February 19, 1999
To:Audit Committee
From:City Auditor
Subject:Toronto Civic Employee's Pension Fund and Toronto Fire Department
Superannuation and Benefit Fund Review of Data Conversion
Recommendation:
It is recommended that the attached report entitled, Toronto Civic Employee's Pension Fund
and Toronto Fire Department Superannuation and Benefit Fund Review of Data Conversion,
dated February 4, 1999, be received for information.
Background:
During the amalgamation process the conversion of various data from the amalgamating
municipalities into one system will be taking place. From a control perspective it is important
that the conversion process be subject to audit. We have conducted a review of the data
conversion process of the Toronto Civic Employee's Pension Fund and Toronto Fire
Department Superannuation and Benefit Fund. Our observations and recommendations in
relation to this conversion are included in the report.
Conclusions:
We have reviewed this report with staff from the City Finance Department and have included
their responses to the recommendations.
Contact Name and Telephone Number:
Jerry Shaubel, Director of Audits, 392-8462
Jeffrey Griffiths
City Auditor
February 4, 1999
Toronto Civic Employee's Pension Fund and
Toronto Fire Department Superannuation and Benefit Fund
Review of Data Conversion
Introduction:
The Toronto Civic Employee's Pension Fund and the Toronto Fire Department
Superannuation and Benefit Fund are defined benefit plans which operate on behalf of the
members who were employees of the former City of Toronto prior to July 1, 1968. Employees
hired after June 30, 1968 are members of the OMERS Pension Plan.
As part of the amalgamation in the City of Toronto, pension data of the Toronto Civic
Employee's Pension Fund and the Toronto Fire Department Superannuation and Benefit Fund
was transferred from the former City of Toronto's Banner system to the former Metro Pension
system. Approximately 2,500 civic members/spouses and 1,200 firefighters/spouses are
currently receiving pension benefits from the plans. Benefits paid were approximately $70
million in 1998.
Objectives and Scope:
The objective of this review was to assess whether appropriate procedures and controls were
in place to ensure that the conversion of payment processing information and year to date
earnings and deductions information was performed accurately and completely.
The review included discussions with various staff involved in the data conversion, as well as
a review of relevant documents and records from the former City of Toronto Banner system
and the Metro Pension system.
Findings and Recommendations:
Data Conversion
Employee master file and pension processing information was converted in October 1998, and
as of November 1, 1998, pension payments from the Toronto Civic Employee's Pension Fund
and the Toronto Fire Department Superannuation and Benefit Fund are being processed from
the former Metro Pension system. Following the data conversion, a simulated pension
processing run for the month of October was performed using the former Metro Pension
system. The results were compared with the Banner payroll register for the month of October.
A 100% review of the results of the parallel run was conducted. We confirmed that the results
of the pension payment processing were consistent between the two systems.
Pensioner year to date earnings and deductions as of October 31, 1998 were converted from
the Banner system to the former Metro Pension System so that T4 slips can be generated.
Control totals for gross and net year to date earnings were reconciled between the two
systems. In addition, sample testing of year to date information for individual pensioners was
performed. Based on the results of our audit review, the conversion of pensioner year to date
information appears to have been performed accurately and completely.
It was however noted in our testing, that there were 111 pensioner records in the Banner
system where a Social Insurance Number of "999 999 998" was assigned. The majority of the
cases (85%) involved situations where a pensioner died and the spouse receiving benefits
never provided his/her Social Insurance Number (SIN) to the Pension Division. The
remaining cases pertain to employees who had retired prior to the introduction of Canada's
social security system in 1966, and there would not have been a record of their SIN number in
the payroll system. Given the fact that these individuals are receiving pension benefits and
may also have other sources of income, they are required to obtain a SIN number and to file
an income tax return.
In prior years, the former City of Toronto issued T4's for these individuals with a "dummy"
Social Insurance Number of "999 999 998". Although Revenue Canada has never questioned
the City's use of a "dummy" SIN number, the practice of issuing T4's with an invalid Social
Insurance Number may expose the Corporation to the risk of potential penalties imposed by
Revenue Canada. The Employers' Guide to Payroll Deductions states, "As an employer, you
have to get the correct SIN from each employee. If the employee does not give you his or her
SIN, you should be able to show that you made a reasonable effort to get it. If you do not
make a reasonable effort to obtain a SIN, you may be subject to a penalty."
Audit Services has provided the Pension Division with a listing of individuals with invalid
Social Insurance Numbers. The Pension Division is currently in the process of obtaining the
necessary information and has indicated that they have located many of the Social Insurance
Number's and are updating the information in the former Metro Pension System.
Recommendation:
It is recommended that:
- the Pension Division immediately obtain missing Social Insurance Number's by sending
out letters to pensioners reminding them of their obligation under the Income Tax Act;
- a sample copy of this letter be forwarded to Revenue Canada as evidence that reasonable
attempts are being made to obtain the information, and
- the former Metro's practice of obtaining Social Insurance Number's prior to payment be
used in the administration of future City and Fire pensions.
Response:
- Agree. We will implement these recommendations.
Pensioner Confirmations
The data conversion was performed on the assumption that the source information residing in
the Banner System was accurate. On a sample basis, information contained in the Pension
Division's pensioner files were compared to the data residing in the Banner system to
ascertain the level of accuracy in the system.
For the most part we found that the Banner system accurately reflected the information
contained in the source documents in the pensioners' files. There were isolated instances in
which the pensioner's address and date of birth on the Banner System did not match the
information shown in the pensioners' files.
Discussions with staff of the Pension Division indicated that pensioner confirmations have not
been performed in the last eight years. There is currently no process in place to periodically
contact pensioners so as to alert the Division of any change in status (e.g. address, death,
marital status, name, etc.). The Pension Division relies solely on external sources such as:
returned cheques from the post office; notification from financial institutions of no activity in
an account; and letters from executors of the estates.
Our review of the age distribution of pensioners identified over 100 pensioners who were 90
years of age or older. Because the majority of the pensioners are on direct deposit, and the
funds are often deposited into a joint account, a potential risk exists that pension benefits may
be paid to deceased pensioners.
Recommendation:
It is recommended that:
- the Pension Division, in consultation with the pension boards, establish a process to
periodically review the status of pensioners.
Response:
Agreed. We will implement.
We have reviewed this report with the Manager, Pensions Administration who concurs with
this report and its recommendations.
Jeff Griffiths
City Auditor
