Mnp Llp Report

8/9/2019 Mnp Llp Report

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Prepared For: Board of Go

Issued On: January 28,

Prepared By: MNP LLP

2300, 1055

PO Box 491

MNP Contact: Peter Guo, P

Phone: (604

Fax: (604

Kwantlen Polytechnic U

Internal Audit of Human Resou

Processes and Controls

Executive Management Compe

Employment-related Expenses

ernors, Kwantlen Polytechnic University

015

unsmuir Street

8, Vancouver, BC V7X 1J1

artner, BC Enterprise Risk Services Leader

) 637-1513

) 685-8594

iversity

ces

nsation and


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TABLE OF CONTENTS

Executive Summary ................................................................................................................... 3

Background .............................................................................................................................. 3

Scope....................................................................................................................................... 4

Approach................................................................................................................................. 5

Limitations............................................................................................................................... 6

Key Findings and Recommendations............................................................................................ 7

Appendix 1: Current and Proposed Process for Appointment of New Senior Academic Administrators

..............................................................................................................................................20

Appendix 2: PSEC and SOFI Report Process Narratives and Flowcharts ...........................................22

Appendix 3: Summary of Recommendations...............................................................................29

Limitation of Use

This report is intended solely for the information and use of Kwantlen Polytechnic University. This report should

not be distributed to third parties without MNP LLPs written consent. Any use that a third party makes of this

report, and any reliance or decisions made based on it, are the responsibility of such third party. MNP LLP accepts

no liability or responsibility for any loss or damages suffered by any third party as a result of decisions made or

actions taken based on this report.


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Executive Summary

The Board of Governors of Kwantlen Polytechnic University (the Board) engaged MNP to assess and

report on the processes and controls related to the employment, compensation and accountability

reporting for Kwantlen Polytechnic Universitys (KPU or the University) executive managers (Pay

Grade 9 and above) during the period from April 1, 2010 to June 30, 2014.

MNP found significant gaps in the manner in which senior executive employment terms were

documented. Contract terms and salary adjustments were not fully documented in the files provided by

KPU. These gaps made it difficult to ascertain the manner in which terms were agreed, the specific

terms of employment in each case and whether the terms identified were complete.

Appropriate financial, human resource and legal consultation was not fully utilized and relevant

functional expertise was not always taken into consideration. This contributed to significant

inconsistencies that were identified between contracts. KPU has already instituted some improvements,

however further progress is required.

MNP did not identify the existence of any further pre-employment contracts during the review period,

except for those that have already been publicly identified. With the exception of disclosures related to

these pre-employment contracts, MNP did not note significant deviations from the disclosures required

under the Public Sector Executive Compensation Reporting Guidelines promulgated by the Public Sector

Employers Council Secretariat (PSEC). For the sample of senior managers selected, MNP did not note

significant deviations from the disclosures specified for the Statement of Financial Information as

required by the Financial Information Act. However, MNP did identify opportunities to improve the

internal control environment underlying, and processes for overseeing, these reports.

In summary, MNP made a total of 24 recommendations to KPUs Board of Governors to improve the

processes and controls related to the employment, compensation and accountability reporting for the

Universitys executive managers, as well as general governance and oversight at KPU.

Background

Kwantlen Polytechnic University (KPU or the University) employs a number of senior administrators

charged with managing various aspects of the Universitys academic programs and administration.

These positions are excluded from membership in collective bargaining groups such as the Kwantlen

Faculty Association or the BC Government Employees Union.

Senior administrators are employed by KPU as either temporary appointments, regular appointments

with an indefinite term or as regular appointments under fixed term contracts. Regardless of the

manner of appointment, employment of senior administrators is governed by the Public Sector

Employers Act (the Act), as administered by the Public Sector Employers Council Secretariat.

Amongst other things, PSEC regulates the compensation paid to KPUs senior administrators.


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KPU is required to submit a Compensation Plan to PSEC for its review and approval. The Compensation

Plan identifies the duties, responsibilities and compensation for each position. Once approved by PSEC,

the Compensation Plan is a legally enforceable compensation standard, from which KPU is not allowed

to deviate without permission from PSEC. The compensation plan is the basis for KPUs compensation

grid, which links each position to a particular pay grade. The most recent compensation plan required

by PSEC was approved in November 2010.

The Act and related Public Sector Executive Compensation Reporting Guidelines also contain

accountability reporting requirements that oblige KPU to disclose the compensation of Named

Executive Officers (NEOs). NEOs are defined as the chief executive officer and four highest ranking

corporate officers earning a base salary of $125,000 or more per year. For the purposes of this

disclosure, KPU is required to include everything that a reasonable person would view as

compensation, including salary, bonuses, allowances, benefits paid on the employees behalf, paid

leaves and perquisites. Perquisites are further defined by what they are and are not. An item is not a

perquisite if it is integrally and directly related to the performance of an executive officers duties, for

instance the cost of travel and registration to a conference related to the duties of the executive officer.

A long, though not exhaustive, list of perquisites is provided in the Guidelines, including such items as

cars, personal travel, clothing, club memberships, theatre tickets, parking and housing subsidies.

In addition to PSEC requirements, KPU is also required under the Financial Information Act to disclose a

Statement of Financial Information (SOFI) that lists, among other things, the compensation of all

employees earning in excess of $75,000 per year.

As part of its annual internal audit plan for 2014-15, MNP was engaged to assess KPUs current HR

processes and controls in relation to executive management compensation and employment-related

expenses.

Scope

The objectives of the engagement were:

To understand and assess KPUs current processes and controls in relation to its executive

management compensation and employment-related expenses;

To assess whether KPUs current practices are in compliance with the statute(s), regulation(s),

and government guidelines or policies that govern executive and excluded compensation at KPU

(the External Regulatory Framework),

To identify improvement opportunities for executive management compensation and

employment-related expense processes and controls; and

To provide practical recommendations for improvement.

As part of the planning phase of this audit, the following in-scope areas of focus were identified:

For the period April 1, 2010 to June 30, 2014, review the processes and controls in relation to


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KPUs Executive Management (senior administration Pay Grade 9 and above) compensation

and employment-related expenses, including:

o Hiring

o Compensation package determination

o Offers and contracts

o Employment-related expense claims (this does NOT include expense reimbursements that

are due to the normal course of conducting job duties.)

o Any other material payment to KPU Executive Management, including but not limited to

research allowance, moving allowance, professional development, pre-employment

contracts, etc.

Assess the processes and controls in relation to KPUs compliance with the External Regulatory

Framework, including:

o Identifying and reporting Executive Management compensation and employment-related

expense information

This encompassed examining the supporting documentation for 68 employment transactions (hire,

temporary assignment, promotion or reclassification) for 42 individual employees.

Approach

Fieldwork for this assignment was completed between July and October, 2014. The review consisted of

reviewing a sample of documents and reports; a series of interviews with relevant management and

staff; along with a more detailed review and testing of controls in relation to the in-scope areas of focus

noted previously. As noted in the Scope section, the sample that was tested for this review focused on

pay grade 9 and above for the period April 1, 2010 to June 30, 2014.

In summary, the approach included the following:

Understanding and documenting executive hire and accountability reporting processes and

controls by reviewing existing policies / guidelines and other related documents and

interviewing relevant key management and staff. For the documentation of accountability

reporting processes and controls, please see Appendix 2: PSEC and SOFI Report Process

Narratives and Flowcharts.

Reviewing PSEC and SOFI accountability reports for 2010 to 2013. For PSEC reports, all reported

items were examined in detail. For SOFI reports, a sample of senior executives was examined in

detail, as well as the overall process.

Reporting any specific significant exceptions, and opportunities for improvement of internal

controls.


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Limitations

MNPs work to provide this report was carried out based on the assumption that information provided

by management and employees of KPU was reliable, accurate and complete. MNP did not subject the

information contained in this report to checking or verification procedures except to the extent

expressly stated. In no circumstances shall MNP be responsible for any loss or damage, of whatsoever

nature, arising from information material to MNPs work being withheld or concealed from MNP ormisrepresented to MNP by management and employees of KPU or any other person of whom MNP may

make enquiries.

This reviews activities do not constitute an examination in accordance with generally accepted

accounting standards or attestation standards. As a result MNP does not provide an opinion, attestation,

or other form of assurance.

MNPs review activities do not constitute an examination for fraud or fraudulent transactions under any

standards. This review is not a forensic review and has not been designed to search for fraud,

fraudulent or suspicious transactions. If such matters arose from the review activities, they would have

been brought to the attention of in-house legal counsel and the Chair of the Audit Committee of KPUs

Board of Governors.


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reimbursement for moving expenses, nor did it specify repayment terms in the event of termination of

employment. Reimbursement of paid moving expenses on early termination is a normal condition, the

absence of which does not protect the best interests of the University. Further, in some cases, contracts

specified that computers can be purchased through the research allowance, which is outside of KPUs

normal procurement procedures.

Recommendation

2. In order to clearly delineate compensation from non-compensation related matters, KPU should

ensure that non-compensation related items, such as research allowances, are negotiated and agreed

separately from the compensation negotiation process.

Observations Consistency in Employment Contracts

Inconsistencies were noted in the employment contracts among senior executives. For instance,

vacation allotments vary from between 4 and 7 weeks, without reference to the number of years of

employment at KPU. There were also inconsistencies in research and professional development

allowances.

Employment contracts for academic administrators frequently specify a term of administrative leave,

usually offered in contemplation of a transition from an administrative to a teaching position at the

conclusion of the contracted appointment or its renewal. Such administrative leaves are conditional on

the individual obtaining a faculty appointment within one of KPUs academic departments. However, in

at least one instance a term of administrative leave was agreed to without reference to continued

employment by KPU. In this case, the leave was more akin to a sabbatical.

In addition, some offer terms could have put KPU and the individuals being hired offside with the CRA.

For instance, in at least one case, the offer letter specified an amount available for relocation, but did

not specify the requirement to provide moving expense receipts. In the absence of receipts, a moving

allowance becomes a taxable benefit rather than a non-taxable reimbursement. (In all instances, KPU

did seek receipts; that receipts would be required was not always made clear in the formal

documentation provided to recruits.)

There was one instance where a housing loan was made available, although it was not used. In another

instance, KPU offered and paid for three months of furnished housing; a taxable benefit and reportable

under the compensation reporting guidelines. That this formed part of the individuals compensation

package was not made clear in the offer letter to the individual.

KPU works within a challenging recruitment environment it is understood that externally imposed

compensation restrictions have made it difficult to attract the calibre of candidate the University

desires. As a consequence, KPU has sought innovative ways to attract high quality senior

administrators. These efforts have had a contributing effect on these inconsistencies.


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The most significant inconsistencies were noted in a period between 2010 and 2012. The services of a

professional recruiting agency were retained, but the advice of KPUs Human Resources and Finance

departments was not always consistently sought during the executive recruitment process. It was also

unclear the extent to which professional legal advice was obtained. It is likely that the inconsistency in

seeking timely professional human resource, finance and legal advice, during the executive recruitment

process, led to many of the variations identified above.

The negotiation of varying employment terms is a normal practice in the private sector. However, in the

private sector, individual compensation is usually a confidential matter. On the other hand, in the public

sector, compensation is a matter of public record. In this environment, even small inconsistencies in the

compensation provided to individuals at the same level can lead to significant human resource and

oversight challenges.

Recommendations

3. In order to improve consistency, KPU should formally delegate responsibility for making offers of

employment and procuring contracts of employment to the HR Department.

4. In order to improve consistency, standardized templates for key aspects of the recruitment process

should be developed by Human Resources, with the advice and assistance of Finance and Legal

departments. In the near term, until standard templates are established, all draft offers of employment

to senior executives should be reviewed and formally signed-off by KPUs Human Resource, Finance and

Legal departments, to ensure conformity with KPU policies and procedures, public sector requirements

and limits and the Income Tax Act, prior to offers being made to prospective senior employees. (Also

see Recommendation 1.)

Observations Recent Progress towards Consistency

KPU has initiated a process to create consistency through an annual professional development fund,

from which executive managers can claim reimbursement for eligible professional development

expense, subject to an annual limit associated with their position.

It is understood that responsibility for administering executive recruitments has been assigned to KPUs

Human Resources department. With this move, there was improved consistency and clarity in the

wording of recent contracts and offers. However, further progress is required.

KPU has developed standard appendices for inclusion in employment contracts that standardize certain

items such as vacation entitlements. However, inconsistencies in vacation entitlements were noted

between contracts and the standard form appendix attached to them.

In June 2013, KPU instituted policies and procedures for the Search Advisory, Appointment and Re-

appointment of Senior Academic Administrator Positions (Policy & Procedure HR 20) and a revised

appendix to the Board Governance Manual for the appointment of employees (Appendix H). These


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policies and procedures are now being instituted and represent positive steps towards ensuring

professional, consistent executive recruitment; however they have not yet been fully implemented.

Recommendations

5. Contracts of employment with senior executives should be consistent with the standard terms

developed by KPU.

6. Terms of each draft offer of employment should be formally signed-off by the person or group

assigned responsibility for approving candidates, as specified in Appendix H of the Board Governance

Manual.

Observations Responsibility for Executive Contract Negotiation

KPUs executive recruitment policies and procedures outline the powers and responsibilities of the

Board, President and administration in relation to recruitment. They detail the role and composition of

Search Advisory Committees (SAC) and outline, at a high level, the search process. The Board

Governance Manual delegates responsibility for hiring to the Human Resources Committee for specific

positions. However, the policy guidance speaks more to who should have input into decision making

than it does to specific procedures. The policies do not identify requirements for formal documentation,

including approval sign-offs, nor do they provide guidance for the negotiation process that is integral to

the hiring of senior academic administrators, including the determination of compensation and all

compensation related items.

Recommendations

7. KPU should enhance its policies and procedures for hiring senior academic administrators. These

enhancements should clearly define the activities and requirements in the hiring process, including the

necessity of formal documentation and where approvals are required.

8. Negotiating contract terms should be limited to those persons or groups assigned responsibility for

approving candidates as specified in Appendix H of the Board Governance Manual, in consultation with

the Human Resources department. KPU should develop guidelines for negotiating contracts that

identify negotiating ranges for specific compensation items consistent with the PSEC-approved plan, and

ensure that KPUs standard contract terms are consistent with these items.

Pre-Employment Contracts

Observations

Our review did not indicate the existence of any further pre-employment contracts during the review

period additional to those already publicly identified.

Notwithstanding any deliverables provided or performance expectations outlined, all of the individuals

that were interviewed and who received pre-employment contracts understood them to be integral

with an offer of employment, either as inducements to sign or in an effort to make prospective

employees whole in a challenging salary environment. Mingays report characterizes the pre-


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employment contracts he examined as vague on deliverables or not containing any discernible

deliverables. The absence of clear, specified deliverables or remuneration rate contributed to a

perception that pre-employment contracts were developed with the intention to skirt compensation

limits.

It must be pointed out that the individual employees in question bear no responsibility or fault. In fact,

Mingay noted that Dr. Davis ...worked extensively during the period...and provided valuable services to

KPU. They were negotiating in good faith with the University, with the reasonable assumption that any

terms offered would be consistent with all applicable laws and policies under which KPU was obliged to

operate. Typically, professional finance, legal and human resource advice (whether in-house or

external) is obtained, with the intention to preclude organizations from going offside of laws and

policies during the negotiating process. As noted earlier, such advice was not always sought at KPU.

It was also noted that KPU does not have any policies that provide guidance regarding the offering of

pre-employment contracts to prospective employees.

Recommendation

9. KPU should develop a policy that discourages pre-employment contracts. In the rare circumstances

where specific services may be appropriate during the transition period prior to employment, KPU

should develop guidance for pre-employment contracts to ensure compliance with legal and policy

compensation restrictions. Any pre-employment contracts should be procured in accordance with good

procurement practices, with clear deliverables, specified time frames and appropriate rates, and pre-

cleared through PSEC.

Compensation disclosure PSEC

Observations Reporting Process

The process for creating KPUs annual Executive Compensation Disclosure Report was obtained and

documented through interviews conducted during this assignment (see Appendix 2-A). In addition, the

compensation disclosures for all employees included in the PSEC reports for the years ending March 31,

2010 2014 were reviewed.

KPUs process for generating this report is largely manual, requiring coordination between the Human

Resources department that is responsible for drafting the report, and Finance Payroll department that

has care and custody of the underlying financial data. The process is adequate with respect to gross

salary items, as most payments are made through payroll. However, there is a gap related to items that

could potentially be considered compensation, as defined under PSECs guidelines. Such items would

likely be paid via purchasing card (P-card) or expense claims, and so would not show up in a payroll

report. The manual process undertaken between Human Resources and Finance may not be sufficient

to ensure that the information required is complete and accurate.

Based on interviews with KPU management and review of KPU policies and procedures, there is no clear

definition of perquisites, and it is not clear how these perquisites should be tracked. In practice, the


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expense forms / P-card statements are reviewed more from an authorization / reasonableness

perspective rather than perquisites compliance and disclosure purposes.

During the period of this review (April 1, 2010 to June 30, 2104), minor amounts (approximately $3,000

in total) were noted through our assessment of P-cards and expense claims, that related to perquisites

and should have been included as compensation. Further minor amounts (approximately $5,000 in

total) could possibly have been classified as perquisites, but there was insufficient information to

confirm these items.

Recommendations

10. As part of drafting the Executive Compensation Disclosure Report to PSEC, the Finance department

should be consulted regarding items that could be considered compensation under the Public Sector

Executive Compensation Reporting Guidelines issued by PSEC.

11. KPU should establish a clear definition of perquisites in its expense / P-card policies, consistent with

the definition provided for expense reporting by PSEC, which should be communicated throughout the

University. The perquisites / potential perquisites should be identified during the expense form / P-card

statement review and tracked for annual reporting purposes.

Observations Board Chair Attestation

There were no significant variances between the payroll records and PSEC reports, other than for those

employees who received pre-employment contracts. The manner in which pre-employment contracts

were reported as contract payments rather than compensation was not an oversight; it was a

judgement made by KPU management at the time based on their interpretation of the guidelines. The

current guidelines governing the disclosure of executive compensation are specific regarding the

requirement to include payments under pre-employment contracts with total compensation. However,

before they were revised in May 2014, the guidelines were silent in this regard. KPU management notes

that the disclosure guidance was ambiguous regarding pre-employment contracts, and felt that the

manner in which they were disclosed was correct and consistent with the disclosure of professional

services contracts with other non-employees.

From the fieldwork conducted during this review, it appears that management did not attempt to

deceive with respect to how pre-employment contracts were disclosed. However, it is unclear whether

a fulsome briefing was provided to the Board Chair, especially regarding judgement calls that were

made regarding this disclosure.

Current PSEC reporting guidelines require the Board Chair to provide an attestation letter confirming

that:

The board is aware of the executive compensation paid in the prior fiscal year

The compensation information being disclosed is accurate and includes all compensation paid

by the employer, foundations, subsidiaries, or any other organization related to or associated


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with the employer. It also includes the value of any pre or post-employment payments made

during the 12 month period before or after the term of employment.

Verifying that compensation provided was within the approved compensation plans and

complies with these guidelines.

Board Chairs are not expected to have detailed knowledge concerning the administration of the

organizations they oversee. However, in this instance, the attestation report requires the Board Chair to

stake her or his reputation on the veracity of the information submitted. Consequently, this requires a

rigorous underlying process to ensure the completeness and accuracy of the information provided to

the Board Chair, including a documented review of this material at the senior administrative level. Both

the process and documented review were not clearly evident.

Instead, the accountability information provided to the Board Chair was compiled by an administrative

manager and reviewed by a senior member of the Finance department, but without further review and

formal sign-off. This process, while adequate for matters of routine administration, is not

commensurate with the serious nature of the Chairs required attestation.

Recommendations

12. KPU should formally institute procedures for senior management (VP Finance & Administration

and/or the President) review and sign-off of disclosures required under the Public Sector Employers Act,

including the identification of any judgements made in the compilation of this information, prior to its

submission to the Board Chair for formal attestation.

13. KPU should ensure that the processes for collecting, validating and certifying PSEC and other key

regulatory submissions are consistently documented and communicated. Key control points in these

processes should be clearly identified, and tested on a regular basis to ensure that the processes

function rigorously and consistently.

Compensation disclosure - SOFI

Observations Reporting Process

As part of this review, the process for creating KPUs annual Statement of Financial Information,

required under the Financial Information Act was documented (see Appendix 2-B). The assessment of

the information reported under SOFI for all Presidents, and a sample of currently employed grade 9 and

10 employees, for the period April 1, 2010 to March 31, 2013 (the 2014 report was not yet available at

the time of field work) was performed, and no significant exceptions were noted.

KPUs system for generating the SOFI report is generally adequate with respect to reporting information

that is processed through payroll. However, as was the case with the Executive Compensation

Disclosure Report, KPU does not have a process for ensuring that compensation-related items expensed

through P-cards or expense claims have been correctly captured in the SOFI report.


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KPUs accounting and payroll systems do not easily lend themselves to the kind of reporting required

under SOFI. Consequently, there is considerable manual intervention required to produce the

information required. Automating the process, at least in part, could make the resulting data more

reliable, and would improve the ease with which it is extracted. For instance, it may be possible to have

Banner produce a report showing total employee expenses. This could be compared to the total

employee expenses reported in the SOFI report to check that the information is complete (see also

observations and recommendations previously noted under Compensation disclosure PSEC).

While costs to automate the entire system would likely be significant, a cost/benefit analysis has not

been performed with respect to automating any part of the system to support SOFI reporting.

Recommendations

14. As part of drafting the SOFI, the Finance department should identify and provide information

regarding items that could be considered compensation under the guidance provided by the Ministry of

Finance, such as perquisites and taxable benefits, which have been processed via P-cards or expense

reports.

15. KPU should perform a cost/benefit analysis of automating at least part of the SOFI report generating

process.

Observations Oversight of Guidance Updates

Each year, the Ministry of Finance updates its guidance for the preparation of the SOFI report. This

guidance forms the basis on which the SOFI report is prepared the value of the report could be

undermined should the interpretation of the Ministrys guidance be incorrect in any way. These

requirements are reviewed by Finance department management to ensure the report is prepared

correctly. However, this review is informal and not documented.

Recommendation

16. Given that the SOFI report will be released to the public, a formal, documented supervisory review

should be implemented by KPU to validate that the SOFI guidelines, or any changes that may occur year-

to-year, have been interpreted correctly.

Observations Review and Approval

The SOFI report is provided to the Executive Director of Finance for detailed review and approval. The

report is also forwarded to the VP Finance & Administration; however the VP is not required to review

or approve it. Given that the SOFI report is a public document, and that the Board Chair is required to

approve the report as part of the package of financial information released by KPU, formal review and

approval of the SOFI report by a member of the senior administration should be required, attesting to

the completeness and accuracy of the information reported.


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Recommendation

17. The Vice President, Finance and Administration should review and formally approve the Statement

of Financial Information required under the Financial Information Act, attesting to the completeness and

accuracy of the information reported, before it is provided to the Board for its review and approval.

Compensation Compliance with Legislation and Policy

ObservationsCompliance with the Management Compensation Freeze

On September 13, 2012, Government announced a management compensation freeze for all public

sector organizations. The written direction from the Minister of Finance was specific that this freeze

applies to any movement within existing compensation ranges on the basis of service, merit or other

progression, or changes to existing ranges and to position reclassifications without substantive changes

to responsibilities. The management compensation freeze remains in effect.

There were three instances where senior management received annual step level increases identified

during the review period. However, KPUs Policies Concerning Working Conditions, Salaries, Benefits

and Retirement Provisions for Administrative Employees states that advancement within the

applicable salary range shall take place annually (based on FTE service) on the anniversary date,

provided that the employee is assessed to be performing at least satisfactorily. PSEC concluded that

this wording legally obligated KPU to continue providing increments, and therefore KPU was exempted

from this directive as it related to the awarding of increments.

As part of this internal audit, the compensation paid was compared with the salary specified for the

position on the compensation grid, to ensure consistency and to ensure that the government-imposed

wage freeze had been respected. There were no significant deviations from the salary grid.

However, there were some instances where salaries changed over this time. KPU maintained that in all

instances salary changes were due to individuals changing positions or positions being reclassified.

Where PSEC approval was sought by KPU, approval was not always received prior to changes being

made, and in some instances, approval was only sought retrospectively.

Recommendation

18. KPU should request and receive written approval from PSEC prior to implementing changes to the

compensation of excluded staff, unless the change falls within the PSEC-approved plan.


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Governance and Oversight

Observations

During the course of this review, a number of opportunities for KPU to improve its overall governance

and oversight practices were noted. These observations are based on the widely-adopted Committee of

Sponsoring Organizations of the Treadway Commission (COSO) standards.

ObservationsNew Governor Orientation

At the time of our fieldwork, orientation for new Board members consisted of a brief overview of KPUs

history and operations. This is usually conducted via a meeting between the existing Chair and the new

Board member, with support from the Board Secretary. There is no formal orientation package or Board

members handbook that outlines responsibilities of the Board as a whole or of Board members

individually.

At a minimum, Board member orientation should include:

major issues related to the post secondary sector in general, and KPU in particular;

the Universitys organizational structure and major programs;

KPUs strategic objectives its mission, vision and values;

the operational plans for achieving KPUs strategic objectives;

the measures of operational performance used by KPU to gauge its success in achieving these

objectives;

how the Board is organized and how major decisions are made;

the Universitys budget, current financial statements and key financial management issues;

key risks facing KPU and how they are managed;

Board member fiduciary duties;

regulatory requirements for, and related expectations of the Board; expectations and responsibilities of individual Board members as specified in the Board

governance manual; and

how the performance of individual Board members and the Board as a whole, is monitored.

Recommendation

19. KPUs Board should implement a formal orientation process for new Board members that includes

elements such as the Universitys structure and operating environment; strategic plan and objectives;

operational plans and measures of success; Board governance, expectations and performance

monitoring; KPU finances and Board fiduciary responsibility; and KPUs risk management framework and

process.

ObservationsPerformance Management

A significant quantity of information is provided to Governors in advance of each Board meeting.

However, while the volume of information provided is significant, it tends to be operational in nature,

and not packaged in a decision-useful format appropriate to a governance board.


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Until recently, KPU has not had a plan that outlines the Universitys strategic goals, and measures of

performance for those goals. Since the arrival of Dr. Davis, a strategic plan has been developed and

performance measures have been, or are being, identified. Performance measurement is still being

implemented, and as such, effective monitoring by the Board is not yet a part of routine governance.

Recommendation

20. KPUs Board should receive and review regular reports of the Universitys performance against its

strategic objectives, including analyses of deviations from objectives and KPUs intended response.

ObservationsRisk Management

Under S.4.2.3 of the Board Terms of Reference, KPUs senior leadership is responsible for establishing

processes, procedures and mechanisms by which key matters or risks are identified, and ensuring that

strategies are developed to manage such risks. The Board ensures, through regular reviews and

assessments, that senior leadership has established appropriate systems to identify and manage these

risks and receives regular reports on the management of these risks.

Under S.17, primary responsibility for KPUs risk management is vested in the President and overseen by

the Board. The President is responsible for establishing processes, procedures and mechanisms by

which key financial and non-financial risks are identified, and ensuring that strategies are developed to

manage such risks.

The Board has responsibility to:

a) understand the key financial and non-financial risks of KPUs operations;

b) ensure, through regular reviews and assessments, that senior leadership has established

appropriate systems to manage these risks; and

c) receive regular reports on the management of material risks to KPU.

In particular, the Board will review with senior leadership the policies and procedures that are in place to

identify, manage, and monitor material risk...

At least annually, the Board oversees a risk review where it reviews:

a) KPUs material risks

b) the adequacy of senor leaderships systems, policies and procedures to identify and manage risk;

and

c) the effectiveness of senior leaderships risk management process.

The risk management function at KPU was established in 2012 to initiate the implementation of

enterprise risk management (ERM). Over the past two and a half years, ERM has evolved to include a

recognized framework (ISO31000), standardized tool set, operational risk assessments, updates to the

Board Manual (S. 17 as noted above), administrative oversight and periodic reporting to the Board.


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18

Since its inception, the risk management function has been staffed by one individual. At this time, the

risk management function does not report to the Board or the President; instead, it reports

operationally to the AVP Administration, and is physically housed in HR.

Currently, KPU does not yet have a comprehensive risk register. Moreover, the risk reports that have

been made to the Board have been somewhat ad hoc, relating to specific issues of the day rather than a

comprehensive identification and assessment of risks that encompass all categories of risk (strategic,

operational, financial, reputational, regulatory, etc.)

Recommendations

21. Given the Presidents direct responsibility for risk management, overseen by the Board, the

operational responsibility for risk management should be reassigned directly to the President, or in the

alternate, the Board. Accordingly, risk management staff should report directly to the President or the

Board.

22. Using the ISO31000 risk management framework, KPU should develop a comprehensive risk register

as soon as possible, and use this register as the basis for regular reporting to the Board on the status of

risks and KPUs programs to manage them.

ObservationsCode of Conduct

Under S.4.2.6 of the Board Governance Manual, the Board is required to approve and monitor

compliance with a Code of Conduct for KPU senior leadership.

KPU is now (as many institutions are also doing after having been directed by government) developing a

Code of Conduct for its staff and senior leadership. Minimum requirements have been established

under the Standards of Conduct Guidelines for the B.C. Public Sector (July 2014).

In response, KPU has developed draft guidance in the following areas:

Conflict of Interest,

Conflict of Commitment,

Confidentiality,

Use of University Property,

Protected Disclosure (Whistle blowing), and

Intellectual Property.

The development of policies and procedures in these areas is an important first step, but in itself is not

enough. To bring the Code of Conduct to life, KPU will need to assign ownership to a specific individual

to ensure the new policies and procedures are embedded in KPUs operations and culture. This will

involve the development and delivery of an implementation plan, employee orientation including

training, formal sign-off, and periodic review to ensure the Code remains current.


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19

Recommendation

23. KPU should formally assign responsibility for the Code of Conduct to a senior staff member, and this

responsibility should include the development and delivery of an implementation plan as well as

periodic review and updating of the Code.

ObservationsInternal Controls

Under S.4.2.4 the Board is required to verify that internal financial and operational controls and

information systems are in place and functioning satisfactorily. Logically, responsibility for this oversight

should be delegated to the Finance and Audit Committee.

While the Board may oversee KPUs internal control framework, it is KPUs senior administration that is

responsible for developing it, maintaining it, and ensuring that it operates effectively.

To date, the Finance and Audit Committee has not performed a comprehensive review and assessment

of KPUs control environment. It would be appropriate and beneficial for KPU to identify, document and

assess its controls related to areas of high risk (as determined through its ERM programsee previous

discussion and recommendation). In particular, controls around compensation transactions, data

accumulation, disclosure, reporting and compliance would be an obvious high priority area.

Recommendation

24. Using a well-established control framework (e.g., COSO Internal Control-Integrated Framework), KPU

should assess, enhance and/or implement controls related to key financial areas and processes. These

activities should include identification of key controls and control gaps in high priority processes for the

University. Testing of such key controls should occur on a regular basis.


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Appendix 1: Current and Pr

Academic Administrators

1-A: Current Appoint

Responsibility for employment cinformally delegated to H

Responsibility for

Empl

Responsibility for negotiation not

Candidate

Responsibility to appoint, per AppBoard Governance Manu

C

Selection process Procedure HR 2Governance Manual

20

oposed Process for Appointment of Ne

ment Process for New Senior Academic Administr

ontract of Employment

ontractsR

Standard Terms Appendix - not always

Offer of Employment

ffers of employment informally delegated to HR

yment Contract Negotiation

specified Not all negotiating ranges are spec

Approval - President or Designate

endix H ofal

Required to approve selection, or maselection - no sign off

andidate Selection - SAC

0 of BoardRecommends up to 3 candidat

Senior

tors

followed

ified

es final

s


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1-B: Proposed Appoin

* until standard templates are established,

by KPUs Human Resource, Finance and Le

Co

Responsibility formally delegate

O

Responsibility fo

Draf

Using standardized temp

Employ

Responsibility for negotiation

formally assigned with

responsbility to appoint

Candidate Ap

Responsibility to appoint, per AppendiGovernance Manual

Can

Selection process Procedure HR 20Governance Manual

21

tment Process for New Senior Academic Administ

all draft offers of employment to senior executives should be reviewe

al departments

tract of Employment

d to HR Standard Terms Appendix - always foll

fer of Employment

r offers of employment formally delegated to HR

Offer of Employment

lates , draft offers of employment with consistent terms*

ent Contract Negotiation

Formal sign-off consistent with

Appendix H

Negotiating ranges sp

policy

proval - President or Designate

x H of BoardRequired to approve selection, or makes fin

idate Selection - SAC

of BoardRecommends up to 3 candidates

ators

and formally signed-off

lowed

cified by

al selection


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22

Appendix 2: PSEC and SOFI Report Process Narratives and Flowcharts

2-A: Executive Compensation Disclosure Report (PSEC report)

Current Process Current gaps in, and recommendations for, the process are highlighted in yellow

below and in the respective flowchart.

KPU is currently using the following process to prepare its compensation figures for the Executive

Compensation Disclosure Report:

In order to be included on the Executive Compensation Disclosure Report the following

requirements must be met:

o The employee must be in a key decision making position at the university.

o The employees annualized base salary must be greater than $125,000 (Note that this

means employees who work a partial year should be adjusted to determine if their

annualized salary would have been greater than $125,000). The report also breaks down what type of income was earned. The categories are Salary, Bonus

and / or Incentive Plan Compensation, Benefits, Pension, and All Other Compensation.

The Manager of Human Resources & Benefits coordinates with The Payroll Operations Manager

in the payroll department to determine who meets this definition.

o The working copy of the report is automatically populated with the executives who

were reported last year to determine if they still meet the criteria.

o There are few executive officer positions and so the Manager of Human Resources &

Benefits would be aware of the people in these positions.

o This is an example of the sort of judgement call that should be explicitly reviewed and

approved by KPU senior management, as noted in Recommendation 12. Once the employees to include in the report have been determined, the Payroll Operations

Manager prepares a manual excel spreadsheet to calculate each of the required columns.

o Most of these numbers come from the payroll program Banner.

o The Executive Compensation Disclosure Report contains all amounts paid on behalf of

employees including employer paid benefits and severance payments.

o The Payroll Operations Managers calculations only include amounts that are paid

through the payroll system.

Although most payment items are paid through the payroll department; there are two columns

in the report titled Vehicle / Transportation Allowance and Perquisites / other Allowances.

These items would be paid through a P-card or expense claim. The manual process undertakenbetween Human Resources and Finance may not be sufficient to ensure that the information

required is complete and accurate. (See Recommendations 10 and 11).

After completing the payroll columns the Payroll Operations Manager compares the amounts in

the working copy back to the employee register in Banner. The Manager does this for all of the

employees in the report.


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23

The Payroll Operations Manager then sends the report to the Manager of Human Resources &

Benefits for review.

Once the Manager of Human Resources & Benefits is satisfied with the report, it is forwarded to

the Executive Director, Finance and the Associate Vice President, Administration for additional

review.

The report is reviewed by the Executive Director of Finance, but not reviewed further, and

presented to the Board Chair for attestation. (See Recommendation 12)

The finalized report is then sent to PSEA, and after PSEA reviews the information, to PSEC for

approval.


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Kwantlen Polytechnic University (KPU)

Process: Executive Compensation Disclosure Report Compilation Procedure

Banner Calculates

Employee Payroll

Banner Generates Reports

Detailing Payroll

The Human Resource Manager and the

Payroll Operations Manager discuss who

meets the definition for Executive

Compensation Disclosure

Payroll reports are used to manually calculate an

excel working copy of Executive Compensation

Disclosure information

The Executive Compensation

Disclosure report is developed

from the working copy

The Executive Compensation

Disclosure report is forwarded to

the human resource department

Banner

The Payroll

OperationsManager tests all

employees for

accuracy of

calculation

The Executive Compensation Disclosure report is

forwarded on to the Associate VP, Administration and

the Executive Director of Finance

The Executive Compensation Disclosure

report is provided to the board

The Executive

Director of Finance

performs a review

of the final report

The Human

Resource

Manager performs

a review of the

report

The finalized report is sent

to PSEC for review

The payroll

department does not

coordinate with the

finance department

for taxable benefits in

the expense claim

process

The process could be

improved by adding

sign-offs by the VP

Finance and the

President before

presenting the report

to the Board Chair

The report is attested to bythe board chair

: Key Controls in existing process

: Opportunities for Improvement


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2-B: SOFI Report

Current Process Current gaps and recommendations to the process are highlighted in yellow below

and in the respective flowchart.

KPU is currently using the following process to prepare its SOFI report:

All employee payrolls are processed by the University using Banner.

Banner is configured so that each employees annual salary is for 26 pay periods. It takes their

annual salary and divides it by 26 to obtain the gross pay in each pay run.

Banner tracks the employee and employer paid deductions as well as taxable benefits that are

paid through payroll.

After the fiscal year has ended, Banner can generate a report to show the total gross wages for

the fiscal period. This report shows employer paid benefits and taxable benefits separately. The

amounts on the report are dependent on manual earnings codes which are identified by the

user.

o Some taxable benefits are deductions which are embedded in the employer paid

benefits. A separate deduction report needs to be run and merged with the earnings

code report to obtain the correct taxable benefit amount. Other taxable benefits are

obtained in the report under separate non-cash earning codes.

o This report does not adjust for accrual of wages for pay periods which end outside of

the fiscal year. Reconciliation to accrual wages is performed later in the process.

Before generating any reports, the Payroll Operations Manager reviews the SOFI guidelines for

remuneration to ensure appropriate earnings and taxable benefits are included in the report.

There is no supervisory review to validate that the SOFI guidelines, or any changes that mayoccur year-to-year, have been interpreted correctly. (Recommendation 16)

The Payroll Operations Manager then generates the Banner report by indicating all earnings

codes that are required under the SOFI disclosure and merging the deduction taxable benefits

with this report.

The Payroll Operations Manager uses this report to create a manual excel spreadsheet working

copy for summarizing the SOFI report wages.

This excel sheet contains each employees name, their wages in the year (excluding employer

paid benefits), and their taxable benefits.

After completing the excel working copy, the Payroll Operations Manager picks a risk adjusted

sample of 10 employees and checks that their wage amounts reconcile back to the employeepayroll register in Banner. Of the ten people chosen, the Payroll Operations Manager attempts

to ensure that they are from different areas of the University. The President, the Payroll

Operations Managers immediate supervisor, and the Payroll Operations Managers own

calculation are always selected in this sample. The Payroll Operations Manager also attempts to

pull employees who have had a one-of-a-kind payment, as they would be more likely to have

differences in their calculation.


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The Payroll Operations Manager adds the wages and taxable benefits to determine which

employees have a total of greater than $75,000. These employees are included on the report.

The compensation of all employees with a total of less than $75,000 are added-up and included

on the SOFI report at the bottom as employees who do not meet the threshold.

Once the Payroll Operations Manager is satisfied that the payroll numbers are correct, the final

version of the report is forwarded on to the Finance department to incorporate the expenses

claimed by employees throughout the year (reported as a separate column).

The Payroll Operations Managers report only includes taxable benefits that have been paid

through the payroll system. If any P-card or expense claim items are taxable benefits they would

need to be added in by Finance. There is currently no system to check for this or add in these

additional taxable benefits. (Recommendation 14)

The expense claim numbers included in the SOFI report are pulled from the finance module of

Banner. This is a long process with a number of manual steps.

o The IT department creates a report from Banner showing all GL expense transactions

matched with cheque paid information.

o The Finance department then takes the prepaid/advance information and manually

compares it to the GL expense transactions to determine the actual expense paid in the

period.

o The Finance department then manually goes through adjustments to see if there are

any offsets or account changes.

o Employee expense claims and P-card transactions contain a code within Banner that

identifies them and relates them to the employee name. This helps with the matching of

expenses.

Automating this process is recommended as it is a largely manual process which could result in

errors. Kwantlen is currently exploring this option. (Recommendation 15)

The Finance department performs the following checks on expenses:

o The Banner report showing the total GL expenses is reconciled back to the expense

accounts in the GL to ensure all expenses are included in the account.

o A variance analysis is done by employee / vendor to compare expenses reported to the

previous year.

It may be possible to have Banner produce a report showing total employee expenses. This

could be compared to the total employee expenses reported in the SOFI report to check that the

information is complete. (Recommendation 15)

The Manager of Financial Reporting & Systems performs a completeness check on the payroll

numbers by comparing the end wages in the SOFI report to the wages recorded in the GL and onthe audited financial statements. This involves reconciliation from accrual to cash since the SOFI

report does not adjust for accruals of wages.

The Manager of Financial Reporting & Systems confirms that all of the Board members are

included in the first schedule. The Board members are not paid remuneration and so do not

meet the $75,000 threshold but still need to have all of their expenses disclosed.


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The Manager of Financial Reporting & Systems provides a copy of the report to the Payroll

Operations Managers supervisor for review as well.

After Finance has added the expense numbers and completed their review, the SOFI package is

forwarded to the Executive Director, Finance for final review and approval.

The Executive Director of Finances review consists of:

o Comparing the values reported in the working papers, the final draft, and Banner for the

key earners.

o Review that titles on the report are correct

o Reviews employees who have significant expenses other than salary.

o Looks at the reconciliation to the annual report

The SOFI package is also provided to the VP Finance and Administration, although no formal

review and sign-off is required. (Recommendation 17)

These sign offs occur throughout the review process:

o The Executive Director, Finance signs a covering memo to the Board Chair

o The Board Chair signs the Statement of Financial Information Approval

The value of these sign-offs could be enhanced if they included specifics regarding the steps that

were performed, or that the signer confirmed the completeness and accuracy of the reported

information. (Recommendation 17)


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Kwantlen Polytechnic University (KPU)

Process: SOFI Report Compilation Procedure

Banner Calculates

Employee Payroll

Banner Generates Reports

Detailing Payroll

Payroll Operations Manager Reviews

remuneration guidelines for SOFI

Payroll reports are used to manually calculate an

excel working copy of SOFI information

The SOFI report is developed

from the working copy

The SOFI report is forwarded to

the finance department

The finance department pulls

expense data from Banner and

compiles it manually by employee

Banner

Banner

The finance

department

performs testing

on expenses for

accruacy.

The Payroll

Operations

Manager tests a

random sample of

employees for

accuracy of

calculation

The finance

department

performs testing

on payroll for

accruacy.

The SOFI report is forwarded on to the VP Finance and

Administration and the Executive Director of Finance

The SOFI report isprovided to the boardThe VP Finance

and

Administrationdoes not review

the SOFI report

The expense data is entered

into the SOFI report

No secondary

review is done to

ensure that this

has been

interpreted

correctly

The manual

process is time

consuming and

prone to human

error.

The Executive

Director of Finance

performs a review

of the final report

This calculation

only includestaxable benefits

which are

processed

through payroll.

It may be possible

for Banner to

generate a report

of total employee

expenses to

compare to the

SOFI report

: Key Controls in existing process

: Opportunities for Improvement

The board chair signs the Statement of

Financial Information Approval


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Appendix 3: Summary of Recommendations

1. Consistent processes and documentation should be used for all senior executive appointments. While

details of the processes for internal or external candidates may differ, all appointments, reclassifications

and salary adjustments should be fully documented in each employees personnel file. (Also see

Recommendations 4 and 7.)

2. In order to clearly delineate compensation from non-compensation related matters, KPU should

ensure that non-compensation related items, such as research allowances, are negotiated and agreed

separately from the compensation negotiation process.

3. In order to improve consistency, KPU should formally delegate responsibility for making offers of

employment and procuring contracts of employment to the HR Department.

4. In order to improve consistency, standardized templates for key aspects of the recruitment process

should be developed by Human Resources, with the advice and assistance of Finance and Legal

departments. In the near term, until standard templates are established, all draft offers of employment

to senior executives should be reviewed and formally signed-off by KPUs Human Resource, Finance and

Legal departments, to ensure conformity with KPU policies and procedures, public sector requirements

and limits and the Income Tax Act, prior to offers being made to prospective senior employees. (Also

see Recommendation 1.)

5. Contracts of employment with senior executives should be consistent with the standard terms

developed by KPU.

6. Terms of each draft offer of employment should be formally signed-off by the person or group

assigned responsibility for approving candidates, as specified in Appendix H of the Board Governance

Manual.

7. KPU should enhance its policies and procedures for hiring senior academic administrators. These

enhancements should clearly define the activities and requirements in the hiring process, including the

necessity of formal documentation and where approvals are required.

8. Negotiating contract terms should be limited to those persons or groups assigned responsibility for

approving candidates as specified in Appendix H of the Board Governance Manual, in consultation withthe Human Resources department. KPU should develop guidelines for negotiating contracts that

identify negotiating ranges for specific compensation items consistent with the PSEC-approved plan, and

ensure that KPUs standard contract terms are consistent with these items.

9. KPU should develop a policy that discourages pre-employment contracts. In the rare circumstances

where specific services may be appropriate during the transition period prior to employment, KPU


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should develop guidance for pre-employment contracts to ensure compliance with legal and policy

compensation restrictions. Any pre-employment contracts should be procured in accordance with good

procurement practices, with clear deliverables, specified time frames and appropriate rates, and pre-

cleared through PSEC.

10. As part of drafting the Executive Compensation Disclosure Report to PSEC, the Finance department

should be consulted regarding items that could be considered compensation under the Public Sector

Executive Compensation Reporting Guidelines issued by PSEC.

11. KPU should establish a clear definition of perquisites in its expense / P-card policies, consistent with

the definition provided for expense reporting by PSEC, which should be communicated throughout the

University. The perquisites / potential perquisites should be identified during the expense form / P-card

statement review and tracked for annual reporting purposes.

12. KPU should formally institute procedures for senior management (VP Finance & Administration

and/or the President) review and sign-off of disclosures required under the Public Sector Employers Act,

including the identification of any judgements made in the compilation of this information, prior to its

submission to the Board Chair for formal attestation.

13. KPU should ensure that the processes for collecting, validating and certifying PSEC and other key

regulatory submissions are consistently documented and communicated. Key control points in these

processes should be clearly identified, and tested on a regular basis to ensure that the processes

function rigorously and consistently.

14. As part of drafting the SOFI, the Finance department should identify and provide information

regarding items that could be considered compensation under the guidance provided by the Ministry of

Finance, such as perquisites and taxable benefits, which have been processed via P-cards or expense

reports.

15. KPU should perform a cost/benefit analysis of automating at least part of the SOFI report generating

process.

16. Given that the SOFI report will be released to the public, a formal, documented supervisory review

should be implemented by KPU to validate that the SOFI guidelines, or any changes that may occur year-

to-year, have been interpreted correctly.

17. The Vice President, Finance and Administration should review and formally approve the Statement

of Financial Information required under the Financial Information Act, attesting to the completeness and

accuracy of the information reported, before it is provided to the Board for its review and approval.

18. KPU should request and receive written approval from PSEC prior to implementing changes to the

compensation of excluded staff, unless the change falls within the PSEC-approved plan.


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19. KPUs Board should implement a formal orientation process for new Board members that includes

elements such as the Universitys structure and operating environment; strategic plan and objectives;

operational plans and measures of success; Board governance, expectations and performance

monitoring; KPU finances and Board fiduciary responsibility; and KPUs risk management framework and

process.

20. KPUs Board should receive and review regular reports of the Universitys performance against its

strategic objectives, including analyses of deviations from objectives and KPUs intended response.

21. Given the Presidents direct responsibility for risk management, overseen by the Board, the

operational responsibility for risk management should be reassigned directly to the President, or in the

alternate, the Board. Accordingly, risk management staff should report directly to the President or the

Board.

22. Using the ISO31000 risk management framework, KPU should develop a comprehensive risk register

as soon as possible, and use this register as the basis for regular reporting to the Board on the status of

risks and KPUs programs to manage them.

23. KPU should formally assign responsibility for the Code of Conduct to a senior staff member, and this

responsibility should include the development and delivery of an implementation plan as well as

periodic review and updating of the Code.

24. Using a well-established control framework (e.g., COSO Internal Control-Integrated Framework), KPU

should assess, enhance and/or implement controls related to key financial areas and processes. These

activities should include identification of key controls and control gaps in high priority processes for the

University. Testing of such key controls should occur on a regular basis.

Mnp Llp Report

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