass this directly to the Assessment team. Given the very significant amount of learning that has taken place and also given the large numbers of schemes, accrued information, data and knowledge may be hard to navigate. It is essential that precedent and technical information is stored centrally and is easily searchable and accessible. There are a limited number of insurance companies providing bulk buyout annuity services. We note that some relationships with two major insurance companies have been built up. We note that 11 Independent Trustees have been contacted where they are responsible for 8-10 schemes. FAS has undertaken meetings with some of the common scheme administrators. With the sanction powers that FAS has, we recommend again that FASOU should exercise these powers in seeking member data for assessment. This ought to lead to the process being completed more quickly and therefore earlier assistance payments made. Whilst an early assessment may speed things up, there is a risk that the assessment process might end up more convoluted as a result and standard checks might be duplicated or not done at all a single process should be applied either where the assessment team carries out all checks, or that the CAM can undertake preliminary checks before releasing data to the assessment team. FASOU should consider means to improve the ability to search precedent information so that staff can quickly see if a similar matter has arisen before, and how it was dealt with. FASOU should consider assessing which other insurers it is likely to have regular dealings with and build direct relationships with these firms so that it can help make the assessment process more efficiently. FAS should also consider a similar scheme of meetings with those that are felt would benefit from closer relationships with FAS. Mercer Human Resource Consulting 8

11 Observation Comment Recommendation 10 Data received is not acknowledged back to the data provider. 11 Skills required to manipulate received S1 data (carried out in Excel) appear to be straightforward and demonstrated by the assessment staff. Data is not acknowledged to be received in good faith; consequently, the Trustees or other related organisation is not fully aware that it has provided the data as such and if there is any accountability for the quality of data provided. No further comment The initial data analysis is manually verified. Manual verification relies on individual skill sets. This is acceptable if a formal peer review process exists but this was not in place yet. With routine processes, it is common practice to have automated processes. 13 Ad hoc review processes are applied to data checks and observations, but no formal peer review process is employed. 14 There is a large amount of data management which is collated & required and held in each teams folder. Excel is used for this. Some basic information is stored on Compendia. It is considered good practice to formally peer review documents at pre-defined stages. This acts as a control and helps ensure that the process being checked has been carried out correctly. Excel is a very flexible tool but there are risks with deleting data and only one person can access. FASOU should acknowledge when S1 data is received and be clear about how it accepts data and be clear about any expectation of the data quality, and indeed what the consequence would be if the data is subsequently found to be erroneous. FASOU should consider an automated initial data analysis process which would undertake the core checks giving acceptances, exceptions, warnings for further investigations to be made. FASOU should consider a more formal peer review process for data checks and for queries that are sent back to the Trustee or pensions administrator. This should include dates of any correspondence. There are other methods of storing data management info which FASOU might consider (as part of a cost benefit analysis), in particular Compendia, which is central, more accessible. Payroll 15 We undertook no review of payroll systems or procedures. - - Mercer Human Resource Consulting 9

12 Observation Comment Recommendation General control and delivery environment High level environment 16 Generally our observations are that the teams comprise willing and committed individuals able to develop others around them. The individuals we spoke to demonstrated a one-team approach through management direction, regular meetings and shared information. The focus of the FASOU remains on paying assistance to affected scheme members. 17 No external financial based audit has taken place the Risk Analysis Division of the DWP conducted a review over a year ago. IT and systems 18 Information technology providers are currently a combination of three organisations. One provides the application support, two hosts the solutions and three effectively supply the database software through organisation one. 19 Change requests can take up to 6 months to implement. There is an initiative which is aiming to reduce this. 20 Changes to standard letters and related documentation, which we understand are held as templates on the system, can be requested by anyone a formal change request process exists. 21 We note that the diary filing system used to Bring Forward matters to be completed relies heavily on paper. The approach demonstrated by the FASOU is essential to such a high profile organisation to ensure that the focus of paying assistance remains the priority. Financial audits can be valuable to assess the controls over the finances, and to demonstrate good practice. With an organisation that may have a short life before significant transformation, we believe that it is essential that supplier relationships are as simple as possible. We understand that there are agreement frameworks in place. Given the comments about the rapidly changing environment, this timescale seems not to serve FAS s best interests in having software to underpin robust and efficient processes. Document control is critical in ensuring that any changes in process and output are implemented universally. We note and encourage good practice in this area. Diary systems should be accessible by a number of staff so that tasks can be transferred at times where relevant staff are off sick for instance. No further recommendation. We recommend that a financial audit takes place (either using internal or external auditors) to provide comfort, particularly over the payroll which this review does not cover. No further recommendation, but see next comment below. FASOU should continually consider how to speed up necessary change through more efficient processes and/or contractor management. No recommendation. FASOU should review the diary/bring forward process to identify opportunities to streamline and make it more robust. Mercer Human Resource Consulting 10

13 Observation Comment Recommendation People and Management 22 All new recruitment has to come from within the Civil Service This was covered within the DWP report Review of the Administration of the Financial Assistance Scheme, and clearly pensions skills have been learned rapidly. 23 Payroll is being moved into the Operational team. This makes sense as FAS moves from data gathering and assessment towards ongoing assistance delivery. 24 Staffing appears to be reasonably stable, and appraisals and competence monitoring fits within the existing DWP framework. 25 Management meetings are frequent and involve people to deal with issues at different levels so a senior leadership team meets to discuss the impact of policy and the whole team meets fortnightly or so to discuss general progress. Given the importance of knowledge of pensions and the FAS, a low turnover is desirable until the assessments are completed. Given the rapid change, frequent face to face meetings across the whole of FASOU will continue to be crucial. Given the complexity of pensions schemes, particularly those with long legacies, there may still be areas to improve knowledge during the assessment period. The stakeholder and assessment teams should have a resource to go to when requiring this sort of knowledge. Given the recommendation in the DWP report Review of the Administration of the Financial Assistance Scheme that the long term governance of FAS should be within the Pension Service, FAS should review any operation changes in line with this aim. No specific recommendation. No further recommendation. Mercer Human Resource Consulting 11

14 5 Summary and prioritisation of recommendations FAS is operating within a very sensitive and high profile pensions environment and forms part of the Government s approach to restoring confidence in occupational pension schemes. The DWP report ( Review of the Administration of the Financial Assistance Scheme ) dated 24 July 2006 contains a number of findings, and we recognise that in part and indirectly, this review was commissioned as a result of that. Of the seven findings that were listed, we have not assessed FASOU in relation to findings 4, 6 and 7, and therefore we are not able to comment on these. Of the remainder it seems clear that a number of the findings have been addressed, particularly findings 1 and 2 (the matter of improved pension skills and the use of private sector skills). Finding 3 remains probably the greatest issue and the powers of sanction should assist greatly in this area. The PPF has had much more legislative power to ensure that its requirements are met by pension funds, however it is our experience and our view that the PPF has been culturally more assertive than FAS in dealing with Pensions Schemes being assessed. FAS should be able to do the same through higher levels of contact, being very clear in its expectation, even if there are no sanctions specifically to be applied, and continuing to be willing to get alongside Trustees and other relevant pension scheme bodies to obtain data. There are other mechanisms to consider, such as naming Trustees and/or schemes that are being uncooperative or not providing data in a timely manner. We understand that an open day is being considered for Trustees and administrators. This appears to be a very suitable way forward and if the day is well planned with a clear aim, it should prove fruitful for FASOU. Indeed it might be beneficial to have more open days to tackle different issues. Mercer Human Resource Consulting 12

15 Significant recommendations There are two significant recommendations therefore. Firstly, FASOU s ability to make assistance payments is heavily dependent upon the provision of data by third parties. Much of this is because of the way that legislative constraints have limited FASOU; however with its powers of sanction, FASOU should be organisationally firmer with these third parties in obtaining data, and also during the subsequent process of data verification. This should enable FASOU to get to a position where either payments can be commenced, or in the event of poor data it can take steps to effect appropriate payments. This process also should include being very clear about whom is accountable for the quality of data passed across to FAS. Observations 4, 5, 6, 9, 10 are pertinent. Secondly the Financial Assistance Scheme rests heavily on its own data, once it is received and applied to the FASOU platform. It is important therefore that at least at this stage, formal peer review checks are made on data. Observations are pertinent. Other recommendations can be found following on from the observations and comments made in Section 4. Mercer Human Resource Consulting 13

16 Appendix A Interview and documentation details The review was conducted via three visits to the Operations Unit in York: (1) 11 June 2007 Two Mercer employees attended and interviewed five FASOU staff. (2) 29 June 2007 One Mercer employee attended and interviewed eight FASOU staff. (3) 10 July 2007 One Mercer employee attended and interviewed two FASOU staff. Review of cases Three pension schemes were reviewed: Pension Scheme A, Pension Scheme B, and Pension Scheme C. We noted that the Pension Scheme A had notified FAS on 8 December 2005 of an insolvency event, and Qualification was confirmed on 19th December We noted correspondence with the Trustee, including initial payments as the scheme was in wind up. There was no request to supply data within six months, and we understand that this was because no sanctions were available to be applied in the case that data was not forthcoming in the period. We also noted that there was some ambiguity about who to contact to request Mercer Human Resource Consulting 14

17 scheme data (FAS had originally written to the Consulting Actuary, although it should be noted that FAS very soon after wrote to the Independent Trustee). We note that the first draft of the completed S1 form was received on 11 December Qualification for Pension Scheme B was confirmed on 21 December The first draft of the S1 form was received on 19 January 2007, although the first set of data was for Pensioners only. The data was proving particularly difficult to get hold of and a member of the stakeholder was due to meet with the Trustee shortly after we had our initial meeting with FAS. Pension Scheme C was reviewed with reference to the data analysis and assessment stages of the process. We noted the organisation of the scheme information was orderly and accessible. The administrators had sent the S1 data to FASOU on an Excel spreadsheet which was received via the general box DWP York Operational Unit. The data was then sent on to the Assessment Team for analysis. We noted that there was no acknowledgement to the administrators saying that the data had been received and that it had been received in good faith. We observed that queries raised by the Assessment Team were sent to the Stakeholder Team via . However, no formal peer review process was evident showing how the data had been analysed to be able to determine the queries raised. Mercer Human Resource Consulting 15

18 Mercer Human Resource Consulting Limited Tower Place London EC3R 5BU