KPU audits expose flaws in executive compensation reporting

Two reports commissioned by Kwantlen Polytechnic University show that the institution failed to accurately declare the compensation of some senior executives and administration on multiple occasions from 2010 to 2014. The reports conclude that there did not appear to be malintent in these errors, instead suggesting that some of the provincial guidelines for reporting such compensation were vague, perhaps leading to confusion.

Hailey Logan / The Runner

Hailey Logan / The Runner

Includes recommendations on ways to enhance accountability.

Two reports commissioned by Kwantlen Polytechnic University show that the institution failed to accurately declare the compensation of some senior executives and administration on multiple occasions from 2010 to 2014. The reports conclude that there did not appear to be malintent in these errors, instead suggesting that some of the provincial guidelines for reporting such compensation were vague, perhaps leading to confusion.

The university commissioned an internal investigation after Rob Mingay, assistant deputy finance minister for the BC provincial government, released a report that pointed to several problems in KPU’s reporting of executive and senior administration compensation. KPU’s own reports, by legal firm Harris and Company LLP and accounting and business firm MNP LLP, reviewed documentation provided by the institution for a four-year period.

As a public sector employer, KPU is governed by several pieces of legislation, including the Public Sector Employers Act and the Financial Information Act. The Public Sector Employers’ Council (PSEC) reviews financial reports submitted by post-secondary institutions to ensure they’re following policy, and it’s how they keep KPU accountable. KPU has to submit a compensation plan for approval, which outlines at which monetary value staff levels can be compensated, and once approved this becomes a legally enforceable compensation standard. Anything outside of this approved plan must be resubmitted to PSEC for approval, and KPU failed to do so on several occasions between 2010 and 2014, which led first to the Mingay report commissioned by the provincial government, and now to the two reports KPU commissioned itself.

Understanding the Reports

Two reports were submitted to KPU’s board of governors at the end of January, each consisting of 30 pages. One was from Harris and Company, which was meant to provide advice and recommendations related to KPU’s compliance with legislation and policies about the terms and conditions of employment and compensation of KPU’s senior administrators and executives. The second was from MNP, to provide an internal audit of human resources procedures, and controls for the employment, compensation and accountability reporting for KPU’s executive managers, for the four-year review period.

The two reports cost KPU $250,000. The Harris report made eight recommendations, and the MNP report made 24. All of the recommendations seek to improve transparency and accountability when it comes to the appointment, pre-employment agreements, compensation, employment and accountability of KPU’s executive managers and senior administrators.

The MNP report examined documentation for 68 employment transactions (promotions, reclassifications, hiring and temporary assignment) for 42 individual employees. They concluded that “serious gaps were noted in the manner in which senior executive employment terms were documented,” as some were in the form of appointment letters, formal contracts, or both–and in some instances, a contract and an offer letter outlined different terms of employment.

According to the Harris report, they did not find “any evidence that the compliance breaches described . . . were the result of attempts made by KPU to avoid its obligations under the external regulatory framework [provincial legislation, etc.] or the internal requirements [KPU policies]. Rather, KPU appears to have endeavoured in good faith to comply with its obligations, and the inconsistencies we have identified appear to have resulted from lack of awareness, inadequate policies and practices for ensuring compliance, and in some cases ambiguity in the requirements or the guidance provided by PSEC.”

The Mingay report referenced several leaked emails that suggest parties involved were aware on some level that certain actions would alert PSEC to the levels of compensation, particularly surrounding pre-employment contracts.

The Harris report is focused on the Senior Excluded Group, which is comprised of presidents, executives and senior administrators at or above pay grade 10, who were employed by KPU during the review period, and senior administrators employed during and at the end of the review period, at grade nine pay positions.

Getting Here

The Mingay report, released in June 2014, concluded that KPU had failed to fully report some of its executive compensation, largely as a result of declaring pre-employment contracts for Anne Lavack (vice-president academic and provost from July 1, 2011 to Aug. 16, 2012) and Alan Davis (president since 2012), as fees for a supplier of services/contract work rather than executive compensation. Rob Mingay, then-assistant deputy finance minister in B.C.’s ministry of finance, stated that these pre-employment contracts were “a payment that would reasonably have been considered to be compensation, and so it should have been disclosed under the Compensation Reporting Guidelines.”

The Mingay report came about after MLA David Eby, NDP advanced education critic, submitted documents to the legislature that suggested then-advanced education minister Amrik Virk had been involved in faulty compensation reporting during his time as a member of KPU’s board of governors. Finance minister Michael de Jong directed Mingay to investigate into these claims, which resulted in Mingay’s 40-page report.

KPU then hired MNP to conduct an internal investigation, to “rectify any deficient processes and procedures,” they said in a statement. The report covered a review period of April 1, 2010 to June 30, 2014. According to a statement from KPU, “MNP was asked to review and report on the processes and controls related to the employment, compensation and accountability for KPU’s executive managers.”

Pre-Employment Contracts and Salary Caps

The Harris, MNP and Mingay reports raise pre-employment contracts as a point of concern. During the review period, there were four pre-employment contracts: to George Verghese (hired as KPU’s dean of the school of design in 2011), Elizabeth Worobec (hired as dean of science and horticulture in 2012), Davis and Lavack.

Mingay points out that the pre-employment contracts were vague in outlining deliverables. According to the MNP report, “The absence of clear, specific deliverables or remuneration rate contributed to a perception that pre-employment contracts were developed with the intention to skirt compensation limits.”

The Harris report states that, “While the compliance breaches identified in our report do not, in our view, reflect a culture at KPU of intentional breaching of the external regulatory framework or internal requirements, they do demonstrate a clear need for greater clarity and consistency in communication and enforcing [legislation and policies] pertaining to exempt employee compensation.”

However, in 2011 there was a period of time when KPU’s board of governors was considering supplementing Davis’ compensation with $100,000 from the KPU Foundation. Emails regarding this were presented by MLA David Eby in the BC Legislature. Gordon Lee, then-vice-president of finance and administration, emailed Ruth Wittenberg, then-president of the BC Association of Institutes and Universities, who advised him to “seek approval to compensate to the cap currently in place for teaching universities, which is $225,000. A supplementary amount coming from the foundation would, I assure you, result in an extremely negative reaction from the government.”

“I strongly recommend that your Board Chair not proceed down the path of compensation outside the guidelines. It will not work out well, that I can guarantee,” she added.

The MNP report also notes that the way the pre-employment contracts were reported (as contract work, not compensation) was not an oversight, but rather a “judgement made by KPU management at the time based on their interpretation of the guidelines.”

In a document submitted to the Legislature by David Eby, Ellen Hill, then-manager of HR and benefits, human resource services, sent an email pertaining to the employment contract of Anne Lavack. “As Anne’s compensation level is such that it requires contract disclosure to the PSEA and PSEC, I’ve omitted any reference in the contract to both the administrative leave and annual research allowance,” the email states.

The pre-employment contracts were not in-line with KPU’s approved compensation plan, and weren’t approved by PSEC. Verghese and Worobec both received $20,000 for “consulting,” and $50,000 each for both Davis and Lavack. Verghese and Worobec’s contracts, because they were under $25,000, didn’t necessarily need to be reported, but the Harris report concludes that they should have been in the interest of transparency. Mingay noted that despite unclear deliverables, there was evidence that Davis had worked extensively for KPU in the months covered by his pre-employment contract.

“All of the employees who entered into pre-employment contracts understood them to be integral to an offer of employment, and negotiated those contracts in good faith with KPU,” states the Harris report. The pre-employment contracts were reported as suppliers of services, instead of compensation. “KPU believed it had complied with its reporting requirements because such contracts were structured as independent contractor agreements,” states Harris. However, Mingay noted that a reasonable examination of the contract would suggest that it constitutes compensation, and should have been reported as such.

KPU has not entered further pre-employment contracts since Davis became president on Sept. 1, 2012.

Campus Principal Stipends

Other compensation under review were stipends received by senior employees. Five employees in the senior excluded group received stipends because they had additional roles like Campus Principal, but the stipends were not approved to correspond with government guidelines.

KPU has several active policies that pertain to its senior excluded group. In addition to an administrative salary grid, there is the Working Conditions, Salaries, Benefits and Retirement Provisions for Administrative Employees policy, which was last approved by PSEC in 2010.

According to the Harris report, compensation covers base salary, benefits, bonus and incentive compensation, pension contributions, supplementary retirement plan contributions, vacation and other paid leave. KPU has an approved compensation plan from PSEC that outlines how people are allowed to be compensated. The MNP report states that KPU needed to submit a new compensation plan for PSEC to review and approve.

During the review period, multiple employees received stipends in addition to their salary, for performing additional roles. The most common role covered in the reports was the campus principal, which gave Jane Fee and Stuart McIlmoyle a $10,000 stipend in 2013 for serving Langley and Richmond. This stipend was reduced to $5,000 in Sept. 2013, and McIlmoyle continued to receive an additional $5,000 in his role as associate vice-president international, although the Harris report notes that there is no documentation to support this stipend restructuring. Previous Surrey campus principals Robert Hensley and Ron Maggiore both also received $5,000 annually in their respective terms.

According to the Harris report, KPU says that the payment to campus principals is a longstanding practice dating back to 2003, although the practice hasn’t been consistent until 2013. These stipends are not part of KPU’s approved compensation plan and have not been approved by PSEC. KPU recently sought out formal approval from PSEC for its stipends.

Administrative Salary Grid and Vacation

The current salary grid was revised in April 2009 and approved by PSEC in 2010. It lays out 10 pay grades, with six steps within each pay grade. The Harris and MNP reports outline multiple instances where employees were paid outside of the current salary grid, sometimes without PSEC approval.

There are other means of compensation beyond salary as well: KPU has a policy pertaining to relocation expenses, and according to the Harris report Alan Davis was provided access to a vehicle leased by KPU, which was made available to him and other employees. Davis does keep records of his personal use of the vehicle, and these numbers are included in the Executive Compensation Disclosure statement, but it was not part of the approved compensation plan.

KPU also has a policy that outlines vacation entitlements, which are based on the length of service to KPU. However, several employees in the senior excluded group were given vacation time that exceeded entitlements outlined by the Working Conditions policy, often for recruitment purposes to match vacation time candidates had in their previous positions. These changes were not consistent with KPU’s policy, nor approved by PSEC. One employee received five weeks of vacation, 11 received six, three received seven–all within their first year of employment where the standard is four weeks.

Recommendations and Conclusions

The MNP report concluded with 24 recommendations, most of which pertained to standardizing the process through which senior executive appointments and compensation were handled. They also suggested that KPU develop a policy that discouraged pre-employment contracts, and that KPU should seek written approval from PSEC before implementing changes to compensation of the senior excluded group, when it falls outside the approved compensation plan.

The Harris report recommended that any compliance breaches in the report be reported to PSEC, that clear and consistent policies be established, and that PSEC approval is received before any changes outside of the compensation plan are implemented.

The Harris report also emphasizes that deviations from legislation or policy were not substantial, that “inconsistencies did not involve substantial amounts,” and that employees performing roles such as campus principal were provided with “modest stipends.”

“KPU is committed to the principles of transparency and accountability throughout this process, beginning with the release of these reports and the management response to the recommendations,” Davis said in a press release.

The board of governors has agreed to implement both report’s recommendations.