"ABCDQueensland HealthReview of the QueenslandHealth Payroll System31 May 2012This report contains 45 pagesQH Payroll Review Report 31 May 2012© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. ABCDQueensland Health Review of the Queensland Health Payroll System31 May 2012Contents1 Queensland Health Payroll Overview 22 Executive Summary 32.1 Summary Findings 32.2 Key Issues 52.3 Costs 72.4 Projects 82.5 Recommendations 93 Introduction 103.1 Overview of the current review 103.2 Brief summary of the history of the QH Payroll implementation 113.3 Broader context for QH Payroll 134 Analysis and findings 154.1 General themes or observations 154.2 Specific findings against the nine key issues 194.3 Analysis of indicative costs 234.4 Portfolio Governance 315 Recommendations and next steps 366 Disclaimers 397 Appendix 1 Source Documents 408 Appendix 2 Glossary of Terms 429 Appendix 3 Queensland Health Payroll Timeline 44QH Payroll Review Report 31 May 2012 1© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. ABCDQueensland Health Review of the Queensland Health Payroll System31 May 20121 Queensland Health Payroll OverviewBackgroundQueensland Health (QH) went live with a new payroll system, comprising two interfacing systemsWorkbrain and SAP, on 8 March 2010 and since then have experienced significant and ongoingchallenges with the system.Complex operating environmentThe QH payroll operating environment is uniquely complex in that:• QH employs approximately 85,000 staff across a range of professional occupations, many ofwhom work a 24-hour, seven day a week roster.• Staff are employed under two different Acts, are covered by 12 different industrial awards andare impacted by 6 different industrial agreements, creating over 200 allowances and up to24,000 different combinations of pay. • The payroll system has been significantly modified to support this complexity with over 2,500customisations to the system and over 130 manual workarounds.• 1,010 payroll staff are required to perform over 200,000 manual processes on an average of92,000 forms to deliver approximately $250m (gross) in salaries to QH’s 85,000 staff eachfortnight.Payroll issues and solutionsAt present there are nine high priority issues and a number of other issues impacting on QH’sability to deliver accurate pay outcomes each fortnight. QH has put significant effort intoresolving these issues and has developed a plan to address the highest priorities with six keyprojects.One of these projects is focussed on analysing the future payroll solution options and includes atargeted approach to the external market to understand the range of system solutions and payrolloperating models that may be available.Payroll system costsIt is envisaged that the total cost of the QH payroll system will be $1,253.5m between FY10 andFY17 of which $416.6m will have been incurred to the end of FY12 and a further $836.9mforecast to be spent from FY13 to the end of FY17.Of the total costs of $1,253.5m:• $1,008.0m relates to payroll operations that has and will continue to ensure that QH staff arepaid on a fortnightly basis, and• $245.5m relates to fixing the key issues and undertaking a systems analysis to determine thelonger term solution for the payroll system.It must be noted that the $1,253.5m excludes any costs associated with the reimplementation orupgrade of the system, any contingencies associated with the implementation of system solutions,and additional FBT costs that may arise from waiving overpayments rather than recovering them.RecommendationQH need to implement the projects that deliver payroll outcome improvements, while concurrentlyusing a targeted approach to engage the external market to determine the best solution that accountsfor the future environment.QH Payroll Review Report 31 May 2012 2© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. ABCDQueensland Health Review of the Queensland Health Payroll System31 May 20122 Executive SummaryQH has experienced significant and ongoing challenges with its payroll system sinceimplementation in March 2010.In light of this, the incoming Liberal National PartyGovernment outlined a key commitment in the Premier’s First 100 Day Action Plan for1 Queensland to start an ‘Audit of the Queensland Health Payroll to determine current errorsand faults’. As such, KPMG has been engaged to review the current status, proposed solutions,strategies, programs of work and governance frameworks in place for the QH payroll system.The current review has been undertaken through interviews with relevant stakeholders andanalysis of key secondary source documents relating to historical and current issues, proposedsolutions and actions associated with the QH payroll system.The details of KPMG’s findings are provided in this report which outlines: the scope of thereview; the history and broader context of the QH payroll system; general themes orobservations; specific findings against the key issues identified to date and the solutions thathave been proposed by QH to address these key issues; analysis of QH’s indicative futurecosting for its payroll operations and improvement projects; and analysis of portfoliogovernance. 2.1 Summary FindingsAs a result of document reviews and interviews, KPMG have identified a number of summaryfindings to be highlighted as part of this Executive Summary. Specifically:• The QH payroll operating environment and broader context is uniquely complex. QHemploys approximately 85,000 staff across a range of professional occupations, many ofwhom work a 24-hour, seven-day-a-week roster.Key features of the current industrialenvironment for QH are that employees are employed under two different Acts, are coveredby 12 different industrial awards and are impacted by six different industrial agreementswith over 200 separate allowances in operation across these awards and agreements.Thiscomplexity is estimated to result in over 24,000 different pay combinations each fortnight.2 In previous reviews conducted by Ernst & Young , it was recognised that the QH rosteringand payroll system is unique, when comparing major payroll systems both in Australia andinternationally.• There is a lengthy and convoluted history behind the current QH payroll system whichpre-dates the implementation of the solution in March 2010.An appreciation of the historyof key decisions made, improvement initiatives undertaken and the evolution of theimplementation project is important context for informing decision-making on future actionsand associated future investments for the QH payroll system. In addition, it is recognised bykey stakeholders that a number of contributing factors led to the significant challengesexperienced with operating the new payroll system following ‘go live’ in March 2010. 3 These factors are documented in a range of QH reviews and external reviews and include:1Source: http://www.thepremier.qld.gov.au/assets/100-day-action-plan.pdf2Source: Ernst & Young, Review of Payroll and Rostering Solutions, September 20103Source: Various QH Internal Reports on Payroll, March 2010- May 2012; Ernst & Young; KPMG; QueenslandAudit Office Report to Parliament No. 7 for 2010, Information systems governance and control, including theQueensland Health Implementation of Continuity Project. QH Payroll Review Report 31 May 2012 3© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. ABCDQueensland Health Review of the Queensland Health Payroll System31 May 2012– The ‘go-live’ of the new payroll system was problematic and resulted in significantissues that have taken some time to address: When implemented on 8 March 2010,the new payroll system had not undergone a full parallel pay run comparison, thetechnical infrastructure had failed, there were major system performance issues and abacklog of approximately 20,000 payroll related forms that had not been processed. Thiswas exacerbated by the lack of familiarity of QH staff with new payroll processes and alack of visibility of bottlenecks in the payroll process when being performed. The extentof the potential impact on the effective operation of the payroll system had not been fullyunderstood prior to ‘go-live’ and the ongoing legacy of these issues neither predicted norplanned for; – Centralisation of payroll processing prior to the implementation of the new system:The payroll operating model implemented in line with the new payroll system centralisedpayroll processing, thus severing the linkage between the Districts and their local payrollproviders (hubs).This meant that payroll officers were to be responsible for interpretingpay information without the benefit of local knowledge of the Districts and relationshipswith District staff that have previously assisted with the interpretation process;– The complexity of the award conditions and associated pay combinations: This hasled to the need for significant customisation of the awards interpretation engine(Workbrain) and the payroll system (SAP).These customisations introducedconsiderable complexity into the administration of the payroll system itself which haveimpacted on its performance.Regardless of the design of the QH payroll system, thecurrent complexity of the industrial environment for QH will continue to have thepotential to impact on payroll performance into the future.Simplification of the currentawards structure would require a Whole of Government approach.An assessment of thefeasibility of this is beyond the scope of the current review;– There are some fundamental features of the current QH payroll cycle whichnegatively impact on pay accuracy and, correspondingly, payroll performance: These features include existing practices which allow QH staff to lodge claims forpayment over a retrospective time period of up to six years and the current timing of thepay date. The timing of the pay date essentially requires line managers to estimate likelyhours to be worked by staff for the final two days of any given pay period.This approachinvariably leads to discrepancies between actual hours worked and pay entitlements andhas led to significant challenges in managing overpayments to staff.Currently,approximately 3,400 staff receive overpayments each pay period.The total dollar valueof these overpayments is approximately $1.7 million per pay period and has beenaccruing at that rate since 2010.Overpayments also incur Fringe Benefits Tax liabilitiesfor QH, the magnitude of which is proportionate to the amount of overpaymentsoutstanding across QH;– The business processes designed to deliver the payroll each fortnight are highly4 manual : The business processes involve approximately 130 manual system ‘work- arounds’, double handling of pay forms, retrospective payments, ad hoc payments andother associated adjustments.QH estimate that approximately 200,000 manual processesare required to process on average 92,000 forms within the payroll hubs every fortnight. 4Source: QH internal reporting documentation on payroll, sourced May 2012 QH Payroll Review Report 31 May 2012 4© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. "