oversight

Human Capital: Job Classification

Published by the Farm Credit Administration, Office of Inspector General on 2004-06-29.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

Human Capital: Job Classification


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Farm Credit Administration                                             Office of the Inspector General
                                                                       Farm Credit Administration
                                                                       1501 Farm Credit Drive
                                                                       McLean, Virginia 22102-5090




June 29, 2004


The Honorable Nancy C. Pellett
Chairman of the Board and
 Chief Executive Officer
Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090

Dear Ms. Pellett:

The Office of the Inspector General completed an audit of the Farm Credit Administration job evaluation
program and position management. The objectives of this audit were to determine whether the Farm Credit
Administration position management is adequately administered and whether the job evaluation program
reflects sound management principles.

We found that if administered properly the Farm Credit Administration job evaluation program is effective in
achieving a “performance based system” reflecting equal pay for equal work. In addition, we found that
desk audits completed on job positions were generally well documented and completed fairly and
objectively. However, to ensure job classification continues to be in alignment with position value at Farm
Credit Administration, periodic reviews should be completed on the job evaluation criteria. In addition,
management must be held accountable for reasonable decision making on issues that effect job
classification. Internal controls should also be improved to ensure position management is effectively
administered.

 We conducted the audit in accordance with Government Auditing Standards issued by the Comptroller
General for audits of Federal organizations, program, activities, and functions. We conducted fieldwork
from November 2003 through April 2004. We provided a draft report to management on May 14, 2004.
We conducted an exit conference and discussed the draft report with the Office of Chief Administrative
Officer and the Chief Operating Officer on June 8, 2004. Where actions were presented to the Office of
Inspector General that would resolve audit findings, the recommendations were changed to agreed upon
actions.

If you have any questions about this audit, I would be pleased to meet with you at your convenience.

Respectfully,




Stephen G. Smith
Inspector General
                                       Table of Contents

BACKGROUND _______________________________________________________________ 1
OBJECTIVE AND SCOPE _______________________________________________________ 2
FINIDINGS AND RECOMMENDATIONS ____________________________________________ 2
Job Evaluation System Review _______________________________________________________________________ 2
Management Decision Making ________________________________________________________________________ 4
Appropriate Accountability____________________________________________________________________________ 6
Internal Controls ___________________________________________________________________________________ 7
BACKGROUND

   The Farm Credit Administration (FCA or Agency) is an independent Federal bank regulatory agency
   that employs approximately 284 persons. Salaries and employee benefits accounted for $30.8 million
   or 81.5 percent of the total funds used in FY 2003. Under the 1989 Financial Institution Reform,
   Recovery, and Enforcement Act and the Farm Credit Act, FCA is exempt from standard Federal
   government compensation benefits programs. The Farm Credit Act states “In setting and adjusting the
   total amount of compensation and benefits for the employees of the Administration, the Chairman shall
   consult with, and seek to maintain comparability with other financial regulatory agencies”. The Agency
   periodically conducts salary surveys of agencies covered by the Financial Institution Reform, Recovery,
   and Enforcement Act of 1989.

   The Office of the Chief Administration Officer (OCAO) is responsible for the FCA compensation
   program administration. The compensation program primary objectives are to:

          •    Attract, retain and motivate Agency employees.
          •    Maintain “comparability” with other financial regulatory agencies and the private sector labor
               market.
          •    Set pay at any dollar amount in the assigned pay range.
          •    Award pay increases on the basis of individual performance and position in the salary range,
               without regard to any non-merit factors.
   The Agency Policies and Procedures Manual 819 “Farm Credit Administration Position Management
   and Job Evaluation Program” establish practices and procedures for administering the FCA position
   management and job evaluation program. According to the manual, the job evaluation process
   provides the framework for establishing Agency salary ranges and pay decisions.         Through a
   systematic process, Agency positions are graded according to their internal value (their relative
   contribution to accomplishment of Agency goals, objectives and mission requirements). The following
   diagram describes the process.



                                            Job Evaluation Process


             Phase 1                                    Phase 2                           Phase 3
      Position Requirements                       Evaluation Factor and                  Processing
                                                     Rating Criteria                     Grade Level
      •       Review job description.
      •       Assess work environment         •    Six factors are used to
                                                   classify all positions.         •    Individual ratings for
              needs.
                                                   Supervisory and                      each factor are
      •       Interview incumbent and
                                                   Management                           computer processed to
              supervisor.
      •       For a new position, the              Responsibilities, Problem            produce the grade level
              supervisor prepares a                Solving, Authority to Act,           assignment.
              position summary that                Key Relationships               •    Each factor is weighted
              consists of a short                                                       based on relevance to
                                                   (Internal), Key
              statement of primary                                                      Agency goals, objectives
                                                   Relationships (External),
              purpose of the job and                                                    and mission
                                                   Knowledge.
              specification of principle                                                requirements.
              duties and                                                           •    Each position has a
                                              •    Using the rating plan, select
              responsibilities.                                                         unique multiple
                                                   the statement under each
      •       Complete job analysis                                                     regression job
              questionnaire using data             factor that best describes
                                                                                        evaluation equation
              collected.                           the position requirement.
                                                                                        which is used to
                                                                                        compute the grade
                                                                                        level.


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      Agency policy also outlines position management activities as follows:

              •   Agency supervisors review individual job descriptions annually. Supervisors are to sign
                  and date the job description and certify accuracy.
              •   Human resource specialists will certify that the title, series, and grade of the position are in
                  accordance with the FCA compensation and job evaluation program.
              •   OCAO will periodically review Agency work units and/or individual positions to assure the
                  accuracy of the individual evaluations and assessing compliance with the Agency’s
                  position management and job evaluation program.


 OBJECTIVES AND SCOPE

          The objectives of this audit were to determine whether the job evaluation program reflects sound
          business practices and whether position management is adequately administered. We reviewed
          FCA policies and procedures on job evaluation and position management. We reviewed data on
          the pay system and compensation study reports. We reviewed documentation on revisions to the
          job evaluation program. We reviewed desk audit files from July 1998-October 2003. We
          compared job evaluation scores with grade classification for all FCA personnel. We also
          interviewed appropriate FCA staff in relation to audit objectives.


 FINDINGS AND RECOMMENDATIONS

          The Federal government is strongly encouraging agencies to use merit-based programs because
          such programs provide more variable rewards that are directly tied to performance results. Overall
          we found if administered properly the FCA job evaluation process is effective in achieving a
          “performance-based system” reflecting equal pay for equal work. In addition, we found that desk
          audits completed on job positions were generally well documented and completed fairly and
          objectively. However, to ensure the job classification continues to be in alignment with position
          value at FCA, periodic reviews should be completed on the job evaluation criteria. In addition,
          management must be held accountable for reasonable decision making time on issues that affect
          job classification. Management decisions that affect job classification must remain fair and they
          need to be implemented responsibly. Also, internal controls should be improved to ensure position
          management is effectively administered.

Job Evaluation System Review

          Since the inception of the compensation program in 1992, reviews of salary administration have
          been primarily focused on market surveys of other financial regulatory agencies. Management
          conducted these reviews to ensure salary ranges remain competitive with market movement.
          Although market comparability studies are essential to ensure the compensation program remains
          comparable, it is equally essential that reviews be completed to determine whether job evaluation
          criteria remain consistent with the Agency’s goals, objectives and mission requirements. In a 2002
          survey conducted on FCA compensation practices, it was revealed that FCA’s pay ranges were
          the least competitive for the following positions: Accountant VH-37; General Counsel VH-44;
          Computer Specialist VH-39 and Policy Analyst VH-39. Because the study was not focused on the
          job evaluation system, a recommendation was made that the Agency assess whether grade
          assignments continue to be consistent with the intent of the Agency’s job evaluation system.

          When developing the job evaluation system, FCA’s intent was to develop a system that would
          classify a position according to the value the position had to FCA. Over the years FCA’s
          organization structure has changed. In 1992, FCA had 513 positions with seven directorates



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reporting directly to the Chief Executive Officer (CEO). In 2003, FCA has approximately 284
employees with twelve directorates reporting directly to the CEO or Chief Operating Officer (COO).
With fewer employees and more directorates reporting directly to upper management, FCA’s
organization structure has resulted in a flatter organization with fewer management levels. This
type of change may impact job classification. For example, the job evaluation factor, “internal
relationship” addresses a job position contact level to upper management. Consequently job
position classifications can become out of alignment with FCA job value. We compared the 1992
career ladders for certain positions with the current grade levels. Our comparison showed that over
time grade levels have increased beyond the established career ladder grade level. For positions
reviewed, the chart below shows the percentage of positions that exceed the career ladders grade
level. According to OCAO, grade levels that exceed career ladders are primarily due to specialized
work within an occupational series or increased duties and responsibilities.


        Current                 Occupational           1992 Career             Percentage of Current
      Position Title               Series                Ladders               Positions that Exceed
                                                                                  Career Ladders

FCA Examiner                        1101                 VH-38               VH-39(65%)/ VH- 40(7%)

Financial Analyst                    1160                VH-38              VH-39 (33%)/ VH-40 (67%)

Computer Specialist                   334              VH-34-38             VH-39 (33%)/VH-40 (67%)

Information Technology
                                     2210              VH-34-38                     VH-39 (50%)
Specialist

Human Resource
                                      201              VH-33-38                     VH-39 (67%)
Specialist

Attorney*                            905               VH-37-40                     VH-41 (40%)
* Excepted service positions. Promotions are not subject to the same rules as competitive services.

The job evaluation program focuses pay decisions on job content. The job evaluation factors are
the primary basis for assessing how job content fits into the Agency’s job hierarchy. FCA’s job
evaluation factors and weights associated with each factor were derived in 1992 and reflected the
Agency’s organization structure, culture and values at that time. High performing organizations are
continually reviewing and revising their compensation programs to support their strategic goals.
Because the Agency’s organization structure has changed over the years and the Agency’s core
values have been formalized, the job evaluation criteria should be reviewed to determine whether it
still remains relevant to the Agency’s goals and objectives, and whether the FCA’s job hierarchy
supports the Agency’s strategic plan.


Agreed Upon Actions

1. The Chief Administrative Officer will conduct a review of the job evaluation program. The
   review will include the following:
    a. an assessment on whether grade assignments are consistent with the intent of the
       Agency’s job evaluation system and compensation philosophy.
    b. an assessment on whether job evaluation factors and weights placed on those factors are
       in alignment with the Agency’s goals and objectives.




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Management Decision Making

        Our review showed that management’s delay in making a decision on the Office of the Chief
        Financial Officer (OCFO) reorganization has resulted in employees being paid for work not
        performed. We found two instances where management’s three- year delay in making a decision
        on the OCFO organizational structure has resulted in two employees’ grade classification being
        higher than actual duties and responsibilities performed. The following is a chronological listings of
        events related to the OCFO reorganization.

        September 2000        FCA Board created the OCFO. The CFO envisioned the OCFO having three
                              divisions: 1) Systems, 2) Financial Reporting and 3) Budgeting and Analysis.
                              According to the CFO proposed reorganization chart, each division would
                              have a director at grade 41.

        October 2000          FCA announced a position for an Assistant CFO for Systems. Applicants
                              were requested to provide a narrative that supported their ability to direct and
                              supervise employees.

        December 2000         An Assistant CFO for Systems was hired at grade 41. The position
                              description specifically states duties and responsibilities will include directly
                              supervising a division staff. The employee has not performed supervisory
                              work since entering the position.

        March 2001            The financial statement management letter dated March 8, 2001
                              recommended that the FCA management ensure personnel preparing
                              financial statement have skill levels that include knowledge of Federal
                              accounting standards.

         April 2001           The CFO submitted a personnel action to recruit for an Assistant CFO for
                              Budgeting and Analysis (VH-41), a Senior Systems Accountant (VH-40), and
                              an Assistant CFO for Financial Reporting (VH-41).

        Summer 2001           The CFO submitted a proposed reorganization plan to the COO. The CFO
                              discussed with the CEO and COO plans for creating three divisions. The
                              Chief Administrative Officer (CAO) also reviewed the reorganization plan.

        June 2001             In a memo to the CEO, the CAO raised concerns with the reorganization
                              plan. Specifically the CAO felt the reorganization plan did not provide enough
                              detail on how employees were to be organized; it appeared as if positions
                              and responsibilities were overlapping; and the average grade level in OCFO
                              would be raised to the grade 40 level, the second highest divisional grade
                              level in the Agency. Based on the CAO concerns, the CEO initially delayed
                              the announcement for the Assistant CFO for Financial Reporting.

        August 2001           FCA announced a job for an Assistant CFO for Financial Reporting even
                              though no changes had been made to the reorganization plan and it had not
                              been formally approved.

        January 2002          An Assistant CFO for Financial Reporting was hired at grade 41. The position
                              description specifically states duties and responsibilities will include directly
                              supervising a division staff but the employee has not performed supervisory
                              work since entering the position.




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January 2002          The Office of Inspector General issued an audit report that addressed the
                      OCFO’s lack of an organization structure plan based on workload
                      requirements. The report included an agreed upon action which stated the
                      CFO would redesign the organizational structure based upon a complete
                      review of all job requirements. The review was to include an evaluation of all
                      job position descriptions to incorporate new job requirements and eliminate
                      outdated job requirements. It has been 28 months since issuance of the
                      report and corrective actions to address the agreed upon action have not
                      been completed.

The CFO acknowledges the importance of establishing an organization structure that supports
employees’ grade classification. However, the CFO has no time frame on when OCFO will be
reorganized appropriately. In addition, upper management has overlooked organization structure
disparity within the OCFO and facilitated the CFO’s ability to circumvent the Agency’s policies and
procedures on position management. Consequently, employees continue to be paid for duties and
responsibilities they are not performing. Our review of the job evaluation process showed that if
the supervisory factor was removed from the Assistant CFOs’ position descriptions, the job
evaluation score would probably result in a grade 40. In addition, removal of the supervisory factor
can result in lower adjustments of other job evaluation factors such as authority to act, internal
contacts and the knowledge area. We calculated the difference in salary between a grade 40 and
grade 41. Using the midpoint salary range average, the salary difference is $14,284. Over a three
year period for these two positions the salary difference totals $85,704.

Authority to make organizational changes within any office rests with the CEO and may be
delegated to the COO or Office Director. Further, supervisors are responsible for reviewing job
descriptions annually and certifying their accuracy. During the review, if any substantive changes
to position descriptions are noted, such as duties not being performed, the changes should be
documented and subject to reevaluation by OCAO. Unfortunately, if job classification issues
remain unresolved for a long period of time it creates misunderstanding by Agency personnel and
can result in administrative and financial burden to the Agency.

Agreed Upon Actions

2. The Chief Operating Officer will review the grade levels of the Assistant Chief Financial Officer
for Systems and the Assistant Chief Financial Officer for Financial Reporting positions by:

    a. Obtaining approval for the Office of the Chief Financial Officer organizational structure from
    the Chief Executive Officer.
    b. Directing the Chief Financial Officer to update the Assistant Chief Financial Officer position
    descriptions to accurately reflect duties and responsibilities performed within the approved
    organization structure.
    c. Directing the Chief Administrative Officer to reevaluate the positions based on actual duties
    and responsibilities performed and recommending appropriate personnel actions.
    d. Making a decision on the personnel actions, recommended by the Chief Administrative
    Officer, whether the Assistant Chief Financial Officer for Systems and the Assistant Chief
    Financial Officer for Financial Reporting positions should be reclassified.




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Appropriate Accountability

         We found some instances where management decisions have resulted in job evaluation score
         overrides. This has an impact of higher grade classifications than job evaluation scores. The FCA
         job evaluation program consists of a computerized evaluation process and a related data base
         containing the current job evaluation scores in effect for all positions throughout the Agency. It is
         imperative that the job evaluation process values the content of the position, not the capabilities or
         qualities of individual employees. We reviewed 152 job positions and compared their job evaluation
         scores to the current grade levels. Overall, grade positions within FCA were consistent with job
         evaluation scores. However, we did find five positions, at or above grade VH-40, where the grade
         classifications were higher than the job evaluation scores.


               The difference between                                    Reasons for Higher
               grade classification and                                  Grade Classification
                job evaluation score*

                           2.46                     Through reorganization upper management reassigned
                                                    the employee to a lower grade position as incumbency
                                                    allocation. Incumbency allocation allows the employee
                                                    exemption from downgrading and the employee keeps
                                                    their current grade level for the duration of their tenure in
                                                    the position.


                           2.36                     Due to an office’s reorganization the employee was
                                                    reassigned to a lower grade and will maintain their grade
                                                    for two years.


                             1                      Employee reassigned as incumbency allocation and able
                                                    to maintain their grade from previous position.


                            .76                     Employee was reassigned and the current position duties
                                                    and responsibilities do not support current grade.


                           .57                      Over time the employee’s responsibilities and duties have
                                                    decreased resulting in a lower grade classification.

         *Differences were calculated by subtracting the job evaluation score from the grade level
         (i.e. 41 [grade level] - 39.21[job evaluation score] = 1.79 increase grade level.)

         The job evaluation system provides a basis for the Agency to evaluate positions in a fair and
         objective way. The job evaluation system also affords a mechanism for achieving pay equity the
         principle of equal pay for substantially equal work. Therefore, the decision to allow employees to
         maintain “incumbency allocation” status must be thought out carefully to ensure the process
         remains fair and objective. In addition, when desk audits are completed on positions, OCAO
         should send a memo to the appropriate level of management stating the desk audit results. This
         ensures that management is aware of employee’s grade classification. When management is
         aware that an employee’s grade classification is higher than the position’s job evaluation score,
         action should be taken to ensure duties and responsibilities support the grade classification. If
         grade classifications are not supported by job evaluation scores, it gives the appearance of
         unfairness and can erode the merit system principle concept of “equal pay for equal work”.



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          Agreed Upon Action

          3. The Chief Administrative Officer will send a memo to the appropriate level of management
          stating results of all desk audit reviews. A copy of the memo will be maintained in the desk audit
          file.

Internal Controls

          OCAO has some effective internal controls to ensure the job evaluation process is administered
          appropriately. For example, our review of 22 desk audit files from July 1998 to October 2003
          showed that OCAO had adequate controls to ensure the process was fair and objective.
          Specifically:

          •   OCAO had established comprehensive policies and procedures for completing desk audit
              reviews and overall procedures are followed.

          •   The human resource specialist responsible for completing reviews demonstrated competence
              in the process and understanding the importance of completing fair and objective reviews.

          •   Desk audits were completed timely and overall files reviewed contained sufficient
              documentation to support desk audit results.

          •   There was adequate separation of duties. The person completing the reviews and the person
              making final promotional decisions is not the same.

          OCAO also completes periodic reviews on personnel files to ensure appropriate documentation is
          maintained. We commend OCAO for taking steps to make sure the job evaluation program is fair.
          However, because our review showed other internal control weaknesses, resulting in grade
          classification disparity, additional steps must be taken to strengthen controls over the job evaluation
          program. Additional controls exist which, if followed, could prevent the grade classification
          disparities we found in our review.

          According to Agency Policies and Procedures Manual 819, OCAO is to complete periodic reviews
          of Agency work units and/or individual positions to assure the accuracy of individual evaluations
          and compliance with guidance on job evaluation and position management. OCAO is supposed to
          distribute summary reports to the CEO/COO and office director stating review results. According to
          OCAO, these reviews are not performed. Agency resources need to be focused on activities that
          have a major impact on Agency expenditures. In 2003, salary and benefits accounted for 81.5
          percent of Agency costs. Given the high impact of position grades on administrative costs, the
          reviews prescribed by existing procedures would be an effective control over the administration of
          the job evaluation program. Therefore, OCAO should ensure it dedicates the resources to perform
          periodic reviews of Agency work units’ compliance with job evaluation and position management
          guidance.

          In addition, to properly assess the accuracy of job descriptions, organizational charts must be
          current and accurate. According to Agency’s guidance, the FCA Board approves the FCA
          organization chart down to the office level. To validate approval FCA’s organizational chart is
          signed and dated by the Chairman of the Board. Authority to make organizational changes within
          any office rest with the CEO and can be delegated to the COO or office director. However offices’
          organizational charts are not signed or dated to validate approval. Consequently offices’
          organizational charts are not always current or accurate. For example, the former Office of
          Congressional and Public Affairs was reorganized into the Office of Communication and Public
          Affairs and the Office of Congressional and Legislative Affairs. There are no organizational charts
          for the newly created offices. Further the Office of Policy and Analysis organizational chart does


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not reflect a significant supervisory position within the office organization structure. Therefore, to
ensure all offices organizational charts are valid, the COO should sign and date them and OCAO
should maintain a file of all approved organizational charts.

Agreed Upon Actions

4. The Chief Administrative Officer will establish a plan to assess at least 20 percent of all positions
each year so that all positions are reviewed at least every fifth year. The Chief Administrative
Officer will provide the Chief Executive Officer and the Board with an annual summary of
assessments. Each assessment will include the following:
    a. Reviewing job descriptions for accuracy.
    b. Assessing whether grade classification is supported by an approved organizational
    structure.
    c. Assessing compliance with position management policies and procedures.
5. The Chief Administrative Officer will make sure all offices’ organizational charts are approved
with a signature and date. The approved organizational charts will be retained in the Office of
Chief Administrative Officer.




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                        REPORT
Fraud        Waste            Abuse          Mismanagement




                      FARM CREDIT ADMINISTRATION
                     OFFICE OF INSPECTOR GENERAL

            Phone: Toll Free (800) 437-7322

                               (703) 883-4316

           Fax:      (703) 883-4059

            e-mail: fca-ig-hotline@starpower.net

             mail:    Farm Credit Administration
                      Office of Inspector General
                      1501 Farm Credit Drive
                      McLean, VA 22102-5090




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