Public Accounts Committee — ar 2013

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Newfoundland and Labrador — Committees

Report to the House of Assembly On Reviews of Departments and Crown Agencies January 2014 AUDITOR GENERAL of Newfoundland and Labrador

Office of the Auditor General Newfoundland and Labrador The Auditor General reports to the House of Assembly on significant matters which result from the examinations of Government, its departments and agencies of the Crown. The Auditor General is also the independent auditor of the Province’s financial statements and the financial statements of many agencies of the Crown and, as such, expresses an opinion as to the fair presentation of their financial statements.

VISION The Office of the Auditor General is a highly valued legislative audit office recognized for assisting Members of the House of Assembly in holding Government accountable for the prudent use and management of public resources. Head Office Location 15 Dundee Avenue Suite 201 Mount Pearl Newfoundland and Labrador Canada Mailing Address P.O. Box 8700 St. John’s Newfoundland and Labrador Canada A1B 4J6 Telephone: (709) 729-2695 Fax: (709) 729-5970 Email: oagmail@oag.nl.ca Website: www.ag.gov.nl.ca/ag Regional Office Location 1 Union Street Corner Brook Newfoundland and Labrador Canada

15 Dundee Ave., Mount Pearl, Box 8700 ♦ St. John’s, NL ♦ A1B 4J6 ♦ (709) 729-2695 Email: terrypaddon@oag.nl.ca 1 Union St., Corner Brook, Box 2006 ♦ Corner Brook, NL ♦ A2H 6J8 ♦ (709) 637-2295 January 2014 The Honourable Ross Wiseman, M.H.A. Speaker House of Assembly Dear Sir: In complian ce with the Auditor General Act , I have the honour to submit, for transmission to the House of Assembly, my Report on Reviews of Departments and Crown Agencies for 2013. Respectfully submitted, TERRY PADDON, CA Auditor General AUDITOR GENERAL of Newfoundland and Labrador

Auditor General of Newfoundland and Labrador Table of Contents, January 2014 TABLE OF CONTENTS

Chapter Part Page 1 Comments of the Auditor General 1 2 Our Office 3 3 Reviews of Departments and Crown Agencies Department of Health and Community Services  Eastern Regional Health Authority  Fee-For-Service Physicians: Audit Process 3.1 3.2 5 81 Department of Justice  Fines Administration 3.3 115 Department of Municipal and Intergovernmental Affairs  Waste Management Strategy 3.4 137 Department of Natural Resources  Cranberry Industry Support  Oil Royalty Monitoring 3.5 3.6 165 193 Department of Transportation and Works  Bridge Inspection and Monitoring  Contracted and Chartered Air Services 3.7 3.8 213 239

Table of Contents, January 2014 Auditor General of Newfoundland and Labrador TABLE OF CONTENTS Intentionally Left Blank

CHAPTER 1 COMMENTS OF THE AUDITOR GENERAL

Auditor General of Newfoundland and Labrador

Chapter 1, January 2014 1 Comments of the Auditor General This is my second report, as Auditor General, on Reviews of Departments and Crown Agencies. This report reflects the work of the Office of the Auditor General over the past year focusing on specific programs within Government departments and agencies. A separate report is issued related to the Consolidated

Summary Financial Statements for the year ended March 31, 2013. The Auditor General Act requires that I report, at least annually, to the House of Assembly on the work of the Office. This report, and the report on the Consolidated

Summary Financial Statement of the Province, fulfill the requirements of the Auditor General Act. We plan our work based on a risk assessment of various programs administered by Government departments or through crown agencies. We also receive inform ation and requests from individuals outside our office which we evaluate to determine whether we will undertake work in a particular area.

This report provides recommendations resulting from our review of the following 8 different programs and crown agencies:  Eastern Regional Health Authority  Fee-for-Service Physicians: Audit Process  Fines Administration  Waste Management Strategy  Cranberry Industry Support  Oil Royalty Monitoring  Bridge Inspection and Monitoring  Contracted and Chartered Air Services The information is provided to Members of the House of Assembly for their consideration.

Recommendations contained in this report ar e intended to strengthen the overall level of accountability within Government and help ensure a greater level of stewardship of public money. I look forward to continued collaboration with the Public Accounts Committee as they consider the recommendations contained in this Report.

Chapter 1, January 2014 Auditor General of Newfoundland and Labrador Comments of the Auditor General I wish to acknowledge the coop eration and assistance that my Office has received from Government departments and agencies during the c onduct of our reviews. I also wish to thank the staff of the Office of the Auditor General for their support, dedication and professionalism throughout the year. TERRY PADDON, CA Auditor General

CHAPTER 2 OUR OFFICE

Auditor General of Newfoundland and Labrador

Chapter 2, January 2014 3 Our Office The Office of the Auditor General operates fr om two locations - Mo unt Pearl and Corner Brook. The staff of the Office contribute, as a team, in the preparation of the January 2014 Report on Reviews of Departments and Crown Agencies.

The following is the staff of the Office of the Auditor General as of December 31, 2013: Nicole Abbott Stephanie Lewis, CA Marc Blake Ruochen Li Paul Burggraaf, CAPM Michael MacPhee, CA Greg Butler James Mallard, CGA Keith Butt, CA Adam Martin, CA John Casey, CMA Jayme Martin, CA Jeff Cook Leif Martin, CA Gertrude Critch Trevor McCormick, FCGA Tony Dingwell, CA Patrick Morrissey Lisa Duffy, CA Melissa Mullaly, CMA Robert George Jessica Nugent, CA Gregg Griffin Tracy Pelley, CMA Cayla Hillier Thomas Pritchard, CA Jeremy Hynes Pauline Reynolds, CMA Brenda Kavanagh Sandra Russell, CA Trena Keats, CA Allison Simms Aman Khanna Lindy Stanley, CA Nancy King Brad Sullivan, CA Melissa Lewis Scott Walters, FCA Tony Wiseman

Chapter 2, January 2014 Auditor General of Newfoundland and Labrador Our Office Intentionally Left Blank

CHAPTER 3 REVIEWS OF DEPARTMENTS AND CROWN AGENCIES

PART 3.1 DEPARTMENT OF HEALTH AND COMMUNITY SERVICES EASTERN REGIONAL HEALTH AUTHORITY

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 5 Eastern Regional Health Authority

Summary of Findings Introduction The Eastern Regional Health Authority (the Authority) is a Crown agency reporting to the Department of Hea lth and Community Services (the Department). The Authority is responsible for the delivery and administ ration of health services and community services in its health region an d provincially as designated by the Minister. Our review was completed in December 2013 and covered the period April 1, 2011 to March 31, 2013.

The objectives of our review were to determine whether: 1. absenteeism was properly monitored and effectively managed and leave and overtime were properly monitored and recorded; 2. compensation and recruitment practices were in accordance with Government and Authority policy; 3. purchases complied with the Public Tender Act and Regulations; 4. the Authority was adequately monitoring its financial position and operations; and 5. capital assets were monitored and controlled. Findings Monitoring of Financial Position 1.

The Authority required $74.9 million in additional funding by the Province and incurred an $8.3 million budget deficit, despite the approved budget increasing 22% during the past five years. 2. Position approval processes are not c onsistent with Government policy, despite the Minister’s direction to align them.

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority 3. The creation of a new position does not require the Authority to ensure that funding is available for the new position. Compensation and Recruitment 4. Non-physician job competition files did not contain evidence of Director/Site Administrator approval to recruit an employee and were missing screening documentation and applicant assessments resulting from the interview process and were, therefore, not in accordance with Authority policy, Government policy, and best practices. 5.

During 2012, there were 132 individuals in receipt of both a Provincial Government pension and a salary from the Authority. In fact, two of these individuals held two positions with the Authority while in receipt of a Provincial Government pension. Where individuals were employed by the Authority while receiving a pe nsion, we found instances where no documentation was available to show that preference had been given to hiring persons other than those in r eceipt of a pension, as directed by Cabinet. 6.

The Authority provided signing bonuses that were beyond that allowed in the Department’s Salaried Physician Qu ick Reference Guidelines (2006) and the Physician’s Services Memorandum of Agreement (2009-2013). In addition, the Authority provided a si gning bonus to a phy sician beyond the date at which they were told to discontinue the practice by the Department of Health and Community Services. 7. No return-in-service agreements are in place for physicians who received reimbursement of relocation costs.

Therefore, the costs would not be recoverable if the physician were to l eave before the end of their two year term. 8. The relocation policy is not being followed for both physicians and non- physicians. Therefore, individuals are being reimbursed for amounts higher than to which they are entitled. 9. The classification of some manageme nt positions subsequent to the amalgamation of the health boards in the eastern region in 2005 did not occur until 2013.

The signi ficant delay resulted in 123 employees being paid at higher than necessary amounts for more than six years after they were placed in management positions with the Authority at the end of 2006, at a cost in the range of $3.6 million to $4.7 million. Because red circling was delayed, other compensatio n benefits such as pensions and severance will also be higher.

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 7 Eastern Regional Health Authority 10. Additional workload benefits are compensation payments provided to physicians for additional workload due to vacancies. One physician received $1,473,528 in additional worklo ad payments over a period of approximately 11 years relating to a vacant position that the Authority had never advertised and does not intend to fill. Authority officials indicated that the physician had the same workload as other physicians, in this specialty, employed by the Authority. 11.

Educational differentials were bein g paid to executive and management employees although the education require ments were part of the position requirements and, therefore, would alr eady have been included in the pay scales. This is inconsistent with Government policy. 12. An employee received reimbursement for personal vehicle usage related to travel to and from work, result ing in reimbursement of $2,364 for the year ended March 31, 2013. This is not in compliance with Authority policy. 13. An employee received reimbursement fo r personal vehicle usage without approval. 14.

The Authority was not always decl aring positions redundant on a timely basis. Leave and Overtime 15. There is a lack of effec tive oversight to ensure that employees annual and paid leave is properly approved and documented. Without this oversight, there is a risk that the leave bala nce is overstated and will cost the Authority more than which the empl oyees would have otherwise been entitled. 16. Annual and paid leave ar e not being adequately monitored to ensure required leave is taken, carry forwar d and usage complies with policy and collective agreements, and the leave accr uals database is accurate.

The Authority has recorded approximately $8.5 million in unused leave to be carried forward and used or paid in subsequent years, which is inconsistent with collective agreements. 17. At March 31, 2013, 712 employees have taken annual or paid leave beyond which they are entitled with a total cost of $192,541.

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority 18. There is a lack of effective oversight to ensure that employee sick leave is properly approved and documented. 19. Sick leave expense of the Authorit y is approximately 20% higher than that of Government on a relative basis. 20. There is a lack of effective oversight to ensure that overtime is properly approved and documented such as to decrease the risk of unauthorized overtime worked and the risk that employees are being compensated for overtime hours beyond those worked. 21.

Callback overtime is when employees are called back to work outside their regular shift hours. Employees receive a minimum of three hours overtime pay at the prescribed over time rate. Callback unworked is the portion of a callback shift that is unworked. Callback unworked was 48% of the total callback overtime. This resulted in an expense of $1.7 million (2012 - $1.6 million) for overtime hours that were not actually worked. 22. Of 229 callback shifts we reviewed, there were 106 shifts (46%) in which employees had, for example, multiple callback shifts within 90 minutes.

In one instance, for example, an employee whose annual salary was $61,831 received overtime pay of $51,887 that was unworked overtime. 23. The management overtime policy is not consistent with Government policy, despite the Minister’s direc tion to align policy with that of Government policy. The Authority incurred a $0.9 million expense related to leave in lieu provided to manageme nt. This was not in accordance with Government policy. 24. The education leave policy of the Authority is not consistent with Government policy. Internal Controls 25.

Current Authority controls are not adequate to prevent or detect fraud or error in areas of purchasing. For example:  inadequate authorization and review of purchase orders;  lack of monitoring of final tender costs compared to awarded costs;  lack of controls over user access to purchase orders;  no dollar limits on spending authorization for employees; and  an overall lack of oversight of the purchasing process by the Materials Support Department

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 9 Eastern Regional Health Authority 26. The purchasing function was being perf ormed by individuals outside of the Material Support Department. There were 243 users that are able to create purchase orders, however, there were only 140 employees in the Materials Support Department 27. Internal controls over cheque proce ssing are inadequate. As a result of improper segregation of duties and authorization requirements, there is an increased risk of fraud and error occurring. 28. There was no functioning Internal A udit Department during the period of our review.

An effective internal audit function can help ensure that preventative and detective controls are implemented and functioning properly. Tendering of Goods and Services 29. We found instances where purchases ma de were not in compliance with the Public Tender Act ( PTA) and where there was insufficient support in tender files. As a result, the Author ity could not demonstrate that bids were reviewed for compliance with te nder specifications. We also found instances where the purchasing policy of the Authority was not being followed. 30.

Form Bs, which document exceptions to the PTA, are not always being submitted on a timely basis. As a result, the Authority is not in compliance with the PTA and is impacting the timeliness and relevancy of the information being reported to the House of Assembly. Some pressing emergency exceptions and sole source exceptions may not be appropriate. As a result, the Authority may not be getting the most economical price in these instances. 31. We found instances where contract change orders did not comply with the PTA. 32.

We found instances where the Authority was not in compliance with the Consultant Guidelines pertaining to the hiring of external consultants. Monitoring of Capital Assets 33. During the period covered by our review, there was no policy to conduct annual capital asset invent ory counts. This increa sed the Authority’s risk of not detecting lost or stolen capital assets. Also, there is no policy to conduct asset listing reconciliations to the general ledger. This would help ensure the accuracy of both systems by highlighting differences in asset information.

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority 34. The system, which ranks biomedical capital assets for priority replacement, has inaccurate priority rankings. These rankings are a key factor in determining which biomedical assets need to be replaced. 35. The Authority was not monitoring ma intenance expenses to provide information pertaining to the efficiency of the biomedical capital assets to assist in decisions regarding the replacement of existing equipment. 36.

There was no segregation of duties between asset removal and record keeping and there are no authorization requirements on the biomedical database. Therefore, there was an increased risk that the database contains inaccurate information and assets are not protected against misappropriation. Background Overview The Eastern Regional Health Authority (the Authority) is a Crown agency reporting to the Department of Hea lth and Community Services (the Department). The Authority was established on April 1, 2005, when the Authority assumed the operations of the former Health Care Corporation of St.

John’s, Health and Community Serv ices St. John’s, St. John’s Nursing Home Board, Newfoundland Cancer Treatment and Research Foundation, Health and Community Services Eastern, Avalon Health Ca re Institutions Board and the Peninsulas Health Care Corporation. The Authority is governed by the Regional Health Authorities Act (the Act). The Authority is responsible to the Minister of Health and Community Services (the Minister) through its Board of Trustees (the Board), members of which are appointed by the Minister. Figure 1 shows the organizational struct ure of the Authority as at March 31, 2013.

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 11 Eastern Regional Health Authority Figure 1 Eastern Regional Health Authority Organizational Structure Source: Eastern Regional Health Authority Mandate The Authority is responsible for the delivery and administ ration of health services and community services in its health region an d provincially as designated by the Minister. As shown in Figure 2, the Authorit y’s geographical boundaries include the island portion of the Prov ince east of, and including, Port Blandford. Within this geographical region, the Authority serves approximately 306,000 residents.

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority Figure 2 Eastern Regional Health Authority Geographical Boundary Source: Eastern Regional Health Authority Financial Position As at March 31, 2013, the Authority reported a net debt of $449.1 million. Table 1 shows the financial position of the Authority at March 31, 2012 and March 31, 2013.

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 13 Eastern Regional Health Authority Table 1 Eastern Regional Health Authority Financial Position As at March 31 ($000’s) 2012 2013 Financial Assets Cash $ 6,406 $ 13,288 Accounts Receivable 22,684 31,924 Due from government/other government entities 67,924 62,135 Advance to General Hospital Hostel Association 1,374 1,248 Sinking fund investment 12,063 13,506 Total assets 110,451 122,101 Liabilities Accounts payable and accrued liabilities 107,917 106,076 Due to government/other government entities 24,617 23,087 Accrued vacation pay 48,132 47,454 Employee future benefits Accrued sick leave 61,508 63,288 Accrued severance pay 107,068 113,908 Deferred revenue Deferred capital grants 50,597 65,984 Deferred operating revenue 7,750 12,910 Long-term debt 141,001 138,473 Total liabilities 548,590 571,180 Net Debt (438,139) (449,079) Non-financial assets Tangible capital assets 354,867 353,264 Supplies inventory 14,505 15,397 Prepaid expenses 6,271 4,053 Total Non-financial assets 375,643 372,714 Accumulated deficit $ (62,496) $ (76,365) Source: Eastern Regional Health Authority Audited Financial Statements

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority Increasing accumulated deficit As at March 31, 2013, the Authority reported an accumulated operating deficit of $76.4 million, an increase of $13.9 million (22%) from the accumulated deficit of $62.5 million as at March 31, 2012. The Authority's accumulated operating deficit will be affected by the results of future operations and the level of funding by Government. If the Authority has annual operating surpluses in the future, these surpluses could be used to reduce the accumulated operating deficit.

However, if the Authority has annual operating deficits, these deficits , along with the accumulated deficit, will have to be funded by taxpayers. Operating Results The Provincial Government provided operating grants of $1.20 billion and $1.15 billion for the fiscal years en ded March 31, 2012 and March 31, 2013, respectively. Table 2 provides a breakdown of the revenues and expenditures of the Authority for the years ended March 31, 2012 and March 31, 2013.

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 15 Eastern Regional Health Authority Table 2 Eastern Regional Health Authority Revenue and Expenditures For the Years Ended March 31 ($000’s) 2012 2013 Amount Percent Amount Percent Revenue Provincial plan $ 1,202,911 85.6% $ 1,149,258 86.2% Provincial plan capital grant 44,800 3.2% 23,497 1.8% Other capital contributions 5,083 0.4% 6,713 0.5% MCP 73,302 5.2% 74,483 5.6% Inpatient 10,260 0.7% 10,779 0.8% Resident 18,005 1.3% 18,560 1.4% Outpatient 8,015 0.6% 9,091 0.7% Other 42,569 3.0% 39,951 3.0% Total Revenue 1,404,945 100% 1,332,332 100% Expenditures Patient and resident services 365,589 26.2% 362,744 27.0% Client services 258,235 18.5% 210,918 15.7% Diagnostic and therapeutic 175,989 12.6% 179,020 13.3% Support 150,964 10.8% 164,273 12.2% Ambulatory care 128,924 9.2% 142,729 10.6% Administration 113,574 8.1% 113,861 8.5% Medical services 105,373 7.5% 98,875 7.3% Amortization of tangible capital assets 31,605 2.3% 31,813 2.4% Research and education 18,227 1.3% 16,526 1.2% Interest on long-term debt 9,594 0.7% 9,469 0.7% Other 24,567 1.8% 8,031 0.6% Employee future benefits Accrued severance pay 10,125 0.7% 6,840 0.5% Accrued sick leave 2,831 0.2% 1,780 0.1% Accrued vacation pay 979 0.1% (678) (0.1%) Total Expenditures 1,396,576 100% 1,346,201 100% Annual Surplus (Deficit) $ 8,369 $ ( 13,869) Source: Eastern Regional Health Authority Audited Financial Statements

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority Objectives and Scope Objectives The objectives of our review were to determine whether:  absenteeism was properly monitored and effectively managed and leave and overtime were properly monitored and recorded;  compensation and recruitment practices were in accordance with Government and Authority policy;  purchases complied with the Public Tender Act and Regulations;  the Authority was adequately monitoring its financial position and operations; and  capital assets were monitored and controlled.

Scope Our review was completed in December 2013 and covered the period April 1, 2011 to March 31, 2013. Our review included an examination of the Authority’s policies and procedures, Board and committee minutes, financial information and file documentation, and interviews with Authority officials. Detailed Observations This report provides detailed findings a nd recommendations in the following sections: 1. Monitoring of Financial Position 2. Compensation and Recruitment 3. Leave and Overtime 4. Internal Controls 5. Tendering of Goods and Services 6. Monitoring of Capital Assets

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 17 Eastern Regional Health Authority 1. Monitoring of Financial Position Overview Our review included an analysis of th e Authority’s budget, and its effect on the Authority’s financial position and operations. In reviewing the Authority’s financial position we identified issues in the following areas: A. Budget Deficit B. Position Administration 1A.

Budget Deficit Introduction The budget process for any particular fiscal year usually begins in the fall of the preceding year with the Department requiring the Authority to provide a budget submission, including any proposals for new initiatives or funding changes. The Department, through its Ac ute Services Division and Financial Services Division, reviews and assesses the budget information. Once the Provincial budget is approved by the H ouse of Assembly, the Authority is provided with a draft Provincial Plan Revenue (PPR) schedule, outlining its funding, for review and comment.

Once th e PPR is finalized, the Department requests that the Authority submit a revised budget. The budget process concludes with the receipt and approval of this budget. For the fiscal years ending March 31, 2012 and March 31, 2013, the Authority approved a balanced budget.

Section 21 of the Act states that “except with the prior approval of the minister, an authority shall not make, or contract to become liable for, an expenditure or indebtedness beyond or in excess of the estimated amount of expenditure set out in its budget and approved by the minister under this section.”

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority Minister concerned On May 13, 2011, the Minister wrote th e Chair of the Board concerning budget management and fiscal controls.

Th e Minister informed the Chair of a concern with “the pattern of fiscal expenditure s (and resulting deficits) being incurred annually by Eastern Health resulting in the requirement for stabilization funding to be provided by the department.” The Authority was advised by the Minister, in the letter, that “Section 16 of the Regional Health Authority Act requires that an authority (RHA) manages and allocates resources… and complies with directions that the minister may give...” The Chair was informed that the Minister did not want or intend to get involved in the day-to-day operati onal management and decision making processes of a RHA.

However, the Minister noted “ issues and comments [that] should be considered as direc tives from [the Minister] to [the Authority] for implementation as it re lates to fiscal controls and budgetary management for 2011/12 and onward.” The Minister also noted “ Fiscal management and an organization's budgetary performance are seen as being an integral

part in the roles and responsib ilities of a Chief Executive Officer (CEO).

To meet this c hallenge and recognizing t hat the CEO is only one person, it is incumbent on everyone, including the Board of Trustees, to ensure that a culture of fiscal responsib ility is created an d sustained in the organization… However, as I have repeatedly stated, these efficiencies should not be achieved through staff layoffs and/or service delivery reductions...” The Minister directed that “ All current practices that are discretionary in nature and have a significant fi scal liability associated with them should be scrutinized and wherever possible curtailed, if not discontinued….All policies must be reviewed to ensure consistency with comparable Government (Treasury Board) policies.

For those policies determined to be in keeping with Government policy and are appropria te to remain in place, your organization must have controls in place to minimize their fiscal impact.” The letter went on to discuss those areas in particular, in which the Minister had concerns and/or suggestions. These areas included:  educational differential for management personnel;  management overtime policy; and  management of positions.

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 19 Eastern Regional Health Authority On June 28, 2011 the Chair acknowledged rece ipt of this letter, and informed the Minister that “A detailed response to your letter dated May 13, 2011 on budget management and fisca l controls will be pr ovided under separate cover.” A formal response to the Minister was not issued. $83.2 million in budget overruns within past 5 years Table 3 shows the budget of the Authorit y for fiscal years ended March 31, 2009 through to March 31, 2013. Table 3 Eastern Regional Health Authority Budget For the Years Ended March 31 ($000’

s) Year Approved Budget (Note 1) Budget Overruns Final Budget (Note 2) Funded by Province Deficit Incurred 2009 $ 943,594 $ 17,700 $ - $ 961,294 2010 1,062,568 22,000 - 1,084,568 2011 1,152,549 22,700 - 1,175,249 2012 1,190,103 12,500 - 1,202,603 2013 1,149,258 - 8,295 1,149,258 Totals $ 74,900 $ 8,295 Source: Eastern Regional Health Authority Budgeting and Decision Support Division Note 1: Includes net change in deferred revenue and budget adjustments during the year. Note 2: Deficit incurred not included in Final Budget numbers.

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority As shown in Table 3, over the past fi ve years, the Authority has received $74.9 million in funding from the Province to cover budget overruns, and has incurred an $8.3 million deficit, for a total of $83.2 million in spending in excess of budgeted amounts during the past five years.

On June 1, 2011, the Minister informed the Chair that “Budget 2011 provides increases in funding to y our Authority to sustain existing programs, address program growth, and expand services in a manner consistent with the Department’s strategic directions. It is my expectation that Eastern Health plan for and achieve a balanced budget in keeping with the spirit of the Transparency and Accountability Act. As well, please refer to my letter dated May 13, 2011, on Budget Management and Fi scal controls.

Unless approved in writing by me, no deficit should be incurred .” In the fiscal year ended March 31, 2012, the Authority required funding of $12.5 million from the Province in order to cover its budget shortfall. On March 28, 2012, Treasury Board appr oved stabilization funding of $10.7 million for the Authority. On April 26, 2012, Treasury Board then approved another $1.8 million in stabili zation funding, bringing the total to $12.5 million. In the fiscal year ended March 31, 2 013 the Authority did not obtain funding from the Province to cover its budget shortf all.

Instead, it reported a deficit of $8.3 million. On March 28, 2013, Treasury Board authorized the Minister to allow the Authority to incur expenditures in excess of the estimated amount set out in Eastern Health’s budget in 2012-13. The Minister granted approval to the Authority on April 16, 2013. The funding by the Province to cover budget overruns in the fiscal years 2009 to 2012, and a reported deficit in 2013, we re despite continued increases in the approved budget. The approved budge t grew from $943.6 million in 2009 to $1.15 billion in 2013, a 22% increase. Finding 1.

The Authority required $74.9 million in additional funding by the Province and incurred an $8.3 million budget deficit, despite the approved budget increasing 22% during the past five years.

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 21 Eastern Regional Health Authority 1B. Position Administration Introduction For the fiscal year ended March 31, 2013, the Authority spent $812.5 million (2012 - $823.3 million) on salaries and employee benefits while employing approximately 12,810 employees (2012 - 12,989 employees) on a full or part- time basis. The Budgeting Department of the Authority maintains an Authorized Position system.

The system maintains approved Authorized Position Numbers (Authorized Position Number is a combination of de partment and job code) through a budget transacti on process which logs the Budget Letter reference number that initiates a change in approved authorized positions. Any other change requires the approval of a Vice President or a Chief Operating Officer. Ministerial Direction In a letter to the Chair from the Mi nister dated May 13, 2011 the Minister stated that “Choosing to implement positions without formally approved funding is a significant decision for a RHA to ta ke.

Within your global budgets, it is recognized that your organization has the authority to redirect the salary funding for a position to other critical positions or existing unfunded positions as you manage risk. As 70% of a RHA's budget is associated with human resource costs, all RHAs should have processes established to assess the need to refi ll a position when it is vacated, relative to other HR pressures in your organiza tion, and that the decision to refill a position is appropriately approved at the senior executive level in the RHA.

In Government, the decision to fill any position requires th e approval of the Minister. Your organization is expected to review your current processes for the creation and/or filling of positi ons (funded and non-funded) to ensure appropriate need assessments and approval processes are in place and more closely aligned with Government' s processes… During the Budget 2011 process, several requests were received from RHAs for the funding of "new" (but already filled) positions that had been requested in previous budget submissions and not approved.

Please note that such action is not appropriate and will not result in future budget adjustments.”

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority Authority policy inconsistent with Government despite Minister’s Direction Government policy requires the approval of the Minister for filling vacancies and the approval of Treasury Board for the creation of new positions. Authority policy requires the approval by a Director or Site Administrator for filling vacancies and the approval by a Vice-President or a Chief Operating Officer for the creation of new positions. As a result, the Authority’s policy was inconsistent with Government.

Recruitment process does not require budget analysis The Authority’s recruitment authori zation policy does not require approval from the Authority’s Budgeting Depart ment to ensure that funding is available for positions prior to the recruitment process. Given the significant salary costs, we w ould expect to see controls in place related to the number of employee positions within the Authority and the related salary expenditure s and the assurance that funding is available for newly created positions prior to the recruitment process. Findings 2.

Position approval processes are not c onsistent with Government policy, despite the Minister’s direction to align them. 3. The creation of a new position does not require the Authority to ensure that funding is available for the new position. Recommendations The Authority should:  revise the Recruitment Authorization policy to require that appropriate funding is available for a position prio r to initiating a recruitment action; and  comply with Ministerial directives.

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 23 Eastern Regional Health Authority 2. Compensation and Recruitment Overview During the year ended March 31, 2013, the Authority employed approximately 12,810 employees (2012 - 12,989 employees) on a full or part- time basis with expenditures of $812.5 million (2012 - $823.3 million) in salaries and employee benefits.

Direction from Treasury Board on consistency of market adjustment policy In a letter dated January 3, 2012, the Authority was advised by the Deputy Minister of Health and Community Services (the Deputy Minister) that “ The Market Adjustment Policy of Government states that ‘departments, agencies, boards and commissions are prohibited from paying employees any other form of market adjustment outside the terms of this poli cy.

Additional forms of remuneration, unrelated to market conditions, may be permitted, subject to Treasury Board approval.’” The letter went on to reference an attach ed listing of market adjustments that had been compiled duri ng 2011.

The letter request ed the Authority to: “Please review the attached repo rt and indicate by January 31, 2012: 1) Accuracy and completeness to ensure any items that can be considered a market adjustment have been include d. 2) The date, within 2012, by which your RHA will submit market adjustment proposals for approval of the items listed. 3) The date by which your RHA will discontinue these adjustments.” In a letter dated February 17, 2012 the Authority provided the requested information regarding market adjustments and advised the Deputy Minister in the response letter that “ We are progressing to align our practices with Government’s Market Adjust Polic y and will be submitting further submissions in 2012 as noted.” On June 4, 2012, the Authority was advise d by the Deputy Mini ster of recent decisions by Treasury Board in rela tion to market adjustments: “ Any market adjustment items in place in your organization that are currently not approved by Treasury Board and which you wish to continue, must be reviewed by the Department of Health and Community Services.

Those items that the department supports must then be submitted to Treasury Board by the Department for approval by November 1, 2012. Any market adjustments that are not supported by the Department of Health and Community Services must cease payment by November 1, 2012. In order that the department has adequate time to analyze any proposals to retain these benefits, we ask that your proposals be submitted to the He alth Workforce Planning Division not later than September 1, 2012.”

24 Annual Report,

Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority The Authority submitted a ‘Proposal for Market Adjustment for Managers’ to the Department on August 24, 2012 and on October 24, 2012, sent a revised ‘Proposal for Market Adjustment for Managers’. We were informed by the Authority th at they had not received a formal response from the Department. As a resu lt, they continue to provide market adjustments that are not approved by Treasury Board.

These market adjustments include such items as: e ducation differentials , paid education leave, management leave in lieu of overtime, membership fees, and professional fees. This is despite the f act that the Market Adjustment policy of Government has been in effect since February 26, 2010 and the Minister first directed the Authority to ensure consistency with comparable Government policies in May of 2011. In reviewing the Authority’s compensation and recruitment practices we identified issues in the following areas: A. Job Competitions B. Individuals Employed by Authority while Receiving a Pension C.

Physician Signing Bonuses D. Relocation E. Classification of Positions F. Additional Workload G. Educational Differentials H. Reimbursement for Personal Vehicle Usage I. Redundancy 2A. Job Competitions Introduction The Human Resources Client Servi ces Division of the Authority manages recruitment from internal and external sources, including both temporary and full-time positions. The Public Service Commission is respons ible for the protection of the merit principle in appointment and promotion to permanent positions within the public service.

While the Authority does not fall under the jurisdiction of the Public Service Commission, it woul d be expected that policies and procedures followed by the Human Resour ces Client Services Division of the Authority would be consistent with Government policies and procedures since the Authority uses public money to compensate employees.

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 25 Eastern Regional Health Authority The Public Service Commission recomm ends a competition file contain documentation such as screening criteria and details of why applicants were screened out, and applicant assessment details outlining the suitability assessment of each applicant interviewed. The Authority held more than 7,000 job competitions from April 1, 2011 to March 31, 2013. We reviewed a sample of 44 non-physician job competition files to determine if files were complete and to determine whether hiring practices were in compliance with Gove rnment policy.

Our review identified the following: Non - physician job competition files incomplete Our review of the 44 job competition files, of which 39 were for union positions and 5 were for management positions, identified issues with the completeness of the documentation to support the competition process. We identified:  3 of 39 (8%) union position job competitions reviewed had no Director/Site Administrator approval to recruit an employee; and  that in all 5 management position job competition files reviewed:  screening assessments were not documented in any of the files.

As a result, the Authority c ould not demonstrate that the most suitable candidates were interviewed; and  applicant assessments resulting from the interview process were not documented in any of the files. As a result, the Authority could not demonstrate that the most suitable applicant interviewed was selected. Finding 4.

Non-physician job competition files did not contain evidence of Director/Site Administra tor approval to recruit an employee and were missing screening documentation and applicant assessments resulting from the interview process and were, therefore, not in accordance with Authority policy, Government policy, and best practices.

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority 2B.

Individuals Employed by Authority while Receiving a Pension Introduction Cabinet directed that, “as a matter of policy applicable to government departments, and all government age ncies and Crown corporations, a preference be given in hi ring to persons other than those in receipt of a pension under the Public Service Pension Plan, the Uniformed Services Pension Plan, the Teachers’ Pension Pl an, and the Members of the House of Assembly Pension Plan, unless there are no other persons qualified to fill the position, with exceptions to this policy to be subject to Cabinet approval.” Double and Triple Dipping During the 12 months ended December 31, 2012, there were 132 individuals in receipt of both a Provincial Govern ment pension and a salary from the Authority.

Two of these individuals held two positions at the same time with the Authority while in receipt of a Provincial Government pension. Approximately 57% of these pensione rs were members of the Newfoundland and Labrador Nurses Union (the NLNU). Our review of 10 of these pensione rs identified that there was no documentation available to show that a job competition had occurred for any of these positions. Authority officials a dvised that 6 of the 10 were for the rehiring of nurses, and that these nurses were rehired during a nursing shortage.

Authority officials advised th at 4 of 10 were for the rehiring of Management employees and that thes e employees were rehired for their expertise. Preference had not been gi ven to hiring persons other than those in receipt of a pension. Cabinet approval was not obtai ned to authorize the hiring of these pensioners. Finding 5. During 2012, there were 132 individuals in receipt of both a Provincial Government pension and a salary from the Authority. In fact, two of these individuals held two positions with the Authority while in receipt of a Provincial Government pension.

Where individuals were employed by the Authority while receiving a pe nsion, we found instances where no documentation was available to show that preference had been given to hiring persons other than those in r eceipt of a pension, as directed by Cabinet.

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 27 Eastern Regional Health Authority 2C. Physician Signing Bonuses Introduction The Authority provided benefits to some physicians above what was required under the Department’s Salaried Phys ician Guidelines (2006) (the Guidelines) and the Physician’s Services Memorandum of Agreement (2009- 2013) (the MOA).

In a memo to the Authority from the Department dated July 18, 2011, the Authority was informed that “with the advent and expansion of the Provincial Bursary Program, the significant improvement in physician remuneration and the enhancement of the provincially nego tiated retention bonuses it has been decided that all four RHAs must conform to provincial standards regarding all physician compensation.

Therefore all RHA based physician recruitment bursaries and sign-on bonuses must stop effective immediately.” Each RHA was requested to forward a list of physicians to the Department where an RHA based sign-on bonus or bursary had been committed in writing or verbally. The Department informed the Authority that they would permit the RHAs to honor commitments made.

Physician benefits beyond guidelines and MOA During our review, we found that signi ng bonuses were provided which were not in accordance with the Guidelines and the MOA, as follows:  10 salaried physicians were provide d signing bonuses that were beyond that allowed in the Guidelines and MOA;  7 of the signing bonuses were included on the list of commitments that were sent to the Department in July 2011 and therefore, were in compliance with Department direction;  2 of the signing bonuses were not included on the list of commitments that was sent to the Department in July 2011.

These signing bonuses had been committed to prior to July 2011. A portion of the committed signing bonuses had been previously paid to each of the two physicians. However, an amount of $20,000 remained owing to each physician as of July 2011. These amounts were paid in September 2011; and

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority  the remaining physician was provided with a $20,000 signing bonus in February 2013. This bonus was not on the list of commitments that was sent to the Department in July 2011. Therefore, this bonus was not in compliance with Department direction to cease signing bonuses immediately. Finding 6. The Authority provided signing bonuses that were beyond that allowed in the Department’s Salaried Physician Qu ick Reference Guidelines (2006) and the Physician’s Services Memorandum of Agreement (2009-2013).

In addition, the Authority provi ded a signing bonus to a physician beyond the date at which they were told to discontinue the practice by the Department of Health and Community Services. 2D. Relocation Introduction Government’s relocation policy requires a relocated employee to enter into a two year return-in-service agreement with the employer in return for being reimbursed relocation expenses. The Authority reimburses physicians based on this policy and reimburses non-physicians based on an Authority policy that also has a two year return-in-service agreement.

Our review identified that: No return-in- service agreements for physicians The Authority had not entered into retu rn-in-service agreements with any of the physicians who received reimbursemen t of relocation costs. Therefore, if the physicians leave before their two year terms, these costs will not be recoverable. Application of the relocation policy inconsistent with Government policy for physicians We reviewed a sample of 5 relocatio n expense claims for physicians to determine if they were in compliance with policy.

Our review identified that:  One physician was reimbursed for 33 nights’ accommodations for temporary living, although policy only allows for 14 nights’ accommodations for temporary living, resulting in an overpayment of $4,012.

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 29 Eastern Regional Health Authority  One physician was reimbursed for one month’s accommodations for temporary living, although policy only allows for 14 nights’ accommodations for temporary living, resulting in an overpayment of $1,253.  One physician was reimbursed $22,413 relating to the purchase of a principal residence, although they had not sold, nor were they in the process of selling (e.g. listed with real estate company or broker) the principal residence at the former location, which was required by Government policy.  Two physicians were directly reimbursed more than $10,000 for the transportation of furniture and house hold effects, despite Government policy stating that “ The selection of movers will be processed in accordance with the established purc hasing procedures as outlined by the Government Purchasing Agency,” and therefore, were required to be tendered.

Issues with the application of the relocation policy of the Authority for non-physicians We reviewed a sample of 5 relocati on expense claims for non–physicians to determine if they were in compliance with policy. Our review identified that:  Two non-physicians were reimbursed for the transportation and storage of motor vehicles in the amounts of $6,978 and $7,100. Authority policy only allows $3,000 for these co sts, resulting in an overpayment to the two totaling $8,078;  Four non-physicians were reimbursed for the transportation of furniture and household effects ranging between $19,092 and $26,949.

Authority policy only allows $15,000 for these costs, resulting in an overpayment to the four totaling $34,709.  One non-physician did not enter into a return-in-service agreement with the Authority, therefore, if they leave before their two year term, these relocation costs may not be recoverable;  Three non-physicians ente red into return-in-serv ice agreements after they received reimbursement from the Authority, therefore, if they left before they signed the agreement, these relocation costs may not have been recoverable; and

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority  Within the Authority policy rega rding non-physician relocation, transportation of furniture and house hold effects can be reimbursed up to $15,000. Authority policy also states that “ The selection of movers will be processed in accordance with the established purchasing procedures as outlined by th e Government Purchasing Agency ”. These purchasing procedures require te ndering.

Four non-physicians were reimbursed more than $10,000 for the transportation of furniture and household effects, without going through a tendering process. Findings 7. No return-in-service agreements are in place for physicians who received reimbursement of relocation costs. Therefore, the costs would not be recoverable if the physician were to leave before the end of their two year term. 8. The relocation policy is not being followed for both physicians and non- physicians. Therefore, individuals are being reimbursed for amounts higher than to which they are entitled. 2E.

Classification of Positions Introduction The Authority was established on April 1, 2005. Starting in 2005 the Authority began filling their management level positions, with the majority (over 98%) of positions being filled by the end of 2006. These positions were filled by employees that had been working in the former Health Care Corporation of St. John’s, Health a nd Community Services St. John’s, St. John’s Nursing Home Board, Newfoundla nd Cancer Treatment and Research Foundation, Health and Community Serv ices Eastern, Avalon Health Care Institutions Board and the Peninsulas Health Care Corporation.

There were some changes in the duties of positions that resulted in a classification action, with some employees receiving the same pay, some employees getting paid more, and some employees getting paid less. In an executive management meeting on May 2, 2007, the executive indicated that “Recognizing that the organization ha s been delayed with the formal classification process, a decision has been made to delay implementation of the salary decreases until the formal rating process is carried out. The appropriate adjustments as per policy will be implemented at that time.”

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 31 Eastern Regional Health Authority Government policy states that “An involuntary demotion is an employer initiated action, beyond the employee's c ontrol, resulting in the movement of the employee from an existing pos ition to a position assigned a lower maximum hourly rate of pay. Situations would include: (

i) changes in the duties of the employee's position results in classification action; or (ii) a position has been re-assessed and determined to be incorrectly classified. When an employee is involuntarily demoted: (

i) the employee shall be given written notification stating the reasons for demotion; (ii) the rate of pay shall be establ ished at a rate in the new pay range equivalent to the existing rate, except that: • Wherever the rate of pay prior to demotion is above the maximum of the pay range established for the positi on to which the employee is being demoted, the existing rate of pay sha ll be retained, but for purposes of awarding future salary increases, the "Red Circle" policy shall apply. • Wherever the rate of pay prior to demotion falls between two steps within the pay range established for the position to which the employee is demoted, it shall be adjusted to the higher step.” Management employees were responsible for the completion of their own position description evaluation summarie s, and the Human Resources Client Services Department of the Authority was responsible for forwarding them to the Human Resource Secretariat (HRS) of Government for formal evaluation and classification.

Figure 3 shows the timeline associated w ith the formal classification of the Authority’s positions.

32 Annual Report,

Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority Figure 3 Eastern Regional Health Authority Management Classification Timeline Source: Eastern Regional Health Authority Human Resources Client Services Division 2005 • Eastern Health established • Vice President and Chief Operating O fficer ratings received from Government 2006 • Directors/Managers were placed in to positions within the Authority 2007 2008 2009 2010 • Directors position descriptions and rating recommendations submitted to Government • Directors results received from Government 2011 • Directors new pay implemented • Mangers position descriptions submitted to Government without rating recommendations, these were returned by the HRS 2012 • Managers position description and rating recommendations submitted to Government • Managers results received from Government 2013 • Managers new pay implemented

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 33 Eastern Regional Health Authority Managers continued to be paid at higher rate for more than six years There were 519 management positions that required classification as a result of the formation of the Authority in Apr il 2005. The majority (more than 98%) of management positions were filled by the end of 2006. However, formal classification of 519 management positions did not occur until November 2012, with implementation of the new pay s cale classification beginning on April 25, 2013.

The results of the classification resulted in 185 positions being classified upwards; 211 positions remaining at the same pay level; and 123 positions being classified downward. The delay in the classification process resulted in 123 employees who continued to be paid at the higher rate for more than six years, from the time they were placed into positions within the Authority in 2006. Table 4 provides examples of the results of the management classification review that occurred in November 2012.

Table 4 shows, in particular, those management positions within the Aut hority that had the most significant downward scale classification as a result of the Human Resource Secretariat’s classification of those positions. Had the reclassification process occurred on a more timely basis, these individuals would have been paid at a lower rate or red circled earlier. Table 4 Eastern Regional Health Authority Management Classification November 2012 # of Employees Salary Scales Pay at Step 1 Pay at Step 25 Before After Before After Diff.

Before After Diff. 2 HL-24 HL-20 $73,166 $59,774 $13,392 $95,116 $77,706 $17,410 1 HL-25 HL-21 74,546 62, 619 11,927 96,910 81,405 15,505 2 HL-24 HL-21 73,166 62, 619 10,547 95,116 81,405 13,711 1 HL-23 HL-20 69,316 59, 774 9,542 90,111 77,706 12,405 5 HL-22 HL-19 65,967 56, 927 9,040 85,757 74,005 11,752 8 HL-25 HL-22 74,546 65, 967 8,579 96,910 85,757 11,153 3 HL-20 HL-17 59,774 51, 906 7,868 77,706 67,477 10,229 Source: Eastern Regional Health Authority Human Resources Client Services Division

34 Annual Report,

Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority Employees paid $3.6M to $4.7M more than if classification process was more timely In total, at the time of the implementation of the new pay scale classification in 2013, positions that were classified downwards were being paid in the range of $631,373 to $820,806 more annually than what was ultimately paid once the positions were classified. The process took approximately six years to complete and resulted in employees being paid more than if the classification process was more timely.

The Authority’s decision not to demo te any managers whose salary was negatively affected through management restructuring until their new positions were formally classified resulted in these employees being paid in the range of $3.6 million to $4.7 million more from the end of 2006, when the majority of management positions had been filled, until the implementation in 2013. Employees continue to benefit from delay in classification The delay in the classification process resulted in 123 employees being paid more than necessary for more than six years.

Additionally, as a result of the delay in the classification process, the red-circling of the positions was also delayed. A job is red-circled when the results of a job evaluation exercise reveal that it has been over-graded, re sulting in a higher ra te of pay. As a result of pay raises in years subsequent to 2006, the position pay ranges had become higher than they were in 2006 and, therefore, the salaries of the individuals were red-circle d at an amount significantly higher than it would have been had the classification occurred earlier.

An individual’s position pay shall remain red-circled until such time as their existing regular salary is equal to or lesser than the top step of the position they occupy. At such time employees cease to be red-circled and are placed on a step on the approved pay range.

We were able to determine that if the Authority had classified these positions downward in 2007, all of those employees a ffected would currently be paid in accordance with their pay scale (ie. no red circling), as the Government’s salary increases that had occurred between 2007 and current would have brought their new pay scale in line with their rate of pay. It is possible that the salaries of many of the 123 demoted employees will continue to be above the rate of pay fo r their pay scale, a nd will, therefore, continue to be red-circled.

Higher pay also results in higher pensi on, severance, and accrued paid leave payouts on retirement or termination of positions.

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 35 Eastern Regional Health Authority Finding 9. The classification of some manage ment positions subsequent to the amalgamation of the health boards in the eastern region in 2005 did not occur until 2013. The significant dela y resulted in 123 employees being paid at higher than necessary amounts for more than six years after they were placed in management positions with the Authority at the end of 2006, at a cost in the range of $3.6 million to $4.7 million. Because red circling was delayed, other compensati on benefits such as pensions and severance will also be higher. 2F.

Additional Workload Benefits Introduction The Authority provides additional workload benefits to some physicians under the Guidelines. The Guidelines provide physicians compensation for additional workload due to vacancies. One half of the salary at step 2 of the appropriate scale is available to be distributed to sala ried physicians who take on the responsibility of additional work in a salaried position(

s) not filled by locums. The daily rate is 50% of th e applicable salary scale divided by 240. Physician getting additional pay for similar workload Our review identified that a physician had been receiving additional workload payments since December 14, 2001 despite th e fact that the Authority did not have a job posting for a vacant positi on. We were informed by Authority officials that the Authority has no intentions of filling the vacant position. The Authority has also ac knowledged that this physician’s workload was consistent with that of other physicians in the physician’s specialty within the Authority.

As at March 31, 2013, the physician had received $1,473,528 in additional workload payments since December 14, 2001. Finding 10. Additional workload benefits are compensation payments provided to physicians for additional workload due to vacancies. One physician received $1,473,528 in additional workload payments over a period of approximately 11 years relating to a vacant position that the Authority had never advertised and does not intend to fill. Authority officials indicated that the physician had the same workload as other physicians, in this specialty, employed by the Authority.

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority 2G. Educational Differentials Introduction The Authority pays educational di fferentials to qualifying nurses in accordance with the Nurses’ collective agreement. In addition, the Authority pays other employees educational diffe rentials that are not provided under collective agreements. For the year ended March 31, 2013, the Authority spent $2.0 million (2012 - $2.0 million) on educational differentials.

Payments not consistent with Government policy Education differentials are also bei ng paid to executive and management employees although the education requirements were part of the position requirements and, therefore, would have already been included in the pay scales for the particular position under the HAY rating system which was implemented in the late 1980s. For th e 2013 fiscal year, th e Authority paid differentials totaling $356,204 (2012 - $343,818) to these executive and management employees. These education differentials were inconsistent with Government policy. Finding 11.

Educational differentials were bein g paid to executive and management employees although the education require ments were part of the position requirements and, therefore, would alr eady have been included in the pay scales. This is inconsistent with Government policy. 2H. Reimbursement for Personal Vehicle Usage Introduction For the year ended March 31, 2013, the Authority spent approximately $1.7 million (2012 - $2.2 million) on personal mileage claims.

Authority policy states “Employees who travel to their office to begin their work day or who travel from their office at the e nd of their work day shall not receive kilometer reimbursement for such travel.”

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 37 Eastern Regional Health Authority Employee claiming mileage to and from work Our review of the personal mileage clai ms for six employees with the highest annual personal mileage reimbursement identified that one employee was being reimbursed for travel from home to their office to begin their work day and from their office to home at the end of their work day. For the fiscal year ended March 31, 2013, this employee received a total of $2,364 (2012 - $8,096). These reimbursements were not in compliance with Authority policy.

Personnel mileage claims being paid without approval Our review of the personal mileage clai ms for six employees with the highest annual personal mileage reimbursement identified that one employee was reimbursed monthly without any approva l of the mileage claims. For the fiscal year ended March 31, 2013, this employee received a total of $7,017 (2012 - $8,452) in mileage claim reimbursements. Findings 12. An employee received reimbursement for personal vehicle usage related to travel to and from work, result ing in reimbursement of $2,364 for the year ended March 31, 2013.

This is not in compliance with Authority policy. 13. An employee received reimbursement for personal vehicle usage without approval. 2I. Redundancy Introduction The Authority’s policy allows for employees to be provided with an appropriate notice or pay in lieu of notice upon elimination of a position. The period of notice shall depend upon the em ployee’s age and complete years of continuous service. Where an earlier effective date is required, employees shall receive pay in lieu of notice.

Position redundancy not being declared on a timely basis We reviewed the files of four former employees whose jobs were deemed redundant and who were, therefore, terminated.

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority In one instance, a terminated physicia n’s redundancy letter stated that the “position of Vice-President of Medical Services, [of a] Legacy Board with Eastern Health, has been declar ed redundant, effective January 14, 2011. This decision has been necessitated because of organizational restructuring.” The above-noted Legacy Board was a ssumed into the operations of the Authority on April 1, 2005.

Furthermore, the physician had maintained the salary of his former Vice-President position, yet performed the duties of a lower paying position up until the time of his redundancy. The ultimate declaration of the position redundancy coin cided with the retirement date of the physician. He had not held the title of the position for more than five years. As a result of the declaration of the position redundancy, the retiring physician received $287,552 for 57 weeks pa y in lieu of notice and 20 weeks of severance pay at the time of retireme nt.

A few months later, the retired physician received an additional $119,737 in retroactive pay on his termination package to account for the new MOA. Finding 14. The Authority was not always decl aring positions redundant on a timely basis.

Recommendations The Authority should:  ensure compensation and recruitment practices are in accordance with Authority and Government policy;  maintain adequate documentation in competition files;  calculate employee compensation accurately;  comply with Government’s reloca tion policy for all employees and ensure that return-in-service agreements are signed and approved; and  ensure compliance with its mileage reimbursement policy.

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 39 Eastern Regional Health Authority 3. Leave and Overtime Overview As at March 31, 2013, the Authority reported $110.7 million (2012 - $109.6 million) in accrued sick leave and a ccrued vacation leave (annual leave and paid leave) owing to its employees. Authority policy requires use of a Leave Request form to document the request and approval of employee leave. Approved leave forms are held and filed at the Department/site.

Leave hour s of employees are recorded in bi- weekly payroll reports or schedules and are forwar ded to the Authority’s Payroll Division for payroll and attendance processing. The Authority recorded overtime expens e of $25.2 million for the 2012 fiscal year and $23.9 million for the 2013 fiscal year. Overtime represents the hours worked by an employee in the performance of a specific task or designated project that requires the employee to wo rk in excess of his or her regularly scheduled or normal hours of wor k, and hours of work performed on designated paid holidays.

In reviewing the leave and overtime prac tices of the Authority, we identified issues in the following areas: A. Annual and Paid Leave B. Sick Leave C. Overtime D. Management Overtime Policy E. Education Leave 3A. Annual and Paid Leave Introduction Authority policy states that “All unionized employees, with the exception of casual employees ([Newfoundland and Labrador Nurses’ Union] (NLNU) and [Association of Allied Health Professionals] (AAHP) collective agreements), accrue annual leave in accordance with the respective collective agreement.

Part-time and temporary employees accrue annual leave benefits on a pro-rated basis based on hours wo rked. Casual empl oyees (NLNU and AAHP collective agreements) are paid a per centage of their salary in lieu of such benefits.”

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority Management and management support (non-management/non-bargaining) employees accrue paid leave benefits ba sed on years of service, as per the Authority’s human resources policy. Employees are eligible to receive payment for their remaining unused accumulated annual leave and/or paid leave when they terminate employment with the Authority (resign, retire, ar e laid off or upon death).

Annual leave payouts are paid at the base salary of the position the employee occupies immediately prior to termination of employment. Leave not always approved or documented Authority policy states that for pre-planned absences, a Leave Request form must be completed and approval obtai ned prior to the commencement of leave. We sampled the files of 52 employees who had taken annual or paid leave during the period of our review. Our review identified that, of those 52 employees, 27 did not have the required Leave Request form on file.

Without Leave Request forms on file, the Aut hority does not have the documentation required by policy and does not have a r ecord that proper supervisor/manager approval was granted for the employee’s leave. Without adequate documentation, the Authority may not be accurately tracking the amount of annual or paid l eave employees have taken, as well as the employees’ remaining annual or paid leave balance. This creates a risk that an employee may take more leave than to which they are entitled.

Leave usage not adequately monitored Authority policy states that manageme nt/management support staff must use a minimum of three weeks paid l eave during the year, while unionized employees are encouraged to take a minimum of two weeks annual leave each year. During our review, we determined th at the Authority’s human resources information system did not have the abil ity to generate flags to indicate when employees did not take the required or encouraged amount of paid or annual leave during the year.

This inability to flag employees who were not meeting the minimum required paid or annual l eave usage reduces the ability of the Authority to adequately monitor leave activity.

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 41 Eastern Regional Health Authority Inadequate monitoring of leave used during a period allows employees to carry over more leave each year than to which they are entitled. According to Authority policy, unused leave balances are paid out upon termination of employment, at the base salary of the position held at the time of the leave payout. An annual or paid leave carry forward balance that is overstated has a real cost to the Authority upon terminat ion of the employee and the resultant payout of the balance at the employee’s current salary.

Non - compliance with leave carry forward provision in collective agreements All collective agreements currently in place between the Authority and the unions allow unionized employees to ca rry forward any proportion of annual leave not taken until the employee has accumulated a maximum of:  twenty (20) days annual leave if th e employee is eligible for twenty (20) days in any year;  twenty five (25) days annual leav e if the employee is eligible for twenty five (25) days in any year;  thirty (30) days annual leave if the employee is eligible for thirty (30) days in any year.

Table 5 shows the number of employees that, according to the collective agreements, are over their allowable leave carry forward limit as at March 31, 2013. It also outlines the resulting overstated payable balance. Table 5 Eastern Regional Health Authority Leave Carry Forward As at March 31, 2013 Allowable Leave Carry Forward Number of Employees Above Limit Overstated Payable Balance 20 days 686 $ 2,007,000 25 days 626 2,856,000 30 days 483 3,598,000 Total 1,795 $ 8,461,000 Source: Eastern Regional Health Authority Payroll Division

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority Authority policy does not state any limitations on the number of annual leave days allowed to be accumulated. Rather, it states that “ Annual leave not taken will remain in the employee’s annual leave bank. ” Authority policy is inconsistent with collective agreements.

As a result of leave records that app ear to follow Authority policy rather than that noted in the collective agreements, our review identified 1,795 employees covered by the collective agreements, who have accrued annual leave balances greater than the maximum allowed in their collective agreements. As a result, the Authority has recorded a liability that is approximately $8.5 million beyond what is otherwise required by the collective agreements.

Authority policy states “Annual leave will be paid out only upon termination, layoff or change to casual employment .” The Authority practice of not enforcing leave carry-forward provisions outlined in the collective agreements allows employees to accrue significantly more leave days which can be paid out in the future at a higher salary.

Employees with overdrawn annual or paid leave balances Authority policy states: “ Employees are responsibl e for…ensuring benefits are available prior to requesting time off and refrain from taking leave for which they are not entitled .” Authority policy also states: “Managers/Supervisors are responsible for… ensuring employees are eligible and that balances are available prior to approving leave… ” Our review identified that as at March 31, 2013, there were 712 employees who had overdrawn annual or paid leave balances with a total cost of $192,541.

Employees accruing two types of leave Employees in unionized positions acc rue annual leave, while those in management/management support positions accrue paid leave. In instances where employees move from a unionized position to a management/ management support position, their annual leave bank is transferred into a paid leave bank. Our review identifi ed 20 employees whose annual leave bank was transferred into a paid leav e bank during the period of our review. However, the annual leave bank was not deactivated and the employees continued to accrue annual leave.

As at March 31, 2013, these employees were simultaneously accruing both annual leave and paid leave.

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 43 Eastern Regional Health Authority Findings 15. There is a lack of effective oversight to ensure that employees annual and paid leave is properly approved and documented. Without this oversight, there is a risk that the leave balance is overstated and will cost the Authority more than which the empl oyees would have otherwise been entitled. 16. Annual and paid leave ar e not being adequately monitored to ensure required leave is taken, carry forward and usage complies with policy and collective agreements, and the leave accruals database is accurate.

The Authority has recorded approximately $8.5 million in unused leave to be carried forward and used or paid in subsequent years, which is inconsistent with collective agreements. 17. At March 31, 2013, 712 employees have taken annual or paid leave beyond which they are entitled with a total cost of $192,541. 3B. Sick Leave Introduction During the fiscal year ended Marc h 31, 2013, the Authority paid $50.3 million (2012 - $48.9 million) in salaries associated with employees being away from work on sick leave.

Table 6 shows salary costs resulting from sick leave taken during the fiscal years ended March 31, 2012, and March 31, 2013. Table 6 Eastern Regional Health Authority Sick Leave Fiscal Years Ended March 31 ($000’

s) Sick Leave Category 2012 2013 Sick Leave Regular $ 29,384 $ 29,474 Sick Leave < ½ Day 751 803 Sick Leave Relief 14,386 15,004 Overtime Sick Leave Relief 4,367 5,057 Total $ 48,888 $ 50,338 Source: Eastern Regional Health Authority Payroll Division

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority Sick Leave Regular is the salary cost associated with an employee being away from work without loss in pay due to the employee being sick. Sick Leave < ½ day is the salary cost associated w ith an employee being away from work for less than half a day w ithout loss in pay due to the employee being sick for less than half a day. In the case of sick leave < ½ day, there is no reduction in an employee’s sick leave entitlement.

Sick Leave Relief and Overtime Sick Leave Relief are the salary costs associated with replacing another employee who is availing of sick leave. The salary costs incurred in the Sick Leave Relief category represent salary relief costs that were incurred at straight time, while the Overtime Sick Leave Relief salary costs are salary costs that were incurred at overtime premium rates. As shown in Table 6, the Sick Leav e Regular category amounted to $29.5 million in the fiscal year ended March 31, 2013 (2012 – $29.4 million).

Sick leave relief (regular and overtime) to taled $20.1 million for the year ended March 31, 2013 (2012 - $18.8 million), which is 68% (2012 - 64%) of regular sick leave.

We reviewed a sample of 63 instances of sick leave usage during the period of our review and identified the following issues: Sick Leave not always approved or documented Authority policy requires that for unplanned absences, employees must notify their supervisor or manager on the first shift/day back to work or as soon as possible thereafter and a Leave Request form must be submitted before the end of the pay period in which the leave was taken. Of the 63 instances of sick leave usage we reviewed, 39 did not have the required Leave Request form on file.

Without Leave Request forms, the Authority does not have the documentation required by policy and does not have a record that proper supervisor /manager approval was granted for the sick leave used by the employee. Without adequate documentation, the Authority may not be accurately tracking the amount of sick leave empl oyees have taken, as well as the employees’ remaining sick leave balance. This creates a risk that an employee may take more sick leave than they are entitled.

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 45 Eastern Regional Health Authority Rate of sick leave higher than that of Government We were informed by the Human Resour ces Secretariat that Government has 8,737 employees and incurred a total sick leave expense for fiscal 2013 of $17.2 million. The Authority has 12,810 employees with a total sick leave expense for fiscal 2013 of $30.3 million. When we compare the Authority’s expense to that of Government, on a prorated basis across the number of Authority employees, the Authority’s si ck leave is $5 million, or 20%, higher than Government’s sick leave. Findings 18.

There is a lack of effective oversight to ensure that employee sick leave is properly approved and documented. 19. Sick leave expense of the Authorit y is approximately 20% higher than that of Government on a relative basis. 3C. Overtime Introduction Given the significant cost associated with overtime, we would expect the Authority to have systems and proce dures to budget, authorize, record, monitor and control these costs. Such systems and procedures would include a requirement to consider alternate work arrangements in order to minimize overtime costs.

Authority policy requires that prior to overtime costs being incurred there must be approval by the employee’s manager. Proper approval should indicate the necessity for overtime in order to meet the operational requirements of the applicable department. Overtime is often compensated at a premium rate such as time and one-half or double time. This compensation is determined in accordance with various policies and collective agreements. Ta ble 7 shows the overtime expenses relating to the various overtime rate cat egories for the fiscal years ending March 31, 2012 and 2013.

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority Table 7 Eastern Regional Health Authority Overtime Rates Fiscal Years Ended March 31 (000’

s) Overtime Rates 2012 2013 1 times regular pay $ 1,908 $ 1,749 1.5 times regular pay 13,497 12,152 2 times regular pay 8,883 9,048 Statutory holiday premium 883 994 Total $ 25,171 $ 23,943 Source: Eastern Regional Health Authority Payroll Division Table 8 shows the cost of overtim e payments to employees, grouped according to union contracts. Table 8 Eastern Regional Health Authority Overtime by General Occupation Category Fiscal Years Ended March 31 ($000’

s) General Occupation Category 2012 2013 Newfoundland and Labrador Nurses’ Union $10,743 $11,017 NAPE - Hospital Support 5,717 5,785 NAPE - Lab/X-ray 3,384 3,560 NAPE - Hospital Support LPN 1,843 1,734 Association of Allied Health Professionals 1,257 1,197 NAPE - Health Professionals Social Workers (Note 1) 1,460 40 Management 426 401 NAPE - Health Professionals 173 51 Non Union Non Management 145 121 CUPE - Hospital Support 12 20 Professional Association of Interns and Residents 11 17 Total $25,171 $23,943 Source: Eastern Regional Health Authority Payroll Division Note 1: Effective October 31, 2011, social workers were transferred to the Department of Child, Youth and Family Services Department.

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Part 3.1, January 2014 47 Eastern Regional Health Authority Overtime not always approved and documented Authority policy requires that manage rs are responsible to review and approve all overtime worked by their employees through the use of overtime forms. During our review, we sampled the files of 97 employees where policy required documentation for overtime. Our review identified that for 31 employees, or 32%, the required overti me documentation was not on file.

Without approved overtime forms on file , the Authority does not have the documentation required by policy and does not have a record that proper supervisor/manager approval was granted for the overtime worked. Inadequate documentation and approva l records increase the risk of unauthorized overtime worked and th e risk that employees are being compensated for overtime hours beyond those worked. Overtime required to cover leave Authority policy states that both employ ees and managers are responsible for ensuring that leave does not unduly inte rfere with operational requirements.

Table 9 shows the overtime expense related to different overtime types. Table 9 Eastern Regional Health Authority Overtime Classification Fiscal Years Ended March 31 ($000’

s) Overtime Type 2012 2013 Operational requirements $ 10,186 $ 8,117 Sick Leave Relief 4,367 5,057 Callback Worked 1,912 1,874 Callback Unworked 1,598 1,729 Extra Workload 1,473 1,737 Meal Time Coverage 1,234 1,300 Other Relief 1,215 1,160 Constant Care 1,194 639 Stat Holiday Premium 883 994 Vacation Leave Relief 663 815 Patient Escort 245 284 Meetings 201 237 Total $ 25,171 $ 23,943 Source: Eastern Regional Health Authority Payroll Division

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority During our review, we identified that a significant portion, approximately 29%, of the overtime expense for 2013 relates to relief work. Sick leave relief is the largest portion of relief work and during the year ended March 31, 2013, accounts for approximately $5.1 m illion, or 21%, of the overall overtime expense. Overtime pay earned in excess of $10,000 Table 10 shows the number of employees whose over time pay earned was in excess of $10,000.

Table 10 Eastern Regional Health Authority Overtime Pay Earned in Excess of $10,000 Fiscal Years Ended March 31 Number of Employees Overtime Pay Earned 2012 2013 $10,000 - $19,999 396 352 20,000 - 29,999 89 81 30,000 - 39,999 32 36 40,000 - 49,999 10 6 50,000 - 59,999 3 5 60,000 - 69,999 2 4 70,000 + 1 - Total 533 484 Source: Eastern Regional Health Authority Payroll Division During our review, we noted that 8,219 individuals earned overtime during the year ended March 31, 2013.

Of these, 484 individuals earned overtime in excess of $10,000 for the year en ded March 31, 2013 (2012 - 533). 51 individuals earned overti me pay in excess of $ 30,000 during the year ended March 31, 2013 (2012 - 48). Overtime pay earned greater than salary Table 11 shows the 15 employees with the highest overtime pay earned during the year ended March 31, 2013. The table details the annual salary and overtime pay of the 15 employees. Tabl e 11 also shows the individuals’ callback unworked pay received and the percentage of overtime pay that was comprised of callback unworked pay.

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Part 3.1, January 2014 49 Eastern Regional Health Authority Table 11 Eastern Regional Health Authority Employees with Highest Overtime Pay Earned Fiscal Year Ended March 31, 2013 Union Contract Position Annual Salary Overtime Pay Overtime Pay Total Overtime as a Percentage of Annual Salary Callback Unworked Pay Callback Unworked as a Percentage of Overtime Pay NLNU Psychiatric Nurse I $ 69,411 $ 66,271 95% $ - - NAPE LX Laboratory And X-Ray Technologist 61,831 62,842 102% 51,887 83% NLNU Nurse I 71,098 61,878 87% - - NLNU Psychiatric Nurse II 79,155 60,579 77% - - NLNU Nurse I Permanent Relief 71,098 59,458 84% - - NLNU Nurse I 74,283 58,622 79% - - NAPE LX Laboratory Technologist I 59,902 55,504 93% 41,508 75% NLNU Nurse I 71,098 55,229 78% - NAPE LX Diagnostic Imaging Technologist III 68,662 51,949 76% 35,929 69% NAPE LX Diagnostic Imaging Technologist III 68,662 47,841 70% 31,973 67% NAPE LX Diagnostic Imaging Technologist III 68,662 47,280 69% 33,130 70% NAPE LX Diagnostic Imaging Technologist III 68,662 43,571 63% 33,267 76% NLNU Psychiatric Nurse II 79,155 41,983 53% - - NAPE LX Laboratory Technologist II 65,118 41,885 64% 25,454 61% NAPE LX Diagnostic Imaging Technologist III 68,662 40,767 59% 26,561 65% Source: Eastern Regional Health Authority Payroll Division As shown in Table 11, for some employ ees detailed, overtime pay is almost equal to the employees’ annual salary.

For the 15 employees with the highest overtime pay, their overtime pay for the year ended March 31, 2013 ranged from 53% to 102% of their annual salaries. For example, overtime pay of $62,841 earned by the Laboratory and X-Ray Technologist was 102% of their annual salary of $61,831. Table 11 shows th at the Authority may not have an adequate complement of staff to meet operational requirements.

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority Table 11 also shows the amount of ca llback unworked overtime included within total overtime pay. The table s hows that, for employees who receive callback overtime, the portion relating to callback unworked is comprised of at least 61% of the total overtime, w ith the highest percentage reaching 83% of total overtime. This results in a significant expense relating to overtime payment for hours that are not worked.

Overtime Callback For employees who are called back to work outside their re gular shift hours, the various collective agreements stat e that the employee is to receive a minimum of three hours overtime pay at the prescribed overtime rate. Our review identified th at the total callback expe nse at March 31, 2013 was $3.6 million (2012 - $3.5 million). Of the total overtime callback expense, 48% (2012 - 46%) related to callback overtime unworked. Some hospitals had a high percentage of callback unworked as a percentage of total callback overtime pay received.

Specifically:  Bonavista Home and Health Centre 82%;  Placentia Health Center 79%; and  Newhook Clinic 77%. During our review, we obtained details of 229 overtime callback shifts. There were 106 overtime callback shifts in which employees had multiple callback shifts within a 90 minute time period. The major ity of these 106 overtime callback shifts were compensated at a rate of 1.5 times regular pay. A breakdown of these instances is detailed in Table 12.

Table 12 Eastern Regional Health Authority Overtime Call Back Two Fiscal Years ended March 31, 2013 Time Out Between Shifts Number of Instances <15 minutes 19 15-30 minutes 24 30-45 minutes 23 45-60 minutes 21 60-90 minutes 19 Source: Eastern Regional Health Authority Payroll Division

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Part 3.1, January 2014 51 Eastern Regional Health Authority Pyramiding results when employees are ca lled back to work, work less than three hours, but earn the th ree hour pay minimum, and are then called back multiple times during the same three hour period, earning three hours of overtime pay for each of the callbacks. Pyramiding is not allowed under some collective agreements, but not addressed in others. Specific examples of those instances within Table 12 include:  Three instances where an employee received three overtime shifts within a 1.5 hour time period.

This resulted in employees being paid for 9 hours of overtime in 1.5 hours.  Two instances where employees received three overtime shifts within a 2 hour time period. This resulted in employees being paid for 9 hours of overtime in 2 hours.  One instance where an employee received five overtime shifts within a 3.5 hour time period. This resulted in an employee being paid for 15 hours of overtime in 3.5 hours.  One instance where an employee received six overtime shifts within a 4 hour time period.

This resulted in an employee being paid for 18 hours of overtime in 4 hours.  One instance where an employee received five overtime shifts within a 5 hour time period. This resulted in an employee being paid for 15 hours of overtime in 5 hours.  One instance where an employee received six overtime shifts within a 7 hour time period. This resulted in an employee being paid for 18 hours of overtime in 7 hours. Our review also identified nine instances where there were two employees of the same position working overtime callback in the same Authority department at the same time.

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority We also identified two employees who received callback overtime for working overtime immediately following their regular shift. This overtime should have been compensated as regul ar overtime, not callback overtime. One of the employees received callback overtime immediately following their regular shift in four instances within our samples. We also identified an instance where this employee received callback overtime for showing up for work 15 minutes before the start of a regular shift. Findings 20.

There is a lack of effective oversight to ensure that overtime is properly approved and documented such as to decrease the risk of unauthorized overtime worked and the risk that employees are being compensated for overtime hours beyond those worked. 21. Callback overtime is when employees are called back to work outside their regular shift hours. Employees receive a minimum of three hours overtime pay at the prescribed over time rate. Callback unworked is the portion of a callback shift that is unworked. Callback unworked was 48% of the total callback overtime.

This resulted in an expense of $1.7 million (2012 - $1.6 million) for overtime hours that were not actually worked. 22. Of 229 callback shifts we reviewed, there were 106 shifts (46%) in which employees had, for example, multiple callback shifts within 90 minutes. In one instance, for example, an employee whose annual salary was $61,831 received overtime pay of $51,887 that was unworked overtime. 3D. Management Overtime Policy Introduction Authority policy provides managers one w eek (35 hours) of leave in lieu of general day-to-day overtime and travel time.

In addition, in instances when managers are required to perform work that results in significant overtime, Authority policy provides that, “ they will be compensated at the rate of time and one-half (1 ½) at the manager’s rate of pay, for the time spent working.”

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Part 3.1, January 2014 53 Eastern Regional Health Authority Authority policy inconsistent with Government policy During the period of our review, up to and including August 31, 2012, Government policy permitted the payment of overtime for management if they accrue more than 35 hours of overt ime in an 8 week period. Effective September 1, 2012, Government policy permits management employees to be compensated at straight time for each hour of overtime worked in excess of two and one half (2½) hours per w eek, based on the employee’s current salary. The Authority’s policy is inconsistent with Government policy.

Minister direction not followed regarding management overtime policy In a letter to the Chair from the Mi nister dated May 13, 2011, the Minister stated that “The fiscal impact of this policy has been roughly estimated to cost $1 million annually in unproductive, non-worked hours.

This does not include the payment of any approved overtime t hat relates to their performance of their job responsibilities….Unless such a policy has been authorized by Treasury Board and appropriately f unded, they should be discontinued immediately.” Subsequent to May 13, 2011, the date of the letter to the Chair from the Minister, and throughout the period of our review, Authority policy and practice did not change and, therefor e, was not in ac cordance with the direction provided by the Minister.

Our review of management overtime identified the following issues:  Leave in lieu expense for manage ment was $0.9 million for fiscal 2013 (2012 - $0.9 million).  Management overtime expense was $0.4 million for fiscal 2013 (2012 - $0.4 million).  625 employees were provided with 35 hours of leave in lieu in 2013 (2012 - 664 employees). Finding 23. The management overtime policy is not consistent with Government policy, despite the Minister’s direc tion to align policy with that of Government policy. The Authority incurred a $0.9 million expense related to leave in lieu provided to manage ment.

This was not in accordance with Government policy.

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority 3E. Education Leave Introduction Authority policy allows managers to enroll in post-secondary programs. The policy states, “one semester may be approved where 50% of the study weeks will be funded education leave and 50% of the study weeks will be taken by the manager as either earned pai d leave or approved unpaid leave ”.

In addition, Authority policy also states, “Eastern Health will provide up to five days per year paid education leave for those enrolled in post-secondary academic programs to assist in pre paration of academic papers, study or exams.” Education leave not consistent with Government policy Government does not have a policy that allows management to enroll in post- secondary programs and receive paid education leave.

Our review of education leave identified education leave expense of $191,668 for the year ended March 31, 2013 (2012 - $324,676) and that education leave was used by 162 employees in the y ear ended March 31, 2013 (2012 - 226 employees). Finding 24. The education leave policy of the Authority is not consistent with Government policy.

Recommendations The Authority should:  amend policies to ensure consistency of Authority policies as compared to Government policies and collective agreements;  monitor and record employee leave and overtime in accordance with Government and Authority policy, and collective agreements; and  review policies and practices to identify ways in which to cut associated costs.

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Part 3.1, January 2014 55 Eastern Regional Health Authority 4. Internal Controls Overview Internal control is comprised of the control environment, accounting systems and control policies and procedures established and maintained by management to assist in achieving the orderly and efficient conduct of the affairs of an organization. It is essentia l that there be adequate controls to ensure proper stewardship over public money.

The primary objectives of internal control systems are to ensure:  the reliability and integrity of information;  compliance with procedures, policies, plans and legislation;  the economical and efficient use of resources;  the safeguarding of assets; and  the accomplishment of established objectives and goals. General computer control systems affect various areas of applications and are intended to establish a framework of overall control over information systems processing activities. Controls should be considered in computerized information systems design and operations.

They should be in place to provide reasonable assurance that systems are efficient and function in a manner consistent with organizational objectives. Many preventative controls are built into computer systems (eg. edits, security access restrictions, authorization requirements, etc.).

It is the responsibility of management to ensure that the following basic general controls, amongst others, are part of the internal control processes of an organization:  authorization of transactions - each organizational process must have authorization requirements for transactions within the process; and  segregation of duties - each organi zational process must have an appropriate distribution of incompatible tasks amongst multiple individuals within the process. The primary objective of the segregation of duties is the prevention of fraud and error.

Examples include: the separation of vendor creation and the initiation of purchase orders and the separation of the initiation and approval of purchase orders.

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority We would expect to see effective internal controls at the Authority to ensure safeguarding of assets, and proper stewardship over public money. In reviewing the Authority’s purchasing pr ocesses, we identified issues in the following areas: A. Internal Controls over Purchasing B. Internal Controls over Payments C. Internal Audit Function 4A.

Internal Controls over Purchasing Introduction The Materials Support Department has th e exclusive authority to commit the Authority to legal contracts for th e acquisition of goods and services. Authority policy states: “The Materials Support Department, acting on behalf of the President and CEO, has the authority to commit Eastern Health to legal contracts for the acquisition of goods and services.

Other staff are not permitted to commit Eastern Health to contracts, either verbally or in writing.” According to Authority policy, the Materials Support Department is responsible for all aspects of the purchasing process. Authority policy requires a properly au thorized purchase requisition for the acquisition of goods and services. The requisition must be approved by a director or delegate before being sent to the Materials Support Department. Authority policy also requires that th e Materials Support Department issue a properly authorized purchase order. Our review identified the following:

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 57 Eastern Regional Health Authority Purchasing function performed outside of Materials Support Department During our review, we noted that the purchasing function is being performed by individuals outside of the Materials Support Department. This is in contravention of Authority policy. Authority officials within the Materials Support Department advised that they do not have systematic internal control audit processes or reviews that woul d detect unauthorized purchasing or prevent it from occurring. We obtaine d a listing of user accesses for the purchasing system.

These reports contained 243 names of users that, as of November 22, 2013, had access to perform certain functions, such as creation of a purchase order, within the system. As of the same date, there were only 140 employees in the Materials Suppor t Department. Materials Support Department officials were not aware th at there were a significant number of employees with system accesses that were not in compliance with Authority policy. Inadequate authorization and review processes Authority policy requires a properly co mpleted and approved purchase order prior to initiation of the purchasing process.

The purchase order is also required as support of the purchase pr ior to payment processing by the Accounts Payable Division of the Au thority. Although payment processing was completed by the Accounts Payabl e Division, Department officials advised it was most often performed by an official without seeing the original documentation. Purchase order authoriz ation is a manual pr ocess within the Authority’s processes and is evidenced by an authorizing signature on the purchase order. During our review, we identified instances in which the initiator of the purchase order was also the approver of the purchase order.

This is not proper authorization of the transaction. These are incompatible functions and should be segregated. We also noted instances in which the Accounts Payabl e Division was processing payments without purchase or ders. This increases the risk that purchases are being made without th e approval of the Materials Support Department. Since only the Materials Support Department has the authority to commit the Authority to legal contra cts for the acquisition of goods and services, purchases made without their approval are in contravention of policy.

The Materials Support Department cannot ensure Au thority policy, the Public Tender Act (PTA) and Government’s Guidelines for the Hiring of External Consultants (Consultant Guidelines) are being followed for the purchase of goods and services when th ey are not aware of the purchases. For example, during our review, we noted an instance where a consultant was hired for $210,000 to manage an infrastructure project. This hire was made without a purchase order, the Materials Support Department was not involved in the transaction, and the Consultant Guidelines were not followed.

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority The Materials Support Department was not monitoring purchasing activity to prevent these unauthorized transactions from occurring. Inadequate segregation of duties During our review of user access listings for the purchasing system and associated manual processes, we identif ied 143 individuals on the listing that had current access that allowed them to:  set up a new vendor;  initiate a purchase order; and  receive goods on the system.

These processes are incompatible, as they provide an individual with access to the purchasing process from be ginning to end, with out any systems authorization required. The access to these incompatible functions increases the risk of fraud or error occurring without detection. Purchase order approval is a manual process outside of these system accesses.

Lack of monitoring of final tender costs During our review of the tendering proce sses, we would have expected to see evidence of monitoring, by the Materials Support Department, of the final costs of tendered work as compared to the awarded costs to ensure proper fiscal management and internal control. The Materials Support Department was una ble to provide us with a complete listing of tenders, and also could not provi de any analysis of the final costs of the tendered work as compared to the awarded costs.

Lack of controls over changing purchase orders During our review of the purchase order process, we would have expected to see controls in place to ensure the proper approval of any purchase order changes. Purchase orders can be changed by anyone with access to the purchasing module. Therefore, a purchase order th at was created and approved can be subsequently modified by the creator of the purchase order, the approver of the purchase order, or any other em ployee with access to the purchasing module. The access to these incompatib le functions increases the risk of fraud or error occurring without detection.

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Part 3.1, January 2014 59 Eastern Regional Health Authority In addition, we determined that purch ase orders are being changed without the necessary approval required. For example, the Materials Support Department does not require a copy of a signed change order relating to a tender, prior to changing the amount of a purchase order. As a result, it is possible that change orders may occur w ithout the approval of the head of the Government Funded Body, or the Board. No review of computer access System access to the purchasing system was not being adequately monitored during the period of our review.

We identified the following concerns:  system access logs were not being reviewed;  employees outside the Materials S upport Department had access to the purchasing module; and  terminated employees’ accounts were not being removed. Without adequate monitoring and maintena nce, there is an increased risk of improper transactions occurring, as a result of either fraud or error. Lack of automated controls in purchasing module Automated controls within a system allow certain preventative measures without significant manual intervention.

Automated controls have not been integrated into the purchasing system to reduce the risk of fraud or error from occurring. We identified that the system does not:  require a purchase requisition number to be entered;  restrict purchasing authority limits for employees;  require purchase orders to be approv ed on the system, by an individual other than the creator of the purchase order;  require a Tender or Form B number when purchases are greater than $10,000; and  restrict the delivery locations of goods.

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority Lack of these automated controls increas e the risk of fraud or error, as a system user has access to create and approve a purchase order of any dollar amount and also has access to set the delivery of goods or services to any location of their choosing. No dollar limits on spending Government policy regarding delegate d purchase authority requires limits on spending authority. Authority Policy does not require limits on spending authorizations.

Authority practice does not have spending limitations in place for the purchasing function. This does not allow for proper fiscal management.

Lack of oversight by Materials Support Department Government policy surrounding delegated purchasing authority includes:  placing limits on spending authority;  ensuring that financial authoritie s are clearly assigned, properly approved, and that delegation instruments are regularly updated;  ensuring that appropriate officers ar e delegated authority that enables them to effectively administer programs within their budget responsibility; and  ensuring that an appropriate financia l control framework is maintained which permits a balance of risks, costs and efficiencies.

The Materials Support Department has not ensured that the appropriate internal controls around the purchas ing processes are in place at the Authority. This has been demonstrated by the lack of:  segregation of duties;  review of computer accesses;  automated controls in the purchasing system; and  overall monitoring regarding the purchase of goods and services.

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Part 3.1, January 2014 61 Eastern Regional Health Authority Without properly working internal c ontrols surrounding the purchase of goods and services, the Authority cannot ensure compliance with policies and procedures, the economical and efficien t use of resources and the adequate safeguarding of assets. Findings 25. Current Authority controls are not ade quate to prevent or detect fraud or error in areas of purchasing.

For example:  inadequate authorization and review of purchase orders;  lack of monitoring of final tender costs compared to awarded costs;  lack of controls over user access to purchase orders;  no dollar limits on spending authorization for employees; and  an overall lack of oversight of the purchasing process by the Materials Support Department. 26. The purchasing function was being perf ormed by individuals outside of the Material Support Department. There were 243 users that are able to create purchase orders, however, there were only 140 employees in the Materials Support Department. 4B.

Internal Controls over Payments Employees have the ability to prepare, approve, and print cheques without requiring supervisory approval During our review of the purchasing pr ocesses, we woul d have expected adequate segregation of duties around cheque processing. During our review, we identified that there are 26 individuals within the Financial Services, Budgeting, and the Health care Technology and Data Management (HTDM) Departments that have system access to prepare, approve, and print cheques, all without any level of supervisory approval.

Without the proper segregation of du ties and authorization requirements, there is an increased risk of fraud or error occurring. Finding 27. Internal controls over cheque proce ssing are inadequate. As a result of improper segregation of duties and authorization requirements, there is an increased risk of fraud and error occurring.

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Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority 4C. Internal Audit No internal audit function An internal audit function is an integral part of an effective internal control system, particularly for an organizati on the size of the Authority.

Without such a system, including the presence of an internal aud it function, instances of the following may go undetected:  public money not being appropriately collected and disbursed;  non-compliance with legislation and/or Government policies;  lack of safeguarding and accounting for the Authority's assets; and  accounting and management control weaknesses. We would expect the Authority to have an Internal Audit Department which would have an independent, functional responsibility to the Finance and Audit Committee of the Board of Trustees for the adequacy and effectiveness of internal controls.

There was no functioning Internal Aud it Department during the period of our review. An effective internal audit function can help ensure that preventative and detective controls are implemented and functioning properly. Finding 28. There was no functioning Internal Audit Department during the period of our review. An effective internal a udit function can help ensure that preventative and detective controls are implemented and functioning properly.

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 63 Eastern Regional Health Authority Recommendations The Authority should:  strengthen internal controls relating to purchasing and payments;  complete regular reviews of internal c ontrols to ensure they are operating effectively;  create a delegation of authority policy that is consistent with Government;  consider the need for an Internal Audit Department; and  consider the need for an overall review of purchasing. 5.

Tendering of Goods and Services Overview The Authority spent approximately $357.1 million during the year ended March 31, 2013 (2012 - $356.1 million) on goods and services. The Materials Support Department of the Authority is responsible for the procurement of goods and services, related to both operating expenses and acquiring capital assets. To acquire goods and services, the Authority must comply with the requirements of the Public Tender Act (PTA) and the Public Tender Regulations, 1998 (the Regulations).

In reviewing the Authority ’s tendering of goods and services pr actices we identified issues in the following areas: A. Tendering and Purchasing Policies B. Tender Exceptions - Form Bs C. Infrastructure Projects

64 Annual Report,

Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority 5A. Tendering and Purchasing Policies Introduction Table 13 summarizes certain requirements of the PTA based on the cost thresholds of the goods and services.

Table 13 Eastern Regional Health Authority Public Tender Act Requirements When goods and services cost … Or a public work costs … Then the Authority must … More than $10,000 More than $20,000 Invite tenders $10,000 and less $20,000 and less  Obtain quotations from at least 3 legitimate suppliers, or  Establish for the circumstances a fair and reasonable price. Purchases not in compliance with PTA and Authority policy Our review included a sample of 20 pur chases for the period April 1, 2011 to March 31, 2013 to assess the Authority’s compliance with the PTA and the Regulations.

Our review identified the following:  2 purchases totaling $3,875 did not have the 3 required quotations; and  3 purchases totaling $17,040 did not cont ain any support to indicate a fair and reasonable price. Insufficient support in Tender files Our review of 9 tender files identified issues with the completeness of the documentation to support the tender aw arding process. Specifically, bid checklists were not completed by the Ma terials Support Department in 8 of the 9 files. As a result, the Authority could not demonstrate that bids were reviewed for compliance with tender spec ifications.

This creates a risk that tender requirements are not consistently applied to each tender bid.

Auditor General of Newfoundland and Labrador Annual Report,

Part 3.1, January 2014 65 Eastern Regional Health Authority Purchasing policy not being followed The purchasing policy of the Author ity for acquisition of professional services states that for professional services valued at $10,000 or greater, approval must come from a Vice-Presiden t, or Chief Operating Officer. Our review identified that senior manageme nt other than the Vice-President or Chief Operating Officer are approving professional service contracts valued at $10,000 or greater. Finding 29.

We found instances where purchases ma de were not in compliance with the Public Tender Act ( PTA) and where there was insufficient support in tender files. As a result, the Author ity could not demonstrate that bids were reviewed for compliance with te nder specifications. We also found instances where the purchasing policy of the Authority was not being followed. 5B. Tender Exceptions – Form Bs Introduction

Section 3(1) of the PTA states that: “ Where a public work is to be executed under the direction of a government funde d body or goods or services are to be acquired by a government funded body, the government funded body shall invite tenders for the execution or acquisition. ” Although the PTA makes public tendering a requirement when acquiring goods or services, it does specify instances in which tenders are not required. These instances are commonly referred to as "tender excepti ons”. All tender exce ptions require a “Form B” to be completed and tabled in the House of Assembly.

Our review included a sample of 33 Fo rm Bs for the period April 1, 2011 to March 31, 2013 to assess complian ce by the Author ity with the PTA and Regulations. Our review of Form Bs identified issues in the following areas: Form Bs not submitted to the Agency on time Of the 33 Form Bs sampled, we noted 10 instances where the Form Bs were not submitted within the required timefram e. The extent to which the form B submissions were overdue ranged from 5 to 255 days.

By not submitting Form Bs on time, the Authority is not in compliance with the PTA and is impacting the timeliness and relevancy of the information being reported to the House of Assembly.

66 Annual Report,

Part 3.1, January 2014 Auditor General of Newfoundland and Labrador Eastern Regional Health Authority Inappropriate pressing emergency exceptions Our review of Form Bs indicated that the Authority did not always apply

section 3(2)(

d) of the PTA, the pressing emergency exception, appropriately. Of the 33 Form Bs reviewed, 12 were categorized as a pressing emergency. In 2 of the 12 instances, we question the appropriateness of the rationale:  Rental of two suites ($23,922): the Au thority indicated on the Form B, “Emergency Purchase - This was ne eded ASAP - no time to tender”. However, documentation about the rental indicated that the Materials Support Department was contacted on January 24, 2013 to book the rental of the two suites for March 1, 2013.

In our view, the Authority had enough time to tender the contract.  Central laundry equipment ($38,409) : the Authority was unable to provide documentation to support the pressing emergency claim. As a result, the Authority may not be getting the most economical price in these instances in which a pressing emergency exception may not have been required. Inappropriate sole source exceptions Our review indicated the Authority did not always apply

section 3(2)(

e) of the PTA, the sole source exception , correctly. Of the 33 Form Bs reviewed, we found 21

Document details

Collection	Newfoundland and Labrador — Committees
Citation	business_electronicdocuments_ar2013
Type	committee
Volume / chapter	business_electronicdocuments_ar2013.pdf
Language	en
Format	json
Source	PROVINCIAL
Identifier	a498e8cc02f8c107ac5553974a522e6404537110

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