ASU Payroll Audit Number April 2007

Transcription

1 Audit Number April 2007 University Audit and Advisory Services

2 EXECUTIVE SUMMARY Scope and Objective During fiscal year ended June 30, 2006, Arizona State University (ASU) paid over 6,500 employees about $45 million in extra pay for work performed beyond their regular duties. Examples of extra pay include overtime, summer teaching, and work on grants outside of the academic year. The objective of this review was to evaluate and assess ASU s overall compliance with Arizona Board of Regents and ASU payroll policies and procedures. Those policies limit the number of extra hours that employees can work each year. This audit was scheduled and performed as part of our audit plan. Results of Audit We determined that ASU s current payroll system (HRMS) is not adequate to facilitate central monitoring over extra compensation to ensure employees do not exceed the policy limitations on hours worked. Specifically, hours recorded in HRMS do not always correlate to hours actually worked. In addition, the payroll classification used to capture supplemental hourly efforts is not properly restricted to endeavors that require additional hours to be worked. Our detailed tests of a judgmental sample of 88 employees showed that HRMS data was not reliable, and therefore, could not be used to monitor extra compensation. performed outside an employee s regular work schedule. Our initial analysis of HRMS SUP pay identified 232 faculty and staff who appeared to have received supplemental pay for working hours in excess of ASU policy. Of the 88 employees sampled, 55 received SUP pay. Detailed review of the supporting documentation for these 55 employees indicated that only 14 actually exceeded ASU policies. We determined that excessive hours were being recorded in HRMS for various reasons. These included a lack of definition of the various payroll types; the conditions under which each type should be used; and inconsistent data entry practices. We made several recommendations to improve policies and practices in these areas. Furthermore, we recommended that Human Resources work with the team implementing ASU s new payroll system to ensure that the issues identified by our audit are addressed in the new system. We also made recommendations for improvements in other areas, such as: Completeness and accuracy of data in the data warehouse. Compensation rates for extra teaching assignments. Standby pay policies. Following is an example related to supplemental (SUP) pay which is work i

3 April 4, 2007 Matthew McElrath, Associate Vice President, Human Resources ASU at the Tempe Campus PO Box Tempe, AZ Dear Mr. McElrath: Attached is the audit report regarding. The report focuses on controls over extra compensation to employees for the period July 1, 2005 to July 30, We appreciate the cooperation and courtesy extended to our auditors during the review. We hope you find the audit report useful. Please contact me at (480) if you have any questions about the report or need additional information. Very truly yours, David DeStefano, CPA, CIA, CGFM Director, University Audit and Advisory Services c: Arizona Board of Regents Audit Committee Michael Crow, President, Arizona State University Christine Wilkinson, Senior Vice President and Secretary of the University James O Brien, Senior Advisor to the President Elizabeth Capaldi, Executive Vice President and Provost of the University Mark Searle, Vice President for Academic Personnel Paul Ward, Vice President for University Administration and Legal Affairs Carol Campbell, Executive Vice President and CFO Jonathan Fink, Vice President, Research and Economic Affairs Gerald Snyder, Associate Vice President, Financial Services and Treasurer Christine Cervantes, Senior Director, Human Resources Cheryl Conover, Director, Research Administration Carol Switzer, Director, Summer Sessions Audit Liaisons, Arizona State University

4 TABLE OF CONTENTS INTRODUCTION... 1 OBJECTIVES, SCOPE, AND METHODOLOGY... 2 CONCLUSIONS... 3 AUDITOR... 3 A. ADDITIONAL COMPENSATION FOR EXTRA WORK DURING THE EMPLOYEE S CONTRACT PERIOD (SUP PAY)... 4 B. COMPENSATION FOR NON-TEACHING ACTIVITIES PERFORMED OUTSIDE THE EMPLOYEE S CONTRACT PERIOD (AUX PAY) C. COMPENSATION FOR TEACHING ACTIVITIES OUTSIDE THE EMPLOYEEE S CONTRACT PERIOD D. HOURS REPORTED FOR CONTRACTUAL EFFORTS 9FA, 9/9, AND REG PAY E. STANDBY DUTY F. OTHER MATTERS EXAMPLE OF ERRONEOUS SUP HOURS...ATTACHMENT A EXAMPLE OF ERRONEOUS PAY RATES... ATTACHMENT B EXAMPLE OF LEAVE CHARGES... ATTACHMENT C

5 INTRODUCTION For fiscal year ending June 30, 2006 (FY 2006), Arizona State University s (ASU) payroll expenses for personal services ($568 million) and benefits ($149 million) totaled $717 million. This amount represents approximately 64% of ASU s total operating expenses of $1,116 million. ASU uses an automated payroll processing system, called the Human Resource Management System (HRMS). Certain business processes related to HRMS are decentralized with each business unit responsible for initiating, authorizing, and monitoring its respective payroll. ASU s Human Resources Department (Human Resources) has a Payroll Unit that is responsible to accurately and timely process payroll, as authorized by the decentralized business units. The Payroll Unit also assists business units and employees with payroll service inquiries and transactions. During the scope of this review, Human Resources reported to the Vice President for University Administration and Legal Affairs. However, effective February 5, 2007, Human Resources reports to ASU s Executive Vice President and Chief Financial Officer. HRMS is being replaced by a new human resource system, PeopleSoft, which is scheduled to be implemented by July ASU s payroll system is comprised of numerous payroll classifications. The primary classifications for compensation paid to full-time employees during their annual contract are listed below: Academic year pay that is paid over 18 pay periods (9/9); Academic year pay that is paid over 24 pay periods (9FA); and Regular pay that is paid over 24 pay periods to non-academic personnel (REG). ASU policies allow employees to receive additional compensation for extra work performed over and beyond the employee s contractual base salary. During FY 2006, additional compensation was provided to 6,525 ASU employees (including students) totaling approximately $45 million. An earnings type code is recorded in HRMS for all additional compensation issued. This code indicates the nature and purpose of the additional pay. The pay earnings type of AUX (auxiliary), SUP (supplemental), and SUM (summer) pay constitute the primary types of additional pay for FY 2006 as shown on the following page. 1

6 Arizona State University Summary of Additional Pay For Fiscal Year 2006 (In Thousands $) $6,752 $1,800 $9,420. $27,376 AUX Pay SUP Pay SUM Pay All Other Add'l Pay Note: All Other Additional Pay in the above chart includes pay for overtime, commissions, and other miscellaneous pay. OBJECTIVES, SCOPE, AND METHODOLOGY An audit of ASU s payroll was included on University Audit & Advisory Services FY 2007 audit plan. This audit focused on extra compensation payments during FY ASU has established policies that limit the number of extra hours that exempt employees can work. The objective of this audit was to evaluate and assess overall compliance with ABOR and ASU payroll policies and procedures that result in compensation to employees for endeavors outside of their academic and fiscal year appointments. The audit procedures consisted of: Analyzing all payroll transactions for the fiscal year ended June 30, 2006; 2

7 Reviewing payroll documentation for a judgmental sample of 88 ASU full-time employees for whom HRMS reported significant hours in excess of their regular or contract hours; and Interviewing personnel, as necessary, who authorize and process payroll transactions. CONCLUSIONS As discussed in detail in the following pages, the internal controls relating to additional compensation need improvement to ensure that compensation provided to ASU employees complies with University policies. Specifically: The payroll classifications (payroll earnings type) for extra pay included in ASU s current payroll system have not been formally defined, and adequate guidance has not been provided to the various business units to ensure consistent processing of transactions. The work hours reported for each payroll period were often inaccurate because of system limitations and certain ASU procedures. Because of the inconsistent transaction processing and the inaccurate data cited previously, HRMS is not adequate to centrally monitor and prevent excessive supplemental activities from occurring. Details and recommendations on these matters are presented in the following pages. Responses from Human Resources and the Office of Academic Personnel are included in this report parenthetically after each recommendation. AUDITOR Penny Whitmore, MBA, CPA, CIA 3

8 A. ADDITIONAL COMPENSATION FOR EXTRA WORK DURING THE EMPLOYEE S CONTRACT PERIOD (SUP PAY) Summary of Results We determined that the current payroll system is not adequate to facilitate central monitoring of additional compensation for extra work. Central monitoring would help to ensure compliance with ASU payroll policies that currently limit the amount of hours employees can spend on supplemental activities. ASU s current automated payroll system, HRMS, is not capable of allowing central oversight because of inconsistent recording of payroll transactions and inaccurate data in the system. Our detailed testing of 88 employees identified 14 employees who were paid in excess of ASU policies. We also found that ASU s policies do not provide guidance that prescribes actions to be taken in the event an employee exceeds supplemental work permitted by ASU policies. Background The Arizona Board of Regents (ABOR) established a policy that defines the circumstances whereby exempt employees can earn additional compensation. ASU has policies that limit the number of extra hours employees can work each fiscal year. We understand those policies are intended to protect ASU from an erosion of regular work effort. The pertinent aspects of the key policies follow: ABOR Supplemental Compensation Policy (Chapter 6, Section K1) Supplemental compensation may be paid to an exempt employee who performs work during hours outside his/her normal work schedule and such work is approved by his/her supervisor, and is performed for a department other than the employee s regularly assigned department or is specifically and distinctly out of job classification work. ASU Policy ACD Faculty and academic professionals extra work is limited to 384 hours for those faculty and academic professionals whose contract is based on a fiscal year and 312 hours for employees on an academic year contract ASU Policy SPP Other exempt employees extra work is limited to 400 hours per fiscal year. 4

9 HRMS HRMS captures information on the number of hours worked by employees. Therefore, we initially believed that HRMS would be an excellent tool for providing central oversight of those policies that limit employee extra work hours. However, we determined that we could not always rely on the data included in HRMS. Therefore, we concluded that HRMS could not readily be used to centrally monitor compliance with those policies. Details are as follows: We began our analysis by applying computer-assisted auditing techniques (CAATS) to all payroll data for the fiscal year ended June 30, 2006 (FY 2006). The CAATS identified 232 employees who appeared to have received supplemental pay for more hours than permitted by ASU policy. Our preliminary analysis of these 232 employees raised questions about the accuracy of the hours recorded in HRMS. We determined it would not be appropriate to draw any conclusions from the data without more detailed analysis. Because of our concerns about the accuracy of HRMS data, we selected a judgmental sample of 88 employees, of which 55 employees received SUP pay during fiscal year Standard hourly rates for employees are not captured in HRMS. Therefore, we calculated an hourly rate for each employee based on their standard hours and applied this rate to the amount of SUP pay received to compute hours worked on supplemental activities. This analysis resulted in a preliminary determination that 31 of the 55 employees received supplemental pay for more hours than allowed by ASU policies. However, detailed review of the supporting documentation for these 31 individuals showed this conclusion was not valid. Only 14 employees in our sample actually exceeded the hours allowed by ASU policy. Inconsistent Usage of SUP Pay We determined that there is no clear definition of the SUP pay earnings type, that clerical errors sometimes result in miscoding the pay type (e.g. AUX pay erroneously coded as SUP pay) and, most importantly, that the University has not restricted the usage of the payroll classification to supplemental activities requiring additional hours to be worked as indicated by ABOR and ASU policies. The SUP pay earnings type is supposed to be used to record pay disbursed for activities that require additional hours to be worked, such as: o Teaching and non-teaching assignments outside of one s home department during the academic year; 5

10 o Work performed as an intra-university consultant on grants subject to grant terms and federal limitations; and o Teaching assignments for classes that are outside of the employee s home department during the academic year or during the winter semester. We found many cases where it was used properly. However, we also found it was used to record pay for work assignments and awards that do not require additional hours to be worked. These activities included temporary pay for: o Stipends for faculty serving as departmental chairs, directors, assistant directors, and interim deans; o Stipends for honorary positions, e.g., endowed professors and other honorary titles; o Administrative staff serving interim posts; o Additional pay awarded to athletic coaches for meritorious team performances and/or academic achievements; and o Reimbursement of transitional moving expenses provided as part of a hiring agreement. We believe it would be useful if additional pay categories were established for these latter activities that do not require extra hours. This would enhance the opportunity to use the data to centrally monitor compliance. Of the 31 individuals sampled who initially appeared to have worked more hours than permitted by ASU policy, we concluded that 17 employees were in compliance with ASU policy for FY 2006 because the SUP pay reported was for work that actually did not require additional hours. (Note: We observed that not all departments are reporting compensation for administrative duties as SUP pay. Some departments included compensation for faculty serving as chairs, directors, etc. with the employee s regular pay with no additional hours being recorded in the payroll system.) Reported SUP Pay Hours We also found that the SUP pay hours reported in the HRMS are misleading and are not based on actual hours worked. In order to disburse SUP pay, the initiating department must complete a payroll authorization form (PAF). The PAF must include an estimated percent of the standard payroll hours in each pay period that are to be reported as SUP pay. This percentage is also known as the FTE (full-time equivalency) percentage. The system calculates hours reported as worked 6

11 based on the percentage of estimated pay period hours shown on the PAF. SUP hours are always reported in addition to the employee s regular pay period hours. As a result, reported hours for SUP pay are an automated system calculation and are not based on actual hours worked. We have included Attachment A as an example of how such transactions are handled by HRMS. These attachments reflect the impact that FTE percentages have on hours reported. They also illustrate how hourly rates for SUP pay ranged from over $10,000 an hour (Attachment A, page 1) to $8 per hour (Attachment A, page 2). Monitoring Supplemental Activities In addition to the SUP pay classification being used to capture compensation for which no additional hours are actually expended, monitoring supplemental activities through the current payroll system is made difficult for the following reasons: o The system does not provide a standard regular hourly rate for each employee nor does the system report the maximum number of hours the employee may work during a year. Before establishing hourly limits for employees, it must be determined whether the employee is governed by an academic year contract or a fiscal year contract. Hours for academic year employees are limited to 312 hours for a nine-month period rather than 384 or 400 hours for other employees. For those employees governed by a fiscal year contract, it also must be established whether the employee is an academic employee (subject to ASU s Academic Policies and Procedures that limits additional work to 384 hours) or whether the employee is a non-academic employee (subject to ASU s Staff Personnel Policies that limits additional work to 400 hours). While the Human Resource payroll database contains sufficient information to identify academic year employees, we could not determine with certainty whether fiscal year employees were academic or staff personnel. Therefore, in performing our tests, we took a conservative approach and we assumed that all fiscal year employees were limited to 400 additional hours, rather than 384 hours. o The current system does not have a mechanism to accumulate hours expended on supplemental activities. In order to adequately monitor the number of hours worked and adherence to ABOR and ASU policies, the system needs to provide a continuous total of hours worked to date. 7

12 Recommendations: 1. Human Resources should ensure that the new PeopleSoft system is designed to facilitate monitoring of supplemental activities paid through ASU payroll. Following are various issues that should be considered: Define all pay categories, and the conditions under which each is allowed to be used. Develop a unique earnings type for those supplemental activities that require monitoring of hours worked. Develop separate payroll earnings types for those types of activities that do not require additional hours to be worked or fall outside the employee s contract. Incorporate in the system a data element that indicates the maximum number of supplemental work hours each employee is eligible to earn during the fiscal or academic year. Incorporate in the system the ability to accumulate the supplemental hours worked to date for the fiscal year for each employee, and produce exception reports when the supplemental hours worked or percent of base salary exceeds the allowed maximum hours or dollars. (Human Resources Response: The OASIS Team, which is responsible for implementing the People Soft system, will ensure that the categories of pay reflect the purpose for the compensation. The categories of compensation will facilitate monitoring of supplemental activities as prescribed by ASU policies. Further, the Oasis team will ensure that a monitoring mechanism is in place to flag those instances whereby ASU payroll policies are exceeded. Implementation is expected on July 1, 2007, in conjunction with installation of the new People Soft system. Should ASU revise its payroll policies, People Soft will have the flexibility to accommodate these changes.) 8

13 2. Human Resources should reiterate to the University community the importance and methodology for accurately reporting hours actually worked. (Human Resources Response: Human Resources will prepare communications to be sent to campus administrators, at all levels, stressing the importance and methodology to accurately report hours actually worked. The PeopleSoft Time and Labor module should be able to assist in monitoring these hours once it is installed. Implementation is expected by July 1, 2007.) 3. Human Resources should reiterate to all employees the requirements of all ASU policies that limit hours or the base pay percent of supplemental work and the rate of pay for the supplemental work. Specifically, Human Resources should provide ongoing training and reference materials in order to better communicate policies and procedures to new and current personnel responsible for payroll. (Human Resources Response: Human Resources will create a communication to be sent via a mass to all employees stating the requirements of the appropriate policies that limit supplemental activities and rates of pay for such work. Implementation is expected by December 31, 2007.) 4. The Office of Academic Personnel and Human Resources should work with the Office of General Counsel to revise ASU policies to include remedies in the event an employee works more hours than permitted by ASU s policies. (Human Resources Response: Human Resources senior management will work with the Office of Academic Personnel and General Counsel in revising ASU policies to make the policies clearer to employees and provide guidance for corrections. Implementation is expected by December 31, 2007 or early Office of Academic Personnel s Response: We agree that all of the policies governing faculty and academic professionals receiving supplemental and other forms of additional pay need to be revised. We have established a committee representing the offices of the General Counsel, Human Resources, Office of Research and Sponsored Projects, the Chief Financial Officer, and the University Provost to prepare such revisions. Our intent 9

14 is to have final proposed policies to take to the senates next fall for their comments and suggestions. Following consultation with the academic senates, the President will then determine the final policy language. We plan to have these new policies in place by the end of December, 2007 or early 2008 depending on the timeliness of senate actions.) B. COMPENSATION FOR NON-TEACHING ACTIVITIES PERFORMED OUTSIDE THE EMPLOYEE S CONTRACT PERIOD (AUX PAY) Summary of Results ASU policies provide that hourly pay for activities outside of the employee s contract period (AUX pay) that are paid through ASU s payroll system cannot exceed the employee s regular hourly pay rate. However, HRMS is currently not capable to be used for central monitoring because of inconsistent recording of payroll transactions and inaccurate data in the system. Based on data in HRMS, we calculated that AUX hourly pay rates ranged from $1 per hour to over $6,000 per hour in fiscal year Therefore, we conclude that the AUX hours reported in the payroll system are not reliable to allow central monitoring of compliance with ASU policies. Details are presented in the following paragraphs. We also found ASU s policy was lacking with regard to any actions to be taken in the event AUX hourly pay rates exceed the employee s regular hourly rate. Background AUX pay represents the greatest component of additional pay disbursed. During FY 2006, over $27 million was paid to about 3,600 employees. AUX pay should be used to compensate academic professionals and researchers on a nine-month contract for research work outside of their contract period. ASU s Policy ACD provides that AUX pay is based on an employee s regular hourly pay rate. It states that compensation for supplemental professional activities from a university fund source may not exceed the person s hourly rate at ASU. Also, ACD provides that pay for services on sponsored projects during the summer will be at the previous academic year rate. 10

15 Undefined and Miscoded AUX Pay University Audit and Advisory Services While the University has adopted an informal definition of AUX pay, we found that there is no formal definition of AUX pay. Also, while our tests generally indicated that payments included in the AUX category are being classified accurately, we did identify some instances whereby AUX pay totaling $1.5 million was disbursed during the academic year for research and/or teaching assignments. AUX Hourly Rates While AUX pay and AUX hours are reported in ASU s payroll, the payroll system does not calculate, report, or monitor hourly rates for employees. We found that AUX pay was frequently issued with only one hour of work reported, resulting in HRMS data that was not useful. As noted previously, we found a wide range of hourly pay rates for AUX pay. Therefore, we concluded that hours reported in HRMS as AUX pay are not reliable since they often do not correspond to hours actually worked. Any calculations to determine an hourly rate would be inaccurate and, therefore, central monitoring cannot be facilitated. Also, ASU s ACD policy, does not include remedies in the event an employee s AUX hourly rates are exceeded. Therefore, the corrective action taken in such cases could be inconsistent throughout the university units. Recommendations: 5. Human Resources should define AUX pay and communicate the conditions when it can be used. (Human Resources Response: Procedures covering the definition of AUX pay and the conditions of use will be developed once the previously referenced committee revises the applicable policies - January 1, 2008) 6. Human Resources should ensure that the new PeopleSoft system is designed to facilitate reporting hourly rates for both regular pay and hourly rates for AUX pay. (Human Resources Response: The OASIS Project Team will ensure that the new system contains the appropriate resources to provide for an analysis of hourly pay rates or 11

16 any changes to payroll policy that require monitoring. Anticipated implementation date is July 2007.) 7. The Office of Academic Personnel and Human Resources should work with the Office of General Counsel to establish appropriate remedies in the event that an employee s AUX hourly rates are exceeded. (Human Resources Response: Human Resources will develop procedures that cover the actions to take when rates are exceeded once the previously referenced committee revises the applicable policies. Anticipated implementation date is January Response from the Office of Academic Personnel: Officials agree. Please refer to the response provided for recommendation 4 for more details.) C. COMPENSATION FOR TEACHING ACTIVITIES OUTSIDE THE EMPLOYEE S CONTRACT PERIOD Summary of Results We found a number of issues relating to compensation to instructors and employees teaching courses beyond their regularly assigned duties (referred to as off load ) including: --ASU s policies do not completely address compensation for teaching off load. Also, it is not known whether the policies related to compensation apply to all summer teaching assignments. --The policies relating to compensation for off load teaching cannot be centrally monitored because the policies provide that compensation is based on credit hours taught and that information is frequently not retained centrally. Also, the related pay earnings types are not defined to ensure that they are being properly used. Background Off load teaching instruction may occur during summer sessions, winter sessions, or during the academic year. The related 12

17 compensation has been coded with an earnings type of SUM, SUP, and AUX pay. SUP pay for teaching is generally used whenever the employee performs teaching duties beyond their regular assigned duties during their contractual appointment period. In this event, the employee is subject to annual hour limitations as provided in ASU s policies ACD and SPP , discussed earlier. The amount of compensation a faculty member may receive for teaching summer sessions is outlined in ASU s policy ACD Also, ASU s policy ACD is relevant to monitoring for proper compensation because it restricts certain employees from receiving additional pay for teaching. Specifically, the policy states that Faculty members who are employed as deans, unit chairs, or in other administrative positions [generally] do not receive extra compensation for teaching or lecturing Policies Relating to Teaching Activities We found that the policies relating to teaching activities outside of the employee s regularly assigned duties were not always adequate for the following reasons: o The existing policy does not address faculty compensation during the winter session term. A June issued by University College, School of Extended Education provides that during winter session faculty will be paid at the rate of $1,200 per credit hour when minimum enrollment of 25 has been met. No other formal documentation was found. o We could not determine whether the compensation structure provided in ACD policy applies to all compensation earned during the summer or whether the policy applies only to those classes administered by the Summer Sessions Department. Our judgmental sample of 88 employees included 21 employees who taught summer sessions classes during fiscal year Of those 21 employees, 10 taught classes not administered by the Summer Sessions Department. o Teaching classes that are outside of the employee s contractual duties and during the employee s academic or fiscal year appointment are supplemental activities that are subject to hourly limitations. However, there are no policies or guidelines to allow calculation of the extra hours worked based on the course taught; e.g. the number of extra hours equivalent to a 3 hour course, 6 hour course, etc. Such a policy or guideline is needed to assist 13

18 monitoring compliance to ACD (for academic personnel) and SPP (for non-academic personnel who teach classes). o We also noted that ASU s ACD policies and do not state what actions are to be taken in the event of noncompliance with the policies. Monitoring Compliance to Policies The compensation rates for ASU s policy ACD are dependent on the instructor s annual salary and the number of credit hours taught. However, HRMS does not provide information regarding the number of credit hours taught. Therefore, it is difficult and labor intensive to monitor compliance with this policy. We found we could not readily test compliance to ACD because we lacked the actual number of credit hours taught for our sample of employees. Compensation to Administrators for Teaching ASU Policy ACD states that faculty members who are employed as deans, as unit chairs, or in other administrative positions do not receive extra compensation for teaching or lecturing. Of the 88 employees from our judgmental sample, five employees received extra pay both for extra teaching activities and administrative tasks. At this time, HRMS does not identify those employees with administrative functions, e.g., departmental chairs; and, there are no policies that provide direction and remedies in the event there is non-compliance with this policy. Undefined Usage of SUM Pay The SUM pay category is the third major classification of pay for supplemental work effort for exempt employees. However, ASU has not formally defined the SUM pay category and the conditions under which the SUM pay category should be used to pay employees. Based on our test work, we determined that the SUM pay category was generally used to pay faculty and academic professionals teaching coursework during a summer session. However, we could not determine whether SUM pay was limited to classes administered by the Summer Sessions Department or should be used by other departments, such as University College, School of Extended Education, to report all instructional activities occurring during the summer. We noted one instance from our sample in which compensation for a class taught during the summer was coded to AUX pay, rather than SUM pay because the class was administered by the University College, School of Extended Education rather than Summer Sessions. 14

19 Recommendations: 8. Human Resources should work with the Office of General Counsel, the Office of Academic Personnel, Summer Sessions, and other units providing compensation for teaching during the summer and winter sessions to ensure that University policies provide relatively consistent and equitable compensation for teaching summer and winter sessions throughout the University for all employees, and that appropriate remedies are established in the event that policy limitations are exceeded. (Human Resources Response: Based on the approved policy revisions of the committee previously referenced, Human Resources will work with the Office of General Counsel, the Office of Academic Personnel, Summer Sessions, and other units providing compensation for teaching during the summer and winter sessions to ensure that compensation is equitable and consistent with ASU s policies. Anticipated implementation date is January Response from the Office of Academic Personnel: Officials agree. Please refer to the response provided for recommendation 4 for more details.) 9. Human Resources should consult with Summer Sessions, and possibly others such as University College, School of Extended Education to develop a monitoring system to ensure compliance to ACD and ACD This system would capture the credit hours and sessions of the classes taught. 10. Human Resources should develop a process to calculate hours worked for supplemental teaching activities that correlates with the compensation provided to the employee. This process should help to ensure compliance with SPP and ACD Human Resources should define the SUM pay earnings type and provide guidance on when it should be used. 15

20 (Human Resources Response: In response to recommendations 9 through 11, Human Resources will work with Summer Sessions and University College to draft procedures that cover the definition of SUM pay and the conditions of use. Also, it will work with these units to develop procedures to calculate the amount of extra compensation due the employee. The anticipated implementation date is January 2008.) D. HOURS REPORTED FOR PAYROLL EFFORTS REPORTED AS 9FA, 9/9, OR REG PAY We found that reported hours for regular pay, including 9FA, 9/9 and REG payroll earnings types, are often inaccurate and misleading. System limitations and clerical errors result in erroneous hours being reported in the payroll system. As a result, the hours reported in HRMS for regular pay cannot be used to calculate the employee s hourly rate. Specifically: o Whenever pay rate information is not properly entered into HRMS, erroneous regular hours may be reported. We have included Attachment B to illustrate this type of transaction. While these errors do not affect the amounts paid to the employees, the errors preclude timely and continuous monitoring of all payroll transactions. The erroneous hours also result in erroneous absence reporting and leave balances that require manual effort to adjust. Further, incorrect information is provided to employees on their payroll check stubs. o The current system does not report actual hours worked in the proper pay period nor does it reflect an actual hourly rate. Whenever the pay rate information is properly entered into the system, the system forces the hours reported for regular pay to reflect the total hours for the given pay period. Since absence and overtime reporting lag by one pay period, actual hours worked do not agree to hours reported in HRMS for the given pay period. We have included Attachment C to illustrate this situation. This situation also results in hourly rates that vary by pay period. o Similarly, the current system does not have a mechanism to report scheduled flex time accurately for non-exempt employees. ASU s 16

21 policies allow some employees to work eight 9-hour days, one 8-hour day, and take the tenth day off. However, the system forces the hours reported for regular pay to reflect the total hours for the given pay period resulting in actual hours worked during the pay period to be misstated. Therefore, while non-exempt employees work 80 every two weeks, the actual hours worked are not always recorded in the appropriate pay period. o HRMS does not provide a method to adjust pay or make lump sum payments without recording hours. Salary adjustments and retroactive pay are often entered into the system by recording one hour worked, resulting in misleading hours worked. o Annual hours reported for several faculty members in our sample who have an academic year contract but elect to be paid over a twelve month period (earnings code 9FA) were inaccurately recorded in HRMS. They were reported as working 2,080 hours rather than 1,560 because their payroll authorization forms reflect an FTE percentage totaling 100 percent for the entire fiscal year. As a result, at year end, HRMS would reflect these faculty members as exceeding the policy limitations. o Other erroneous hours may be recorded when earnings codes are not properly entered into HRMS by the operating units. Recommendations: 12. ASU has developed payroll policies to protect both the employee and the University. Payroll transactions should be monitored to ensure compliance with these policies, and the new PeopleSoft system should facilitate an efficient monitoring of transactions to the policies. The observations noted above should be considered during the implementation phase of PeopleSoft for ASU s payroll and resolved accordingly. (Human Resources Response: The OASIS Project Team will establish procedures and processes that will facilitate a proper monitoring of payroll transactions to ASU payroll policies, as they currently exist, by July 1, 2007.) 17

22 E. STANDBY DUTY Summary of Results There are two departments in our sample that pay for standby duty. These two departments did not adhere to ASU s Standby Duty Policy, SPP Background ASU Policy SPP establishes requirements related to standby duty. The policy states a department may establish a standby duty program due to critical life safety issues and when the practice of paying employees to standby is necessary in order to assure timely response. However, the department must obtain approval in writing from Human Resources to implement a standby duty program. Standby duty is coded as an overtime earnings type. Approvals of Standby Practices Two departments in our sample (KAET and Facilities Management and Development at the West Campus), representing seven employees in our sample, provide standby duty pay to non-exempt employees. The Facilities Management and Development Unit at the West Campus developed a written procedure approved by its unit management, on December 19, However, there is no evidence that the procedure was approved by Human Resources. The Unit justified standby duty by a need to respond to critical life/safety emergencies at the Central Plant. Four of the 88 employees sampled were paid for standby duty at the Facilities Management and Development Unit at the West Campus. These four Unit employees were paid $16,351 for 3,672 hours of standby for an average hourly rate of about $4.50. Regarding KAET, there is no evidence that KAET s standby duty plan was approved by KAET s management or by Human Resources. KAET officials told us they have a long standing practice of providing standby duty pay to employees on pager duty. The pay is issued to ensure a timely response in the event of any programming, equipment, or transmission failures. This standby duty is paid at the employee s regular hourly rate. Three of the 88 employees sampled were paid for standby duty at KAET. These three KAET employees were paid $40,143 for 1,950 hours of standby - for an average hourly rate of nearly $21. 18

23 Recommendations: 13. Human Resources should work with KAET and Facilities Development and Management at the West Campus to ensure that all standby practices are equitable. (Human Resources Response: Human Resources will work with departments who use standby pay practices to define the specific instances and rates that may be applied, and that those practices are equitable and cover all situations. Targeted completion date is May 2007.) 14. Human Resources should communicate the need for all ASU standby practices to be reviewed by Human Resources prior to implementation. (Human Resources Response: Communication with departments using standby practices must state that any use of such practices must first be cleared by Human Resources prior to use. This should also be noted in the policy during revision. Anticipated implementation date is December 2007.) F. OTHER MATTERS In addition to the matters discussed previously, we noted the following weaknesses that further contribute to the inability of timely and effective monitoring of payroll transactions at this time: o Critical fields in the data warehouse associated with HRMS are not accurate or are missing information, such as annual salary and benefitsbased salary. This information is useful to calculate or determine the reasonableness of hourly pay rates. o HRMS does not provide logical input checks for clerical errors, for example: -Hours reported for REG, 9FA, and 9/9 pay (including any absence reporting) should reconcile to the amount of hours available in a given pay period. 19

24 -Regular hours for faculty and academic professionals should be coded as 9FA or 9/9 to facilitate monitoring hours to ACD policies. We found one faculty member s time was coded as REG time which erroneously suggests that the employee s hours should be monitored to SPP policies -AUX pay should only be available to faculty and academic employees. -AUX pay should by used to report hours worked during the summer on grants. -SUM pay should only be paid for teaching assignments outside of the academic year. -SUP and AUX pay is only recorded when an employee has a regular salary from ASU (e.g., SUP and AUX should not be applied as an earnings type for temporary employees). -SUP pay for academic-year employees should only occur during the academic year. Recommendations: 15. Human Resources should ensure that critical historic payroll information is maintained. The information should be complete and accurate to facilitate central monitoring of ASU s payroll transactions. (Human Resources Response: The OASIS Team will establish procedures and policies that certify to the university that accurate payroll data will be available for historical reference and audit. Anticipated implementation date is July 1, 2007.) 20

25 EXAMPLE OF ERRONEOUS SUP HOURS ATTACHMENT A Below is an example of an Earnings Detail report from HRMS. This transaction represents a summer research grant paid from department funds. While the amount of SUP pay, $10,000, may be the proper amount to be paid, the report reflects less than one hour (.96 hour) of SUP pay for one pay period equating to compensation of more than over $10,000 per hour. The.96 hours is the result of the information taken from the employee s personnel action form (PAF) provided below. The employee s PAF indicates that this payment represents one percent of the employee s time for the pay period. Therefore, the hours charged to this account are calculated based on one percent (or.96 hours) of the total pay period hours (in this example, 96 hours). 1 of 2

26 ERRONEOUS SUP HOURS (CONTINUED) University Audit and Advisory Services This example covers an honorary stipend of $15,000 to be paid to the employee over the course of the entire year. While the amount of extra pay ($625) for the pay period is correct, the hours reported as worked are overstated. Based on the hours reported in the system (80 hours) for this supplemental activity, the employee s hourly rate for SUP pay appears to be about $8 per hour. The PAF for the stipend indicated that the employee would be working 100 percent of his time on this endeavor in addition to working 100 percent on his regular duties. Therefore, for each pay period covered by the second PAF, the system doubled the number of hours that the employee worked, e.g. for a pay period with 80 hours, the employee was reported as working 160 hours 80 hours at regular pay and 80 hours in SUP for the honorary stipend. Because of this overstatement in hours, analysis of SUP payments would result in this employee being erroneously identified as having exceeded policy limitations. 2 of 2

27 EXAMPLE OF ERRONEOUS PAY RATES ATTACHMENT B As shown below, the payroll system generates erroneous hours whenever the pay rate on the PAF (payment authorization form) is inconsistent with the individual s annual salary. The PAF below reflects an annual salary of $40,000. However, the pay rate of $ has been incorrectly entered into the system. The rate should be $1, based on 24 pay periods ($40,000/24). 1 of 1

28 EXAMPLE OF LEAVE CHARGES ATTACHMENT C The vacation and sick pay hours reported above were actually for absences during the pay period ended March 15, The employee was not absent for vacation or illness during the pay period ended March 31, Therefore, the hours reported as worked for this pay period should be 96 (the actual hours worked for the 12 days in this pay period.) However, because the vacation and sick absences lag one pay period, the system incorrectly reports only 80 hours worked for this pay period. 1 of 1