AUDIT COMMITTEE MEETING 18 JUNE, 2020
B.2 .2 ICAC Report: Managing corrupt conduct during the COVID-19 Outbreak, April 2020
AUDIT COMMITTEE MEETING 18 JUNE, 2020
Recruitment has largely ceased unless considered necessary.
Minor adjustments have also been made to the GM’s delegations (approved by Council 14/04/20), however Council is still meeting.
The impact of the current pandemic has been reported to Council (14/04/20) – Attachment 1.
Summary of Key Findings
Issue/Risk identified by the ICAC
Apply to THSC? Has THSC addressed this Risk?
Risks associated with working from home
Yes (180 staff) Yes – Managers and staff are using various IT platforms to keep in contact; Timesheets are being completed and reviewed where relevant;
appropriate asset records are being maintained where relevant.
Risks associated with procurement and purchasing
Yes Yes – Councils
procurement processes have not changed.
Councils IT platforms are available to staff working remotely which enables the controls inherent within the systems to remain in place.
Councils purchasing guidelines are in place.
Another procurement- related risk is the theft of stock and other agency assets. In particular, individuals could take advantage of workplace disorder and the physical absence of staff to engage in theft. The Commission has already received a report detailing allegations that a public official has stolen toilet paper and hand sanitiser from the workplace and advertised the products for sale online.
Yes Yes - Council’s property
team is monitoring the use of hand sanitiser and toilet paper and has not identified any unusual activity. Concierge is still in place at the Council Columbia Court premises.
Regular rounds of Councils facilities are being undertaken by the Civic
events team.
Stores/stationary is also being monitored. Security patrols in place and are being monitored by the property team.
Risks associated with cyber fraud and online hoaxes
This is being monitored by the IT unit. Awareness emails have been forwarded to all staff. IT are preparing training for distribution across Council to reinforce awareness Changes to bank accounts
(staff and suppliers)
Yes Yes – monitored by the
Manager Finance and reviewed by IA
Risks associated with stimulus funding and new programs
Yes Yes – controls are still in place as Council operates as ‘business as usual’.
Council is still meeting.
Maintaining public sector Yes Yes – awareness emails
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values and ethics have been distributed to all staff.
Based on the observations made by relevant managers, the controls in place appear to be mitigating the risks highlighted by the ICAC
Actions identified which can
improve Councils Processes
As the consequences of the pandemic are clarified it is expected that the impact on the Council may also change. As a result the abovementioned actions by Council may no longer be relevant, or the controls may no longer be effective.
As a result IA has developed a suite of tests that are being undertaken on a regular basis (weekly/monthly- where relevant) to identify that key controls are in place and effective on an ongoing basis – refer D4. Exceptions will be reported to Management
Conclusion Key risks identified by the ICAC are being addressed. These will be monitored on an ongoing basis.
Conclusion
For the information of the Audit Committee, the results of the review were considered:
Satisfactory Key risks identified are being addressed. These will be monitored on an ongoing basis
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AUDIT COMMITTEE MEETING 18 JUNE, 2020
B. 2. 3 Payroll
Audit Number 12Reason for Audit
(Objective)
Payroll was identified in the Internal Audit Plan for 2020. The rationale for this was based on the risks associated with factors such as:
Contractual provisions: The Award and EA;
Financial exposure: Incorrect payment of agreed rates; false timesheets and salary related anomalies (rostering, overtime, phantom employees);
Fraud and Corruption: The large sums involved in the payroll function make it a significant target for theft and fraud. Areas of risk include integrity of information on which the payroll is based; security of money transfers and the security of information
The primary objectives of this review were to ensure:
The completeness, accuracy and validity of the information on which the payroll is based;
The security of payroll information;
Payroll payments accurately reflect the terms and conditions of employment and Council records are complete, accurate and Council only pays valid employees.
Review overtime payments
There is no conflict of interest between Council employees and suppliers.
Introduction and Background
Payroll is the payment of wages, salaries, benefits, allowances and any other monies entitled to staff working in the Council. Payroll conditions are outlined in the Local Government Award 2017 and EA4 (Enterprise Agreement 4). Council’s payroll function is run in-house.
The audit of payroll is undertaken annually to ensure timeliness.
The last audit performed was to 30 June 2019 by the Audit Office. The Audit Office review covered the period from 1 June 2018 to 30 June 2019.
One recommendation concerning payroll was identified by the AO. This concerned exception reporting with respect to changes to the Payroll master file.
This recommendation has been addressed by Management.
Scope and Method
The review was conducted in March 2020 and covered the period from 1 July 2019 to 28 February 2020. Monthly monitoring will continue throughout 2020 to ensure timely review.
Method:
Review compliance with key controls within the payroll system by using computer assisted audit techniques to undertake the following tests. All payroll transactions in the period were reviewed as part of this audit.
Tests:
A. Employees and Vendors (Conflict of interests)
1. Identify matching vendors and employees by bank account and ensure that appropriate controls are in place to mitigate any conflict of interest
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AUDIT COMMITTEE MEETING 18 JUNE, 2020
(COI’s).
2. Identify matching vendors and employees by address and ensure that appropriate controls are in place to mitigate COI’s.
B. Employee Master (Completeness and accuracy)
3. Identify employees with missing hire date. Follow up with HR/Payroll.
4. Identify active and casual employees with hire date older than 12 months.
5. Identify duplicate employees by name 6. Identify duplicate employees by address 7. Identify duplicate employees by TFN
8. Identify duplicate employees by bank account C. Payroll (Validity and accuracy)
9. Identify basic pay changes per month – hourly rate, base salary 10. Identify multiple payments (weekly payments)
11. Identify payments to non-employees 12. Identify possible duplicate payments
D. Other
Long term higher duties
Overtime payments
Review the classification of payroll information in the Councils systems to ensure that it is appropriately classified and is secure.
E. Follow up on observations and recommendations made by the AO in the THSC management letter and relevant reports.
Summary of Key Findings
Key Data (period is prior to COVID-19):
Comparison of financial year data (extracted from Councils audited financial statements):
Year
Salary and Wage s ($K)
% of Rev #
Bud FTE
Active FTE ^
Sal/w ag per active FTE ^
($K) Residents Ave Res per FTE
Ave Res for per FTE 2018/19
44,413 15% 564 518 85.7 175,028 310 338 2017/18
42,963 15% 568 519 82.8 170,828 300 329
2016/17
42,472 16.5 566 512 82.9 162,525 287 317
2015/16
42,891 15% 591 532 80.6 159,119* 269 299
2014/15
41,295 11% 575 540 76.5 187,703 326 348
*Loss of 28,300 residents or 15% of the population due to boundary changes
# Salary and wages as % of the total income from continuing operations (audited)
^ Active FTE is the budgeted FTE less vacancies at the reporting date (FTE – full time equivalent employees in salary structure)
On average the Council payroll area processes approx. 33,000 payroll transactions pa. In the period audited approx. 21871 payroll transactions were
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processed. Payroll is run weekly. The payroll area consists of 2.5 staff.
Payroll activity in the period to from 1 July 2019 28 February consisted of:
Gross Salaries (including payments to Councillors): $35,056,692
Overtime paid: $682,443 (9,707 hours)
Comparison of the Councils payroll data with previous time periods (i.e. 1 July to 28 February):
Net Pay
Year Net Pay Net change
2020 $ 23,916,907.29
4.5%
(increase) 2019 $ 22,873,403.81 4% (increase) 2018 $ 21,990,880.45
At 28/02/2020:
Test A1 and A2: No exceptions noted.
Test B3: No exceptions noted.
Test B4: 48 Casual employees were identified as having >12 months employment. No duplicates noted.
Test B5 – B8: No exceptions noted.
Test C 9: Basic pay changes agreed to supporting documentation. No exceptions noted.
Test C 10: No exceptions noted.
Test C 11: No payments to non-employees through payroll (other than Councillors).
Test C 12: No duplicate payments noted.
For 90 employees pay grade changes were identified in the period reviewed. A random number of employees whose grade changed (5) were selected using a random number generator and verified with respect to supporting documentation. All changes were appropriately approved.
No staffs were on longer term paid higher duties at the time of review.
Overtime:
Overtime $'s
2020 $ 682,443.25 -23% (decrease) 2019 $ 891,700.73 1% (increase) 2018 $ 884,465.74
Overtime (Hrs)
2020 9,707.74 -26% (decrease) 2019 13,056.32 1% (increase) 2018 12,953.18
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The total overtime hours paid in the time period was $682,443 (9,707 hours – this is the equivalent to 8 F/T staff). These figures represent a 23% decrease on the overtime paid in the corresponding period in the previous year.
On average in the period reviewed:
31 hours of overtime (average) was paid in the period to the 311 staff who received overtime payments (previous review: 46 hours average).
10 staff was paid greater than 150 hours overtime. The highest amount of overtime paid was 205 hours (Pavement engineer – undertaking night works). The 10 staff members who received overtime >150 hours worked predominantly in the Capital works/civil works/ Storm water engineering areas (in comparison in 2017/18, 7 staff received 250 hours or more overtime, predominantly in the infrastructure/place management areas).
When last audited, Management were reviewing the level of overtime being incurred across Council and identifying strategies to reduce amounts incurred. The review of current overtime amounts incurred indicates that the strategies implemented have been successful.
Classification of payroll information: No exceptions noted.
Conclusion Payroll records are accurate, valid and complete.
Since the last review in 2017/18 Management have successfully implemented strategies to reduce overtime in a time when the number of residents to staff ratio is rising. One of these successful strategies appears to be offering new staff a package arrangement rather than a salary where overtime would be payable.
Potential continuous improvement: implement an online overtime approval process rather than rely on a paper based system.
Conclusion
For the information of the Audit Committee, the results of the review were considered:
Satisfactory Effective system is in place.
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AUDIT COMMITTEE MEETING 18 JUNE, 2020
B. 2.4 Recruitment and Terminations
Audit Number 21
Reason for Audit
(Objective)
Recruitment and Terminations was identified in the Internal Audit Plan for 2020.
The primary objectives of this review were to ensure that Councils recruitment and termination practices are efficient, effective and economical reflecting Councils legislative requirements and best practice.
Introduction and Background
Recruitment has been Identified as a high risk by the ICAC; and a medium risk within the Councils ERM system (R000133- The recruitment process does not appoint on merit or organisation fit) - at February 2020. The termination process is not listed in the Councils ERM.
As identified by the ICAC:
‘if recruitment selection processes are questionable or corrupt, then agencies are unlikely to be able to recruit or keep people who will improve the ethical climate of the agency’. It is essential that favouritism, nepotism, and other conflicts of interest do not influence recruitment and selection processes.
Improperly conducting recruitment and selection can constitute corrupt conduct as defined by the Independent Commission Against Corruption Act 1988. Corruption- free recruitment and selection helps to "set the tone" for the whole agency (https://icac.nsw.gov.au/preventing-corruption/knowing-your-risks/recruitment- and-selection/4303 )
The Local Government Act (S348-354A) outlines the provisions concerning staff.
With respect to recruitment the Act requires (in particular):
348 Advertising of staff positions
(2) When it is proposed to make an appointment to a position within the organisation structure of the council, the position must be advertised in a manner sufficient to enable suitably qualified persons to apply for the position.
(3) This section does not apply to:
(a) the re-appointment, under a new contract, of a senior staff member, or (b) the appointment of an employee if the term of employment is for:
(i) not more than 12 months, or
(ii) two or more periods that together are not more than 12 months in any period of 2 years.
349 Appointments to be on merit
(1) When the decision is being made to appoint a person to a position:
(a) only a person who has applied for appointment to the position may be selected, and
(b) from among the applicants eligible for appointment, the applicant who has the greatest merit is to be selected.
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(2) The merit of the persons eligible for appointment to a position is to be determined according to:
(a) the nature of the duties of the position, and
(b) the abilities, qualifications, experience and standard of work performance of those persons relevant to those duties.
These principles are consistent with the NSW Public Sector Workforce Office that advises ‘that merit selection is designed to ensure that positions are filled on the basis of merit is fundamental to the recruitment and selection of employees in the public sector. To ensure that the best person is selected, public sector agencies need accurate information about the skills, training and qualifications of applicants’.
Scope and Method
The last audit performed was to 30 June 2019 by the Audit Office. The Audit Office review covered the period from 1 June 2018 to 30 June 2019. There were no audit recommendations resulting from their review.
This audit was conducted in March 2020 and covered the period from 1 July 2019 to 28 February 2020. Monthly monitoring will continue throughout 2020 to ensure timely review.
Method:
Audit reviewed:
Relevant recruitment/termination policies and procedures and their implementation
Using random and selective sampling, to review:
Advertising
Conflict of interest processes
Supporting documentation including qualifications/checks
Delegations
Temporary appointments including use of contract hire companies
Rates of pay
Induction and probationary processes
Summary of Key Findings
Key Data: For the period from 2013 to current:
Year
Terms
*
Recruitm ent
Vacancies at YE +
FTE (incl Vacancies)
^
Retention
rate Turnover
2013 580 93.8 6.2
2014 577 92.02 7.98
2015 81 77 46 575 90.44 9.56
2016 85 78 52 591 87.72 12.28
2017 125 70 53 566 87.05 12.95
2018 87 75 45 568 87.15 12.85
2019 116 88 46 564 85.02 14.98
2020 78 95 10 months
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*Terminations in the period
+ Vacancies at the yearend (positions not filled)
^ Full Time Equivalent staff number (not including vacancies)
Overall the Audit concluded that Council’s recruitment and termination procedures reflect the requirements of the Local Government Act 1993 and associated regulations. Testing undertaken identified:
HR policies and procedures available to staff on the Councils portal were up to date and reflected Council legislative requirements.
Based on the sample of recruitment and terminations in the period, appropriate documentation was maintained in Councils systems and delegations were in place.
Exit data (summarising why staff have left) is not formally maintained for all staff, however the HR area is aware of why staff are leaving the Council.
Other Observations:
Staff turnover is increasing (retention rate is decreasing).
The number of residents per FTE is increasing.
In the 10 months, the areas where the most terminations occurred were in the Library (8); Development assessment (6); Child Care and Civic Events (5); Project Development and HCC (4).
Council is currently implementing a module within the Councils Finance system to manage councils HR processes. The implementation of this system will be reviewed separately by Internal Audit.
Conclusion Council’s recruitment and termination processes satisfy Councils legislative requirements.
Conclusion
For the information of the Audit Committee, the results of the review were considered:
Satisfactory Effective system is in place.