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HomeMy WebLinkAboutAudit Reports - Public - Citywide Compensation Adjustments Audit - 7/3/2018 Date: July 3, 2018 To: Kevin R. Phelps From: Candace MacLeod, City Auditor Subject: Citywide Compensation Adjustments Audit In accordance with the FY18 approved audit plan, the City Auditor’s Office conducted an internal audit of FY17 compensation adjustments in February 2018. I n FY17, the City’s authorized FTE count was 1,771, and wages, salaries and benefits comprised 50%, or $196 million, of the City’s $391 million operating budget. As such a significant expenditure for the City, it is important to ensure that controls and governance processes are appropriate. The report includes 20 audit recommendations to strengthen controls. Management concurred with all of the recommendations. Action plans have been developed to address the following items by an estimated date of December 31, 2019: • Developing a process to ensure compensation adjustments occurring throughout the year are reported to the Budget Office by Human Resources & Risk Management (HR) • Establishing a pay-for-performance process that effectively distinguishes between different levels of job performance • Strengthening controls to ensure employees and management are held accountable for completing and submitting annual performance reviews to HR • Updating HR policies to include class and compensation pay adjustments • Monitoring user access rights to compensation data and removing them when an employee terminates • Ensuring non-represented uniform, tool, and safety equipment allowances are justified and approved in accordance with HR policy • Cross-training HR staff to perform class and compensation and HRMS security- related duties • Formalizing how reclassifications are managed during the fourth quarter and reviewing controls to ensure they are budgeted at the correct job grade Attachment cc: Michael D. Bailey, City Attorney Jim Brown, Director of Human Resources and Risk Management Lisette Camacho, Assistant Director Budget and Finance Tom Duensing, Assistant City Manager Jack Friedline, Assistant City Manager Vicki Rios, Director of Budget and Finance Citywide Compensation Adjustments February 2018 ______________________________________________________________________________ _____________________________________________________________________________________ City Auditor’s Office 1 Citywide Compensation Adjustments Introduction As part of the FY18 approved audit plan, the City Auditor’s Office conducted an internal audit of FY17 compensation adjustments in February 2018. In FY17, the City of Glendale’s (City) authorized FTE count was 1,771 and wages, salaries, and benefits comprised 50%, or $196 million, of the $391 million operating budget. As such a significant expenditure for the City, it is critical to ensure that controls and governance processes are appropriate. The Human Resources and Risk Management Department (HR) is responsible for implementing and maintaining a classification and compensation program, policies, and practices. Compensation is defined by the City as payment to employees for work performed. The Classification and Compensation Division within HR assists with policy development and administration of the City’s classification and compensation program. HR Policy 301 outlines the duties and responsibilities related to compensation and classification that have been delegated to the HR director by the City Manager. The City Charter also details the powers delegated to City Council relating to compensation and the City Manager’s appointing authority. In addition to the 2.5% across the board increase and pay changes resulting from the Segal Waters Consulting Classification and Compensation Study (C&C Study) for non- represented employees, there were approximately $3.68 million in compensation adjustments in FY17 as summarized in Table 1. Table 1 – FY17 Compensation Adjustments HR Pay Reason No. of Employees Impacted FY17 Changes in Compensation Salary Adjustment 48 $255,075 Appointment* 5 $100,093 Assignment Pay 54 $86,075 Promotion* 82 $625,016 Reclassification 5 $33,613 Specialty and Stability Pay - Public Safety MOUs** 389 $1,942,056 Step and Market Adjustment - Public Safety MOUs 614 $641,977 Total 1,197 $3,683,905 *Represents the difference between the employees’ annual salary before and after the appointment or promotion. The FY17 compensation changes do or not reflect budgetary savings to the City. Out of the five appointments and 82 promotions, 44(51%) represent a budgetary savings to the City of $375,919, 24 (28%) represent in a budgetary increase to the City of $160,275, and 19 (21%) were budgetary neutral. A cost to the City equals the excess of the annual salary after the appointment or promotion over the amount budgeted for the position. A savings to the City equals the excess of the amount budgeted for the position over the annual salary after the appointment or promotion. **Includes: HazMat; medic; K9; incident safety; HALO; motor squad; special investigations; and other types of specialty pay. ______________________________________________________________________________ _____________________________________________________________________________________ City Auditor’s Office 2 Citywide Compensation Adjustments Purpose and Objectives The purpose of the audit was to determine whether controls are in place over adjustments to employee pay to ensure it is accurately calculated, properly approved, and correctly reported in accordance with City policies and procedures. Scope and Methodology The scope of the audit was July 1, 2016 to August 8, 2017. To gain an understanding of the applicable processes, policies, and procedures, we interviewed staff from Budget and Finance and HR. We also sampled different types of compensation adjustments and reviewed various documents including: • Access and user rights to compensation data • Budgets and financial reports • City Charter, policies, and procedures • Compensation spreadsheets and forms provided by HR and Budget and Finance • Public Safety MOUs • Segal Waters Consulting C&C Study (March 2016) Observations, Recommendations, and Management Responses Our testing identified the following observations: 1) A process was not in place to report salary adjustments due to pay inequities identified by the C&C Study, appointments, and promotions to the Budget Office throughout the course of the year. In 2015, the City engaged Segal Waters Consulting (Segal) to perform a C&C Study and evaluate the competitiveness of pay for all non-represented employees. The results of the C&C Study were provided to HR and City management in March 2016 and reported to City Council during the FY17 budget process with an estimated salary impact of $3.1 million. Segal provided HR with an Excel spreadsheet that detailed employee compensation adjustments as a result of the C&C Study. The original estimated impact was $3.1 million; however, a total of $2.9 million was submitted to the Budget Office in May 2016 to prepare the FY17 budget. Staff reported that the decrease was due to director review of the results and employment changes. Furthermore, actual salary impacts input into the HRMS system as a result of the C&C Study totaled $2.6 million due to additional department review and attrition. Although HR communicated that employees with one year of service would be eligible for the 2.5% across the board increase, in addition to any salary adjustments, approximately $84,353 was not budgeted for employees receiving C&C adjustments. Staff reported that this was due to a misunderstanding in how the across the board increase would be applied. ______________________________________________________________________________ _____________________________________________________________________________________ City Auditor’s Office 3 Citywide Compensation Adjustments In June 2017, the Budget Office began receiving budget errors relating to certain departments or divisions whose actual salaries exceeded the budgeted amounts, and therefore, not allowing payroll to post. Budget pulled the current HR salary information from HRMS in June 2017 and noted various changes to employee salary amounts. A verification and reconciliation of the data provided by HR for the FY17 budget load and the current reported salary costs indicated a variance between the two amounts. Budget contacted HR and was informed that the differences related to employee compensation adjustments authorized after Segal’s Excel spreadsheet was provided to Budget in 2016. The changes included promotions, appointments, and salary adjustments due to pay inequities identified through discussions with department directors after the C&C Study was completed. The variance also included the 2.5% across the board increase that was not budgeted for employees receiving C&C adjustments. Potential Risk: High – Controls were not in place to ensure compensation adjustments occurring throughout the year were provided to the Budget Office for budgeting, monitoring, and reporting purposes. This resulted in increases not being applied to certain departments for budgeting purposes. Recommendation 1.1 HR ensure compensation adjustments occurring throughout the year are reported to the Budget Office in a timely manner. 1.2 HR and Budget and Finance enhance communication to ensure pay increases are correctly budgeted. Management Response 1.1 Concur. With regard to the statement of the Budget Office experiencing “budget line item errors relating to certain departments or divisions whose actual salaries exceeded the budgeted amounts”, this is common and may occur as normal hiring and terminations take place within a department during the course of a fiscal year. For example, this can occur when an employee is promoted to a higher salary than the previous incumbent, when a vacancy within a department is filled at a salary higher than the midpoint of the range (which is how vacant positions are budgeted), when a position is reclassified to a higher level, or when a salary inequity occurs that, per HR Policy 301, requires a salary adjustment. These issues have historically been addressed with Council in the 4th quarter of each fiscal year, however there is not a process currently in place between HR and the Budget Office where these changes are communicated. Going forward, HR will provide updates to the Budget Office that details any promotions or salary adjustments as they are approved. That process will go into place immediately. 1.2 Concur. HR will communicate with the Budget Office prior to the Council’s budget process in the spring of each year to ensure pay increases are budgeted correctly. ______________________________________________________________________________ _____________________________________________________________________________________ City Auditor’s Office 4 Citywide Compensation Adjustments 2) Compensation adjustments are not linked to performance. HR Policy 301, last updated in 2017, states that the City is committed to establishing and maintaining compensation practices that will attract, retain, and motivate the highest quality employees necessary to accomplish the City’s mission. These practices include promoting a performance system in alignment with the organization’s mission and strategic priorities that is motivating and effectively distinguishes between different levels of job performance. HR Policy 501, last updated in 2008, states that the HR Director will develop and implement a performance and planning appraisal system to encourage the individual development of each employee’s full potential. The system provides for a structured, consistent method that encourages maximum employee performance in an objective, impartial manner. Per policy, all regular classified employees shall receive an annual performance review. The C&C Study identified at least four Valley peer employers that indicated employees progressed through the pay range based on individual performance. The C&C Study also reported that the City needs to think about whether it should link compensation with performance. Considerations included setting goals based on alignment with organizational priorities, measuring performance, and rewarding employees based on the accomplishment of goals. Additionally, the City was provided with guidelines to consider for performance-based merit increases including rewarding higher performing employees with larger merit increases. However, City pay adjustments are not currently tied to employee performance. Additionally, although employees are required to receive annual performance evaluations, only 82% of employees had performance evaluations submitted to HR in FY17. Furthermore, class and compensation pay adjustments are not referenced in City compensation policies; however, they are addressed through the budget process. Potential Risk: Moderate – Salary expenditures are a significant portion of the City’s budget. A pay for performance program can be instrumental to retaining key talent and rewarding high-performing employees. When employees are recognized for their efforts through increased compensation, they will be more likely to be engaged and continue working at their best to help the City achieve its strategic objectives. Furthermore, if non-performing employees receive the same pay increases as high achievers, there is the potential that it could impact morale. Lack of performance incentives can impact productivity, quality, turnover, and job satisfaction. If policies are not documented, they can be applied inconsistently, and increase the risk that management’s expectations are not met. Recommendation ______________________________________________________________________________ _____________________________________________________________________________________ City Auditor’s Office 5 Citywide Compensation Adjustments 2.1 The City Manager’s Office, in conjunction with HR, review HR Policies 301 and 501 as it relates to promoting a pay-for-performance system in alignment with the City’s strategic priorities. 2.2 The City Manager’s Office, in conjunction with HR, strengthen controls to ensure all employees and management are held accountable for completing and submitting annual performance reviews to HR, in accordance with policy. Additionally, it is recommended that performance reviews be submitted to HR, in accordance with policy, prior to the approval of compensation adjustments. 2.3 HR review and update compensation policies, in consultation with City management, to include class and compensation pay adjustments. Management Response 2.1 Concur. The City Manager’s Office and HR concurs that HR Policies 301 and 501 should be reviewed. However, the 2015 Classification and Compensation Study was not and should not have been tied to HR polices referencing a performance system. HR Policy states that “the HR Director will develop and implement a performance and planning appraisal system to encourage individual development of each employee’s full potential”. That system is currently in place and has been for several years. Although the policy is in place, it has become ineffective since non-represented employees received no salary adjustments from 2009 – 2013 (5 years). In fact, non-represented employees received a 5% temporary reduction in pay in ’09 and ‘10 and a 2.5% temporary reduction in 2011. Salaries were not reinstated to their 2008 levels until 2012 and no salary increases, or market adjustments were authorized until 2014. At that time, it was determined by the City Manager and approved by Council that a 2.5% across-the-board salary adjustment regardless of performance would be included in the five-year budget forecast until a classification and compensation study could be completed and employees could be brought closer to the appropriate market rate of pay. This direction was provided in the April 8, 2014 Council Workshop and approved in the FY15 Budget. This finding accurately states that the Classification and Compensation Study conducted by Segal was not tied to performance to get employees back to a fair market rate of pay. It’s important to note that even if the City was practicing pay for performance during that time it would have had no bearing on the adjustments for employees. Employees were found through the Segal study to be under market and per the established and approved criteria for this process, which did not include performance, were appropriately adjusted. There were no performance increases associated with the C&C study, therefore whether employees were high, medium, or low performers had no bearing on any of the approved adjustments. While HR agrees that pay-for-performance is important and necessary, HR recognizes that pay for performance is only one of several tools that an ______________________________________________________________________________ _____________________________________________________________________________________ City Auditor’s Office 6 Citywide Compensation Adjustments organization uses to engage, reward, and retain its employees. The City went from a non-represented employee turnover rate of over 20% in 2013 to less than 7% today as a result of addressing some key factors such as correcting compensation issues through the C&C study, creating employee engagement groups, and an employee wellness program. The City’s turnover data directly conflicts with the risk factor assumption made that the lack of a pay-for- performance system impacts turnover. As the City works to complete its strategic plan, a pay-for-performance program will be created that’s in direct alignment with the City’s plan and will be one of several tools used to engage, reward, and retain employees. While it’s uncertain when that plan will be completed, an estimated timeframe would be by July 1, 2019. 2.2 Concur. HR will work with the City Manager’s Office to ensure performance reviews are completed in accordance with policy. HR will submit a report to the City Manager’s Office in June of each year listing all employees eligible for a performance review that do not have one completed. If a pay-for-performance process is utilized, all merit or pay-for-performance compensation adjustments will be based on the employee’s performance review, other compensation adjustments identified by policy that are not based on performance will be made accordingly. 2.3 Concur. HR took appropriate compensation policy changes to the Personnel Board on March 29, 2018. Those changes have been recommended for approval by the Board and have been submitted to the City Manager for review and further action. 3) Access to compensation data is not adequately monitored. PeopleSoft HRMS is the City’s primary system for tracking compensation data. The system stores compensation and other personal data for employees and is utilized for changing job data and salaries. An analysis of a sample of users with system access to PeopleSoft HRMS identified the following: • Two users had the ability to view citywide pay data, although that access was not required to perform their job responsibilities. • Thirteen users were identified as either terminated or transferred, and no longer required access to the system. Two queries were run in 2017 to identify terminated employees that should be removed from the HRMS access list. • Numerous users were identified with multiple and generic IDs. Reviews of user IDs are not periodically performed to eliminate duplicate or unneeded IDs. • There were 486 active reason codes to adjust pay, some which were never used or were duplicative. There is no periodic review of HRMS access permissions and roles. IT had provided a Change Report to HR; however, the report stopped working in April 2017 and no further reports were received in FY17. Procedures requiring routine reviews of users with access to compensation data have not been formalized. Additionally, there were no specific ______________________________________________________________________________ _____________________________________________________________________________________ City Auditor’s Office 7 Citywide Compensation Adjustments controls identified that would detect an unauthorized transaction or a change in compensation and who made that change. Furthermore, audit logs are not generated to review users, their access rights, and any changes or corrections made in the system. There is no active monitoring of access requests to ensure adequate segregation of duties. Since audit logs are not generated, auditors were unable to review them to test whether compensation data was inappropriately changed in the system. Potential Risk: High – PeopleSoft HRMS contains highly sensitive personal compensation information and personally identifiable information (PII). If access is not restricted appropriately, there is a risk that personal information is inappropriately accessed or unauthorized changes occur. Recommendation 3.1 HR strengthen controls to ensure terminated and transferred employees’ access rights are removed immediately. 3.2 HR implement a process to evaluate users’ access rights to ensure that only appropriate individuals have access to the system. Consideration should be given to assigning access rights to a position based on job duties, versus a specific employee. 3.3 HR develop controls to review employees with multiple user IDs and eliminate the ones that are no longer needed. 3.4 HR review reason codes and prospectively inactivate any duplicative or unused codes. Management Response 3.1 Concur. HR is reviewing all access to the PeopleSoft (PS) system to ensure appropriate security levels are in place. As we work to develop processes and systems in SimpliCity, we expect this to be simplified and more easily monitored. HR is currently reviewing the process of employee terminations to ensure a review of PS access is conducted and access is modified or eliminated as appropriate. It may not be appropriate in some cases if a transferred employee’s role requires the same access. The review of PS access and any corrections required will be completed by the end of June, 2018. 3.2 Concur. HR is currently reviewing all employee access to the PS system to ensure appropriate levels are in place. This should be completed by the end of June. In some cases, a department may have multiple support positions that don’t all require the same PS access. In cases like these, it’s difficult to simply determine access by position. HR will work with departments on ensuring appropriate access is granted, modified, or removed as necessary. A revised process should be in place by the end of July, 2018. 3.3 Concur. There are a few employees who may require multiple roles for access to perform their duties. As indicated in Recommendation 3.2, HR is reviewing all employee access to ensure appropriate levels are in place. This should be part of the revised process in 3.2 above which will be in place by the end of July, 2018 ______________________________________________________________________________ _____________________________________________________________________________________ City Auditor’s Office 8 Citywide Compensation Adjustments 3.4 Concur. As part of the move from PS to Simplicity, reason codes that are no longer being used will be eliminated. This will be complete with the implementation of SimpliCity, estimated in January, 2019. 4) Testing identified uniform and other allowances paid to certain employees were missing required requests and justifications. In FY17, the City paid over $1.53 million in uniform, tool, and safety equipment allowances to employees. HR Policy 301 states that department directors must send a list of all positions eligible for uniform, tool, and safety equipment allowances to HR, including the justification for the allowance amount to be paid to the employee. HR clarified with the auditors that an approved memorandum of understanding (MOU) is the authority for paying uniform allowances to represented employees, as referenced in HR Policy 301. Auditors reviewed 258 uniform allowance payments and determined the following: • 26 (10%) non-represented employee requests were provided by someone other than the department director and did not include justification for the allowance amount. • 33 (13%) non-represented employee payments were made in November 2016, before the department provided justification in January 2017. • Four non-represented employee allowances were paid without any department request on file with HR. • One non-represented employee received a $94 allowance in error without any department request. Auditors reviewed 21 tool allowance payments and determined the following: • All requests were provided by someone other than the department director and no justification was provided. • One allowance totaling $437 was paid without any department request on file with HR. Furthermore, HR Policy 301 does not state how often lists and justifications should be provided by the department to HR. Additionally, caps have not been established for tool and uniform allowance amounts for non-represented employees. Currently, department directors set the amounts based on their needs. Potential Risk: High – Allowances could be inaccurate without caps or paid in error without appropriate levels of review, approval, and justification. Misunderstandings and confusion can occur if policies and procedures are not documented. Recommendation 4.1 HR clarify HR Policy 301 regarding the documentation and authority required to process non-represented uniform and safety equipment allowances. ______________________________________________________________________________ _____________________________________________________________________________________ City Auditor’s Office 9 Citywide Compensation Adjustments 4.2 HR strengthen controls to ensure non-represented uniform, tool, and safety equipment allowances are processed in accordance with HR Policy 301. 4.3 HR work with City management to establish caps for non-represented tool and uniform allowances. Management Response 4.1 Concur. Out of the $1.53 million in uniform, tool, and safety equipment allowances provided by the City, $1.3 million is attributable to represented employees. For that process, once the MOU is approved as part of the budget, it is considered to be the authority for authorizing all employees represented by that MOU the allowances provided within that document. No authorization is needed from either Chief in order to pay those allowances. $82,548 was spent for Public Safety sworn management who require uniforms. HR has a memo from the City Manager that authorizes uniform allowances to be paid for those individuals. $87,000 was paid out for non-sworn personnel in Public Safety, and the remainder was for non-represented employees outside of Public Safety. While the HR Policy states that department directors must send a list of all positions eligible for these allowances, HR has been receiving reports via emails from authorized department support staff of employees residing in the positions that require these allowances. HR will require the department director be copied on those emailed reports going forward. HR will clarify Policy 301 regarding documentation and authority required to process non-represented allowances (non-represented does not receive safety equipment allowances) by July 1, 2018. 4.2 Concur. Effective immediately, HR will require all documentation received regarding non-represented employee allowances to include authorization from the department head or designee prior to input into the PS system. 4.3 Concur. As HR revises procedures in the transition to SimpliCity, we will review the new systems capability of setting appropriate caps for all employee allowances. This will be complete with the implementation of SimpliCity, estimated in January, 2019. 5) HR staff is not cross-trained to perform class and compensation and HRMS security- related duties. Staff should be cross-trained to perform essential job functions, including those relating to classification and compensation and HRMS security. Staff are not cross-trained to perform the duties of the HR program manager, which is a highly technical position. This position was responsible for reviewing all class and compensation adjustments resulting from the C&C Study. An HR business analyst is responsible for setting up HRMS user access and security roles, as well as making corrections to pay data. However, there is no secondary review of corrections made to pay data. Furthermore, staff are not fully cross-trained to perform the duties of the HR business analyst. ______________________________________________________________________________ _____________________________________________________________________________________ City Auditor’s Office 10 Citywide Compensation Adjustments Potential Risk: High – Lack of adequately cross-trained staff can reduce data integrity, increase the risk that errors go undetected, and increase the risk of business interruption. Recommendation 5.1 HR ensure staff is cross-trained to perform class and compensation and HRMS security-related duties. Management Response 5.1 Concur. The positions listed in this finding are highly technical in nature and require advanced technical skill sets. With regard to the HR Program Manager reviewing the Class and Comp study, employee salary data was provided to Segal and they entered that data into a spreadsheet that contained formulas for the criteria used for pay adjustments. The data populated into that spreadsheet by Segal was reviewed by both the HR Program Manager and the Assistant HR Director prior to being uploaded into the PS system. While there were multiple levels of review for that specific process, HR still does not have another employee that possesses the technical skill sets of the class and comp Program Manager. The same is true for the HR Business Analyst. HR will begin cross-training with the Class and Comp Program Manager and the HR Business Analyst to provide better review processes for our critical functions. Cross- Training will take some time as both positions are focused on the SimpliCity implementation currently. We should be able to complete cross-training in the critical functions by the end of 2019. 6) Testing identified one job reclassification that was budgeted and approved by Council at one grade lower than was reported on the approved PA form. HR Policy 301 states that salary adjustments may be appropriate to address employee retention, department restructuring, and internal inequities. The amount of any salary adjustment shall be approved by the HR Director and the City Manager. HR Policy 301 also states that any adjustment that occurs because of a reclassification and/or salary grade change must be approved by City Council and a position may be reclassified because of a job study. Auditors reviewed a sample of 20 salary adjustments. Testing identified one reclassification that included a promotion and appointment that was budgeted at grade 318, one grade lower than the grade of the reclassified position on the approved PA form (grade 319). The reclassification was approved by City Council during the annual budget process; however, the approved job grade was one level lower than reported on the PA. Although not required by policy, job studies were not performed for four reclassifications included in the audit sample. HR reported that job studies were not required for any of these positions. Two reclassifications were at the director level and HR assigned grades based on an internal analysis. One reclassification received an informal study, and the other position included an appointment with a salary adjustment. According to staff, and although not documented, reclassifications ______________________________________________________________________________ _____________________________________________________________________________________ City Auditor’s Office 11 Citywide Compensation Adjustments occurring in the fourth quarter are included in the budget in the upcoming fiscal year and not separately brought forward to City Council. Potential Risk: Moderate/High – City Council may not be fully apprised of fourth quarter job reclassifications and the associated dollar impact if this information is not highlighted during the budget process. Lack of written procedures can reduce consistency and transparency. Recommendation 6.1 Budget and Finance, in consultation with HR, formalize and communicate how reclassifications are managed during the fourth quarter. 6.2 HR, in consultation with Budget and Finance, review controls to ensure reclassifications are budgeted at the job grade on the approved PA form. Management Response 6.1 Concur. HR does conduct either formal or informal job studies for all reclassifications depending on the level of work required to have an accurate job description and market match. There are times when it’s appropriate to do internal market reviews and matches as well. HR does provide reclassifications done during the year to the council for review. If the reclassification takes place in the last quarter, HR requests that the department bring that change forward to Council in the budget process as a supplemental budget request. Effective immediately, HR will work with Budget and Finance to have the departments bring forward reclassifications as supplemental requests in their budget presentation. 6.2 Concur. All PAs pass through a few layers of review to ensure accuracy. HR will review controls with Budget and Finance to ensure PA data is appropriate. Review will be completed by July 1, 2018. 7) Testing identified two employees that received assignment pay for more than two and five years, respectively. In accordance with HR Policy 301, employees are eligible for temporary assignment pay if they perform duties of a higher classification due to a vacancy or extended leave of absence, or duties significantly different than, and in addition to, their normal duties. This compensation is 5% of the employee’s current base pay or 10% at the director level or above. All assignments shall have a specified end date no later than 90 days from the date assigned or termination of the assignment. Requests to extend assignment pay beyond 90 days must be submitted and approved by the HR Director. All requests must specify the reason for the extension and the anticipated end date of the assignment. ______________________________________________________________________________ _____________________________________________________________________________________ City Auditor’s Office 12 Citywide Compensation Adjustments In FY17, 54 employees received assignment pay for a cost of $86,075. Of these 54 employees, we noted that one employee received assignment pay for two and a half years, and a second employee, for over five years. Out of a sample of 15 employees receiving assignment pay, we noted the following: • Three employees received assignment pay without written department justification. • Seven employees received assignment pay without their department providing an end date. In these cases, HR staff entered an end date of 90 days from the request date. Potential Risk: Moderate/High – Assignments are no longer temporary if they extend for years, potentially resulting in budget implications and policy compliance issues. The risk of error increases if the term of the assignment pay is not accurate, documented, or properly justified. Recommendation 7.1 HR strengthen controls to ensure departments provide written justification and end dates for temporary assignment pay. 7.2 HR, in consultation with City management, re-examine assignment pay to employees that has been extended for a significant period outside of what is outlined in policy. Management Response 7.1 Concur. Effective immediately, HR will strengthen controls to ensure appropriate justification accompanies the Personnel Action Forms required for assignment pay to be approved. When SimpliCity is implemented on January 1, 2019, this process will be paperless and in a workflow format which will be much more efficient and easier to monitor. 7.2: Concur. HR will work with City management to determine limits on pay considered to be temporary in nature. If the duties of the position have significantly changed, then a reclassification may be the more appropriate solution. This will be completed by July 1, 2018. 8) The method used to calculate stability pay upon termination should be further clarified. HR Policy 301 states that stability pay will be prorated monthly, as appropriate, and provides no further guidance to staff on calculating payments upon termination. Additionally, written procedures have not been developed to further explain how stability pay is calculated upon termination. During a review of a sample of employees’ final stability payments, we noted that calculations were based on an employee working a whole month. Staff could not explain why the policy was written to prorate stability pay monthly. ______________________________________________________________________________ _____________________________________________________________________________________ City Auditor’s Office 13 Citywide Compensation Adjustments Potential Risk: Moderate/High – Policies that are open to interpretation may result in inconsistencies and confusion. Recommendation 8.1 HR, in conjunction with Budget and Finance, clarify HR Policy 30l regarding the calculation of stability pay upon termination. Management Response 8.1 Concur. HR Policy 301 and the process simply should be clarified. HR Policy 301 states “Upon termination, stability pay will be prorated on a monthly basis as appropriate.” Actual final stability payments were calculated consistently. However, HR will work with Budget and Finance to determine what they feel are appropriate calculations for stability pay and will clarify those calculations in policy and to the organization by July 1, 2018. 9) Systems used to process compensation adjustments are inefficient and labor intensive. Currently, HR must manually calculate and enter pay changes into Excel spreadsheets, which are then uploaded in PeopleSoft, with or without secondary levels of review. Additionally, pay related errors identified in both HR and Budget and Finance are not logged for quality control and assessment of performance. A sample of 72 pay related exceptions was reviewed and identified two employees (3%) whose pay rate was incorrectly entered in HRMS. These errors were identified by Budget and Finance and corrected at the end of the pay period. Furthermore, additional pays were missing from employee pay checks in FY16 due to limitations in the current HRMS system. In FY17, HR and Budget and Finance developed a work around to ensure employees received the correct amounts of additional pay in their pay checks. Additionally, the current system lacks functionality and provides very limited reporting capabilities for compensation data. Potential Risk: Moderate/High – System limitations increase the risk of error and reduce reliability and efficiency. Recommendation 9.1 HR develop controls to ensure the new system reduces manual entries, performs quality control checks, accommodates multiple types of pay to employees, and includes management reporting capabilities. Management Response 9.1 Concur. HR agrees that the current system is labor intensive and difficult to pull data and conduct quality control checks. As SimpliCity is implemented, HR will ______________________________________________________________________________ _____________________________________________________________________________________ City Auditor’s Office 14 Citywide Compensation Adjustments work to develop controls to ensure reduction of manual entries as well as other processes that create more efficiency and accuracy with regards to HR processes. This will be ongoing through the implementation of SimpliCity with an estimated completion of January 30, 2019. 10) Compensation policies and procedures need to be developed or updated. Throughout the course of our audit, we observed that there were many policies and desktop procedures that were either outdated or not formalized including: • Compensation: calculation of pay changes, pay corrections, data entry, completion of Personnel Action Forms as it relates to the types of salary adjustments, levels of secondary review required, and reconciliation procedures • PeopleSoft HRMS security: account set-up, changes, termination, periodic review of users, access rights, roles, and permissions Potential Risk: Moderate - When policies and procedures are not formalized, there is an increased risk of error, misunderstanding, and inconsistent application. This also increases the risk that appropriate internal controls established by the policies and procedures are not properly implemented. Recommendation 10.1 HR review and update compensation policies and procedures and train staff. Policies and procedures should be electronically stored in a central location for ease of access by staff. Management Response 10.1 Concur. HR currently stores policies electronically. New procedures will be necessary once SimpliCity is implemented. Procedures will be updated and stored accordingly, and staff will be trained as appropriate. This will be completed with the implementation of Simplicity estimated January 30, 2019.