Part 5: Redundancy and severance payments

Report to the Council: Additional assurance work on travel expenses, redundancy and severance payments.

5.1 What we did

The purpose of our additional assurance work on redundancy and severance payments was to establish:

  • the number and amount of redundancy and severance payments paid to former Wintec employees between the start of 2013 and the end of 2017; and
  • the basis for the payments.

We tested 32 redundancy and 25 severance payments made between 2013 and 2017. The average redundancy payment was $37,007 and the average severance payment was $35,993.

We considered the payments against (where applicable):

We are aware there has been some criticism about the frequency and use of redundancy and severance processes at Wintec. It is important to note that this audit did not assess the appropriateness of the decisions to restructure, whether the redundancies or severance agreements were justified, or whether the individual amounts for severance payments were reasonable. These types of assessments would require further work to investigate the circumstances leading to each decision, and potentially require interviews with the key people in those cases. This was beyond the scope of our work.

Our work focused on whether:

  • there was evidence of the payments being approved in line with Wintec’s financial delegations;
  • the payments were supported by formal agreements, such as settlement agreements or employment contracts; and
  • the documentation supports the calculation of the payments.

We also considered the accuracy of payments and whether the relevant guidance had been applied consistently.

5.2 Redundancy and severance payments - detailed findings

To preserve the confidentiality of the cases, this part of our report focuses on general findings from our work.

5.2.1 Underlying business reasons for restructuring not always well documented

In line with Wintec’s Restructure process guidelines for managers, we expect that written change proposals are developed where a restructure is being considered. Wintec’s Restructure process guidelines for managers states that proposals need to include:

  • rationale for change;
  • the objectives that need to be achieved;
  • what has already been done to try and meet these objectives;
  • current staffing structure;
  • proposed staffing structure, i.e. recommendation and impact on workloads; and
  • consultation/submission period details.

In 65% of restructure cases, we found written change proposals to support the underlying business reasons for restructuring. Where proposals existed, they generally followed Wintec’s guidelines. However, no proposals considered the financial costs of the restructure against the expected benefits, that is they did not demonstrate the value for money proposition of the restructure. Wintec should consider amending its guidelines to require that proposals include this analysis.

There were no written proposals in 11 restructure cases (35%). Wintec has explained to us that in some of these cases a verbal meeting took place and voluntary redundancy was offered as an option prior to progressing to a formal change proposal.

There appears to be little guidance about the process for voluntary redundancy and what employee entitlements might be. Written proposals did not explain the process for voluntary redundancy. We observed that the lack of guidance led to some inconsistent practices and a potential for confusion. For example, we found several cases where a staff member who appears to have resigned also sought (and received) a payment for voluntary redundancy. In a situation like this the explanation for the payment and the supporting documentation appear inconsistent.

5.2.2 Basis for redundancy payments

Redundancy payments are contractual entitlements arising from a person’s employment agreement. We therefore needed to identify the relevant employment agreements and redundancy clauses within those agreements.

We found five redundancy cases where signed employment agreements were not on the relevant personnel files, or the documentation on the files suggested a different agreement was in place to that on the system and used by HR to determine redundancy entitlements. We have been unable to fully verify the redundancy calculations in these cases.

5.2.3 Basis for severance payments

Severance payments are made over and above what a person is entitled to under their employment agreement. Severance payments are often used to secure an employee’s departure on agreed terms when the employment relationship has broken down. However, any payment to a departing employee that is over and above what the employer is legally obliged to make is, in formal terms, a discretionary severance payment.

The Auditor-General’s good practice guide notes specific challenges with severance payments. A severance payment can be agreed between the parties in an employment relationship without involving other parties or advisers. However, the risk of doing this is that the public entity might not follow proper process, properly assess the basis for a severance payment, or document it correctly. These failings can give rise to legal and financial risks (for example, with tax, delegated authority, and disclosure requirements).

The expectation therefore is that an agreement reached by private negotiation is documented by deed or a simple contract, rather than a less formal format such as email correspondence.

We found that in most cases where a severance payment was made, an official mediation agreement was in place. The agreements were signed by the parties involved and the mediator. However, we found two severance payments made in 2016 where no formal deed or contract was available. Instead a letter or email trail appears to confirm the terms of settlement with the employee. This is not in accordance with good practice.

5.2.4 Approving redundancies and severance payments in line with delegated authority

All redundancies and severance payments must be approved within the appropriate level of delegated authority. Wintec’s Delegated Employment Authority sets out the three relevant delegated employment authorities:

Description Delegated Authority as at October 2008 Delegated Authority as at June 2016
Review of an area under a surplus staffing situation (change proposals) Dean, Directors and Senior Managers reporting directly to the Chief Executive Tiered authorities on the basis of one-up. Requires consultation with the Director/People and Culture and Chief Executive or their delegate or level B depending on the level being reviewed
Redundancy Chief Executive Tiered authority on the basis of one-up. Requires consultation with Director/ People and Culture and Chief Executive or their delegate or level B depending on the level being reviewed
Ex gratia payment (severance) Chief Executive Executive team member, in consultation with People and Culture

We found many cases where there was no evidence to show that the correct approval had been obtained for the redundancies and severance payments we reviewed:

  • none of the written change proposals (for restructuring) were signed or dated. We have not received any other written evidence that the reviews were approved.
  • Before June 2016, only the Chief Executive had authority to approve redundancy and severance payments. However, we found that:
    • generally the only evidence that the redundancy payments had been approved was a formal letter to employees advising that their role was to be disestablished. These letters were generally signed by the Director People and Culture or the line manager of the team under review. We have seen no evidence that the Chief Executive approved the payments, except where he was the line manager. Therefore, there is no evidence that redundancy payments below the senior management team were appropriately approved; and
    • most settlement agreements (for severance payments) had been signed by the Director People and Culture or the line manager of the person receiving the payment. We saw no evidence that the Chief Executive had approved the settlement agreements or resulting severance payments. This also included one of the severance payments in 2016 that had no formal settlement agreement.

Wintec amended the relevant delegated employment authorities in June 2016. We found that the subsequent redundancy and severance payments were approved at the appropriate level within Wintec.

5.2.5 Inconsistent practices in calculation of redundancy payments

Our audit identified some inconsistent practices in the calculating of redundancy payments:

  • We observed that the pay in lieu of notice period was generally added to the employee’s length of service for the purposes of calculating the redundancy payment. However, we have found at least one case where this approach had not been applied.
  • In some cases, pay in lieu of notice had been apportioned for that part of the notice period that had been worked. In other cases, pay in lieu of notice had not been apportioned.
  • There were three instances where Wintec agreed to pay in lieu of notice starting from a future date rather than the date of notice.

Although the payments met Wintec’s contractual obligations, they raise questions about fairness and consistency in Wintec’s processes. There is no recorded reason for the different approaches taken. In some of these cases, the payment may also include an ex gratia component that was over and above what the employee was contractually entitled to. However, this is not explicitly stated in the documentation. Wintec should provide further guidance in these areas.

We found a few cases where the redundancy calculation did not match the terms of the relevant employment contract. There were two cases where it appears Wintec may have incorrectly paid an employee based on their contractual entitlements.

We appreciate that Wintec has a range of employment contract terms and conditions, which can add complexity to the calculation of redundancy payments and increase the risk of errors being made. However, we expect such payments to be the subject of robust checking and approval processes.

5.2.6 Redeployment of staff

Wintec’s Restructure process guidelines for managers states that redeployment must be considered in cases of redundancy.

We noted that two staff were redeployed into other fixed term roles after being notified that their roles were being disestablished and were eventually paid their redundancy at the end of those terms. However, there is evidence on both files that the individuals were re‑employed shortly after the end of their fixed term contracts. Wintec’s guidelines state that “as a guideline, a redundant staff member will not be re-employed within 12 months of their last day of duty.” The guidelines go on to say that where a redundant staff member accepts re-employment for longer than one month, “the relevant proportion of the original severance payment may be recovered.” The two cases we have identified appear contrary to this guidance.

One staff member was redeployed several times over a period of nine months before being made redundant. The original redundancy payment calculation was not revised to take into account the additional nine months of service. Wintec advised that this reflected the contracts in place during the redeployment period. However, we have been unable to verify this based on the copies of the contracts that Wintec provided.