AR-03-02: Commonwealth Utilities Corporation - Audit of Premium Pay, Overtime, and Salary Increases from October 1, 1999 Through September 30, 2001 (Issued 1/22/03)

Summary

The report presents the results of the Office of the Public Auditor’s (OPA) audit of the Commonwealth Utilities Corporation (CUC) premium pay, overtime, and salary increases from October 1, 1999 through September 30, 2001. The objectives of this audit were to determine whether: (1) CUC adopted adequate policies and procedures pertaining to premium pay, overtime, and salary increases, and (2) CUC practices for processing premium pay, overtime, and salary increases complied with applicable policies and procedures. This is the last of a series of audits and studies OPA has recently conducted at CUC. During the last two years, OPA has issued the following four reports of which only one is related to personnel matters:

• Audit of Small Purchases from October 1, 1999 through March 31, 2001 (AR-02-01, dated August 27, 2002).

• Audit of Personnel Hiring rom October 1, 1999 through July 15, 2001 (AR-03-01, dated January 15, 2003). OPA found that CUC failed to develop and adopt personnel rules and regulations based on merit and therefore may not have hired the most qualified employees. To illustrate, 40 of 88 employees hired were hired non-competitively and most were subsequently made permanent employees. CUC Board involvement in hiring actions tended to usurp management’s role in daily operations. More specifically, the Board was involved in daily hiring of employees contrary to the authorization given to the Executive Director to manage operations. The Board apparently interpreted its role as going beyond policy and oversight to one of directly managing daily activities.

Although CUC’s enabling legislation requires it to develop and adopt its own rules and regulations, it has not done so. Instead, it adopted its own Personnel Manual which has not been published in the Commonwealth Register as required. Consequently, such policies do not have the force or effect of regulations. These policies are incomplete and do not adequately address premium pay and other compensation practices such as on-call and standby pay, within-grade increases, merit increases, and promotions or provide criteria for written justification of exceptional performance ratings. They also do not address many of CUC’s hiring practices such as hiring of employees under limited-term and provisional appointments as part of a selection process to implement a merit principle system as discussed in a separate report (AR 03–01, dated January 15, 2003). As result, CUC engaged in the following practices:

• On-Call and Standby Pay: CUC paid$202,802 in on-call and standby pay in 2000 and 2001 even though its Personnel Manual does not address such pay or explain who should receive it and how it should be computed. Almost 18 percent of CUC personnel are receiving on-call pay, and one official received standby pay of 20 percent of base salary for being available during non-working hours.

• Exceptional Performance Ratings: CUC’s Personnel Manual provides no criteria for justifying exceptional performance ratings. As a result, CUC’s human resources personnel did not consistently require rating officials to provide written justification for exceptional employee ratings. Of 46 exceptional employee evaluation reports given in 2000 and 2001, 23 were not supported by written justifications.

CUC’s calculation of premium pay has in some cases been inconsistent with, and in other cases not in compliance with, CUC’s Personnel Manual and the Fair Labor Standards Act (FLSA). More specifically OPA found that:

• CUC’s failure to include premium pay in overtime calculations violated the FLSA and entitled employees to back wages. After OPA brought this matter to CUC’s attention, CUC calculated and paid back wages to employees totaling $93,986. CUC advised us that it was modifying its payroll system to comply with the FLSA.

• CUC did not provide the full hazardous duty rate of 25 percent to many of its employees as prescribed in its Personnel Manual. OPA tests showed that about 40 percent of CUC employees receiving this pay did not receive the full rate, with nine receiving 17 percent or less.

Accordingly, we recommend that CUC:

• Require that its Comptroller correct CUC’s overtime calculation practices to comply with the FLSA, finalize consultations with the local U.S. Wage and Hour Division on proper calculation of back wages, and pay employees for any previous under-payments;

• Seek legal determination on whether or not CUC should compensate employees who did not receive the full amount of hazardous duty pay due them;

• Seek legal determination to implement a policy consistent with FLSA. to require executive, professional and administrative employees to time-in-and-out daily using CUC’s biometric system;

• Require that all future salary increases are properly justified.

In its letter response dated December 10, 2002, CUC did not adequately respond to Recommendation 1, agreed with Recommendation 2, and failed to respond to the remaining six recommendations.

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