PACC Committee Meeting

STANDING COMMITTEE ON PUBLIC ACCOUNTS

COMITÉ PERMANENT DES COMPTES PUBLICS

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, March 17, 1998

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[English]

The Chairman (Mr. John Williams (St. Albert, Ref.)): Good afternoon, ladies and gentlemen.

Pursuant to Standing Order 108(3)(e), we have consideration of chapters 31 and 32 of the December 1977 Report of the Auditor General of Canada: “Revenue Canada, the Financial Management Regime”, and “Revenue Canada and the Department of Finance, Understanding Changes in Tax Revenues: GST”.

We have as witnesses today, from the Office of the Auditor General of Canada, Mr. Denis Desautels, the Auditor General; Mr. Shahid Minto, the Assistant Auditor General; and Ms. Basia Ruta, the principal of the audit operations branch. From Revenue Canada we have Mr. Robert Wright, deputy minister; and Mr. John Kowalski, director general of the audit directorate. And from the Department of Finance, Mr. Paul-Henri Lapointe, assistant deputy minister, economic and fiscal policy branch; and Mr. Pete DeVries, director of fiscal policy, economic and fiscal policy branch.

Good afternoon, all. Mr. Desautels, do you want to start with an opening statement?

Mr. L. Denis Desautels (Auditor General of Canada): Mr. Chairman, thank you for this opportunity to present the results of our audits on the financial management regime at Revenue Canada and on understanding changes in GST revenues.

Revenue Canada's 40,000 employees collect about $850 million and pay out $425 million on average each working day. Given the department's sheer size and the nature of its operations, good financial management is of paramount importance, because even minor inefficiencies or extremely small rates of revenue leakage can translate into millions of dollars.

Chapter 31 of our report focuses on key areas of financial management at Revenue Canada. In particular, we ask, first, how good is Revenue Canada at getting the $850 million in average daily tax receipts quickly to the bank? How good is legislation in the area of mandatory bank remitting? How good is Revenue Canada in accounting for financial transactions and meeting stakeholder information needs? And how good are Revenue Canada's systems and practices for planning, performance monitoring, and containing financial risk?

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We found some areas of strength and no areas of neglect. We also noted several areas in need of improvement. While Revenue Canada scores well in aspects of strategic planning and enhancing management accountability, many of its financial systems are weak and require considerable modernizing.

For example, the system used to account for the over $18 billion in annual deposits by customs is archaic, labour-intensive, slow and prone to error. Effective cash-management systems to monitor promptness of deposits are not in place. Information meant for monitoring and analysing program statistics is often not validated and errors exist.

Management compensates for some shortcomings in the systems by relying on the judgment and experience of individual managers and employees, using proxies, performing internal reviews, using consultation and taking other measures in an effort to fill gaps and reduce the risk. But basic deficiencies remain and some have a multiplier effect on financial risk to the public purse, and these financial risks can be quite substantial.

[Translation]

For example, Mr. Chairman, the lack of effective cash management systems has resulted in Revenue Canada's relying primarily on local and regional initiatives and internal reviews to monitor day-to-day activities. While this may help reduce the risks, our audit found that performance in the promptness of deposits varies considerably across offices and across revenue streams. In turn, the government is foregoing several millions of dollars in potential interest revenue each year because Revenue Canada is not getting all tax payments to the bank as fast as it could, and its present systems do not provide the necessary management information for timely corrective action.

Five years into the new regime to process personal tax returns, there are still significant weaknesses in systems meant to contain financial risks. Revenue Canada has made strides in cleaning up data essential to analyze trends in non-compliance of returns and to assess the effectiveness of its criteria for flagging risky returns. But it has done only a limited analysis of these data. Because several social programs are linked to an individual's assessment, undetected errors in returns will also impact on the billions of dollars paid in social benefits each year, both federal and provincial.

We also found that many of Revenue Canada's financial management practices require more rigour. Some of these impact directly on the quality and timeliness of revenue reporting by the government.

In addition, as part of our cash management review, we found that provisions for mandatory bank remitting do not exist for all types of tax revenues. The committee may wish to review existing legal provisions for mandatory banking with a view to ensuring that all taxpayers are treated fairly and equitably when making payments to the government, regardless of the type of tax. The Department has planned a number of initiatives to deal with our other observations, and several of these are currently under way. Members of the committee may wish to obtain assurances from the department that plans to deal with all shortcomings be in place and executed in an appropriate and timely manner.

[English]

In our opinion, Mr. Chairman, Revenue Canada is now at a stage where it needs to give more attention and higher priority to ensuring effective financial management throughout the organization. The proposed move to a revenue collection agency will only add substantial new financial management pressures. Steps need to be taken now to ensure a strong foundation.

Moving to chapter 32, entitled “Understanding Changes in Tax Revenues: GST”, this is a short report containing important issues of interest to parliamentarians. Its focus is analysis that the government performs and accountability information that it presents in respect of tax revenue. While the chapter zeroes in on the GST, its fundamental messages are relevant considering other federal taxes.

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After GST revenue for the year that ended on March 31, 1996, turned out to be $800 million lower than the March 6, 1996, budget forecast, and $400 million lower than the previous year's actual revenue, the Department of Finance and Revenue Canada tried to explain the decrease. However, we found they had not produced a conclusive, adequately supported explanation.

We have identified a five-step process that the departments ought to have followed to ascertain the cause of revenue decrease. We found it did not follow the process to the minimum extent required and did not make use of all available data. Some of the unused data were also considered unreliable.

Other matters affecting analytical capability include the need for a coordinated effort within Revenue Canada; the limited amount of data reported on GST returns; and the way Revenue Canada records figures for GST declared and input tax credits.

Members of the committee may wish to examine the two department standards for analysis and accountability information in respect of tax revenues.

Mr. Chairman, this concludes my opening statement with respect to both chapters 31 and 32. I'd be pleased to answer your committee's questions.

The Chairman: Thank you, Mr. Desautels. We'll turn to Mr. Rob Wright, Deputy Minister of Revenue Canada.

I notice in your opening statement, Mr. Wright, that it's single-spaced and about seven pages long. We try to limit our remarks to about five minutes, but we will append your entire unedited remarks to the minutes of the meeting. If you'd like to take about five minutes or so to summarize your opening remarks, that would be appreciated.

Mr. Robert Wright (Deputy Minister of Revenue): Thank you very much, Mr. Chairman. I would be very pleased if it were appended to the official record.

I just have a few points to make, but let me start by thanking you, Mr. Chairman and members, for the opportunity to appear here. This is my first appearance as deputy minister of Revenue Canada. I was appointed last January. Prior to that, I was the high commissioner for Canada to New Zealand. Prior to that, I was deputy minister of Agriculture Canada.

I'm here with John Kowalski. I will also have Dave Miller at the table at the appropriate time to help respond to your questions.

A great number of substantive issues were raised in chapters 31 and 32 of the Auditor General's report of last December. I'll make just a few general comments, many of which reinforce the points Mr. Desautels made.

First, Revenue Canada is an extremely important organization, both in terms of its size and in its interaction with Canadians. We have more than 40,000 employees and 300 offices. We process more than 111 million travellers at customs. As Denis pointed out, we collect $850 million every working day in terms of tax receipts for federal and provincial governments.

With respect to our financial management, the Auditor General has noted that we have some areas of strength, no areas of neglect, and a number of areas in need of improvement. We agree.

Last December, Mr. Desautels also pointed out that, in his view, Revenue Canada should be held to a higher standard, given the importance of some of the issues we deal with and the amount of funds we manage. We accept this challenge. Indeed, we thank the Auditor General and his staff for their work in helping us to improve our financial management.

Currently, 94% of our cash receipts are deposited within 24 hours. Now, this is a good standard of performance by international standards, but Canadians deserve to know that we're doing everything reasonable and possible to improve this performance. Responding to the Auditor General's report and his comments will help us focus this effort.

First, some of our systems do need modernizing. This is why we launched the standardized accounting project. It was to align all departmental accounting procedures. This is a huge effort that will take more than five years to implement. We cannot respond on a short-term path for some of the customs problems that Mr. Desautels has termed as archaic, but we can make improvements, and we will.

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We will tighten our accountability contracts with a new standard of 100% remittances within 24 hours, or if that's not attainable, a direct report to the ADM responsible on why that is not practical. In some cases it is not, such as the last day of tax collection, April 30. We will apply additional human resources to our problems in customs, and develop some PC solutions to permit voluntary remittances at the banks.

We will pursue with the finance department early legislative options to require mandatory bank remittances in all revenue lines, as recommended by the Auditor General, and we will adopt other technology, including our corporate administrative system, that will improve our capacity to monitor and analyse performance.

Second, with regard to accountability, from his report we have had accountability contracts in our department for a number of years. We have enhanced them this year, so beginning April 1 these contracts with all ADMs will be with myself. They will include financial accountability, and this will help us enhance and monitor progress.

On internal audit, we have a new policy that was released in January and a new committee to monitor progress there. I chair that committee. Our internal audit with this improved rigour will help us develop a program that follows up on some of the comments the Auditor General has made on our systems data integrity. This is an issue that will require a longer-term work plan, and the Auditor General's staff has offered to work with us in putting together a work plan for our internal audit. This is progress.

Third, on revenue analysis, we will continue to work with the Department of Finance in the fiscal monitor committee. This is an ideal forum for collaboration. We are reluctant to ask for additional information from taxpayers for purely analytical purposes, but the progress and process we expect towards standardized accounting and accrual accounting will create possibilities for us to develop options for cross-checking data. Again, we thank the Auditor General's staff for offering to work with us in developing this.

In total, we believe these initiatives represent a very comprehensive response to the AG's report.

Finally, Mr. Desautels has commented on the planned transition to revenue agency status. We agree that doing more for provincial governments and others will demand further progress on our systems and financial management, and we'll pursue that. The minister and the government have also made it very clear that the proposed agency would remain fully accountable to a minister and to Parliament. We are also working with the Auditor General to ensure that his role as our auditor remains as strong as it is today. Scrutiny will improve performance and accountability, and we welcome that.

Thank you, Mr. Chairman.

The Chairman: I think you wished to make an announcement at the end of your remarks.

Mr. Robert Wright: Thank you, Mr. Chairman.

I wanted to note that with us at committee today is Mr. Mike Burpee, who is retiring as the ADM of assessment and collections next week after 33 years of outstanding performance in our department. I simply wanted to acknowledge that. He's been before this committee many times and he's provided enormous leadership to our department. I'm delighted to have him here and I welcome the opportunity for me to thank him publicly.

The Chairman: We will now turn to Mr. Paul-Henri Lapointe from the Department of Finance, assistant deputy minister of the economic and fiscal policy branch.

I'm not sure you can get through your report in five minutes, Mr. Lapointe, so I'll leave it to you whether to summarize it or read it.

Mr. Paul-Henri Lapointe (Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance): Thank you, Mr. Chairman.

[Translation]

I am very honoured to be here today to discuss Chapter 32 of the Auditor General's December 31, 1997 Report and to answer any questions that you may have.

Let me begin by saying that the Department of Finance agrees with the Auditor General on the importance of having a good understanding of the factors responsible for the changes in revenues. In fact, that is why we monitor and assess revenue developments on an ongoing basis in close co-operation with our colleagues in our Tax Policy Branch, Revenue Canada, Statistics Canada and the Treasury Board Secretariat.

We also agree with the Auditor General's recommendations for improving the timeliness and reliability of Revenue Canada GST data. In this regard, we applaud the efforts of Revenue Canada.

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We disagree, however, with the assessment that our analysis of the decline in GST revenues was inconclusive.

Considerable time and resources were devoted to analyzing GST revenues. This was done as part of our normal process for assessing revenue developments and deviations from forecast for all of the sources of federal government revenues. We also believe that we generally followed the procedure suggested by the Auditor General.

While it is important to understand changes in collections from year to year, we mainly focus on the difference between the 1996 budget forecast for 1995-1996 GST receipts and the outcome for the fiscal year. We had forecast receipts of $17.2 billion for 1995-96 and the final result for the year was $16.4 billion, a difference of $800 million.

We identified a number of possible factors that could have contributed to the forecast variance.

Our 1996 budget estimate of GST collections was based on the most recent collections data and the most up-to-date economic data from Statistics Canada. Detailed national accounts data were available to the end of September 1995. Some monthly economic data were available for October 1995. Based on these data, a small increase in collections from 1994-95 to 1995-96 was expected.

However, collections data for the February and March period of 1996 were considerably lower than that estimated and well below their levels in the previous year. This decline primarily related to the weakness in consumer expenditures that was witnessed in the first quarter of 1996. However, detailed information on consumer expenditures was not available until June 1996.

Moreover, last December, Statistics Canada made a further downward revision to its estimate of consumer expenditure for 1995 and the first quarter of 1996. Based on preliminary analysis, we estimate that about $500 million of the $800 million shortfall was due to low consumer expenditures. We have been unable to completely assess what impact these revisions would have on explaining GST collections in 1995-96 as the detailed information required from Statistics Canada will not be available for some time.

Mr. Chairman, this highlights one of the problems that we constantly face. The economic data used for analytical purposes come with a considerable time lag and are subject to revision well after the fact.

Revenue Canada was also able to identify another $245 million of the shortfall due to bookkeeping adjustments. It was too late to make these corrections for 1995-96 as the audited financial statements had already been signed off by that time.

Taking all these factors into consideration explains most of the shortfall in collections. This is not to say that there could not be other factors.

To conclude, Mr. Chairman, we agree with the Auditor General that the Department needs good analysis of revenue developments in the various revenue streams to support fiscal planning and parliamentary reporting.

Thank you again for allowing me to present the Department's view and I will be happy to answer your questions. Thank you.

[English]

The Chairman: Thank you, Mr. Lapointe.

Mr. Mayfield, eight minutes please.

Mr. Philip Mayfield (Cariboo—Chilcotin, Ref.): Thank you, Mr. Chairman. I'd like to welcome the Auditor General and members of the Departments of Finance and Revenue Canada. It's always a pleasure.

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Before I start, I want to comment on your introduction of your colleague who's about to retire. I'm always mindful of someone who has offered long service like that. I am mindful not only of his skill but of the memory that he has—the memory that is lost to the rest of us when people like your colleague are no longer available. Indeed, it is a loss that I'm sure the department will feel.

To the point here, I am pleased that in the Auditor General's report he mentions there are some things that need to be tightened up, but on the whole it's in pretty good shape. However, there seems to be an area of imprecision that surprised me as I read this. As somewhat of a novice looking at your department through the other end of a telescope, you will recognize that sitting down with constituents and mulling over their tax problems as delivered to them by the department is a little bit different.

For example, I'm surprised that there is this precision about how much a person owes, but at the other end it seems as though money is measured by the pound rather than by the cent—or by the kilogram, as the case may be. Why would there not be a reconciliation of balances to the taxpayer records? It seems to me that would be a simple way of being sure the records are complete, the money is tallied in an exact manner and there would be a means of having a very good picture.

Can you explain that to me, please?

Mr. Robert Wright: First, thanks for your comments on my colleague. He will be missed.

In terms of our overall accounts, I'll respond in a general way. We do have a full assessment of what was owed and what was paid. It is audited every year by the Auditor General, who takes stock of whether we have fairly reflected the amounts due and have accounted for them fully.

So I'm not sure what additional detail you're wondering whether we have.

Mr. Philip Mayfield: Paragraph 31.52 begins “The other matter of concern to us is that the department does not reconcile central account balances to its taxpayer records”. Why would that be?

Mr. Robert Wright: I think you've seen our response in 31.53. We've agreed we should review our policies to ensure we have consistent application. We're saying the department will continue to ensure the completeness and accuracy of revenue information and communication to the Department of Finance.

Inefficiencies are being addressed in terms of some of our progress towards standardized accounting. Procedures exist for control of most manual refund cheques, and are supplemented by central reconciliation. As part of standardized accounting we'll have new interfaces with appropriate financial system controls that we've built and tested. By the fall of 1998 we have agreed that we will establish a revenue analysis unit. It will be fully staffed and operational and will carry out the increased analysis that the AG has referred to.

Mr. Philip Mayfield: Mr. Wright, I've read that. What is the logic of not having that type of reconciliation in place? Historically, for that matter, how is your money accounted for?

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Mr. Robert Wright: Perhaps I can ask the chairman of our fiscal monitoring committee.

John, do you want to respond to that, or Bill Boston?

Mr. John Kowalski (Director General, Audit Directorate, Revenue Canada): Perhaps Bill Boston could respond. He chairs the fiscal monitoring committee along with Pete DeVries.

The Chairman: Before you start, could you introduce your name and your title, please, as well?

Mr. Bill Boston (Director General, Financial Administration Directorate, Finance and Administration Branch, Revenue Canada): My name is Bill Boston. I'm the director general of financial administration for Revenue Canada.

First of all let me assure you there are many input-output controls with respect to all of the tax streams within Revenue Canada: the tax, the GST, the customs, and so forth. There is full control over the public money and a full balancing with what is in the central accounts.

I think what the Auditor General is saying is this is also another level of control, and it's a very important one, which would provide further assurance of the accuracy of the allocation of revenues. We agree 100% with that, and this is something that's going to be introduced in the course of standardized accounting.

Mr. Philip Mayfield: I understand you've said there are many streams, but I haven't a clue of how you look after your money, from what you've just told me. How is the money accounted for? How is the money reconciled between what is on the taxpayer's statements that he gets and the amount of money you've collected? How do you know what you don't have, except by going back to the taxpayers? And what is the effect of this lack of reconciliation on the rest of your program of understanding the procedures?

Mr. Bill Boston: Several levels of reconciliation are done. First of all, of course deposits are made in the financial institutions, and those are cleared through the Bank of Canada to the credit of the Receiver General. Each of our offices sends revenue reports to Ottawa, which are processed through the various revenue systems, and then we reconcile those revenue reports against the clearings through the Bank of Canada. So there's a full accounting for the cash that comes in.

Within the program revenue systems, they also have a record of the cash, and of course they have the records of the taxpayer payments. So there's a basic check and balance within the program revenue systems as well.

The additional check that the Auditor General is talking about is a very important one as well, and it will provide a further level of assurance that, as I say, the revenues are being allocated properly. But it's certainly not the only one.

Mr. Philip Mayfield: So you're saying you know how much you've received and you know how much you are to receive, and that's all the receivables?

Mr. Bill Boston: Absolutely.

Mr. Philip Mayfield: It's understood, and the cash you have is all reconciled against the taxpayer records?

Mr. Bill Boston: We know exactly how much we should be receiving. We have records of our receivables from each taxpayer and they are appropriately followed up.

Mr. Philip Mayfield: With regard to the cash itself, I notice, Mr. Wright, that you're implementing some practices to have same-day deposits. What happens to this money if it's not in the bank? Does it sit around for a week or a few days or a weekend? What happens to this money after it's collected? Is it in a vault or in a desk or...?

Mr. Robert Wright: It is in a vault if it's not deposited. It should be deposited. In the vast majority of cases it is deposited. As I say, 94% of the revenues from this review period in 1995-96 were deposited within 24 hours. What is not is held in a vault until we can arrange deposit.

Sometimes the payment is received on a weekend, at a border crossing, or at a facility where we simply don't have time to manage that same-day deposit. That is an area we know we can do better work on, and that is an area on the customs side where the Auditor General has characterized our systems as wanting. We've had spotty records in terms of having very clear requirements and objectives for our regions to manage this cashflow, and we've clarified that this year.

The other issue we have in terms of managing that percentage of how much we can deposit within 24 hours is that on April 30 we get a huge influx of payments, because people have put off their submission of taxes until the last moment, if they're making a payment. So it's very hard for us to manage that last flow on the T1 or personal income tax contributions.

Mr. Philip Mayfield: You've mentioned that it's 7% or 8% or something like that. That's, what, $800 million a day? That's a fair chunk of change. I believe the Auditor General points out that that corresponds to about $10 million a year of lost revenues to the department. That's a pretty good chunk of change, too.

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I'm wondering what method you have of being sure that it's there, of disciplining those who do not assure that it's there? What assurances can you give the committee that the practice of having same-day deposits is actually going to take place?

Mr. Robert Wright: Well, there are two different matters there. I think we have all the assurances in the world to make sure nothing improper happens to that money when it's in our vault and in our care. That's the subject of a different audit by the Auditor General, and we're quite proud of the way our people manage those sums of funds. It is a huge challenge.

How can we assure you that we're going to make progress to improve this toward 100%? I don't think we'll actually ever get there. There will be a couple of days when we simply can't manage the flow. But I've highlighted for you and the Auditor General a number of initiatives we're ready to launch.

We are sending out a very clear requirement for people to make these deposits within 24 hours, or explain why they can't do it. We're holding them accountable for doing so.

Although we have launched a substantial investment in standardized accounting that would have dealt with this problem we had on the customs side, we have an archaic system in customs, and we're not going to try to improve that system over the next two or three years.

To wait and bring in this new system of standardized accounting is a far better use of resources. But we will make investments to permit voluntary remittances at banks, and to make sure that we can have faster management and turnover of that money on the customs side.

[Translation]

The Chairman: Ms. Girard-Bujold.

Ms. Jocelyne Girard-Bujold (Jonquière, BQ): Good afternoon, Mr. Desautels, gentlemen. Thank you for coming. I too would like to congratulate and thank the official who is leaving after 33 years of service. As my colleague was saying, we hope that before you go, you pass on the vast experience that you are taking with you to other officials. It is important for that expertise to remain in the department.

I read the Auditor General's report carefully. It raises so many questions. I realize that Revenue Canada is well run, as you were saying a few moments ago. But there are so many things to be checked, and as you pointed out, there are many deadlines for specific projects.

In response to the comment found in section 31.36 of the Auditor's Report regarding the depositing of remittances, you've set up a program that is supposed to end in 1998. Could you tell us how far along this project is and how soon we can expect the conclusion of the project?

A few moments ago, my colleague referred to comment 31.39 of the Report, which has to do with updating customs systems for processing payments. You say that you have set deadlines for updating your system so that payments can be deposited as quickly as possible. I see that you are losing millions of dollars in interest when you fail to deposit these amounts immediately. I just can't conceive of it.

Yesterday, one of my constituents, who earns $7,000 a year, told me that she owed the federal government $210. She's wondering where she's going to find the money. Today we learn that if you deposited these amounts you receive immediately, on the very same day, you could collect interest which could at least be of some benefit to these people. So I think we really have to wonder.

People are also talking about merging Customs and Revenue Canada and about the shortcomings of their computer systems. I would like you to describe these problems. Today, March 16, 1998, how much progress have you made in dealing with all these concerns raised by the Auditor General in his report? Thank you.

[English]

The Chairman: Mr. Wright, do you want to respond to that now?

Mr. Robert Wright: Yes, thank you, Mr. Chairman.

There is a whole series of issues there. I would first say that we're anxious to have the deposited money be of benefit to the government, to taxpayers, and not to the contributor.

Overall the timing of our deposit depends on the stream of money from which we get it. But clearly the bigger the sum of money, the harder we work to get it in as soon as possible.

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Although the percentages shown on this chart relate in part to deposits, the number that are same-day deposits, if you look at the number of deposits by amount of money, the numbers are far better than that. Generally the ones that take longer are the small deposits.

The point is that we assess how we're doing on the overall submission of money as quickly as possible. I think the Auditor General has made a very strong and important point to us. Although we've launched a process to get a very good system in place, we simply can't wait until it's all done to improve our commitment to getting the money in the bank as soon as possible.

During the period of this review, about 94% of the cash was in within 24 hours. It varies by stream. We will tighten this up to make sure the people in the regions know what is expected of them and have the tools at their disposal to get the job done.

The Chairman: Thank you, Mr. Wright.

Madame Girard-Bujold, I think Mr. Minto wanted to add something to that point.

Mr. Shahid Minto (Assistant Auditor General of Canada): Thank you, Mr. Chairman. I just want to draw the committee's attention to paragraph 31.31, page 31-12 of the English version. They note there that the department had a number of policies requiring mandatory deposits within a certain timeframe. What was lacking at that time were some performance standards.

For example, the policy says that if you have amounts over $500 you must make a deposit on that day. In some cases this was interpreted as saying if I have some money on hand from yesterday and I go and deposit that today, then I have done my daily deposit. This is rather than saying I have to deposit all the money from today into the bank. There were instances of people taking different interpretations of the standards.

We've been very encouraged by Mr. Wright's opening statement, where he has established a very clear performance standard now. The money has to be in the bank.

The second concern we had was that there was no monitoring. There was no mechanism to find out what was actually happening. I think Mr. Wright has also announced today that there will be an exception report made to the assistant deputy minister if this does not happen.

Mr. Chairman, we will follow up on the implementation of this and see how it goes.

The Chairman: Thank you, Mr. Minto.

Madame.

[Translation]

Ms. Jocelyne Girard-Bujold: That's what you say, but when I read section 31.35 of the Auditor General's Report, I see that in one case he found seven out of 37 randomly selected daily deposits that were from one office. In one of the seven cases, the full daily receipts totalled $219 million. We're not talking about 50 cents or $500; we're talking about $219 million that were deposited four days later because the month end fell on Friday before a long weekend. With all the systems that we have nowadays, that just won't do.

[English]

Mr. Robert Wright: I agree.

[Translation]

I agree, Madam.

[English]

What I've said earlier is that we're not going to wait four or five years to have a new system that modernizes this. The amounts of money we manage are so large that it is meaningful for us to be as expeditious as possible.

So we have set performance targets. In fact last year we set a performance target of 95% of deposits within 24 hours. This year we have established that 100% will be deposited within 24 hours, or you will explain to your ADM why it's not cost-effective to do so.

That deals with one of the points Mr. Minto made. I'd like to thank our auditor for helping us out on this one. That's the first part of it, to say we have established these objectives. They're important. The way we manage these resources delivers savings to taxpayers. We will pursue them.

The second issue is how we are going to maintain accountability. Well, we have made progress on accountability frameworks. This year, starting on April 1, I will be signing accountability contracts with all my ADMs. Those contracts will specify the functional ADMs who are responsible for setting the standards, the requirements in the field to meet the standard, and the requirement for someone—and it will be Mr. Dan Tucker, the ADM for finance and administration—to monitor and report on progress.

We know that Mr. Desautels and Shahid will be watching us very carefully to see if we can deliver this product. We will.

The Chairman: Thank you, Mr. Wright.

Madame.

[Translation]

Ms. Jocelyne Girard-Bujold: Yes, but I would like to go back to section 31.35 which has really caught my interest. Maybe I'm focussing on the wrong thing, but that's what has really caught my attention. At the end of the section, it reads:

As noted in paragraph 31.31, Customs has yet to clarify a standard of performance for promptness of deposits.

Is that true, or have you created some mechanisms to correct this problem at Customs?

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[English]

Mr. Robert Wright: We have established the same standards for everyone in our department, customs and every revenue line. It will be a bigger challenge for customs to manage this because some of the ports are smaller, but they will have to ensure deposit within 24 hours or explain to us why it's more cost-effective to wait until the bank opens.

So there is a focus across all business lines to deliver this result. We feel it's important.

[Translation]

Ms. Jocelyne Girard-Bujold: So you have taken measures to solve this problem, and they have been implemented.

Have you set any time lines for Customs, which you say is a more difficult area?

[English]

Mr. Robert Wright: The observation here was from 1995-96. We established standards last year and strengthened them this year. They are in place now. The systems, the requirements, are in place now. We will update this summer to make this specific requirement of 100% within 24 hours or an explanation of why not.

This year we will be introducing accountability contracts that will clearly define those accountabilities. Now, it will take us some time to really refine those contracts so they're as functional as possible, but, yes, ma'am, we have already taken steps to deal with that problem.

The Chairman: Thanks very much. Mr. Telegdi, eight minutes, please.

Mr. Andrew Telegdi (Kitchener—Waterloo, Lib.): Thank you very much, Mr. Chair.

I'd like to welcome our AG, and Mr. Wright, it's good to have you join us.

Certainly, Mr. Burpee, 32 years is a long time. You almost look as though you're going to be “Freedom 55”. You're looking good.

My first query is to the AG. I notice in your speech to us today you made sure it was not for publication before we had a chance to hear it. That is really the way it should be. I'm bothered, to a degree, when I read things in the paper of upcoming reports that set off questions I haven't been apprised of as a member of this committee.

As we know, the protocol is that you report to Parliament through this committee, which is the way it should be. In the last parliament, we went from reporting once to the committee to going four times. Member of Parliament Gauthier, who is now a senator, was very much a champion of that. That's important, and we appreciate that.

I'd like to ask you, first and foremost, am I right in my protocol as to how your office reports to Parliament through this committee?

The Chairman: Mr. Telegdi, before we get into a debate on this particular issue you've raised—and it's perhaps an important point—as you know, the orders of the day don't deal with this particular issue. I would have thought perhaps it might have been advisable to alert the Auditor General ahead of time.

But you may continue on with this question. Perhaps the Auditor General could respond.

Mr. Denis Desautels: Mr. Chairman, our policy has always been to report new issues directly to Parliament. I think the issue Mr. Telegdi is raising today is an issue that in fact we have reported on to Parliament twice in the past, and in fact was discussed in this committee at least twice in the past.

My response in the last week was a response to a journalist querying the impact of our past reports on the recent presentation adopted by government in the 1998 budget. I think all of these issues are linked to one another. Essentially, the issue I've responded to the press about is the continuation of something that was tabled in Parliament on at least two occasions before, and discussed in this committee.

• 1620

The Chairman: Mr. Telegdi, do you want to return to the orders of the day now?

Mr. Andrew Telegdi: Mr. Chairman, just to continue on one point, I guess it becomes difficult for some members around this table when we are debating that particular issue in camera. I have no interest in debating it in public until we go through the in camera process, but I would be reassured that the way we do business is first through this committee.

Having heard from witnesses both from the Department of Finance and the Department of Revenue, I found their input to this committee to be fairly gratifying. I think they're moving in the right direction.

As the AG you make some international comparisons. How does our system stack up from an international perspective?

Mr. Denis Desautels: Mr. Chairman, I think we are always interested in benchmarking different government departments against best practices around the rest of the world.

We haven't done a specific benchmarking of Revenue Canada against the U.S. or the U.K., although we have sufficient knowledge of what goes on in some of these other jurisdictions. From that knowledge we can develop a general appreciation of how Revenue Canada compares to these other jurisdictions.

With that background, I would say—and I've said it before—that Revenue Canada is a well-performing organization. It compares very favourably to other jurisdictions we're familiar with. I've also said to this committee on other occasions, however, that given the importance of Revenue Canada and the amount of money it handles in a year, we would tend to hold it to a very high standard of performance or excellence because of the impact on revenue flows or on leakage of even the smallest inefficiency in their system.

Having said that Revenue Canada compares quite favourably to other revenue collection agencies in the world, we do hold it to a high standard in the work we do there.

Mr. Andrew Telegdi: My next question is to Mr. Wright.

Mr. Wright, I can tell you that Canadians in a lot of ways relate to having millions and millions of dollars lying around for a number of days, sometimes weeks or months, while the winner of the 649 decides what to do with that money. Of course they do it because they're going through the shock of coming into that kind of wealth. The fact of the matter is that we are all aware that we're losing revenue when the money is not in the bank earning interest.

Have you looked at best practices in other jurisdictions, in other countries, and is there some lesson that we can draw from international comparisons?

Mr. Robert Wright: We do a fair bit of benchmarking, particularly with our colleagues in PATA, which is an international organization on revenue collection with the United States, Australia, Japan, and also with New Zealand and the United Kingdom. We get into benchmarking in cases where we have something to contribute, in terms of showing a better practice, and something to learn, and we always have something to learn.

We feel we're a very good administration by world standards, but we know there are many areas where we can do better. This review by the auditor pointed out an area where we can do better. Since this audit was started, we have already undertaken a number of initiatives, because it's simply not acceptable for us to be complacent with money sitting there, and I can assure you we're not.

Our people in the field work very hard to get the money in. There are a lot of reasons sometimes why that's not necessary, but we don't want them to become excuses. So we want to use this report to improve our systems and do a better job.

I agree with what the Auditor General said. We are very proud of our system, but we know we can do better in many areas. This report outlines the auditor's role and your role in helping us do that. Benchmarking helps. We did it last year on the collection side in a way that was very helpful with Australia, the U.K., New Zealand, and Japan. We look for every opportunity to do that.

• 1625

I met last September with that group of international tax administrations, and we agreed to do an international benchmarking of our fairness regimes. We all have certain administrations and processes that define rights for people in the system, and we've agreed to compare that and learn from each other.

The Chairman: Thank you, Mr. Telegdi.

Mrs. Wayne, you have eight minutes, please.

Mrs. Elsie Wayne (Saint John, PC): Thank you very much, Mr. Chairman.

Like all the others, I say to you congratulations on your retirement. It's probably nice to get out of here. I get the same feeling every now and then.

The Auditor General proposes what he considers to be an appropriate process for analysing movements and all revenue streams and for analysing both variants from budgeted amounts and changes from previous years, actual amounts. The process reflects a cash basis accounting being used by the government for recording tax revenues. However, this basis of accounting could distort the reported GST amount.

He gives five areas of concern: one, start with amounts for both years, using the government's cash basis accounting; two, adjust these amounts for known bookkeeping errors in each year; three, adjust these amounts further to eliminate distortions caused by the cash basis of accounting; four, consider the impact of changes in the economy and on the adjusted amounts; and five, consider the impact of changes to registrant behaviour on the adjusted amounts.

Going through this, I see that Revenue Canada and the Department of Finance informed the Auditor General that this was the process they generally followed. The Auditor General considers that Revenue Canada and the Department of Finance did not complete steps two and three of the process. As part of step two he states that they identified $245 million in bookkeeping errors, but they did not really perform certain reconciliations and other procedures required to detect a mis-classification between the GST and other revenue streams and so on.

In view of the statements that are made here and the report from the Auditor General, what steps are you taking right now to correct this process? You say that you have followed it. The Auditor General says that you did not complete steps two and three of the process.

Mr. Robert Wright: As we've noted in our report, I will simply say that we generally follow this approach. We have received an offer to sit down with the Auditor General's people to look at further enhancements to some steps that come closer to what he suggests those steps may be. We will do that.

The other point I would make is that with this particular example the Department of Finance, as Mr. Lapointe has noted, feels that this reconciliation did demonstrate and did explain the difference in that forecast, and they switched to other priorities. It is very important to agree on the benchmarks for standard procedures.

Mr. Chairman, I will ask Bill Boston to comment and then Mr. Lapointe, if he wishes.

Mr. Bill Boston: There is no question that we do substantially follow the process set out by the Auditor General. I cannot say that we follow it totally. There are some differences in the methodologies and specific indicators the AG is looking for. We have taken note of that and we will be adding them to our methodology and discussion with him.

I did want to assure you, though, that we do start with the cash basis of accounting and we do make adjustments for known bookkeeping errors. The $245 million that's just been referred to was found as a result of an intensive review we did, and it was factored into the analysis the Department of Finance proceeded with after that.

You were also asking how we're enhancing the process. We are documenting all of these various indicators and we will be producing a guide in the fall that will go out to all our revenue analysts as a means to facilitate the analysis process.

Mrs. Elsie Wayne: So you have established an action plan and a timetable.

Mr. Bill Boston: Yes, we have.

Mrs. Elsie Wayne: And you have sat down with the Auditor General and you have worked this action plan and timetable out?

Mr. Bill Boston: No, we haven't sat down with the Auditor General yet. The AG has made the offer and we'll be doing that very soon.

• 1630

Mrs. Elsie Wayne: Also, the Auditor General brought to our attention the need for all of our computers to be updated for the year 2000. If not, we have a real problem on our hands. And we have a real problem if you people aren't leaders of the way up here on the Hill, and Revenue Canada and Finance. Where are you with updating the computer system and being ready for the year 2000?

Mr. Robert Wright: I would say we are not complacent about the challenge of the year 2000. We have been working on this challenge for many years. In part we're forced to, because the process of budget-making over the last several years has been so comprehensive that we've effectively had to redo our information technology systems virtually every year. So we've used that event, the annual budget process, to modernize our systems.

So most of our major programs are now year-2000-compliant. Not all of them are. Our target date for being completely compliant is January 1, 1999. That will give us the year 1999 to test and confirm, deal with surprises, and deal with the 1999 budget. So it will be a continuing challenge, but I would say we are confident we can get the job done in the time available.

Mrs. Elsie Wayne: Just on that, I would like to ask the Auditor General something.

Are you, sir, monitoring that with them and keeping a timetable so you can tell us whether or not things are following the right track here and that they will be ready for the year 2000?

Mr. Denis Desautels: We had a look at Revenue Canada's parts of the work we did and reported to this committee a little while ago. As part of that work, I can tell the committee that among the departments we examined at the time in our sample, Revenue Canada was among those that started earliest on this particular problem and were further advanced than anyone else.

Nevertheless we have plans to continue to monitor different departments over time. We can't monitor every single department, obviously, and we'll be concentrating on those departments where we think there's the greatest risk.

Mrs. Elsie Wayne: Thank you very much, Mr. Chairman.

The Chairman: Thank you, Ms. Wayne.

Mr. Grewal, four minutes.

Mr. Gurmant Grewal (Surrey Central, Ref.): Thank you, Mr. Chairman. The time is short, but I have many questions, so I will be very brief.

Mr. Chairman, I join all my colleagues around the table in wishing good luck to Mr. Burpee. I wish him a happy retirement as well.

I accept assurances from the deputy minister on improvements to qualitative management aspects, but it's very hard for me to accept excuses on quantitative challenges that the Auditor General has brought up. What I mean is calculation errors or absence of substantiating information. It's hard to accept that kind of performance, particularly when we are dealing with a large amount.

For example, if we go to paragraph 31.88, it says in estimating costs of the funding requests that are reviewed, 40% of the cases indicate calculation errors, resulting in approval of excess funding to the department to the tune of sometimes $700,000. In another case a portion of the request for resources amounted to about $1 million that was inadequately substantiated by the documents. Why didn't prudent management exist, and what has the department done to correct it?

Mr. Robert Wright: Well, we use a program review function to reallocate money within our departmental budget to top priorities, and these are the specific funds that are referred to in this chapter.

The cases that are made are never perfect. We have a program review committee, where each line manager who wishes to make a case for an investment in some areas has to go and make a business case for that investment. This committee is chaired by the associate deputy minister, Mr. Bill Crandall, who's had many years of experience in the department. I attend the committee for important items now, and we use this to monitor our progress on very major investments such as our tax centre realignments and standardized accounting. I would have to say that there is always room for improvement.

• 1635

This is the most rigorous process and challenge function I've seen in the seven departments I've been associated with. We will look at this and see what we can do to improve, but I don't want you to get the impression that money is spent without being challenged and monitored. It is.

John, do you want to comment on that?

The Chairman: I think because Mr. Grewal has limited time...why don't we just jump to Mr. Grewal.

Mr. Gurmant Grewal: Even though I know there are more comments to come to satisfy my question, I will go to my second question.

The department issues cheques manually to the tune of $1.6 billion, but no one adequately reconciles them with the bank statements. It's assumed that the regional offices will do the reconciling.

As I understand it from the Auditor General's office the other day, there is a policy in place but it is not followed. What is the explanation? How will you be holding someone accountable when the policy is in place but it is not followed? Why does someone not reconcile the cheques that are manually issued with the bank statements? This really surprises me.

The Chairman: Let's ask Mr. Wright.

Mr. Robert Wright: There are two questions and I will ask Mr. Boston to comment on the reconciliations required.

As I pointed out, we are taking a major step in our accountability contracts this year. The job of deputy minister is to make sure somebody else is accountable for the things I have to account to you for.

The Chairman: That's a politician's job.

Mr. Robert Wright: I hope to do it as well, sir.

I will hold the ADM for finance and administration...to define the standards, to make sure they're clearly communicated to the field, and to monitor progress. These are some things that will be explicitly recognized in the accountability contract with that ADM and with the ADMs in the field.

I would ask Mr. Boston to expand on the particular question you asked.

Mr. Bill Boston: I think the point the Auditor General was making was that there was no central headquarters reconciliation over the $1.6 billion in manual refund cheques. That is a true statement. I think the Auditor General was pointing out that we were relying to a heavy extent on the checks and balances and the reconciliations going on locally across the country.

We agree that we do need a further check on the system, and we are now going to have a reconciliation done centrally. If not the original reconciliation, we'll get copies of the reconciliations done in the field offices so we can be 100% sure that the $1.6 billion, as it was in the case of this report, is fully accounted for.

The Chairman: Thank you, Mr. Boston.

Mr. Myers, four minutes, please.

Mr. Lynn Myers (Waterloo—Wellington, Lib.): Thank you, Mr. Chairman.

I was interested, Mr. Wright, in your response to the millennium bug and the year 2000. You left me with a level of confidence in terms of that being in hand. For Revenue Canada, because of the service it provides and collecting taxes and such, might there be a problem with individual taxpayers being caught up in a problem with the year 2000? Is that something that needs to be looked at? Can you address that in some fashion now?

Mr. Robert Wright: We are not overwhelmingly confident; we are confident. We've done a lot of work. It was started well before I arrived. But we're not complacent.

One of the key vulnerabilities we will have, and all people will have, is looking at who we interact with, making sure the people we interact with can manage the changes that are planned around year 2000 are not contaminated by that.

We are planning a consolidated information package that will be intended for our clients, many of whom deal with us electronically. We're going to advise them what changes in format we're making and we're planning for Y2K and how they can keep pace with us. Generally we will keep them informed.

We have already identified and we are examining every single known data interface between us and other government departments and other businesses to make sure we are dealing with that issue. It's a very important issue, as you point out.

Mr. Lynn Myers: Thank you very much.

I'd point the question to the Auditor General in terms of his opening comments with respect to the proposed move to a revenue collection agency and how that will add new financial stress. I think you noted that. You went on to say that steps now need to be taken to ensure that there is a strong foundation. Have the steps that are required been identified? If so, are you confident the department is doing that?

Then I want to ask Mr. Wright to comment as well.

• 1640

Mr. Denis Desautels: Mr. Chairman, the steps we're referring to in that statement are in fact steps in response to the matters we've raised in this particular chapter. This was a fairly comprehensive review of financial management and control at Revenue Canada. I think it has pointed out some problems, areas that can be improved. I think that if Revenue Canada concentrates on the points raised here, it should put it in fairly good shape to transform itself into an agency.

We have been given assurance—and I think we've mentioned that in this chapter—that Revenue Canada is in fact responding positively to the issues and the recommendations we've made. I would hope that in due course, if this is carried out within a fairly short timeframe, they should be in reasonably good shape too for the next step.

Mr. Lynn Myers: The transition then will be assured and will be reasonably uneventful.

Mr. Denis Desautels: There will be a lot of significant challenges in moving to a separate agency. So I think if you can handle the financial management side properly, adequately, you've put the odds on your side that the whole process will be successful.

There's more to the transformation than just the financial management side. There are a whole lot of accountability issues and contracts with different parties. But I think that if we have a good financial base it increases the chances of success of the whole project.

Mr. Lynn Myers: Could I hear Mr. Wright's response to that as well?

Mr. Robert Wright: I agree with that entirely. There's no guarantee. It does depend on what it means to transition to agency status, but clearly we will be doing more for other people that will be on a fee-for-service type basis. So in that sense, having our financial house in order and the rigour there is very important to explaining what we're doing. People are getting value for money. They know the service we're delivering and they know we're charging something close to what it costs.

Mr. Lynn Myers: Thank you.

The Chairman: Do you have a question, Mr. Myers?

Mr. Lynn Myers: I wanted to direct it to Mr. Lapointe. On 32.24, I read the Auditor General's recommendation and also the department response with respect to coordination between departments to analyse GST revenue and such, and I wondered if similar arrangements are available for other revenue streams as well. Is that in place? Could you elaborate on that?

Mr. Paul-Henri Lapointe: Yes. I think we are working very closely with Revenue Canada on all revenue sources and in the context in particular of the fiscal monitor report that we prepare every month. We also have regular consultation with our provincial colleagues as well to assess the situation they are facing and to assess the effects it may have on our overall national revenues. So there is a lot of consultation going on between the two departments and between our government.

Mr. Lynn Myers: Thank you.

The Chairman: Mr. Desrochers, four minutes, please.

[Translation]

Mr. Odina Desrochers (Lotbinière, BQ): I'm always impressed when I read reports from the Liberal Government; they are full of wonderful philosophical statements, but they rarely specify dates and costs.

I will be saying a few things about the Y2000 problem. In the first report I read, the Auditor General expressed major concerns and fears. He wondered whether we would be ready by the year 2000. You know, the most important thing within government is the money coming in and the money going out. The outflow is what the government is supposed to pay taxpayers, while the inflow is what it must collect.

Mr. Wright, as a spokesperson for the Department of National Revenue, can you give us a commitment today and assure us that you will be ready by the year 2000?

[English]

The Chairman: Did you want that addressed to Mr. Wright?

Mr. Odina Desrochers: Oui.

Mr. Robert Wright: I would say, sir, that every department is going to be challenged to make sure that their key systems can handle the challenge that year 2000 places. As I pointed out, because so much of our business changes on an annual basis and we plan that change in terms of getting ready for a new tax year, we have used that process of change to update our systems every year for the last eight years.

We've also made some important investments and have others planned—I have mentioned the standardized accounting system—so that we can minimize the risks.

• 1645

The risks are still there, but every objective assessment that has been undertaken by the Auditor General and others says we are doing the right things. We're not complacent, but we are working toward what many organizations would think is a luxurious timeframe of January 1, 1999, to ensure that all our key systems are year 2000 compliant. We will have a year to work out the problem we identify.

We're doing all the right things. We're a very dynamic organization, and every year the nature of our business changes somewhat with the federal budget. We're doing a great deal more with provincial governments, particularly on child benefit programs, for example. We administer the national child benefit, and we do provincial benefit programs for five provinces now. We're signing one next week with the Northwest Territories.

The nature of our business is very dynamic. We are not complacent, but we are quite confident we are doing the right things.

[Translation]

Mr. Odina Desrochers: Yes, I agree on that point, but you do realize that revenue collection is very important. I think that your department is one of the ones that really should be ready by the year 2000. You say that you will be, and I understand that. You have a plan, and you'll have to make adjustments in light of all the technological changes, which to my mind are part of the requirements of modern society.

Have all your forecasts identified how much it could cost the Revenue Department to prepare for the year 2000 and ensure that its computer systems will work?

[English]

Mr. Robert Wright: I don't have a number identified on how much we've invested. As I say, so much of it has been related to our regular business update.

We spend about $200 million a year on our information technology. Revenue Canada has information technology equivalent to that of the third largest bank. At tax time our mainframe computers, which handle requests and issues from across the country, handle 400 transactions per second.

By maintaining that investment we've dealt with the bug. We haven't had a task force saying here's the budget, go fix the bug. We've used it as part of our regular investment to maintain this infrastructure.

The Chairman: Thank you, Mr. Desrochers.

Mr. Mahoney, four minutes please.

Mr. Steve Mahoney (Mississauga West, Lib.): Thank you.

Mr. Chairman, there's something rather delicious about getting elected to Parliament and actually getting to audit Revenue Canada. I'm sure some of the folks at home are enjoying that.

The Chairman: Are you expecting a cheque in the mail for us?

Mr. Steve Mahoney: No, I'm expecting to be treated the same way as they treated me when they audited me. That's the end of that.

To the Auditor General, I have a question about your suggestion that Revenue Canada should ask for more information from some or all of the registrants with regard to the GST.

I'm a little concerned about that from a business perspective. I wonder whether you assessed or if the department has responded and assessed the cost that might imply, particularly to a small business, and what the gain might be. Would we really see a dramatic increase in revenue if we were to collect more data?

Mr. Denis Desautels: I'll ask Mr. Minto to answer that question, Mr. Chairman.

Mr. Shahid Minto: Thank you, Mr. Chairman.

Mr. Chairman, the issue that has been raised is of enormous importance. We've had many discussions amongst ourselves and with the departments about this particular thing.

The last thing anybody wants to do is put additional burden on the taxpayer, whether it be big or small...especially the small taxpayer.

I just draw your attention, sir, to exhibit 32.3 on page 32-10 of the English edition. The lower portion of the form is what is sent to Revenue Canada, but to get to the numbers on the lower portion the taxpayer has to do a number of calculations at the top.

It may be worth while to consider that if you just transfer some of the information from the top to the bottom, it would not cause any burden, but it is not a decision we would like to make ourselves. That is a starting point. The departments are surely the

[Editor's Note: Inaudible].

We were trying to find a way of getting them some information—a way that would not cause any burden to the taxpayer. This is their call, and they have to make sure there is a balance between their needs and the burden of the taxpayer.

Mr. Steve Mahoney: Thank you.

I wonder if I can hear from the department.

• 1650

Mr. Robert Wright: Well, first off, we have enough information to administer the GST. We would like enough information to have a cross-check mechanism like this, but at this point we would not recommend asking for more information from taxpayers for analytical purposes only.

We have looked at the option of asking for all the information on that form. Actually, we think there may be better options in the coming years as we move to standardized accounting. Most important, if we move to accrual accounting, we will be able to do some of the calculus the Auditor General has suggested on the page opposite, exhibit 32.4.

We have agreed that we would like to sit down with the audit team and let them know what we're doing, take stock of the things that are evolving, and see what we can do. I think that would be the sound course of action.

We don't see a case for asking for additional information now, and we don't see a case for investing too much in the reconciliation. Eight million GST transactions a year are reported, and it would be very burdensome to review....

I do think we have some very important changes—standardized accounting, accrual accounting—and we could very well find something like this that would be very useful to us, so we are going to work with Mr. Minto and his team and the Department of Finance.

Mr. Steve Mahoney: Mr. Chairman, one of the complaints I receive quite regularly is that the paperwork around the GST is already a burden, particularly with small business. It basically forces people to hire a bookkeeper, to pay an accountant, and to do things they might not normally have to do as opposed to doing fairly simple record keeping.

To the Auditor General, on page 32-11, your footnote number 1 refers to net GST position. I'm just trying to understand it. It's called “Understanding Changes in Tax Revenues”, which would be nice to do.

The ITCs, I assume—input tax credits—are what people claim back. They have paid GST to someone and we come up with the difference. There seems to be a discrepancy here in the Auditor General's report of some $500 million, and you seem to not put a lot of credence to the problem when you say it could be because Revenue Canada didn't issue a refund cheque until a year after the claim was filed.

That takes me to the current issue, which we're having a debate on at this committee, about when a government announces its expenditure and when it reports it. You have criticized the government for reporting an expenditure when it's announced, approved by cabinet, and passed in legislation, but not spent. Yet here it seems to be a contradiction of that, a reversal.

Can you help clarify this for me? Why is there not more emphasis placed on the $500 million, in terms of identifying the discrepancy? Is this a contradiction of your other position?

Mr. Shahid Minto: Mr. Chairman, I think it's notable that it's not a contradiction of any other position. The fact of the matter is that tax revenues are being recorded by the Government of Canada on a cash basis.

That policy is there, we audit, and we give opinions on the policy. There is a lot of discussion going on with the departments of moving to an accrual basis of accounting. There's much more on the expenditure side than on the revenue side right now.

The fact is that we did not investigate, in any great detail, the $500 million. This is a part the analysis people would have done.

This is just showing you exactly what was in the public accounts on a cash basis.

Mr. Steve Mahoney: Thank you.

The Chairman: Thank you, Mr. Mahoney. I've let you go significantly over time.

Does the Auditor General have anything more to add to Mr. Minto's response?

Mr. Denis Desautels: No, that's all.

The Chairman: Okay, I think we'll be able to come back to you, Mr. Mahoney, but we'll go to Mr. Grewal now. I cut him off a little while ago.

Mr. Grewal.

Mr. Gurmant Grewal: Thank you, Mr. Chairman. You are very generous.

There are four requirements, Mr. Chairman, to understand changes in GST revenue. One of them is following an appropriate process. The process lacks a cash basis for accounting being used to record the tax revenue, and this business could distort the reported GST amount in the government's pages.

• 1655

An appropriate process for analysing GST revenue movement has five steps as listed in your exhibit 32.5 in the Auditor General's report, and performing at least three steps of the process is the minimum requirement, which has not been followed by the department. Can the deputy minister assure that the three steps will be followed and indicate the timeframe in which we can expect those three steps, the minimum requirement, to be followed?

Mr. Robert Wright: I will do a three-step if Denis does a two-step.

Mr. Gurmant Grewal: But those are the minimum requirements, I understand.

The Chairman: It's okay.

Mr. Robert Wright: I would just say, as Mr. Boston has noted, we're very close to following these steps. We have received an offer from Mr. Minto to sit down and talk about the additional steps we might take to get really at it on this issue, so I think we're pretty close to five. I think Bill has already responded to that point.

Mr. Gurmant Grewal: I'll move to another question, Mr. Chairman, which is addressed to Mr. Lapointe.

The minister agreed with the Auditor General that the Department of Finance needs good analysis of revenue developments in the various revenue streams to support budgetary planning and parliamentary reporting. What is the minister doing? What are the timeframes? When is he going to make sure that he complies with the assessments by the Auditor General?

Mr. Paul-Henri Lapointe: I think we are doing a lot of analysis already. I summarized very briefly the analysis we did of the GST revenues in 1995-96. We went through a number of steps, and we continued well beyond the end of the fiscal year 1995-96 as data became available. I was mentioning that the data are not yet available because they are being revised. The analysis has to be done on a continuing basis.

As I said earlier, we are working closely with the department of revenue as well as with provinces. We talk to them regularly to understand why the revenues, not only GST but all components of revenues, are behaving the way they behave when we are trying to assess the implications for the overall revenues. I think there is no lack of efforts and resources put into this.

This is not to say there is no possible improvement. There is. I think Revenue Canada, for one, is working very hard to improve the availability and quality of the data.

Mr. Gurmant Grewal: Is there any timeframe?

Mr. Paul-Henri Lapointe: I don't think we are going to see the day when we can say we are satisfied. We have to search continuously for better methodology, better data. As I said, even our analysis of 1995-96 is going on three years later, because we have to go back to it as data become available.

Mr. Gurmant Grewal: Thank you, Mr. Chair. I think time will not allow another question.

The Chairman: Now we'll turn to Ms. Caplan.

Ms. Elinor Caplan: Thank you very much. I would like to take another line of questioning. I don't imagine too many people really enjoy having contact with Revenue Canada. That's my perception. My perception is that most fall into the Steve Mahoney camp of....

Do you keep track of letters of complaint or letters of compliment, and what do you do with the customer service ethos?

Legitimately, I know people do have concerns and they write you directly. They sometimes comes to their MPs, and their situations are either resolved or they're not. Since you are a modern company or modern program on behalf of government—you talk about being a big business—I just wondering about the notion of customer satisfaction and whether it's something you consider, care about, do anything about, or monitor.

• 1700

Mr. Robert Wright: Thank you for the question.

We do care about it greatly. I've only been in Revenue Canada for a little over a year, so even I don't like paying taxes yet. Canadians don't, but they expect to be treated fairly and efficiently. We do get letters of complaint when it doesn't happen fairly. We get letters of commendation in many cases when people go out of their way to help someone comply.

We monitor this not as a score card for how good we should feel in the morning or how bad, but to see where we can do better. For example, because of budget cut-backs over the last year or so, in last year's tax season we had some very serious concerns on our client service side. We had to cut back on the number of people who were answering the phones and helping people comply with the law.

We were very unhappy with our performance on that, and we took stock with the minister soon after he was appointed. He wanted to have a plan of action to deal with it. Because of the levels of concern being expressed by taxpayers and our people on the phones and because of our incapacity to do better, we have significantly enhanced our effort with a real program to try to do better.

We monitor it. We stay in touch with 15 different client focus groups for large business and small business. We have regional small business consultative groups. We have elderly disabled Canadians and electronic commerce. We do stay in touch with clients, and we do monitor in a general way. We don't keep a score card on concerns and commendations, but I think we do use it very effectively.

Ms. Elinor Caplan: If I have some time, I would like to follow up on that.

My question was a serious one. I think it is important that people of Canada, both those who like to pay taxes and those who don't like to pay taxes, know that you're interested in and doing what you can to ensure not only fairness and how people are treated, but also that complaints are looked into.

I'm wondering whether you've done anything to actually formalize that, not so you'll feel good or bad in the morning, but so that you'll have some score card or benchmark to be able to monitor your service effectiveness and make improvements where they are necessary.

Mr. Robert Wright: It's something we can look at. I think the most interesting barometer is the advisory groups, which we take very seriously. We've had a number of them on reducing paper burden for small business on the small business advisory.

It's interesting to note that for Mr. Burpee's going away you saw a lot of popularity from the back row. Brien Gray from the Federation of Independent Business and his staff made a special trip to attend his going away, to say thank you for your attention to client service. Now that's the leadership that Mike brought, and we all look for ways to reinforce how important it is. It ripples through our organization.

We could do better and we're determined to do better. We monitor it, but I must say there's not a really formal process for doing so.

Ms. Elinor Caplan: Thank you very much. I'm pleased to hear that you are interested in clients and customer service. I think that's an important aspect of making people feel they're getting value for their tax dollars when they're dealing with the Government of Canada.

The Chairman: Thank you, Ms. Caplan.

Mr. Mayfield.

Mr. Philip Mayfield: Thank you very much, Mr. Chairman.

I was interested in your comments, sir, that toward the end of April, the end of the tax year for people like me, there's a big flood and you can't really handle it all.

I received a letter from a constituent who is an accountant and is having a bit of a problem with your department. He's got this big audit related to stumpage fees for a whole series of clients. His problem is that he can't give the time to the audit and look after his clients at the same time at this time of the year.

Does your department make allowances for people who are caught in jams like that? I'm sure you understand, because of your own problem with the end of the year.

Mr. Robert Wright: We do expect our people in the field to make some allowance for people trying to conduct their business during an audit. Yes, I would say that generally we do. We also are determined to try to reduce the overlap and duplication in some of the audits. Certainly that's one of the objectives in our own operations; we used to have very separate audit functions for different revenue streams, and we now have one process.

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We're also trying to coordinate with provincial governments. Where we collect taxes on their behalf, we'd like to do more of it; even where we don't, we can coordinate the audit process between two levels of government. We are sensitive to that.

Mr. Philip Mayfield: What would you suggest that I respond to this constituent? He's got a problem. They're determined to do their audit, and he's saying he doesn't know how he's going to manage this without ignoring his clients. How would you suggest I respond to him?

Mr. Rob Wright: Within the last six months we have started the process of when starting an audit giving the individual an audit.... It's an audit quality program, so there's somebody in Ottawa who will take any frank, candid comments from people on how they perceive that audit to proceed. If they raise an issue with our audit—they want to have reviewed, and they don't feel they can manage the particular time—we'll sit down and talk about what our benchmarks are and what we have to get done.

We won't put off essential business, but there should be some flexibility at that centre to do better.

If you have received a letter from a constituent on that matter, if you wish to refer it to my minister—

Mr. Philip Mayfield: This is an accountant who has a whole series of his clients.

What I'm really questioning is the sensitivity to legitimate concerns of people in your line of business and how you are prepared to make allowances for them to get through their day as well, without making unreasonable excuses.

Mr. Rob Wright: I would have to say we're open to what everybody's practical job is to do. We have a job to do as well, and we want to make sure it's done.

Mr. Philip Mayfield: The Auditor General has recommended that the department strengthen its own internal auditing system, and I'm wondering what measures you intend to take in doing this. Do you have a timeline or a timetable for doing this? I must say that I'm pleased to hear about the rapport that exists between you and the Auditor General in sorting out the issues that he's raising for you, but I want to ask you about your own timetable and your own plans for self-audits.

Mr. Robert Wright: I agree with the auditor's comments on our internal audit. In fact, I agreed with them before I saw them.

One of the changes I made was to form an internal audit committee, which reviews our internal audit program, and I chair that committee.

This is a function that should report directly to the deputy minister, and I mean report regularly on where they see problems, what the terms of reference for an internal audit are, what the results are. That's the big process change we've made.

The other change is that the branch heading up our internal audit has released policy guidelines on our new approach to audit and how it's all going to be working.

We have refocused it now; there's more work to do, but I think a properly constituted internal audit can follow up on a lot of these issues we don't have all the answers to now and we feel are worth pursuing. That's how we're going to use this group, more in conjunction with the functions that Mr. Desautels undertakes.

The Chairman: Thank you, Mr. Wright.

Mr. Philip Mayfield: Could you provide those answers to the committee, please, in due time?

Mr. Robert Wright: Sure.

Mr. Philip Mayfield: Thanks.

Mr. Robert Wright: Well, I shouldn't say sure. The internal audit process is an internal audit process. If it mirrors—

Mr. Philip Mayfield: Could you provide the details to the committee?

Mr. Robert Wright: The details of what, sir?

Mr. Philip Mayfield: Of your plans for your internal audit.

Mr. Robert Wright: Okay, sure. I think there was some reference in the submission I made, but we'll make sure you get the full plans.

The Chairman: Thank you very much, Mr. Mayfield.

Mr. Mahoney.

Mr. Steve Mahoney: On the issue of the relationship between staff of Revenue Canada and constituents of mine, I can tell you that even on a personal basis I've found the Mississauga office at least to be very professional. In fact, you have some private sector people who have come to work there, and I think that's a really positive thing.

I want to go back to the point I think I didn't make very well; that is, on this issue on 32.11 of the Auditor General's report.

We've been having a debate about revenue declared when revenue is spent in relation to government programs. If the government announces a $50 million project in 1997, it goes through the legislature, it's approved by cabinet and it's a done deal, it takes a period of time—a gestational period, if you will—for the program to be implemented and for the actual money to be spent. It might take another year, into 1998.

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The Auditor General is saying in another area that you cannot book that expenditure when the legislative commitment and the cabinet commitment is made. You must book it when you actually spend the money.

I understand there's a disagreement between you, sir, and the government as to that method of accounting. The government is claiming they should book it when they make the commitment.

In this issue, there's a discrepancy of $500 million in the net GST revenue. You, the Auditor General, are claiming here it may be the result of a GST return filed in 1995-96 but Revenue Canada not issuing the cheque until 1996-97. What I'm interpreting you as saying here is that it's okay for Revenue Canada to do that but it's not okay, in the reverse, for the government to do that. That's what I was seeing as a potential contradiction.

The $500 million should either be accounted in the year in which it was claimed, as opposed to the year in which it was spent, or the government should do it the way you suggest. We can't have it both ways.

Am I clear on what I am asking?

Mr. Denis Desautels: I think so. When it comes to either the revenue side or the expenditure side, the government has stated its accounting policies. Those are described in the public accounts right after the actual financial statements.

On the revenue side, the stated accounting policy is that revenues are taken into account as received, essentially on a cash basis. That has long been the policy of government, and that's the current stated policy.

Incidentally, it's a policy we would encourage government to reconsider as well. In fact, they have announced they are reconsidering that policy to move towards an accrual basis of accounting to eliminate swings in revenues due to factors that should not affect government income.

That's the stated accounting policy on the revenue side. It is as described, on a cash basis, and we'd like it to move to an accrual basis.

When you come to the expenditure side, that as well is described in the stated accounted policies. At this point in time the expenditures are really recorded on an accrual basis. Except for fixed assets, the expenditures of government follow what we call accrual accounting, very close to private sector accounting methods. These accounting methods and these principles have in fact certain conditions included in them as to when an expenditure ought to be recorded as an expenditure.

Basically, there we are trying to carry out our audit of the financial statements of the Government of Canada against its own stated accounting policies and against the policies prescribed by the Canadian Institute of Chartered Accountants, which I think cover the kind of situation we are dealing with here.

So I don't think there's an inconsistency in that, on both fronts. We're carrying out our audit work against both the government's stated accounting policies and the generally accepted accounting policies as prescribed by outside bodies. I will say, though, on the revenue side, there's a lot of discussion right now to move away from a purely cash basis towards an accrual basis.

The Chairman: Thank you, Mr. Desautels.

We now have Mr. Telegdi and Mr. Myers. Time is running short, so maybe we'll have one question each. Mr. Telegdi.

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Mr. Andrew Telegdi: My question is a follow-up to Mr. Wright. It relates to the question about the businesses that file their taxes and send you money with the year 2000 problem. Perhaps within the course of this year you could file some kind of report with this committee as to what you have done and what the government has done in terms of helping small businesses get onside. That issue was raised by the Canadian Federation of Independent Business as being something fairly critical. Perhaps within the year you could come back and file some kind of report as to what action you have taken and are taking to meet the challenge.

Mr. Robert Wright: Thank you, sir. I can certainly table the release we talked about making to all our clients and the people we interface with. The government did create a task force that was headed, I believe, by the head of Bell Canada. Mr. Monty did an analysis on the business challenges of getting ready for year 2000. Statistics Canada, Industry Canada, and a number of others interfaced on what the challenges were. In fact they accelerated the report because of that concern. So there has been an overall awakening from that forum. I would be happy to table with this committee the package we propose to send out to the client groups we interface with as part of that.

The Chairman: Thank you. We expect the bells to ring momentarily, so we'll move on to Mr. Myers.

Mr. Lynn Myers: Thank you, Mr. Chairman.

Mr. Wright, I want to go back to 31.102 of the Auditor General's report, which concerned the department ensuring and periodically reviewing the integrity of information in its systems. I read the Auditor General's comments and recommendation, and I also read the department's response.

Subsequent to what you said by way of response, how often do you in fact review and assess the data in those systems? It's 31.102 on page 31-36. It's actually a twofold question: how often does the department review and assess the data, and second, are there any plans in place to upgrade any evaluation techniques as they refer to that data?

Mr. Robert Wright: We know we have to do a much better job in that area. That's an area that in my opening comments and subsequent to that I said I would want. We have some automated systems now, and as the Auditor General pointed out, we use these automated systems on data integrity in our compliance program.

We now have several years under our belt with new data streams, and we would like to use our internal audit program to develop, with advice from Mr. Minto, a program for internal audit that systematically, over a year or two, does a comprehensive assessment of that data integrity, because it is a very important point and we don't want to skirt around it. We want to have a full assessment of it. We're going to work with the Auditor General's office to have terms of reference for our own team that can get loose and make some real progress in checks and balances.

The investments we've made in systems thus far have focused on the compliance side, but as Mr. Desautels has pointed out, many of our income tax programs relate directly to benefits that go out and therefore have important implications for us and for provincial governments. So that sort of rigorous, prolonged review is what we propose to undertake.

The Chairman: Thank you, Mr. Wright.

I have a couple of questions of my own. When do you expect to transfer to the new agency?

Mr. Robert Wright: The minister released a draft legislative framework for discussion purposes just a few months ago. We hoped to table legislation in April, but realistically not before January 1, 1999. We expect it through the House and ready to go. We'd probably constitute the board of management just after tax season, perhaps July 1 of next year, but that's something the minister has yet to decide. It depends on progress in the House.

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The Chairman: The reason for my question, getting back to the year 2000 computer problem, is that I think the Auditor General was recommending a one-year moratorium on any major changes in the system around the year 2000 to allow focus on that issue and nothing else. Will setting up the agency have any effect on large system changes for you? Should you defer this until after the year 2000?

Perhaps I'll ask the Auditor General first.

Mr. Robert Wright: Do you want a hint?

Some hon. members: Hear, hear.

Mr. Denis Desautels: Mr. Chairman, I think each organization has to take its own approach to that particular problem. When we were talking about a moratorium across government, I think exceptions can be made for departments that are in reasonably good shape. So if Revenue Canada thinks they really have this problem under control, maybe they can move on to other things and other changes. But I think it has to be looked at department by department and organization by organization.

The Chairman: Okay.

Mr. Wright, did you want to say something?

Mr. Robert Wright: I agree with that, but I would add that our transition to agency status doesn't put any additional system pressures on us.

The Chairman: Just a different name on the letterhead on the cheque.

Mr. Robert Wright: It lets us pursue new opportunities, but we will do that prudently.

The Chairman: I have a question for Mr. Lapointe, who has almost been ignored this afternoon.

I'm looking at the GST return, exhibit 32.3, where it deals strictly with the GST. As you know, we've now entered into the HST in Atlantic Canada. How can the Department of Finance adequately assess and project both the HST, the harmonized sales tax, and the goods and services tax that you collect, especially in border areas? How can you say you have adequate information to project revenue streams when you're not even collecting information on what the harmonized sales tax is producing for you?

Mr. Paul-Henri Lapointe: I will give some general comments and then ask Peter Devries to add additional information on this.

In the process of establishing a good database for monitoring the HST, we asked Statistics Canada to collect new information for us that would allow us to more precisely track down HST revenues in the Atlantic provinces. I think the comment was made earlier that in considering the appropriate approach for doing this we had to weigh the trade-off between asking for additional information from the business sector and having a good database for tracking and projecting revenues. We think we have a good balance there.

Mr. Peter Devries (Director, Fiscal Policy, Economic and Fiscal Policy Branch, Department of Finance): I think that adequately explains our position.

We spent a lot of time and resources in Atlantic Canada, and not only in Atlantic Canada but right across Canada, in order to improve the Statistics Canada database. Doing that allows us to get the proper information in order to make the allocation by province. The agreement we have with the provinces right now provides for provisional payments, which will be revised once we get that data from Statistics Canada.

The Chairman: I'm not sure I agree with you. I know that GST registrants in western Canada who sell a small percentage of their goods or services into Atlantic Canada in many cases have no idea they should be collecting the HST. For example, for a travel agent who sells a ticket to Toronto it's GST, but to sell the ticket to Halifax it's HST. And that's just one example. And you're not even getting that information.

But we'll leave that one for you to address another day.

In closing, I too would like to add my thanks and appreciation to Mr. Burpee for his long and dedicated service to Canadians. We appreciate it very much.

Now I'll ask the Auditor General for some closing remarks.

Mr. Denis Desautels: Thank you, Mr. Chairman.

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First of all, I'd like to add my best wishes to Mr. Burpee. In many ways Mr. Burpee has been one of our favourite clients. Many of our audits have dealt with areas that are under his jurisdiction, and we have a great deal of respect for his ability, knowledge, and above all his integrity.

In terms of these hearings, Mr. Chairman, I'm encouraged by the department's statements today, particularly as they deal with cash management, mandatory banking, reconciliations, accountability issues and internal audit, as well as what was said on chapter 32, where I think we see a commitment to more rigour on the analysis of revenue flows.

I think the importance of the issue we're talking about today cannot be understated, for all the reasons I gave earlier.

With respect to reconciliation, a question we discussed today that is a hard issue to talk about, the issue of reconciling receipts to taxpayers' records and all of that kind of thing is an important issue that needs to be looked into. The department informs us that the new system it will be implementing will take care of that. I think that is an absolute necessity and priority, Mr. Chairman, and we'll be watching for that in due course, along with the implementation of accrual accounting.

All in all, I think we're happy with what we're hearing today. I think it would be useful for Revenue Canada to perhaps prepare an action plan resulting from today's discussions that it could submit to the committee. I think this would be even more important as we discuss moving to an agency status. I think it would be important to demonstrate through that action plan that these things will be taken care of before the planned transformation into an agency.

Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Desautels.

This meeting stands adjourned.