Opening Statement to the Standing Committee on Accountability and Oversight

Legislative Assembly of the Northwest Territories Termination Compensation to two Senior Officials

Thank you, Mr. Chairman, for giving us the opportunity to speak today about our audit of the termination compensation of two senior officials of the government. The Legislative Assembly of the Northwest Territories asked me in March 2002 to undertake this audit. I have with me today Jean Ste-Marie, Assistant Auditor General, and Neil Papineau, the Director responsible for this audit.

The audit set out to examine the process by which the termination payments and benefits were determined and approved. We also sought to determine whether government policies and practices were followed and whether the termination compensation was in accordance with the terms of the government's employment agreements with the two officials.

The cost to the government to terminate the employment of John Bayly, Principal Secretary, and Lynda Sorensen, Chief of Staff, was about $680,000, around $280,000 of that for Bayly and around $400,000 for Sorensen.

By our calculations, the termination compensation to both individuals is over and above what had been set out in their employment agreements and government policies. The additional compensation paid by the government is about $6,000 for Bayly and about $250,000 for Sorensen. We found no justification for this additional compensation.

The GNWT entered into a separate employment agreement with each employee in the year 2000, when both were appointed to their "at pleasure" positions. These employment agreements had specific clauses describing how the agreements could be terminated, and the agreements set out clearly how severance amounts would be calculated.

In October 2001, when the government commenced the action to terminate their employment, it undertook discussions and negotiations with the two employees and subsequently entered into a separate termination agreement with each in November 2001. These termination agreements set out new terms for the termination of both employees, providing them with higher compensation and extended benefits than those set out in their employment agreements of 2000.

The termination agreement between the GNWT and Bayly states that Bayly tenders his resignation in one year, on October 28,2002. This agreement effectively continues Bayly's status as an employee of the GNWT for one more year, to October 2002. During this one-year period, the government will continue to pay to Bayly his current salary and full employee benefits. As a result of a 1999 policy of the GNWT, Bayly as a deputy minister is permitted to extend his employment using his severance pay.

The termination agreement between the GNWT and Sorensen states that Sorensen tenders her resignation in two years, on January 4, 2004. This agreement effectively continues Sorensen's status as an employee of the GNWT for two more years, to January 2004. During this two-year period, the government will continue to pay Sorensen her current salary and full employee benefits. This is not permitted under the GNWT 1999 policy or any other policy of the GNWT; Sorensen as a management employee did not meet the requirements of the policy; that is, she was not laid off, nor was she terminated for health reasons.

As a result of the extension of employment, Bayly will receive a pension, which he would not normally have qualified for as he did not have the minimum two years of employment. Sorensen will receive substantially more in her pension then she would otherwise have collected.

Both employees received the maximum performance pay even though a letter of reprimand was in the employment file of each, and we found no justification to support the maximum performance pay award. The GNWT paid Bayly about $25,000 and Sorensen about $20,000 as performance pay.

Also, the government gave each employee a removal assistance payment of $6,000 without ensuring that each met the policy requirements of relocating and providing receipts for their relocation costs.

Our audit determined that the termination compensation to the two officials exceeded what had been set out in their employment agreements and was not compliant with the government's policies. Further, we found no justification for paying the significantly higher termination payments and benefits. Therefore, we conclude that the GNWT did not handle the matter reasonably and with prudence.