Analysis - Department of Education

’I
Government of Newfoundland and Labrador
Office of the Comptroller General
Professional Services and Internal Audit Division
Department of Education
College oftlte North Atlantic
-
Review
ofSalary Calculationsfor Qatar Employee
Cofltracts to be Renewed in August 2010 and January 2011
June
10,2010
Submitted to:
Darrin Pike
Deputy Minister
From
Ronald A. Williams, CA,Comptroller General of Finance
Intemal Auditors
Approved by:
Dave Hill, CA,Director
Reviewed by:
Brian O’Neill, CA,Manager
Prepared by:
Jonathan Mahoney, CA, Senior Intemal Audit Officer
TABLE OF CONTENTS
Page
Contents
Introduction.
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Confidentiality.
Risk Profile..
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Role of Management...
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Scope and
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Objectives...................................................................
of
Analysis Findings...........................................................................
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Summary..................................................................................
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Base Salaries.
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Audit
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Special Allowance......................................................................
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Overseas Premium.
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Cost of Living Allowance.............................................................
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Per diems.........
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Closing Comments..............................................................................
Appendix A: Process Documentation.
Appendix B: Summary of Review Findings, Related Risks and Recommendations..
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11
INTRODUCTION
The Professional Services and Internal Audit Division (PSIA)has completed
a
review of
by the
College ofthe North Atlantic (CNA)for employees working in the State of Qatar (Qatar).
the process for preparing salary calculations for contracts CutTently
being renewed
CNA operates under the authority of the College Act, 1996 which also sets its mandate.
The College’s Board of Governors (the Board) is appointed by the Lieutenant-Governor
in Council. The Board is responsible for carrying out those duties prescribed
subsection
by
15(1)of the Act. These powers include general administration, academic and
governance functions. Section 16 ofthe Act fulther empowers the Board to carry out a
variety of discretionary functions including various human resource management
activities. Sections 17 through 25 prescribe the Board’s accountability for the
administration ofthe College’s finances.
CNA
or
cUl1’entIy has an agreement with Qatar called the Comprehensive Agreement (CA
the Agreement). This Agreement outlines the tel1’llS of reference under which CNA is
to provide services to
deliver academic programs and administration for a campus located
in Doha, Qatar. This campus, refened to as College of the North Atlantic Qatar (CNAQ),
is a separate legal entity which exists outside of CNA. The campus has programs that
academically and professionally by the same agencies that accredit
the con’esponding programs at CNA. As a palt of the CA,CNA is responsible for
recruiting, employing, and managing all administrative personnel, faculty and staff for
theCNAQ.
would be accredited
(JOB).This Board is to consist of
4 members appointed by Qatar, 4 members appointed by CNA and 3 additional members,
independent representatives of the academic and business community to bejointly
appointed by both parties. The role ofthe JOB,under the CA,is to provide oversight in
Atricle 5 ofthe CA establishes
a
Joint Oversight Board
respect of:
1.
2.
3.
4.
5.
specifying academic programs of CNAQ;
specifying student enrolment targets;
specifying and approving training and research programs;
specifYing and approving relationships between CNAQ and business and
Government agencies in Qatar;
overseeing the periodic review and evaluation of the quality of operations and
academic programs;
6.
7.
8.
reviewing and approving each Annual Plan and Budget as described
assisting in dispute resolution as per Article 11 of the CA; and
other duties as assigned by mutual agreement of both parties.
in the
CA;
The process for which
employee compensation is calculated is described in Appendix
A
ofthis Report. Under the CA, Qatar is to reimburse CNA for all direct labour costs
exceeding the corresponding line
items in the approved annual plan or budget. Under the Agreement, CNA is also to
receive a management fee from Qatar for managing CNAQ equal to 10% of actual base
salary costs and an additional 25% of base salary to cover employer costs of employee
benefits. Between 2005-2008, Annexes to the Agreement were signed to clarify some of
the language surrounding these calculations.
incurred in the perfOlmance of the Agreement without
A number of Qatar employee contracts are due to
expire in 20I 0 and 20II. CNA recently
contracts for these employees. It was noticed that some
began the process of drafting new
employees were receiving aggregate remuneration in excess of amounts reimbursable
under the CA. These excess amounts had not previously been identified by CNA and as a
result CNA had over charged Qatar for salaries and related management fees and fringe
benefits. This error was brought to the attention of the Qataris in March 2010.
It is CNA’s responsibility to quantify the error
so
that a reimbursement can be made to
the Qataris. This Report wiII focus on the salary calculations currently
contract renewals to provide assurance they
being drafted
for
are in compliance with the CA. A separate
report is being completed that will examine the decision process as to how the
overbillings occurred as well as a review ofthe reimbursement that CNA has calculated.
Readers should refer to this separate RepOlt for more detailed information on this issue.
Included in this
RepOlt are a risk profile, an outline of the role of management, an outline
objectives, an analysis of the significant findings, and our
of our review scope and
recommendations to remediate identified gaps.
CONFIDENTIALITY
Under subsection 12.1.1 of the CA,"No public announcements, press releases or any
fOlm ofpublic statements or discussions in respect of the contents of this Agreement shall
be made by the Contractor (CNA)without the prior written consent of Qatar as to the
form,content, timing of and forum of any such public statements..."
Subsection 12.1.2 [(lither goes on to state: "In the course of their performance under this
Agreement, the Contractor may have access to and may acquire and/or generate
belonging to Qatar. The Contractor and each person or agent to
confidential information
whom the Contractor
provides access to confidential information shall keep all
confidential intbnnation supplied by or on behalf of Qatar 01’ generated by the Contractor
01’ any agent thereof in connection with this Agreement in the strictest of confidence."
2
Subsection 12.5 states: "This Agreement shall be
governed by and interpreted in
accordance with the laws ofthe State of Qatar."
The contents of this Report deal with confidential infonnation. The Department of
Education as well as CNA must consider the confidentiality clauses ofthe CA when
making any public statements or assessing requests under the Access to Information and
Protection ofPrivacy Act (ATIPPA).
RISK PROFILE
CNA is responsible for implementing controls that mitigate the following significant
risks present in completion ofthe salary calculations to be included in the agreements
with
employees.
Risks due to:
Administering salary calculations in compliance with the telms ofthe CA;
.Accuracy of salary calculations;
.Consistency in applying the CA to salary calculations;
.Compliance with Canada Revenue Agency legislation; and
.
Compliance with the laws of Qatar.
.
ROLE OF MANAGEMENT
Management within CNA is responsible for designing internal controls to mitigate the
inherent risk noted above and to meet the following objectives:
Employee compensation in compliance with the CA;
Billings to Qatar include all reimbursable amounts, and only amO\lIlts
reimbursable under the CA;
.
.
Employee classification is conect; and
.Efficiency and effectiveness of processes.
.
Fm1her, management is responsible for ensuring that the intemal controls operate
eft
ctively and continuously.
AUDIT SCOPE AND OBJECTIVES
The
objective of this Report is to review proposed salary calculations for the employee
contracts that are due for renewal in
August 2010 and Jammry 2011
to assess whether
3
they are consistent and in accordance with the CA. To test this, PSIA reviewed a sample
of employee salary calculations for compliance with the CA. As well, this sample was
traced to the con-esponding employee files and contracts to ensure the information used
in the calculations was correct. A new signoff sheet has been implemented by
management to ensure that not only human resources staff, but other appropriate
management are verifying the information on the employee contracts. PSIA also checked
these signoffs to ensure they are now being completed with all contract renewals.
We have not reviewed the qualifications and experience criteria to determine whether
employees were placed
on
the con-ect salary classifications and steps, as such matters
are
considered to be outside the scope of our review.
salary calculations were reviewed based on assumptions provided by management
our own assessment as to the reasonableness of these assumptions. These
assumptions have not been discussed with the Qataris for their approval.
The
and
In
addition, the CA is govemed under the laws of Qatar. We have not reviewed these
laws.
Where necessary, we have consulted with the Department of Justice to assist in
interpreting the CA.
ANAL YSIS OF FINDINGS (A Summary of Review
Recommendations is
provided
in
Findings, Related
Risks and
Appendix B)
Summary
Based upon the results of our review procedures and assessment ofmanagement’s
assumptions, all salary calculations appear to be in accordance with the intent ofthe CA
and Annexes with the exception ofCNA’s withholding of6% ofthe 12.25% cost of
living allowance which they advise is to cover an end of service compensation due under
Qatar law. This split ofthe COLA was not brought to the JOB for approval.
employees are to receive 15% special allowance when
CNA’s policy for these people would be to offer them 10%. CNA advised us that this
policy was only effective after these contracts were offered to employees. The policy we
We noted 48 contracts where
reviewed
was
in draft format and did not indicate an effective date.
Per diems are being
paid
to
Canadian Resident employees directly by the Qatar campus,
not tlu’ough CNA’s payroll in Newfoundland. This does not appear to be consistent with
the Canada Revenue
Agency’s original ruling on per diems and also results in a loss of
4
control over the processing ofpayments to CNA employees which CNA is responsible
for.
Finally, this review covers
199 contracts (out of approximately 600 employees). Over the
next few years, there will be several hundred more contracts to be
suggested that new agreements not extend beyond the expiry
2013) until a new CA can be signed.
signed/renewed. It is
(August
date of the CA
Base Salaries
Salary calculation working papers provided by CNA listed 199 contracts which are due
for renewal in August 2010 and January 2011 (85 residents and 114 non-residents). To
test the process in place with regards to salary calculations, PSIA selected a sample of 20
contracts from this list (10residents and I 0 non-residents). These calculations were
examined to test that they were being completed in accordance with the CA. These
calculations were reviewed to ensure:
employee information, including classification and total salary is consistent with
information in the employee file;
.
resident/non-resident status is verified;
.
salary calculations are within limitations of the CA;and
being completed and verified by the appropriate individuals.
.
.
the overall process is
The employee classification on the salary working paper was agreed to the employee pay
scales to ensure the starting point for the calculations is correct and to their letter of offer.
No
exceptions were noted. It is noted
that letters of offer show the total salary with
no
breakdown ofthe components.
Every employee working in Qatar is classified as either a resident or a non-resident of
Canada as defined by the Canada Revenue Agency (CRA).The status per the salary
working papers was agreed to the employee contract. No exceptions were noted.
only be a maximum of
the individual salary budget as per the approved annual plan or budget. In the case of
instructors, this is $73,935 CAD.PSIA scanned the entire list of renewals to look for
As explained in Appendix A, the management fee base (MFB)can
individuals with base salaries in excess oftheir allowable maximum. There
a base
was one
above the maximum. This person is
salary
salary structure and therefore this is allowable under the
CA.For all other positions, PSIA traced their base salary to the 2009/2010 budget to
ensure they were correct. No exceptions were noted.
instance of an employee receiving
"grandfathered"under the old
5
Special Allowance (SA)
Calculation of the SA for Canadian residents (refer to
tested to
Appendix A for description) was
ensure that, one; it did not exceed 15% of the MFB, and two; that when added to
the MFB,the MFB
plus the SA did
not exceed
$85,000. No exceptions were noted.
noted, however, that all 85 resident employees were receiving a full 15% SA
regardless of their years of experience. Under Annex I of the CA,existing employees as
at July 3, 2005 are to receive a SA of exactly 10%. All employees after that date are to
It was
receive 10% to 15% based upon experience and qualifications. No instances were noted
of employees hired prior to this date receiving a special allowance in excess of 10%.
3,2005 we were advised by CNA that they recently implemented a
Qatar would receive the 15%
policy
and everyone else would receive 10%. Ofthe 85 residents, 48 of them were noted as
For hires after July
that employees with greater than 3 years service in
having less than three years service as at their contract renewal dates but had their SA
calculated at 15%. This was discussed with CNA and it was explained that the new policy
was meant to be effective after these contract offers were made. The draft policy
provided by CNA did not indicate an effective date. It is recommended that policy
changes be fOlmally approved by the appropriate levels within the organization prior to
their implementation.
Overseas Premium (aSP)
The 25% OSP was recalculated
on
the MFB to ensure it was correct. No
exceptions were
noted.
Cost ofLivingAllowance (COLA)
Annex X ofthe CA states that a 12.25% COLA is to be paid to all
employees. Current
calculations show that only 6.25% is actually being paid to employees as part of their
regular bi-weekly pay. The remaining 6% is to be billed to the Qataris and put in reserve
for what is called an "end of service compensation." We are advised by CNA
management that under Qatar law, employees are entitled to an end of service gratuity (of
approximately 5.77%)to be paid when an employee leaves their place of work. Neither
the CA nor the annual budget contemplates tills. We have been informed that CNA has
been successfully sued by tlu’ee employees claiming this payment. When the COLA was
approved, management witilln CNA decided to withhold 6% ofthe total 12.25% for this
purpose. We were advised that tills practice was known throughout management however
we saw no evidence that this decision was brought before the JOB. CNA advises that
some employees are aware that this amount is being withheld.
6
,
,
I
Per diems
It is important to note that in the case of Canadian residents, $15,000 is deducted from
total salary and
paid to employees as a "per diem".
From review of con-espondence from CRA,their original ruling on this issue was based
upon paying a per diem allowance for residents working in Qatar of $30 US, for every
day that the employee was in Qatar. The current policy being used by CNAQ is $60 per
day to a maximum of$15,000 per year (based upon 250 days). A former Vice President
ofthe Qatar Project, provided us with emails from Emst & Young in St. John’s (who
originally advised CNA on this matter) stating that in their experience, the current
practice ofpaying $60 per day would be considered reasonable in the eyes of CRA.
being paid by the Qataris, in the local cUlTency
(Qatari Riyal). This is done for two main reasons: first, the employees prefer this as they
do not have to be concemed with exchanging the funds themselves; and secondly the
tracking of attendance in and out of Qatar is maintained at the Qatar campus.
The per diem allowance is cUl1’ently
As per the original ruling from CRA
CNA which is further stated to be
a
on
April 29, 2002,the "employer"is defined as
Canadian resident corporation. As these payments are
being made to the employees directly by CNAQ,which is a separate legal entity, there is
risk that these payments are not being made as contemplated in CRA’s ruling. In
addition, the employment contracts are signed between the employees and CNA and
therefore CNA is responsible to these employees to ensure these payments are accurate.
By having a pOliion ofthe employee compensation paid out by a separate entity, CNA
loses control over the processing ofthese payments and would be the responsible party if
there are any
en-ors
in per diem payments.
It is recommended that CNA revisit this current practice
by obtaining updated tax advice
legislation. Further, CNA should establish the
necessary processes and intemal controls and begin making these per diem payments
themselves through the CNA payroll administered in Stephenville.
to ensure
they are in compliance with
CRA
CLOSING COMMENTS
A summary of our detailed
Appendix
findings, along with
our
recommendations, are set out in
B to this RepOli.
We thank the management and staff of both CNA and the
Department of Education for
the co-operation and support extended to us during this review.
8
Process Documentation
Appendix A
The employee contract process is initiated when
current
a new
(Summary)
employee has been hired or when
employee contracts are up for renewal.
prepared, the process will begin with the job
classification. Once the job classification is given based on the employee’s education and
experience there is a base salary for which uplifts are given. There are two separate
but not
uplifts given to faculty to reflect raises that had been given to CNA staff in NL
updated in the scales used for Qatar employees. The total uplift is either 18.25% or
28.25% as engineering and trades workers are given an extra 10% increase due to a
When each employee contract is being
by CRA), $12,000 is then added to
the employee’s base salary for a per diem (when the 25% overseas premium is applied to
the base, this amount becomes grossed up to $15,000). For non-residents, $12,000 is
market evaluation. For Canadian residents (as defined
added
as a
non-resident adjustment.
salary, uplifts and per diem/non-resident allowance forms what is
called the Management Fee Base (MFB),which can only be a maximum ofthe salary as
this amount is $73,935.
per the approved annual budget. For instructors,
The total of the base
A to
Special Allowance (SA)introduced in 2005 is defined in section 2 of Schedule
Annex I. It is applied to the base salary and is 10% of the MFB for existing employees as
hired
at July 3, 2005 (date of Annex I) and can be 10% to 15% ofMFB for employees
after that date. Percentage to be determined based upon qualifications and experience. SA
is available for Canadian residents only. CNA’s CUlTent policy is that new hires receive
10% SA and once an individual reaches three years experience in Qatar, they receive
The
15% SA.
to
Cap is defined in section 3 of Schedule A to Annex 1. The cap did not apply
existing employees as at July 3, 2005. The cap is defined as being on the total of base
staft~
salary plus SA and can not exceed $85,000 for instructors and $60,000 for sUppOl1
The Salary
(OSP)of25% ofMFB is added to the employee’s salary. This
amount is outside of the cap and outside the MFB (ie. no management fees are charged
JOB approved budget.
on OSP). This is budgeted as a separate line item in the alillual
An Overseas Premium
(COLA)was introduced effective September 1,2008 as
base salary and is not a part of the MFB (ie.
pel’ Annex X. It is defined as 12.25% of
Outside the cap, no management fees on COLA). In practice, employees are receiving
6.25% as pm1 ofthe bi-weekly pay and the remaining 6% is being put aside as an end of
The Cost of Living Allowance
’
service
compensation.
9
The total of the above is the employee’s compensation. Ofthis, for Canadian residents,
$15,000 is subtracted from the total and is paid to the employee as a tax-free per diem.
This is paid outside the regular payroll process.
signoff sheet related to the renewal of employee contracts was just completed to
ensure that each contract was prepared by a human resources staff member and checked
by another staff member. This is then signed off by the human resources executive
director and verified by the Vice President of Finance.
A
new
employee contracts have a sign-off sheet as well and have been recently updated to
be more comprehensive to include a more extensive approval process. While the old form
only included the employees educational requirements, pay scale and salary offer, the
new form includes this as well as the calculation of any uplifts, per diems (ifnecessary),
special allowances (ifnecessary), overseas premium and cost of living allowance. The
new fonn also includes separate sign-offs for human resources staff to check the fonn, as
well as sign-off and verification by the Executive Director of Human Resources and the
New
Vice President of Finance.
10
11
ApendixB
has
RECOMNDATIS
AND
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REVI W
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13
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14
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