NPC Audit of Travel Meal Hospitality Expenses - Final Report 2011

CONFIDENTIAL MEDIUM SENSITIVITY
Ministry of Tourism and Culture Niagara Parks Commission
Final Report
Compliance Audit Travel, Meal and Hospitality Expenses
June 2011
Ontario Internal Audit Division Ministry of Finance
Niagara Parks Commission TMH Expenses Compliance Audit June 2011 CONFIDENTIAL MEDIUM SENSITIVITY
Table of Contents
EXECUTIVE SUMMARY------------------------------------------------------------------------------------- 2 DETAILED ISSUES AND ACTION PLANS------------------------------------------------------------- 7 1.0 1.1 1.2 1.3 2.0 3.0 3.1 3.2 3.3 4.0 4.1 4.2 4.3 5.0 5.1 5.2 5.3 6.0 7.0 7.1 7.2 7.3 7.4 Travel ------------------------------------------------------------------------------------------------- 7 Pre Approvals --------------------------------------------------------------------------------- 7 Travel Justification---------------------------------------------------------------------------- 9 Approval of travel expense claims----------------------------------------------------- 10 Airfare ---------------------------------------------------------------------------------------------- 12 Accommodation--------------------------------------------------------------------------------- 14 Business Class Rooms -------------------------------------------------------------------- 14 Home Base Accommodation ------------------------------------------------------------ 15 Laundry Services ---------------------------------------------------------------------------- 16 Hospitality and Meals ------------------------------------------------------------------------- 17 Hospitality-------------------------------------------------------------------------------------- 17 Meal Rate Exceeded ------------------------------------------------------------------------ 19 Excessive Gratuity -------------------------------------------------------------------------- 20 Out of Pocket Expenses---------------------------------------------------------------------- 21 Use of Out of Pocket Expenses --------------------------------------------------------- 21 Mileage ------------------------------------------------------------------------------------------ 22 Car Rental -------------------------------------------------------------------------------------- 24 Staff Discounts and Internal Transfers -------------------------------------------------- 25 Administration ----------------------------------------------------------------------------------- 27 Credit Card Processing System -------------------------------------------------------- 27 General Ledger Account Coding ------------------------------------------------------- 29 Repayment of Personal Expenses ----------------------------------------------------- 30 Training on the Directive and Periodic Spot Checks ---------------------------- 31
APPENDIX A ACKNOWLEDGEMENTS ------------------------------------------------------------ 33 APPENDIX B BACKGROUND ------------------------------------------------------------------------ 34 APPENDIX C ENGAGEMENT OBJECTIVES AND SCOPE----------------------------------- 35 APPENDIX D DISTRIBUTION LIST------------------------------------------------------------------ 36
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Serving: Ministry of Tourism and Culture
EXECUTIVE SUMMARY
Introduction The Niagara Parks Commission (NPC) is an Operational Enterprise of the Government of Ontario, incorporated by an act of the provincial legislature on April 23, 1887. The NPCs objective is to preserve and enhance the natural beauty of Niagara Falls and the Niagara River corridor for the enjoyment of current and future visitors, and to protect key natural and historical attractions while maintaining financial independence. Under the Niagara Parks Act, the NPC has a legislated duty to manage, control and develop the parks. It generates revenues through commercial activities such as attractions, public transit, golf courses, retail and food services to pay for its stewardship costs and visitor services. A compliance audit of Travel, Meal and Hospitality (TMH) Expenses of the NPC was approved by the Ministry of Tourism and Cultures (MTC) audit committee. It was included as part of the 2010-11 Ministry internal audit plan to support the continuation of efforts to restore public trust and enhance accountability at the NPC. The objective of this audit is to determine whether the NPC is in compliance with the Management Board of Cabinet (MBC) Travel, Meal and Hospitality Expenses Directive dated November 2004 (revised in August 2006 and April 2010). For efficiency, this document will be referred to as the Directive in the balance of this report. The scope of the audit covers the period from April 1, 2008 to October 31, 2010. The audit covers the expense claims of NPC Board members, senior management, employees in the NPCs Revenue Operations and Business Development Division, and the top five travellers in expense costs for the organization in each year. This audit scope represents the most significant travellers at the NPC and allows the audit to focus on the areas of most risk relating to expense claims. Background The Directive applies to NPC employees, appointees, consultants and contractors per the Application and Scope section of the Directive. The NPC submitted a request for exemption from the Directive to the Management Board of Cabinet, and was advised on May 28, 2007 by the Ministry that the exemption was not granted. As a result, the Directive in its entirety is to apply to both Commissioners and NPC employees. At the June 22, 2007 Commissioners Board meeting, the Commissioners agreed to immediately implement the Directive for Commissioners but endorsed the continued use
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of the NPC travel, meal and hospitality policy for employees. This policy is in large part consistent with the Directive but has minor variations in reimbursement rates for meals and mileage, and also requirements for approvals for international travel and hospitality. A further request to obtain special status as it relates to service of alcohol at hospitality events and international travel was made by the NPC in May 2010, at the time when the Province had revised its Directive. In a Commissioners meeting on June 18, 2010, the Commission agreed that NPC policy regarding travel, meal and hospitality expenses continue to be in force until such time as the Ministry advised the NPC of the outcome of the special status request. The Ministry advised the NPC in October 2010 that the request had not been granted, and the NPC was notified that it is to comply with the Directive in its entirety. On November 10, 2010, the NPC policy for travel, meal and hospitality expenses was cancelled and superseded with a note that the Directive applies to all Commissioners and employees of the NPC. A corresponding information memo to all NPC Directors, Managers and Supervisors was issued on November 12, 2010 to communicate the policy change. Following the Auditor General of Ontarios special report in June 2010 that examined the employee expenses at another Provincial agency, the NPC conducted an internal review of its employee expense practices which included TMH expenses. The internal NPC report indicated that there was generally a lack of adequate documentation and information to support meal and hospitality expenses. Issues of inappropriate corporate credit card usage were also raised by the NPCs external auditors in the financial statement management letters dated January 2009 and January 2010. The letters reference that the inappropriate usage extended to past periods. In both management letters the external auditors had made the following recommendations to the NPC: a formal policy on corporate credit cards be drafted so that the review of receipts does not take place after the statement is paid; the review and approvals of corporate credit cards receipts should take place in a timely manner; all corporate credit card users should have their statements approved by an appropriate delegated authority; and all receipts submitted with monthly summaries should have appropriate descriptions attached to clearly identify the order of business.
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Conclusion We conclude that for the expense areas reviewed, in a significant number of instances, the NPC was not in compliance with the MBC Travel, Meal and Hospitality Expenses Directive. Most of the non-compliance related to transactions occurring in the Revenue Operations and Business Development Division. The top five travellers in terms of expense costs were located in the Revenue Operations and Business Development Division, and this Divisions travel spending accounts for the large majority of all travel expenses at the NPC. Our conclusion is based on the examination of a selected sample of NPC travel expense claims and related documentation for the period under review. We did not find any significant compliance issues relating to Board member expenses, although minor documentation enhancements are required to ensure full compliance with the Directive.
Significant Issues Noted in the Audit Pre-approvals for international travel were not always obtained by the NPC prior to travelling as required by the Directive. All international travel should be properly preapproved to ensure adequate planning and cost considerations. When preapprovals were obtained for international travel, we noted instances where actual travel expenditures for specific items such as accommodation and meals exceeded the amounts budgeted in the pre-approvals with no explanation for the increased expenditures. There was no evidence to support consideration of alternatives to travel such as video conferencing, teleconferencing, use of agents, emails and telephone before deciding whether to travel. As a result, NPC financial resources may not have been used in the most economic and efficient manner. Before committing to travel, the most economic and efficient strategy should be pursued to achieve optimal business results. There was no evidence of oversight, review, or formal approval of travel expense claims submitted by an employee of the Revenue Operations and Business Development Division. Claims submitted and corporate credit card billings were paid without the proper review and approval by the superior of the employee, as is required by the NPCs delegation of authority. In fact, the employee approved their own corporate credit card expense claims.
In another case, an employees travel expense claims were approved by one of their direct reports, which is contrary to the Directive. Per NPC policy developed in 2009, the expenses of this employee are to be approved by the another employee, who is a direct report, with a copy to the Chair of the Commission. This is contrary to the Directive which does not allow direct reports to approve a supervisors expense claims. We do note that this policy was revised in August 2010 to achieve enhanced governance, and the new policy is consistent with the Directive. There were inadequate supports for airfare, accommodation, hospitality, meals, and mileage expenses. Credit card slips and hotel statements were presented in many instances to support hospitality and meal expenses although these slips and statements do not provide the proper level of documentation to support the expense claim. In the case of out of pocket expenses, only the destination information was recorded on the travel claim to support mileage. Consequently, the validity, reasonableness and accuracy of these expenses could not be verified without documentation of the origin of the trip and purpose of the travel. Accommodation was frequently booked with costs in excess of government rates set out in the federal online accommodation guide, which is specified in the Directive as providing information to be used when booking accommodation. The Directive also specifies that reimbursement is to be made only for single accommodation in a standard room. For all the hospitality expenses reviewed in our audit sample, or expenses that appeared to be considered hospitality by staff making claims, there were no instances where an extension of hospitality met all of the conditions and criteria as per the Directive. Every hospitality expense claim sampled contained violations to the Directive. For example, receipts submitted often contained alcohol with meals and it was not clear if the expenses were in fact for hospitality purposes since insufficient documentation was present to indicate the nature and reasons for extending hospitality. Alcohol was sometimes claimed with meals, and in some instances the claim was for alcohol alone, both of which are contrary to the Directive. If the alcohol is provided for legitimate, allowable hospitality purposes, the NPC should ensure that proper preapprovals are obtained. Meal rates were significantly exceeded in many cases, with no evidence of NPC preapproval, or that management had exercised management discretion regarding approval of these higher meal costs. The administration of the TMH expenses at the NPC is ineffective since employee corporate credit cards are paid directly by the NPC without adequate processes to ensure appropriate supporting documentation is obtained from staff. Corporate credit
card monthly balances are paid without first obtaining detailed receipts from staff, and there is little onus on the employee to submit detailed receipts once the card balance is paid. Amounts that are personal in nature or that are not allowable expenses per the Directive are not always pursued for reimbursement by the employee. In addition, the responsibility to collect detailed receipts rests with administrative staff that do not have the authority to enforce compliance with the Directive when pursuing the collection of detailed receipts from NPC senior management. NPC management and staff have not been adequately trained on the principles, scope and application of the Directive. In addition, regular spot checks are not undertaken in the organization to identify areas of concerns and actions to correct non-compliance.
Conformance with Institute of Internal Auditors Standards This engagement has been conducted in conformance with the Institute of Internal Auditors International Standards for the Professional Practice of Internal Auditing.
Original signed by ____________________________ Charles Meehan Audit Director Culture and Innovation Audit Service Team
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DETAILED ISSUES AND ACTION PLANS 1.0 Travel 1.1 Pre Approvals International Travel Pre-approvals are required for all travel according to the Directive. Pursuant to the Public Service of Ontario Act, 2006 (PSOA), NPC is not governed by Part III of this Act. Therefore, for international travel, post April 1, 2010, pre-approvals should be obtained from the Minister for all NPC employee international travel plans. For pre-April 1, 2010, both the Chair and the Minister were to approve employee international travel. Pre-approvals for international travel were not always obtained by the NPC prior to travelling as required by the Directive. All international travel should be properly pre-approved to ensure adequate planning and cost considerations. When preapprovals were obtained for international travel, we noted instances where actual travel expenditures for such items as accommodation and meals exceeded the amounts budgeted in the pre-approvals with no documented explanation for the increased expenditures. Travel claims related to international travel expenses represented a very significant proportion of the total travel expenses. The lack of pre-approval of international travel expenses resulted in a large portion of unauthorized travel expenses. Travel Within Continental America Generally pre-approvals within Continental America were found to be adequate. Travel Within Ontario Pre-approvals are required for travel within Ontario, which can be either verbal or written in order to claim for meals, rental of vehicles and mileage costs. For frequent travellers, a written pre-approval is the best practice to ensure that the expectations of management and travel staff are clarified. Based on our examination of the travel expense claims, no documented evidence of pre-approvals for travel within Ontario was observed although meals, rental of vehicles and mileage were claimed.
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Recommendation The NPC should ensure that complete pre-approvals are always obtained for international travel in accordance with the Directive to ensure that international travel is appropriately authorized and due diligence is completed before travelling. Actual travel expenditures should be compared to the pre-approved budgets and any variances should be adequately explained and documented by the NPC. In the case of travel within Ontario, the travel staff should obtain written preapprovals from their supervisors to authorize the travel and confirm the NPCs expectations of travel expenses to be claimed.
Management Response and Action Plans Agreed. However, since 2009 the NPC has been obtaining the required written pre-approvals from the Minister or the Deputy Minister for international travel. The pre-approvals were filed separately from the travel claim forms and some were not available. Going forward, all paperwork relating to travel, including written preapprovals, will be filed together with the travel claim form to ensure comprehensive review and oversight. Actual expenses will be compared to the pre-approved amounts and variances documented. The Request for Approval to Travel Form is mandatory for trips beyond the Boundaries of the Niagara Peninsula, excluding Toronto, that require over-night accommodation. The form will include justification for the trip, cost estimates, other pertinent trip details and will be approved according to the NPC Delegation of Authority policy prior to the trip. In addition, policies related to travel pre-approvals have been updated and will be consistent with the MBC directive.
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1.2 Travel Justification An overall business analysis of frequent travel by NPC employees is not completed to understand whether business travel is excessive or deemed necessary or to understand where travel costs can be limited to reduce business expenditures. Also consideration was not seen of alternatives to travel such as video conferencing, teleconferencing, and emails before deciding whether to travel. Our audit also noted that there were no expected deliverables on the request for travel documentation to measure the benefit of the travel costs to the NPC and to provide accountability in spite of the high incidence of international travel. For example, there were no expected activities to be performed to measure the success of a trip to China for one staff to promote tourism and gather market intelligence at a budgeted cost of $12,216. In the absence of prior due diligence, the NPCs financial resources may not be used in the most economic and efficient manner. Recommendation Before committing to travel, adequate due diligence should be carried out to ensure travel is necessary, the correct mode of travel is used and the NPC will benefit from the travel. Due diligence should include an overall business analysis, consideration of other options such as meetings including audio or videoconferencing, use of agents and email. Expected deliverables should be established so that the results and benefits of the travel can be measured and accountability provided. Management Response and Action Plans Agreed. The Request for Approval to Travel Form is mandatory for trips beyond the Boundaries of the Niagara Peninsula, excluding Toronto, that require over-night accommodation. It will include a comprehensive justification for the trip as well as consideration of cost effective alternatives. The Request for Approval to Travel Form will also include a clear statement of activities to be performed during the trip and the anticipated benefits to the NPC. Post-travel audits will be performed by NPC Internal Audit to verify if the trips stated deliverables were achieved.
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1.3 Approval of travel expense claims We noted that approval of travel expense claims, in some cases, is either not documented or the approval is not by the appropriate management level. The extensive travel expenses of an employee of the Revenue Operations and Business Development Division were essentially not reviewed or approved at any point and there were clear violations of the Directive. This employee prepared and regularly signed as the approver for all their own corporate credit card expense claims. In another case, the travel expense claims of an employee were approved by a direct report, contrary to the Directive which states that an employees travel claims should be approved by their supervisors/managers according to the financial delegation of authority of the agency. We noted that although the NPC has a documented delegation of authority framework, the required delegations were not utilized for approving expense claims. In addition, some receipts that accompanied international travel expense claims were submitted in foreign languages without translation which raises questions as to how the expense reviewers/approvers were able to determine the validity and appropriateness of the claims. We also observed instances where subordinate travel claims included travel expenses of their superiors. The Directive is explicit that expenses for a group can only be claimed by the most senior person present and these expenses cannot be claimed by an individual that are incurred by his/her approver. The Corporate Credit Card Policy was implemented in September 2009 based on the recommendation of the NPCs external auditors and a section of this policy addresses the delegation of authority for approval of corporate credit card expenditures. We noted that the 2009 policy was not in keeping with governance better practises, since the policy permitted several instances where the expenses to be approved by the subordinates of the individual incurring the expenses. The policy was subsequently updated and enhanced in August 2010. Key governance enhancements include the requirement that expenses of the Chair of the NPC be presented for review and approval by the Chair of the Finance and Audit Committee and further presented to the Committee on a quarterly basis. The General Managers expenses are to be approved by the Chair and also reported to the Finance and Audit Committee on a quarterly basis.
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Recommendation Travel expense claims should only be paid after proper approvals according to the financial delegation of authority of the NPC. NPC management and staff should not be permitted to approve their own expense claims or submit claims on behalf of their superiors. Reviewers and approvers of the expense claims should exercise appropriate due diligence, which may include translation of receipts, to ensure that approval is provided for valid and appropriate expenditures in accordance with the Directive. Management Response and Action Plans Agreed. Approval of staff expenses is according to the NPC Delegation of Authority policy. Staff will no longer approve their own expenses or submit claims on behalf of their superiors. The General Managers expenses will be approved by The Chair. The Chairs expenses will be approved by the Finance and Audit Committee. A training session will be held with the approvers as defined in the NPC Delegation of Authority policy to familiarise them with the requirements of the Directive and ensure that they exercise due diligence when approving expenses. Due diligence would require the translation of receipt documentation to English for international travel. In addition, staff in Accounts Payable will be responsible for secondary review of expense claims prior to processing reimbursements to ensure compliance with the Directive. The Corporate Credit Cards policy will be reviewed to clarify Accounts Payables role.
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2.0 Airfare International In most cases, documentation for airfare was insufficient, particularly for international travel. We noted that order confirmations and reservations were used to support the expense claims. No evidence of the air ticket, boarding pass or competitive price checks was noted in the expense claims in order to determine whether business class or economy service was used, and whether the most economical methods were used in procuring the airfare. In a few instances for international travel where the airfare could be determined, business class tickets were purchased without any explanation, even though preapproval was for economy class tickets as is the standard option for ticket purchases in the Directive. We noted one instance where a section of the airfare ticket confirmation was torn off and apparently submitted separately on an NPC petty cash voucher for oversize materials costing $63. Based on a similar airfare ticket a few months prior by this traveler, the section of the ticket apparently submitted for oversize materials represented costs for lounge services instead of oversize materials. Actual receipts should not be distorted and NPC petty cash vouchers should not be included with claims as a substitute for actual receipts. Continental America Generally most of the airfare for travel to continental America that could be verified represented economy class tickets.
Recommendation Complete airfare documentation should be included with claims to satisfy the requirement of the Directive. Air travel should be booked utilizing economy class unless adequate prior approval is obtained for the use of business class with supportable reasons.
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Management Response and Action Plans Agreed. Mandatory training sessions will be conducted with approvers and travellers to acquaint them with the requirements of the Directive, including the need to keep detailed documentation. In addition to the training, a revised Travel Claim Form will include a highlight of the Directives requirements to serve as a reminder to staff. Periodic training updates will be provided to NPC employees using the Travel Claim Form.
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3.0 Accommodation 3.1 Business Class Rooms We noted that inadequate support was provided in many instances to support expense claims for accommodation. Order confirmations, reservations, photocopies of invoices and hotel statements, which excluded detailed information on the description of the room, were used to support the expense claims. As a result we were unable to determine whether the Directive was followed with respect to the type of room used. Where we could determine the description of the room based on documentation provided, we found many instances for both continental America and international travel where rates are for luxury accommodation. This is not in keeping with the authorized standard room rates from the federal online accommodation directory as indicated by the Directive. We also found many instances of international travel where the designated accommodation providers per the federal online accommodation directory were not utilized to obtain competitive rates and there was no documented explanation for the exceptions. Recommendation Travel staff should provide adequate, pertinent documentation including a detailed description of the accommodation room to support their claims and satisfy the requirements of the Directive; Authorized vendors where possible, and single accommodation in a standard room should always be used by the travel staff to ensure the economic use of NPC financial resources. Management Response and Action Plans Agreed. Training sessions will be held with travel staff and approvers, emphasizing the need for detailed supporting documentation and explaining the requirements of the Directive. Training will identify required use of approved vendors in the travel directory and the approval process needed when use of authorized vendors is not feasible. The travel claim form will highlight the restriction of accommodation to single accommodation in a standard room.
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3.2 Home Base Accommodation Some instances were noted in the course of our audit where staff claimed for accommodation in their office area, which is contrary to the Directive. The Directive explicitly states that reimbursement for overnight accommodation within an individuals office area will be neither authorized nor approved except in emergency or highly unusual situations. The Directive provides examples such as: you are either required to remain close to your office for periods long in excess of (your) standard working hours or your services are deemed necessary (and approved accordingly) for the purposes of emergency or crisis management.
Recommendation NPC should not make reimbursements to staff for accommodation in their office area unless the authorized exceptions and circumstances for such expenditures are applicable and fully documented. Management Response and Action Plans Agreed. Staff will not be reimbursed for accommodation within their office area. Permissible exceptions as stated in the Directive will be fully documented and preapproval, according to the NPC Delegation of Authority policy, will be secured.
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3.3 Laundry Services According to the Directive, if travelling on business for five consecutive days or more, reimbursement is allowable within reasonable limits for expenses such as laundry, dry cleaning, hotel valet services including shirt pressing, suit steaming, shoe polishing, all with itemized receipts. We found the accommodation charges for a few NPC staff usually included laundry charges; however, these charges lacked support such as itemized receipts and were sometimes excessive. For example, a hotel statement from Tokyo, Japan for the eight day period from October 13, 2009 to October 20, 2009 included laundry charges of approximately $275 without any itemized receipts or explanation. Recommendation Laundry claims should be supported by itemized receipts, and should be reasonable and consistent with the Directive.
Management Response and Action Plans Agreed. The approving managers will not be approving expense reimbursements without itemized receipts that clearly provide a rationale for the expenditures. The rational for such expenditures will be consistent with the Directive.
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4.0
Hospitality and Meals
4.1 Hospitality Based on our review of the meals and hospitality expense claims, NPC business meeting meals and meals relating to hospitality were not identified and classified properly. Supporting documentation was consistently inadequate for us to determine whether the meal expense was in fact for hospitality purposes or internal NPC business purposes. According to the Directive, hospitality may be extended when engaging in discussion of official public matters with, or sponsoring formal conferences for representatives from other governments, the broader public sector business and industry, public interest groups or labour groups. Hospitality may never be offered solely for the benefit of anyone covered by the Directive such as the Ontario Public Service employees, agency/organization employees, appointees or consultants. Prior approval should be obtained if alcohol will be served with meals, conflict of interest situations and the use of non-governmental facilities. For expenses identified as hospitality by NPC staff, in all cases we sampled, the expense claims lacked complete documentation and event information such as: date(s); location; type of hospitality (breakfast, lunch, dinner, reception), refreshments, attendees covered by the Directive; other attendees listed by name and organization and appropriate prior approvals for exceptions. Of the sample of travel expense claims tested, there was frequently alcohol claimed with the meals by employees in the Revenue Operations and Business Development Division. If these meals were provided as part of a hospitality event, there should have been documentation of prior hospitality pre-approvals as required. If the meals with alcohol were NPC staff travel expenses, the Directive specifically states that alcohol cannot be claimed and will not be reimbursed as part of a travel or meal expense. In several instances, we noted purchases of alcoholic beverages. These expenses were claimed as meals under the NPC travel expense claims submitted. As noted above, this is specifically not allowable under the Directive. In the case of the NPC, post April 2010, the Deputy Minister of the Ministry of Tourism and Culture is to pre-approve the provision of alcohol at hospitality events. In the absence of supporting documentation for hospitality, and the lack of hospitality pre-approvals, we can conclude that there is non-compliance with the Directive in this area. The audit is unable to conclude whether alcohol was consumed for hospitality purposes, but not properly pre-approved and documented,
or as part of NPC staff travel and meal expenses (which is not permitted by the Directive). We also found that a few staff submitted credit card slips rather than itemized receipts to support their claims. In the absence of complete documentation including itemized receipts, it is difficult to confirm the validity of the hospitality expenses and whether or not alcohol was included. Recommendation Claims for hospitality expenses should include complete documentation and appropriate prior approvals in accordance with the Directive to fully explain the transactions and improve transparency; The NPC should cease reimbursement of meal and hospitality expenses on the evidence of credit card slips only. Detailed, itemized receipts are required by the Directive to support all such expenses. Management Response and Action Plans Agreed. Claims not supported by complete documentation and appropriate prior approvals will not be reimbursed. Reimbursement for meal and hospitality expenses will not be approved unless supported by detailed, itemized receipts. Staff will be advised that credit card slips that are not supported by detailed receipts will not be accepted as support for expenditures.
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4.2 Meal Rate Exceeded Based on our sample of meal claims examined, the meal costs claimed frequently exceeded the limits indicated in the Directive. While many of the meal claims reviewed included itemized receipts, some meal claims were supported by credit card slips alone especially the high value meals. Credit cards slips do not supply the appropriate detailed information required by the Directive. Meal claims with only credit card slips as supporting documentation could include ineligible expenses since the itemized purchases are not available for the reviewer to conclude on the eligibility and appropriateness of the expenses. Recommendation Meal claims that exceed the limits indicated in the Directive should not be approved by the claimants supervisor/manager without itemized receipts and adequate documentation to explain exceptions. Documentation of management discretion when such exceptions are approved should also be made in the expense claim. Reimbursement of meal claims should not be done on the evidence of credit card slips alone. Management Response and Action Plans Agreed. Meal claims that exceed the limits indicated in the Directive will only be approved if supported by a written rationale explaining the exceptions. Management discretion will be applied and documented in the approval process based on the circumstance. Itemized receipts will be attached to the claims in all cases. No expense claims will be approved on the evidence of credit card slips only. All claims will be supported by detailed, itemized vendor receipts.
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4.3 Excessive Gratuity We noted in our audit testing that gratuities of over 20% were regularly claimed, which exceeds the maximum rate of 15% suggested by the Directive. In one instance, a tip of $172 at 12:40am representing 66% of the cost of meals was paid. Room services used by some Revenue Operations and Business Development staff in a few instances were also excessive. Recommendation Reasonable gratuity should be given consistent with the examples indicated in the Directive. Management Response and Action Plans Agreed. Reimbursement for gratuities for domestic and international travel will be limited to amounts and percentages indicated in the Directive as follows:
10%-15% on a restaurant meal 10% on a taxi fare $2 - $5 for housekeeping for up to two nights in a hotel, up to $10 for a longer stay $2-$5 per bag for a porter
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5.0 Out of Pocket Expenses 5.1 Use of Out of Pocket Expenses The Out of Pocket expense process at the NPC is for the reimbursement of travel expenses within the Niagara region mainly for mileage and reimbursement of travel expenses to staff without corporate credit cards. We found that a few staff from the Revenue Operations and Business Development Division with corporate credit cards claimed substantial amounts from the Out of Pocket expense process for international travel related expenses where the corporate credit card could have been used. Under the Out of Pocket expense process, a travel claim form is used to submit expenses. At the end of each trip, the employee must submit the form with original, itemized receipts for approval. There is a risk that staff with corporate credit cards could claim reimbursement through both streams: the corporate credit card and the Out of Pocket expense process for the same expenditures. In addition, we noted that the Out of Pocket expense process at the NPC does not emphasize the pre-approval requirement as would be required for international travel expenses. Recommendation Travel staff with corporate credit cards should not use the Out of Pocket expenses process for reimbursement of travel expenses to ensure the transparency and integrity of these expenses. When required, pre-approval of expenses should also be obtained and documented even when the Out of Pocket expense process is utilized. Management Response and Action Plan Agreed. Staff issued with corporate credit cards will continue to pay for travel expenses using their NPC issued credit cards. For these employees, reimbursement through the out of pocket expense process will be restricted to noncash items (such as mileage claims) unless justification for cash expenses can be provided according to the approved travel plan. As much as possible, staff will be required to obtain pre-approval for out of pocket expenses by completing the Request for Approval to Travel Form.
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5.2 Mileage Inadequate support Employees are permitted to use their personal vehicle to travel when a NPC vehicle is not available and a personal vehicle is more economical than the use of a rental vehicle. Based on our testing of the mileage claims, the documentation provided was always inadequate to support the consideration of the use of a personal vehicle for business travel and the basis of the kilometers claimed. Only the destination information was included on the mileage claim documentation. We noted that there was no analysis on the selection to use a personal vehicle and details of the starting points of the journeys were not documented to support the total mileage claimed. A number of instances were noted where staff claimed different mileage distances for the same destination. The mileage claims represented mostly travel to attend meetings within the Niagara Region. Due to insufficient information to assess the selection of personal vehicles for business travel, absence of the starting point of the journey and supporting emails or agenda, we could not determine the validity of the mileage claims and it is questionable how the approvers of these claims exercised due diligence when reviewing these expenses. In another instance, we noted that an employee in the Revenue Operations and Business Development Division claimed mileage although this individual was on vacation based on the NPC Human Resources records. Mileage Rates It was noted that the mileage rate of 45 cents per kilometer claimed by NPC staff excluding the Commissioners exceeded the rate of 40 cents required by the Directive. We understand that the NPC employees are unionized; however, the mileage rate of 45 cents is not specified in the employees bargaining agreement. Claims Over 200 Kilometers / Day Our review of the Out of Pocket expenses indicated that the frequency of mileage claims were high by some staff and in many instances employees of the Revenue Operations and Business Development Division claimed in excess of 200 km travel per day without the use of a rental vehicle. The Directive indicates that a rental vehicle could be more economical when mileage per day exceeds 200 km. In such
cases, the considerations for the use of a personal vehicle over the rental vehicle should be documented. Mileage Claims Submitted Late Mileage claims were frequently submitted late. In some cases, the submission of mileage claims occurred over six months from the date the mileage was incurred. Per the Directive, claims must be submitted by the end of the quarter following the quarter in which the expense was incurred. A written explanation is required if the claim is not submitted within this timeframe. . Recommendation Complete and timely documentation should be provided by the claimant to support the transparency of the selection of the vehicle and the basis for mileage to ensure that the financial resources of the NPC are used economically and efficiently. Mileage claims should be adequately reviewed before payments are made. A rental vehicle should be used when travelling more than 200 km per day to ensure that the most economic option is used by the NPC. Documentation when a personal vehicle is used instead should be included in the claimant's file with the required approval. Management Response and Action Plan Agreed. Training sessions will be conducted to emphasize to staff the need to provide a detailed itinerary on the mileage claim form. The mileage claim form will be re-designed to show start and end points. Where practical, staff will be encouraged to attach a Google-maps mileage of the trip. Regarding the provision of a detailed cost-benefit justification for using a personal vehicle, management will adapt the rates set out in the Directive. Approvers, according to the NPC Delegation of Authority policy, authorizing mileage claims will ensure that correct claim rates are used, trips are for legitimate NPC business and that resources are used with due regard to economy and efficiency. However, situations will be considered individually, with due consideration to each employees unique circumstances. Any exceptions will be documented and approved prior to travelling by the supervisor and included in the employees claim form.
5.3 Car Rental Our review of car rental expense claims indicated that generally adequate documentation was provided to support the car rental claims. However, there were a few instances where a non-compact model vehicle or its equivalent was used without prior approval as required. We also found that frequently an employee in the Revenue Operations and Business Development Division did not refuel their rental vehicle before returning it which resulted in additional charges to the NPC and inefficient use of financial resources. Recommendation Travel staff should use a compact vehicle or equivalent vehicle where possible. Prior approval should be obtained and documented when there are appropriate reasons for the use of a non-compact vehicle. Staff should also refuel the rental vehicle before returning it to the rental company to avoid costly gas administration charges.
Management Response and Action Plan Agreed. Staff will be required to use compact rental vehicles or equivalent. Where a higher vehicle class is used for a valid business reason, requisite prior approval will be obtained and included in the claim file. Staff will be required to refuel vehicles before returning them to the rental company. Failure to do so will require a justification to be submitted with the expense report and approval according to the Delegation of Authority document.
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6.0 Staff Discounts and Internal Transfers The NPC Corporate Policy Manual includes a section on Staff Discounts (dated October 2003) whereby discount percentages are specified for various goods and services available at the NPC venues. In addition, the Commissioners Handbook also specifies discounts available to Commissioners for personal retail and food purchases but excludes banquets and other personal functions. The Staff Discount Policy (Policy) is administered through an internal transfer process at the NPC whereby NPC staff do not pay for the net meal cost at the NPC restaurant facility. Instead, the employee is billed by the NPC subsequently for the net cost and a receivable for accounting purposes is created by the NPC. During our audit testing of the internal transfers, we observed that the receivables from staff that utilized the discount were in fact billed by the NPC, paid by the staff and collected by the NPC. Staff Discounts and Internal Transfers are not within the scope and parameters of the Directive; however this area was examined during the course of our audit work as the meal expenditures consumed by NPC staff appeared to be hospitality related in nature. However, we confirmed with NPC management that staff discounts and the internal transfer process is not associated with hospitality and business travel activities and represent staffs personal use only. We are including our findings in this area here as we noted significant concerns with respect to the application of the Staff Discount Policy. For example: The Policy is applicable only to employed NPC staff, whereas in practice the meal discount is also being extended to NPC retirees and other Niagara representatives. The Policy is only available to NPC staff during working hours; whereas we noted receipts with significant alcohol purchases, multiple meal entrees and consumption outside of regular working hours, typically for late dinners. A significant discount of $3,970 was noted for a wedding banquet for the relative of a senior NPC employee. The discount was applied to all food and alcohol consumed at the wedding banquet. A discount on banquets is not extended to Commissioners per the Commissioners Handbook, which presumes that the discount is also not permitted to senior NPC employees. The Policy allows for a 40% discount on meals, whereas a 35% discount is normally applied. Both percentages are quite significant and represent a
substantial cost if the discount is extended improperly to NPC staff acquaintances outside of regular business hours. On December 14, 2010, the Finance Minister announced that the Province will introduce legislation that if passed would eliminate unnecessary perks in the public and broader public sector. As a result, the NPC is undertaking a review of its Staff Discount Policy subsequent to this announcement. Recommendation The NPC should continue with its review of the Staff Discount Policy to ensure that financial resources are used economically and prudently.
Management Response and Action Plans Agreed. The Staff Discount Policy will be updated to comply with the Management Board of Cabinet Perquisites Directive.
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7.0 Administration During the course of the audit, we encountered a number of challenges when reviewing the expense documentation provided to us by the NPC and in particular we were unable to verify the completeness and accuracy of the reported travel expenses due to the following concerns in the administration of the NPCs travel expense processes. 7.1 Credit Card Processing System NPC uses one corporate credit card system for both travel and operational expenses. As a result, both employee travel expenses and business operational expenses are combined on one credit card making it difficult to verify if the corporate credit card is being used for its intended purposes and to ascertain which expenses relate to travel purposes. In addition, employee expense claims are not classified and submitted on a pertrip basis. As a result, the total cost of a business trip is not easily identified to enable reconciliation to the pre-approved plan. The costs associated with one trip may be spread over numerous staff credit card statements and included in the out of pocket statements as well. The NPC does not currently perform a reconciliation of actual costs to the budgeted amounts in the pre-approved plan. During the audit, we also noted that staff with a corporate credit card obtained the card in their name; however the credit card statement is billed directly to the NPC and paid directly by the NPC. When the NPC receives the employee credit card statements, a copy of the statement is forwarded to each employee and detailed receipts are requested for submission to support the charges on the credit card statement. In order to avoid interest charges, the NPC regularly pays the credit card statements prior to obtaining all of the employee receipts to support the claims. In many cases, our audit testing indicated that detailed receipts were either not submitted or submitted after the credit card statement had been paid by the NPC. The NPCs administration process of the credit card payment does not put any onus on the employee to submit detailed receipts since the employees corporate credit card will be paid irrespective of whether receipts are submitted. In addition, the responsibility to collect detailed receipts from NPC senior management rests with administrative staff that does not have the authority to enforce compliance to ensure all receipts are obtained.
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Recommendation The NPC should review and evaluate its current corporate credit card system and consider utilizing separate credit cards for the functions pertaining to business travel and business operational expenses. Travel expenses should be filed and tracked on a per trip basis to allow for comparison with the travel budget so that control actions can be taken if required. The NPCs practice of paying the corporate credit cards on behalf of the staff should be re-evaluated to allow NPC to review and implement procedures that ensure proper accountability. For example, staff are to be held responsible for their use of the cards, payments, late charges and submission of expense claims with detailed, itemized receipts. Management Responses and Action Plans Agreed. A review of the corporate credit card process will be performed to enhance accountability and strengthen controls. With improved controls and accountability mechanisms, staff will be able to continue using one credit card for travel and other operational purposes. The revised Corporate Credit Card policy defines the required report filing dates, and the reconciliation of actual trip spending to pre-approved budgets. Accounts Payable will enforce the deadlines and review the submitted supporting documentation for propriety and approvals. The Corporate Credit Card policy will be reviewed by the end of June 2011 in order to improve accountability. NPC will no longer directly reimburse the credit card vendor on a monthly basis. NPC will reimburse employees for eligible expenses submitted on their expense report and the employee will reimburse the credit card vendor according to the revised Corporate Credit Card policy.
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7.2 General Ledger Account Coding Separate expense accounting codes for the travel expenses of staff in the Revenue Operations and Business Development Division are not used in the general ledger as is the case with the other divisions in the NPC. Travel expenses for the Revenue Operations and Business Development Division were combined in various categories of expenses for example, travel shows, weddings, marketplace, business to business opportunities instead of separately identified as travel, meal, hospitality, etc. As a result, we were unable to verify if all of the expenses we examined were in fact recorded in the general ledger and whether there were additional expenses recorded in the general ledger that were not brought to our attention. In addition, the summary code analysis (i.e. the general ledger coding stamp) on the credit card statements we examined frequently did not correspond with the amounts posted in the general ledger. As a result, we were unable to verify the accuracy of the expense postings to the general ledger. Recommendation The travel expense codes of the Revenue Operations and Business Development Division should be re-aligned to be consistent with the other divisions. Account coding should also be reviewed to ensure it is easily traceable to the general ledger entries. Management Responses and Action Plans Agreed. The coding of expenses will be standardized across all travelling departments.
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7.3 Repayment of Personal Expenses An employee of the Revenue Operations and Business Development Division repaid a portion of their travel expenses that they identified as being personal expenditures while on NPC business travel. The repayment was made in November 2010 for personal expenses incurred from 2006 to 2009. Given that the repayment was made significantly after the time the personal expenses were incurred and the fact that inadequate documentation was provided to support the repayment, our audit was unable to verify the completeness of the repayment and whether it represented all personal expenditures over this time frame. Personal expenses should not be charged to the corporate credit card and would normally be treated as ineligible for reimbursement at the time the expense claim is submitted for approval. However, in instances where personal expenses are combined with other valid travel expenses (such as alcohol consumed with a dinner meal when on business travel) a mechanism should be in place at the NPC for employees to identify their personal expenses and provide reimbursement to the NPC in a timely manner that coincides with the credit card payment. Recommendation The NPC should develop a process with adequate review to ensure that NPC employees identify their personal expenses and provide reimbursement to the NPC in a timely manner that coincides with the credit card payment. Reviewers/approvers of expense claims should provide approval only for expenses that were necessarily incurred in the performance of agency business. Due diligence should be exercised to question and obtain clarifications from staff on any items that appear to be personal expenditures.
Management Responses and Action Plans Agreed. The revised credit card process will ensure that employee expense claims are reviewed by approvers as defined in the NPC Delegation of Authority policy. Expense claims are also subject to a secondary review by Accounts Payable prior to processing reimbursements, to ensure compliance with the Directive. The NPC will not reimburse any personal expenses or expenses that are not in compliance with the Directive.
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7.4 Training on the Directive and Periodic Spot Checks In the period when exemptions were being sought to the Directive, the NPC Board of Commissioners endorsed the continued use of the NPC travel, meal and hospitality policy for its employees. As a result, the NPC management and staff have not been adequately trained on the principles, scope and application of the Directive. In addition to the non-compliance we have noted in the audit, we also observed instances where subordinate travel claims included travel expenses of their superiors. The Directive is explicit that expenses for a group can only be claimed by the most senior person present and these expenses cannot be claimed by an individual that are incurred by his/her approver. The Directive also specifies that the Chair is responsible for ensuring that claims are fully documented by running regular spot checks. This process does not currently exist in the NPC. Findings and observations from regular spot checks should be included in the periodic training to staff to ensure that lessons learned and corrective actions are effectively shared across the organization to strengthen ongoing compliance. Recommendation Regular training on the Directive and guidelines should be provided to all NPC staff to ensure that the Directive is fully understood and complied with. Regular periodic spot checks and reconciliation of travel expenses should be carried out to ensure that complete documentation is submitted for each claim, the approval process is effective, travel expense claims are complete, valid and accurate and that errors in travel expense claims are detected and resolved in a timely manner.
Management Responses and Action Plans Agreed. Training sessions will be held with staff that are impacted by the Directive, to explain the Directives requirements and to roll out the new process for credit cards and meal, travel & hospitality expenses. Staff in Accounts Payable will be required to check travel expense claims and credit card expense reports for compliance with the Directive prior to processing reimbursements. Claims found to be non compliant or those lacking proper approvals and documentation will be flagged and returned to the claimants supervisor.
A periodic audit of the travel, meal and hospitality expenses will be included within the scope of the NPCs internal audit work plan.
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APPENDIX A ACKNOWLEDGEMENTS We would like to take this opportunity to thank the management and staff of the Ministry of Tourism and Culture and the Niagara Parks Commission for their assistance during this engagement.
Conducted by: Original signed by ______________________________ Tony Jaikaran Risk and Assurance Consultant
Original signed by ______________________________ Asif Janjua Risk and Assurance Consultant
Original signed by ______________________________ Subrat Mishra Audit Project Manager
Reviewed by: Original signed by ______________________________ Sonia Gigliotti Senior Audit Manager
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APPENDIX B BACKGROUND Niagara Parks Commission (NPC) is an operational enterprise of the Government of Ontario. NPC was incorporated by an act of the provincial legislature on April 23, 1887. NPCs core purpose is to preserve and enhance the natural beauty of Niagara Falls and the Niagara River corridor for the enjoyment of current and future visitors while maintaining financial independence. Pursuant to the Niagara Parks Act, NPC has a legislated duty to manage, control and develop the parks. It generates revenues through commercial activities attractions, public transit, golf courses, retail and food services to pay for its stewardship costs and visitor services. It also protects key natural and historical attractions. The Travel, Meal and Hospitality Directive dated April 1, 2010 amends and revises the Travel, Meal and Hospitality Directive dated November 2004 (revised August 2006) and supersedes that version of the document, including the Addenda dated July and October 2009. Both the April 2010 and November 2004 Directives apply to NPC employees, appointees, consultants and contractors per the Application and Scope section in the Directives An exemption from the Travel, Meal and Hospitality Directive dated November 2004 (revised August 2006) and a request for Special Status of the April 2010 Directive have not been provided to NPC by the Management Board of Cabinet. This audit was conducted, as part of a government-wide initiative to ensure greater agency accountability. The audit was also included as part of the 2010-11 Ministry of Tourism and Culture audit plan to support the continuation of efforts to restore public trust and accountability at NPC. The audit scope has been refocused at the Ministrys request to include the expense claims of senior management, Board members, and staff in the Revenue, Marketing and Business Development Branch of NPC.
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APPENDIX C ENGAGEMENT OBJECTIVES AND SCOPE Objectives The objective of this audit is to determine whether NPC is in compliance with the Travel, Meal and Hospitality Directive, since April 1, 2010 and the previous Travel, Meal and Hospitality Directive dated November 2004 (revised August 2006) for expenditures prior to April 1, 2010. Scope The scope of this engagement is for the period from April 2008 to October 31, 2010 and includes: Reviewing files, records and documents associated with the travel, meal and hospitality expenses of the General Manager, senior management reporting to the General Manager, Board members, staff in the Revenue, Marketing and Business Development Division of NPC and the five additional employees outside the groups identified above whose aggregate expense claims made each year are respectively the highest when compared to the aggregate expense claims made during the year by all employees in NPC (in conjunction with the Public Sector Expenses Review Act, 2009 Regulation, section 3). Interviewing relevant management and staff to obtain clarifications and additional information especially in the cases where managerial discretion in approving expense claims was exercised. Expense claims were selected on a sample basis based on professional judgment to verify and examine compliance with the applicable Directive. The engagement was conducted in compliance with International Standards for the Professional Practice of Internal Auditing as well as Ontario Internal Audit Division and Culture & Innovation Audit Service Team Standards.
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APPENDIX D DISTRIBUTION LIST This Report has been distributed to the following individuals: Steven Davidson, Deputy Minister (Acting), Ministry of Tourism and Culture Shirley Phillips, Assistant Deputy Minister, Tourism Planning and Operations Division Janice Thomson, Interim Chair, Niagara Parks Commission Robert McIlveen, Interim General Manager, Niagara Parks Commission
Richard Kennedy, Chief Internal Auditor and Assistant Deputy Minister, Ontario Internal Audit Division, Ministry of Finance Audit Committee Members, Ministry of Tourism and Culture
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NPC Audit of Travel Meal Hospitality Expenses - Final Report 2011

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Ministry of Tourism and Culture Niagara Parks Commission

Compliance Audit Travel, Meal and Hospitality Expenses

Ontario Internal Audit Division Ministry of Finance

Serving: Ministry of Tourism and Culture

Serving: Ministry of Tourism and Culture

Serving: Ministry of Tourism and Culture

Serving: Ministry of Tourism and Culture

Serving: Ministry of Tourism and Culture

Serving: Ministry of Tourism and Culture

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Hospitality and Meals

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Serving: Ministry of Tourism and Culture

Serving: Ministry of Tourism and Culture

Serving: Ministry of Tourism and Culture

Serving: Ministry of Tourism and Culture

Serving: Ministry of Tourism and Culture

Original signed by ______________________________ Asif Janjua Risk and Assurance Consultant

Original signed by ______________________________ Subrat Mishra Audit Project Manager

Serving: Ministry of Tourism and Culture

Serving: Ministry of Tourism and Culture

Serving: Ministry of Tourism and Culture

Serving: Ministry of Tourism and Culture

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