personnel costs & related processes documents/nau-2009-04-21-per… · automation of hr...

Northern Arizona University Internal Audit Department

March, 2009

Personnel Costs & Related Processes Distribution: Audit Committee, Arizona Board of Regents David R. Bousquet, Vice President for Enrollment Management & Student Affairs Alfred J. Estrella, Chief Information Technology Officer Dr. Mason Gerety, Vice President for University Advancement & President, NAU Foundation Dr. Liz Grobsmith, Provost Dr. John D. Haeger, President Dr. Patricia Haeuser, Vice President for Planning, Budget & Institutional Effectiveness Dr. Laura F. Huenneke, Vice President for Research Dr. Frederick M. Hurst, Vice President for Extended Programs and Dean for Distance Learning Dr. M. J. McMahon, Executive Vice President and Interim Vice President for Administration & Finance Mark Neumayr, General Counsel Comptroller’s Office: Robert G. Norton, Associate Vice President for Financial Services & Comptroller; Wendy A. Swartz, Assistant Comptroller for Financial Controls; John Rabe, Accounting Manager; Kevin P. Johnson, Director, Sponsored Projects Services Distance Learning: Dena K. Servis, Fiscal Operations Manager Human Resources: Diane Verkest, Director; Cynthia A. Chilcoat, Associate Director; Cathy Snow, Assistant Director; Susan Chester, Payroll Manager; Pamela Fleece, Business Analyst Senior Information Technology Services: Harper P. Johnson, Director of Information Security; Patrick M. Benson, Director for Administrative Computing Office of Grant & Contract Services: Winnie Ennenga, Director Office of the Provost: Susanna Maxwell, Vice Provost for Academic Personnel; Karen Appleby, Special Assistant to the Provost and President; Marjorie R. Lacy, Assistant to the Provost Planning, Budget & Institutional Effectiveness: Michelle DeAngeles, Budget Director

Personnel Costs & Related Processes

March, 2009

Report Number 2008/09-03

February 25, 2009

(last day of fieldwork)

BACKGROUND

Audit Risk Analysis This routine audit of Personnel Costs & Related Processes was on our fiscal year 2009 Audit Plan as a result of our fiscal year 2009 risk assessment and from a request for the audit by the Executive Vice President. Our last audit work in this area was a Fair Labor Standards Act (FLSA) Compliance Review in December 1998 with some follow-up work and further FLSA testing in October 1999. In fiscal year 2008, personal services and benefits totaled $232 million and accounted for about 65% of the total $356 million operating expenses of the university. Therefore, personnel costs represent a material financial risk in terms of the potential magnitude and consequences of a failed process or errors. Other related risks are violations of federal/ state laws and/or NAU/ABOR/Arizona Department of Administration (ADOA) policy.

Department Information

The Human Resources Director, Diane Verkest, reports to Dr. M.J. McMahon, Interim Vice President for Administration & Finance and Executive Vice President. The former Vice President for Administration & Finance left that office in December 2008. Human Resources (HR) underwent a self-initiated reorganization in April 2008 to realign the department to provide enhanced customer service and more efficient utilization of existing resources. The current structure of HR after the reorganization is:

HRIS Payroll

Training Compensation & Analytics

Employee Relations

Benefits On Boarding

Associate Director

Assistant Director

Off Boarding

Director

The Employee Assistance & Wellness unit reports to HR but was not included in the scope of this audit. Human Resources’ Mission Statement follows:

“Our mission is to deliver excellent service and provide programs that support NAU in attracting, recruiting and retaining quality faculty, staff and students.”

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Automation of HR Processes Since the implementation of the PeopleSoft Human Resources Information System (HRIS) system in 1997, HR has continuously converted manual processes to automated processes, either using “PeopleSoft-delivered” functions in HRIS (NAU-customized in many cases) or NAU-developed functions. Currently, through the Self-Service menu in PeopleSoft, employees can navigate to the following self-service information and activities:

• Payroll and Compensation o View Paycheck, Leave Balances, Total Compensation Statements o Direct Deposit o W-4 Tax Information

• Benefits o Benefits Summary, and o Benefits Enrollment

• Hourly Timesheets o Employee Enter Time/Department Approval

• Learning and Development o Training Summary, and o Request Training Enrollment

• Position Query • Employee Profile Information.

NAU was the first higher education institution to implement the Talent Acquisition Management (TAM) PeopleSoft functionality providing an on-line employment application process, in PeopleSoft version 8.9. NAU heavily modified the “PeopleSoft-delivered” HRIS employment application process. HR has been using an on-line W-2 service since calendar year 2006. For 2008, CIC Plus Inc. issued 9,532 W-2s to NAU employees, 2,922 electronically and 6,610 via mail. Employees who have opted to receive their W-2 electronically are notified via e-mail and use a log-on and password to access their W-2’s on-line. According to Diane Verkest:

“HR has recently completed or is working on further automation efforts and I recognize that there other opportunities for automation:

• Personnel Action Request (PAR) form - The PAR form is used for many personnel actions including: hiring, terminating, various leaves, adjusting pay, changing FTE and changing funding. Therefore, the PAR form process will be complex to automate. Currently, HR is researching ways of streamlining the PAR process, with automation as the ultimate goal. HR will implement batch upload (automation) of federal work study student hires around May 1, 2009.

• Record of Absence (ROA) form - HR will explore automating leave request processes (ROA’s) in alignment with the next PeopleSoft upgrade, likely using the PeopleSoft- delivered time and labor functionality. HR automated the distribution of leave accrual reports in March 2009, eliminating central printing, sorting, and mailing tasks, resulting in more secure delivery and easier and earlier access by timekeepers.

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• Document Imaging Technology - The filing of documents for over 6,000

employees can be made more efficient through uses of document imaging technology.

• New Hire Process - HR is also exploring the automation of new hire processes, which is anticipated to yield greater efficiencies for HR and hiring department personnel, smoother on-boarding for new employees, along with enhanced compliance for NAU related to I-9 and E-Verify processes.

Through the progressive use of automated HR processes, HR has been able to increase capacity with existing staff and then redirect those resources toward additional automation projects and address the more value-added, less transactional work of human resources services and programs. While automation efforts so far have been possible using existing staff and resources, some of the more complicated automation efforts may require funding.”

Employee Classifications & FLSA Types

There are five classifications of employees: • Appointed Staff

o Administrators o Administrative Faculty o Service Professionals o Academic Professionals (Librarians).

• Classified Staff • Faculty • Post Doctoral Scholars • Students.

There are three FLSA types of employees:

EXEMPTBenefit-eligible Salaried

Non benefit-eligible Hourly

Timesheets Required? no yes yesCompensatory (Comp) Time Eligible? no yes no, must be paidOvertime Eligible? no yes yes

Employee FLSA Types

NON-EXEMPT

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AUDIT OBJECTIVES To determine whether:

1. Controls over personnel costs are adequate. 2. Controls over personnel-related processes are adequate and these processes

adhere to NAU/ABOR/ADOA policies and federal/state laws.

DESCRIPTION OF AUDIT WORK PERFORMED We selected a random sample of 61 non-student employees out of 3,706 employees who received a paycheck on 9/26/08 for the pay period ending 09/21/08.

Employee Classification PopulationRandom Sample

Appointed Staff:Administrators 39 0Administrative Faculty 77 0Service Professionals 562 4Academic Professionals 28 0

Classified Staff 1,526 26Faculty 1,472 31Post Doctoral Scholars 2 0TOTAL 3,706 61

Employee Population/Sampleas of 9/26/08 Paydate

We gathered information during interviews and/or contact with NAU personnel in: Human Resources, the Budget Office, the Provost’s Office, Distance Learning, the various departments where the sample employees worked, and the employees themselves. We reviewed electronic records in PeopleSoft HRIS and NAU’s Advantage financial accounting system. We reviewed documents in the files of the Budget Office, Human Resources, Payroll and Distance Learning. We sent out a brief e-mail questionnaire to the 61 sample employees and received 44 responses. We followed-up on non-responders and almost all were: employees no longer at the university, part-time distance learning faculty, and part-time faculty & staff.

Basic Payroll Verification Testing For each employee in our sample of 61, we reviewed the following, as applicable:

• performed a gross pay to net pay test for the 9/26/08 paycheck: o accuracy of deductions for benefits o accuracy of federal, state, FICA & Medicare deductions o accuracy of pay & deductions for faculty paid over 19 weeks o benefits deducted match published rates o verified computation of pay: annual, bi-annual and YTD totals

• verified contract/PARs on file o Form D on file for multiple-year faculty, signed by the President

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• supplemental pay • mobile phone allowance

On-Boarding & Off-Boarding Tests

• background/fingerprint checks • I-9/E-verify checks • new hire/on-boarding packet • interview expenses • moving expenses • off-boarding process • reconciled termination reports

Other Tests

• Blue Cross Blue Shield payroll deduction matched BC/BS enrollment records • employee Educational Aid (tuition waivers) • current performance appraisal on file in HR • identify classes taught by faculty and part-time/temp faculty • time & effort reporting • various other tests

FLSA Tests Of the 61 employees in our audit sample, 20 employees were non-exempt. Our questionnaire included questions on FLSA compliance. We obtained timesheets and Records of Absences (ROAs) for pay periods in September and December 2008 and reviewed them for:

• completeness - including signature of the employee and supervisor, • proper accrual of comp/over time at the proper rates (straight time vs. overtime), • ROAs submitted when necessary, • proper recording of all leaves, and • proper recording & payment for call back, stand-by, and snow closure days.

Social Security Number/Name Verification Test

We verified social security numbers and names with the Social Security Administration. We verified the entire payroll file of 6,226 employees paid on 12/19/08 for the pay period ended 12/14/08 using the Social Security Administration’s on-line Social Security Number Verification Service (see recommendation #2). Disclaimer: The university’s administration is responsible for establishing and maintaining the internal control structure. Because of inherent limitations in any internal control structure, errors or irregularities may occur and not be detected by our audit tests.

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CONCLUSION 1. Controls over personnel costs are adequate. 2. Controls over personnel-related processes are adequate and these processes

adhere to NAU/ABOR/ADOA policies and federal/state laws, with the following exceptions: • FLSA compliance at the department level requires improvement, • Form I-9/E-Verify process requires improvement, and • Social Security Number and banking data access needs to be further restricted.

See Recommendations #1, 3 and 4 starting on page 7.

EXECUTIVE SUMMARY OF RECOMMENDATIONS We have categorized the recommendations into: RECOMMENDATIONS FOR THE ATTENTION OF SENIOR ADMINISTRATION (page 7-12)

• FLSA Compliance • Social Security Number (SSN)/Name Verification • Form I-9 Employment Eligibility Verification/E-Verify Process • Access to Social Security Numbers and Banking Data

OTHER RECOMMENDATIONS (pages 13-24) • Tracking Summer Pay for Faculty Working on Grants • Employee Tuition Waiver Tax Reporting • Employment of Relatives • Telecommuting Policy/Guidelines • Interview and Moving Expenses • Background and Fingerprint Checks • Employee Tuition Waiver in Excess of 9 Credit Hours • Employees Taking Classes During Work Hours • Employee Separation/Transfer Checklist • Supplemental Pay • Use of Outdated PAR Forms • Mobile Phone Allowance Approval • Multiple Paychecks in One Pay Period • Performance Appraisals Outstanding

NOTE: For issues identified in our audit sample employees, Internal Audit has provided HR with employee/department identification information for correction of departmental practices, comp time balance adjustments, E-Verifications, and other necessary corrective action. _________________/s/___________________ Genevieve C. Wilson, Senior Internal Auditor ________________/s/____________________ Craig L. Hutton, University Auditor

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RECOMMENDATIONS FOR THE ATTENTION OF SENIOR ADMINISTRATION

Observation

Recommendation

Response

1) FLSA Compliance

Summary The number of instances in our audit sample of FLSA non-compliance (cited below, see next page) indicates that more FLSA compliance training is needed at the department level, for both employees and supervisors. Background - NAU Timekeeping and FLSA Policy Decentralized time and attendance records are processed at the department level, and timesheets and Record of Absence forms are retained in the employee’s department.

To ensure compliance with the FLSA, NAU Personnel Policies 2.03 and 2.09 require that:

• all benefit-eligible, non-exempt employees record their time on an NAU Employee Time Sheet,

• supervisors keep records of compensatory (comp) time earned and taken as well as the current balance,

• overtime work is approved in advance by the responsible supervisor,

• overtime is accrued at one and one-half times for hours physically worked over 40,

• non-exempt employees cannot waive overtime requirements,

• all compensatory time taken be recorded on a Record of Absence form, and

• upon termination from university service or change in eligibility status, unused comp time shall be paid to the employee.

Continued…

i) That HR institute more FLSA compliance training for non-exempt employees and their supervisors. ii) That HR consider performing spot check post-audits at the department level on FLSA compliance.

i) We agree with the recommendation and will do by July 1, 2009. (Cindy Chilcoat, Associate Director & Diane Verkest, Director, Human Resources)

Current FLSA Training & Tools: HR’s Payroll Manager collaborated with Financial Controls in 2007 to develop and implement a Controls and Policy Self Assessment Questionnaire specific to payroll issues, which includes specific requirements on the administration of FLSA. We developed an FLSA self-assessment tool for managers of non-exempt employees prior to the audit, in early 2008. This tool will be sent annually to department heads with the list of current non-exempt employees and will require certification that the guidelines outlined in the tool are being followed. Implementation of the self-assessment will be completed by July 1, 2009. Currently, NAU covers FLSA rules in monthly new employee orientation and semi-annual new supervisor training. Resources that outline the requirements of the law are also available on the HR website. We will educate the campus community and provide relevant training to appropriate groups as a result of the self-assessments. (Cindy Chilcoat & Diane Verkest)

ii) Upon completion of annual self-assessments, HR will perform FLSA compliance assessments in selected departments. (Cindy Chilcoat & Diane Verkest)

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Observation

Recommendation

Response

1) FLSA Compliance (continued)

Detail Our sample of 61 employees contained 20 employees who were subject to FLSA laws (non-exempt employees). Comp Time/Overtime Recording Issues: A) An employee is keeping track of his own comp time on an unofficial record, which is not approved by his supervisor. He accrues comp time at straight time even when it should be accrued at 1.5x. B) An employee is not always correctly accruing her comp time. C) An employee worked on Labor Day and Veterans’ Day holidays and did not accrue comp time for those hours. D) An employee had a position change due to a career progression. This resulted in a FLSA status change from non-exempt to exempt. The employee did not receive a payout of his accrued comp time. E) An employee tells us that she sometimes works during her unpaid lunch period and that she does not accrue comp hours for the time. Comp time accrual and usage for two of these employees is not being entered into the PeopleSoft system, as required. Three of these employees are not using the Record of Absence form to record usage of comp time, as required.

Continued…

A – E) That:

• Tracking of comp time in PeopleSoft be mandatory, incorporated into NAU Personnel Policy and communicated to non-exempt employees and their supervisors.

• HR work with these employees and their

supervisors to correct practices and reconcile/correct comp time due to the employees.

• HR instruct the employees’ departments to

enter the comp time balance or corrected balance into PeopleSoft.

A 2-year statute of limitations applies to the recovery of back pay, except in the case of willful violation, in which case a 3-year statute applies. CITE: U.S. Department of Labor, Employment Standards Administration, Wages & Hour Division, WH Publication 1282: Handy Reference Guide to the Fair Labor Standards Act, Revised July 2007.

A-E) Mandatory tracking of comp time in PeopleSoft will be incorporated into HR policies by June 30, 2009. Human Resources will further investigate and resolve the discrepancies identified on these particular employees. The discrepancies will all be resolved by May 31, 2009. (Cathy Snow & Diane Verkest)

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Observation

Recommendation

Response

1) FLSA Compliance (continued) Overtime Eligibility F) An employee tells us that “My understanding from my employer is that I fill out my timesheets for up to 40 hours per week and [informally] carry the additional hours over to the following week(s). I’ve been paid for all hours worked, but do not receive time-and-a-half for overtime or compensation hours.” Exempt vs. Non-Exempt Status G) An employee was put into a special assignment position resulting in a FLSA status change. There was a discrepancy between the employee’s understanding of his FLSA status and his status in PeopleSoft. Other FLSA issues that arose in our audit sample included missing documentation and incorrect recording of comp time related to both snow closures and the “40 hours physically worked” rule.

F) That HR inform this employee’s supervisor of FLSA requirements for non-exempt employees and that HR and the employee identify any overtime hours due from the past. G) That HR determine the correct FLSA status of this position and that if the status changes to exempt, the employee be paid out for any accrued comp time owed.

F) We will resolve this, including appropriate adjustments to compensatory time accrual balances by May 31, 2009. (Cathy Snow & Diane Verkest) G) After we tested/audited this position’s FLSA status, we determined that the position should be exempt. We communicated this to the employee and corrected his status in PeopleSoft on 2/9/09. Accrued Comp Time will be paid out to the employee by May 31, 2009. (Cathy Snow & Diane Verkest)

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Observation

Recommendation

Response

2) Social Security Number (SSN)/Name Verification The Social Security Administration (SSA) will, upon request, validate social security numbers and names for employers, via their on-line Social Security Number Verification Service (SSNVS). Internal Audit obtained authorization to access this service via written request to SSA from the Comptroller, Robert Norton. Information Technology Services (ITS) provided us with a text file, formatted according to the SSA’s “Submission File Format”, for all employees who were paid for the pay period ending 12/14/08. We submitted NAU’s 6,226 employee names and SSNs for verification. The SSNVS provides verification codes in the “Return File Format” letting the user know the status of each SSN submitted. The SSNVS was able to verify all but 11 employees:

• 9 employees “name doesn’t match”, and • 2 employees “SSN not on file (never used)”.

Note: If desired, the user may also verify the employee’s date of birth and gender. Internal Audit did not submit this information for verification.

a) That HR obtain authorization to access SSA’s on-line SSNVS and that HR verify employee names and SSNs on a quarterly basis. b) That ITS create a user friendly method for HR to access and extract payroll data into the SSA’s “Submission File Format”. c) That HR research and resolve the 11 employees whose SSN could not be verified using the steps listed under “What To Do If A SSN Fails to Verify” on the SSNVS website. d) That HR re-verify the 11 employees using SSNVS after necessary corrections have been made, as SSA recommends.

a,) We will do the recommended verification through the SSNVS on a quarterly basis beginning no later than October 31, 2009. (Cathy Snow & Diane Verkest) b) Work completed as of March 17, 2009. The processes to create SSN and name information needed for the SSNVS checks had been developed and is installed in the production environment and ready to run by HR. (Patrick Benson, ITS Director for Administrative Computing & Fred Estrella, CITO) c & d) We will investigate the issues identified in this audit and bring them to resolution by June 30, 2009. (Cathy Snow & Diane Verkest)

Further Detail: The State of Arizona requires verification of all new employees through the Federal E-Verify program, which searches the Social Security Administration and Department of Homeland Security databases. Effective January 1, 2008, we are verifying Social Security Numbers at the time of hire. Further, Human Resources staff verify the Social Security Numbers for any employee who has not provided us a copy of his/her Social Security Card. (Cathy Snow & Diane Verkest)

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Observation

Recommendation

Response

3) Form I-9 Employment Eligibility Verification/ E-Verify Process “The purpose of this [I-9] form is to document that each new employee (both citizen and non-citizen) hired after November 6, 1986 is authorized to work in the United States.” (OMB No. 1615-0047) Effective 1/1/2008 an electronic I-9 form and electronic verification process (E-Verify) became mandatory as a condition set forth in the Legal Arizona Worker’s Act (ARS 23-214). A) Arizona Revised Statutes: 23-214 provides:

“After December 31, 2007, every employer, after hiring an employee, shall verify the employment eligibility of the employee through the e-verify program.”

In our audit sample of 61 employees, eight rehires in 2008 did not have the I-9 and automated E-Verify check completed. B) In our audit sample of 61 employees, I-9 forms could not be located in five of the employee files we reviewed in HR.

A) That Human Resources clear all employees rehired after December 31, 2007 through E-Verify and perform the automated I-9 check as per ARS 23-214. B) That new I-9 forms be completed for these five employees.

A) We misinterpreted the E-Verify requirement at implementation and were only completing verifications for those employees who had not been employed with NAU in the last 3 years. We now understand that was incorrect and as of February 2, 2009 are verifying any employee for whom we require an I-9 form. Our practice is to require an I-9 for anyone who has a break in service from NAU of longer than 12 months. We are identifying those employees who should have been verified during the period of 1/1/08 and 2/1/09 and will complete those verifications by June 30, 2009 as a precaution. (Cathy Snow & Diane Verkest) B) We will complete the I-9s by May 31, 2009. (Cathy Snow & Diane Verkest)

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Observation

Recommendation

Response

4) Access to Social Security Numbers and Banking Data A) PeopleSoft System users who have access to the Biographical Details panel can see employees’ full social security number (SSN). ITS identified that the following people have access to the Biographical Details panel:

• 61 Development and Business Analysts, • 87 other NAU employees, and • 2 Security/Change Management Team

accounts (9 users can log on under these accounts).

B) PeopleSoft System users who have access to the Paycheck Deductions panel can see employees’ bank ID (routing and transit number) and account numbers if the employees are getting paid via EFT. ITS identified that the following people have access to the Paycheck Deductions panels:

• 61 Development and Business Analysts, • 134 other NAU employees (some with

limited access to their own department), and • 2 Security/Change Management Team

accounts (9 users).

C) 148 employees have access to both of these panels containing SSNs and banking information. D) ITS identified 29 employees who can change the direct deposit banking data in the Direct Deposit panel.

A - D) That the Human Resources Information System (HRIS) team reevaluate who currently has:

• view access to SSN, and • view and/or change access to banking

information, and decide who should continue to have access to this information in the future. E) That HRIS pursue hiding/masking SSN and banking information in PeopleSoft.

A - C) HR is in the process of auditing security access to these pages and anticipates that this audit will be completed by July 31, 2009. (Pam Fleece, HRIS Coordinator & Diane Verkest)

Further Detail on Reevaluation Process: HR will talk to the ITS security team about removing the access to the 61 Development and Business Analysts along with the Security/ Change Management Team to this page. The current access for all Developers and BA's is consistent throughout the University. This would require a change to the ITS policy of granting access for these groups. HR has already removed the access from 58 employees who only had access to the paycheck deductions page noted in B. (Pam Fleece & Diane Verkest)

D) Out of the 29 current employees with access to change direct deposits, only four are in HR. HR has removed the access of one employee. The other employees are in the Bursar’s Office and Comptroller’s Office. The access to this page for those two departments was granted from the Bursar’s Office. HR will work with the Bursar’s Office to determine if any changes need to be made.(Pam Fleece & Diane Verkest) E) Harper Johnson, ITS Director of Information Security, informs us that in PeopleSoft 8.9, SSN no longer exists on a lot of the HRIS panels. It does exist on the campus community side, but is masked on search/match there. HR will do some research to determine if it is possible to mask the SSN in Biographical details page on the HR side either in the current version of PeopleSoft or the upcoming version 9.1. (Pam Fleece & Diane Verkest)

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OTHER RECOMMENDATIONS

Observation

Recommendation

Response

5) Tracking Summer Pay for Faculty Working on Grants The daily rate a faculty member may receive during the summer months can not be higher than their base daily rate during the just-ended academic year. This “cap” is computed based on the number of days between the Spring and Fall semesters, usually about 70 days “worth of pay”. The earnings cap is “informally tracked” within the Provost’s Office for Personnel Action Requests (PARs) which are processed by that office. However, PARs processed by Distance Learning do not go through the Provost’s Office and are not considered in the informal tracking.

OMB A-21 states:

• “In no event will charges to sponsored agreements, irrespective of the basis of computation, exceed the proportionate share of the base salary rate.”

• “The base salary period used in computing

charges for work performed during the summer months will be the number of months covered by the faculty member’s official academic year appointment.”

That the Jurisdictional Financial Representatives (JFRs) for the Provost’s Office and Distance Learning create a system whereby the Provost’s Office can accurately track faculty summer pay for faculty working on grants.

We will have a process in place by May 1, 2009. (Marjorie Lacy, Assistant to the Provost & Dena Servis, Fiscal Operations Manager, Distance Learning) Comment by Winnie Ennenga, Director of the Office of Grant & Contract Services. For sponsored projects, an additional consideration is that the payment and/or period not exceed the cap imposed by the sponsor, e.g. NSF caps summer salary at 2/9ths of the academic year salary.

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Observation

Recommendation

Response

6) Employee Tuition Waiver Tax Reporting A spouse of one of the employees in our audit sample attended graduate school at NAU during the Spring 2008 semester and received a 9-credit hour spousal tuition waiver under ABOR Policy # 6-902. This 9-credit tuition waiver is a taxable benefit to the employee (IRC Section 117), however only 2 credit hours were reported as taxable on the employee’s W-2. The Comptroller’s Office identifies taxable tuition waivers via a Business Objects report, records the waiver as income to the employee and withholds taxes accordingly. The Business Objects report in this case failed to identify all 9 credit hours as taxable to the employee.

That: a) the Business Objects report coding be reviewed by the Comptroller’s Office and the IRM Data Warehouse Business Analysts to identify and resolve the coding error(s), b) once the report coding is corrected, the report be re-run for all semesters in calendar year 2008 to identify any other taxable tuition benefits that were missed (both over and under taxed issues), and c) Payroll issue a corrected W-2 to this employee and any employee(s) identified in b) above for calendar year 2008 in coordination with the Comptroller’s Office.

a) We worked with IRM and identified and resolved the coding error. (Robert Norton, Assistant Vice President for Administration & Finance and Comptroller) b) We ran the report as recommended and identified 2 additional employees with this problem during calendar year 2008. (Robert Norton) c) Payroll made the appropriate tuition waiver adjusting entries in PeopleSoft for the three employees involved. We have issued corrected W-2 for these three employees. (Sue Chester & Diane Verkest)

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Observation

Recommendation

Response

7) Employment of Relatives A part-time temporary hourly employee in our audit sample:

• is supervised by his spouse, and • has his on-line time approved by his

spouse. Both ABOR Policy 6-704 Hiring of Relatives and NAU Personnel Policy 1.05 Employment of Relatives address conflicts of interest and problems that can arise with nepotism. Both policies state that employees are not to be supervised by a person in the “third degree of relationship”.

That HR work with this department to come up with a resolution to the reporting and time approval relationship of the two spouses.

On February 1, 2009 the Chair of this department changed the employee’s status from an hourly temp to a salaried temp on a PAR form which she has signed and approved. Therefore, the use of on-line time will no longer be needed. The employee will now be supervised by the Chair of the department rather than by his spouse. (Cindy Chilcoat & Diane Verkest)

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Observation

Recommendation

Response

8) Telecommuting Policy/Guidelines Three employees in our audit sample (including the employee referred to on the previous page) indicated that they work at least part of their work hours from their home office. NAU Personnel Policy Manual 2.07 Flexible Work Schedules mentions telecommuting as a flexible work schedule option. However, there does not appear to be any NAU-standardized telecommuting guidelines and/or agreement to address the arrangement and/or restrictions related to telecommuting.

That HR write and adopt Telecommuting Guidelines and/or an agreement that includes/addresses:

• terms and conditions of telecommuting arrangements,

• equipment and supplies, • high speed internet and phone line, • work environment, • dependent care, • workers’ compensation, and • any restrictions.

Internal Audit Note: There is what appears to be a good example of Telecommuting Guidelines along with an agreement that the University of Illinois provided to the Association of College & University Auditors’ Listserv. See: http://www-audits.admin.uillinois.edu/ AuditManual/Personnel/Telecommuting_Policy.pdf

We will complete by October 31, 2009. (Diane Verkest)

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Observation

Recommendation

Response

9) Interview and Moving Expenses Two employees in our audit sample were reimbursed for interview and moving expenses. For one of the prospective employee’s expense reimbursements we had the following issue: The prospective employee was reimbursed $762 round-trip interview airfare from Phoenix to Flagstaff, an excessive fare. A rental vehicle is a practical and much less expensive alternative. A solution would be for NAU departments to purchase airline tickets for prospective employees. However, NAU Policy CMP 421-02 requires that prospective employees be reimbursed for interview expenses and prohibits “advancing” airfare and other expenses, citing Arizona Revised Statutes prohibiting loans.

That NAU Policy CMP 421-02 be supplemented with guidelines for departments to prohibit excessive interview expenses.

That NAU department fiscal personnel be periodically reminded to not reimburse excessive or unreasonable airfares.

We will update NAU Policy CMP 421-02 to address the issue of excess interview travel expenses by August 2009. The proposed language is as follows:

• The most beneficial, cost effective and practical mode of travel will be used.

• Travel should be fair and reasonable but

planned for the convenience of NAU using the most economical means. Reimbursement is limited to expense of travel by the most direct and usually traveled route and by the most economical means of transport.

The revised policy will be communicated to NAU fiscal representatives. (Robert Norton)

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Observation

Recommendation

Response

10) Background and Fingerprint Checks ABOR Policy 6-709, ARS 15-1649 and NAU Policy 1.085 all deal with the requirements for background and/or fingerprint checks for all regular full and part-time positions. In summary, background checks are required for all employees and fingerprint checks are required for employees in a “security” or “safety-sensitive” position as defined by a set of criteria. A) An employee hired on 9/25/06 into a safety/security position in the Office of Regulatory Compliance did not have a background or fingerprint check at the time of her hire. B) An employee who was re-hired 8/20/2007 did not get a background check. C) We could not locate background/fingerprint information in HR’s file for an employee who is a Researcher in the Paul Keim Center for Microbial Genetics and Genomics. We later found out that this employee’s position required a special background check through the Department of Justice (DOJ) and the FBI at the request of the NAU Responsible Official (RO) for the CDC Select Agent Program.

A) That a background and fingerprint check be done on this employee. B) That a background check be done on this employee. C) That HR conduct their normal background and fingerprint check independent of the more security sensitive requirements of DOJ and FBI.

A & B) We will direct the departments to conduct background and fingerprint checks by May 31, 2009 and will review background checks and fingerprint results according to our normal process. (Cathy Snow & Diane Verkest) C) Will do. (Cathy Snow & Diane Verkest) The RO is solely responsible for the additional security clearance of all Select Agent personnel through the DOJ and FBI as required by 42CFR73. The results of all SRA clearances are not to be shared outside the registered entity. (Barbara Fox Nellis, Institutional Responsible Officer and Containment Facility Director)

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11) Employee Tuition Waiver in Excess of 9 Credit Hours Resident undergraduate Flagstaff Campus students pay the following tuition rate for spring 2008:

• 1 student credit hour (SCH) $240 • 6 SCH (6 x $240) $1,440 • 7 SCH and up $2,297

The student is charged $857 for the 7th SCH, because 7 SCH and up is considered full-time. ABOR Policy 6-902D allows NAU employees to register for up to 9 SCH per semester (6 in summer) at the reduced tuition rate of $25. Policy 6-902 states:

“This policy is not intended to limit the total number of credit hours an employee may take, however, credit hours taken in excess of the limits specified in this policy shall be paid for by the employee at the actual resident tuition rates for those hours. All eligible employees and affiliated participants as defined in ABOR Policy 6-902B and their spouses who register for credit hours in excess of 9 per regular semester and 6 per summer session shall pay the actual resident tuition for those hours over the stated cap.”

We interpret ABOR policy 6-902 to mean that any hours over the 9 SCH employee cap should be charged the $240 rate for those excess hours. A full-time employee in our audit sample took 10 credit hours during the Spring 2008 semester and was charged $25. Our policy interpretation is that he should have been charged $25 + $240 = $265.

a) That NAU follow ABOR Policy 6-902, which requires NAU employees to “… pay the actual resident tuition for those hours over the stated cap”, i.e. $240 for the employee in our audit sample. b) That NAU change Educational Aid Registration Aid Permit polices, procedures and related processes to comply with ABOR Policy 6-902.

a & b) This has surfaced as an issue at all three Universities. The argument made by the three Bursars is that the marginal cost to students who are not also employees from 9 SCH to 10 SCH is $0. As such, the Bursars have believed it appropriate to not charge employees tuition for SCH greater than 9. We believe the number of SCH’s employees are allowed to take may have changed without consideration of the impact to the tuition structure. I have asked ABOR staff to review this matter to see if clarification or revision to ABOR policy 6-902 is appropriate. (Robert Norton)

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12) Employees Taking Classes During Work Hours ABOR Policy 6-902 Qualified Tuition Reduction states: “Supervisory approval is required before employees may take classes during their regular work schedule.” Current NAU Personnel Policy 3.03 further limits employees taking classes during the workday as follows:

• the course must not be offered outside the employee’s regular work schedule,

• the employee may only take one course during normal working hours,

• taking the class must not disrupt the work environment,

• the class must be approved in advance by the appropriate supervisor and department head,

• the course must clearly improve an employee professionally and is clearly job-related and/or is required to complete a degree program, for which the employee had obtained an approved program of study through formal academic advisement, and

• any time missed during the normal workday shall be made up during the same workweek.

The audit trail for this approval formerly was via the Educational Aid Registration Permit (EARP) form, which required approval by the employee’s supervisor. NAU processes have changed and the form no longer requires supervisory sign off.

That supervisors and department heads approve in advance (on the EARP form) employees taking class(es) during working hours, together with:

• certification that the enrollment conforms with NAU Policy 3.03, and

• that the class load the employee is taking (if over 6 credit hours) does not interfere with the performance of their job

We disagree with the audit recommendation as explained in Further Detail below. However, HR will reevaluate the current process against NAU policy 3.03, ABOR policy 6-902 and ASU, UA and other University policies and recommend changes in policy and practice that line up with the current work environment needs without creating an overly burdensome approval process. Our goal is to establish guidelines and policy with reasonable oversight by supervisors. Modifications will be made by October 30, 2009. (Cindy Chilcoat, & Diane Verkest)

Further Detail: Supervisor signature was removed from the EARP many (at least 9) years ago as it affected the timeliness of employees enrolling in classes and was administratively burdensome. Additionally, the ABOR policy does not indicate that such approval must be given in writing as the intent of both ABOR and NAU policies is to allow supervisors the ability to provide flexibility for employees, while ensuring continuity of business operations. Because supervisors are responsible for employee schedules and absences, it is highly unlikely that an employee would be taking classes during work hours without that absence noticed and questioned. HR recognizes that NAU policy 3.03 is too restrictive. Although the purpose for the restrictive nature of this policy is unknown by current HR administrators, it is recognized that the policy is not practical in the current work environment. Supervisors have the ability to determine work schedules and manage employee absences within the work area based on the needs of business operations and therefore, this restrictiveness is not necessary. (Cindy Chilcoat & Diane Verkest)

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13) Employee Separation/Transfer Checklist As part on the Off-Boarding process, HR provides supervisors with an Employee Separation/Transfer Checklist. Included in the checklist items are that the supervisor shred the employee’s Purchasing Card (PCard) and complete the Cardholder Account Application form to cancel the PCard. In the Comptroller’s Office Compliance reviews of the PCard, there have been several instances of employees leaving the university, turning their PCards in, but failing to complete their last PCard transaction log and having their supervisor approve those purchases.

That HR add the completion of the PCard transaction log to the Employee Separation/Transfer Checklist.

We will add this PCard process to the Employee Separation/Transfer Checklist by April 1, 2009. (Cathy Snow & Diane Verkest)

14) Supplemental Pay A faculty member on contract, was paid during the winter break for work performed for their department via a Personnel Action Request (PAR) form rather than the correct method, via supplemental pay, which has multiple restrictions/approvals and grant pay implications. Improvements have been made to the supplemental pay process, but there was some confusion on how to pay faculty during winter break.

That the campus community be informed of how to pay faculty for work during winter break when they are on contract.

The Comptroller’s Office Administrative Development Series gave two sessions on November 20 and November 24, 2008 to discuss the new processes for faculty & non-faculty supplemental pay. At that time, we discussed proper procedures for Supplemental pay for faculty during the winter break. (Robert Norton)

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15) Use of Outdated PAR Forms Various departments on campus are using outdated PAR forms, which do not contain information about the position’s safety/security status. This information is not tracked in PeopleSoft, so having the information on the PAR is useful.

That HR communicate to all departments to use the current PAR form located on the HR Website and to destroy all superseded versions of the PAR form. http://hr.nau.edu/m/images/stories/docs/par%20020106.pdf

We will communicate the need to use the most current version of the PAR form via the Business Manager and Timekeepers ListServes by April 1, 2009. (Cathy Snow & Diane Verkest)

16) Mobile Phone Allowance Approval ITS’ Mobile Phone Policy 5.1 requires that “The cell phone allowance must be approved by the employee’s supervisor, dean/director and Vice President.” Three employees in our audit sample were receiving reimbursement for a mobile phone allowance. One employee’s cell phone allowance was only signed off and approved by the department’s director on the agreement form.

That this employee’s cell phone allowance be post-approved by the respective Vice President.

This has been done. (Sue Chester & Diane Verkest)

Further Detail: This entry was done in error. The director signed on the vice president’s signature line and therefore, the absence of a vice presidential signature was missed prior to entry.

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17) Multiple Paychecks in One Pay Period More than one paycheck is issued to:

• part-time employees who are working multiple jobs, and

• employees who receive a cell phone allowance.

In the first case, payroll taxes are being calculated in PeopleSoft based on the income earned per check, rather than based on the total income the employee earned during that pay period. This could result in under withholding federal and Arizona income taxes. An employee in our audit sample had their $10 per pay period United Way deduction taken out of both their main paycheck and their cell phone allowance paycheck. The employee brought this to Payroll’s attention and the problem was corrected. Distance Learning reported that some of their employees had problems with “$X additional federal withholding” being withheld from more than one paycheck the employee received for one pay period.

That the HRIS team investigate the feasibility of a modification to PeopleSoft to issue one paycheck per pay period to each employee.

People Soft has delivered the process so that payroll taxes are calculated by paycheck, not by employee. NAU is currently scheduled to upgrade to version 9.1 (pending budget) in October 2010. At that time we will investigate the feasibility of combining all pay groups and issuing one paycheck per pay period. (Pam Fleece & Diane Verkest) In the meantime, Human Resources and the Budget Office will explore methods for reasonable resolution of this issue if such a resolution exists. A meeting will be held by April 30, 2009 to explore the options. (Sue Chester & Diane Verkest)

Further Detail: Currently, the payroll deduction set up in PeopleSoft can create double deduction issues if an employee receives more than one paycheck for a specific paygroup in a pay period. When an employee receives more than one paycheck in a pay period for a specific paygroup, payroll must manually divide the deduction amount in half so that half of the deduction will come from one check and the other half will be deducted from the second check. When the new cell policy was implemented, potential problems were identified with the way encumbrance for cell phones are currently entered in the PeopleSoft system for individuals with multiple funding sources. Time limitations did not allow a full resolution to the issue and a short term solution was identified that resulted in issuing more than one check. Resolution for this second paycheck issue is currently on the Human Resources’ priorities list.

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18) Performance Appraisals Outstanding Out of our audit sample of 61 employees, 20 employees are either Classified Staff or Service Professionals which require Performance Appraisals. Five (5) of these employees did not have a current Performance Appraisal on file in HR.

That HR follow-up on the outstanding Appraisals with notification up the chain-of-command up to the Vice President/Provost.

Reports for outstanding appraisals were sent to Deans, Directors, and Department Heads on September 14 and November 15, 2008. Reports for outstanding appraisals were sent to Vice-Presidents and the Provost for their respective units the week of March 9th, 2009. (Cindy Chilcoat, & Diane Verkest)

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