PACC Committee Meeting

STANDING COMMITTEE ON PUBLIC ACCOUNTS

COMITÉ PERMANENT DES COMPTES PUBLICS

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, March 23, 1999

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[English]

The Chairman (Mr. John Williams (St. Albert, Ref.)): Good afternoon, ladies and gentlemen. Today the order of the day is, pursuant to Standing Order 108(3)(e), consideration of chapter 24, “Revenue Canada—International Tax Directorate: Human Resource Management”, of the December 1998 report of the Auditor General of Canada.

Our witnesses today are the Auditor General of Canada, Mr. Denis Desautels; Mr. Shahid Minto, Assistant Auditor General; and Mr. Barry Elkin, principal of the audit operations branch. From Revenue Canada we have Mr. Barry Lacombe, the assistant deputy minister of the verification, enforcement, and compliance research branch; and Mr. David Brown, director general of the human resources agency team.

Welcome, all. We'll start with the opening statement by Mr. Desautels, the Auditor General.

Mr. Desautels.

Mr. L. Denis Desautels (Auditor General of Canada): Thank you, Mr. Chairman, for this opportunity to present the results of our audit of human resource management at the international tax directorate of Revenue Canada.

Before we begin with the details of this chapter, I'd like to say that one of our office principles is to devote resources to auditing high-risk tax areas. In 1992 and 1993 we examined tax arrangements for foreign affiliates, the advance income tax rulings, the goods and services tax rulings and interpretations program, and the resource allocation income tax provision. In 1996 we reported on Revenue Canada's enforcement programs for large corporations and for combating income tax avoidance, and we also reported on the administration of the Income Tax Act related to family trusts. We have also done work involving the GST, excise, and customs. All of these programs and issues involve high-risk tax areas where very much is at stake.

The chapter that is the subject of today's hearing also deals with an important high-risk area: human resource management in Revenue Canada's international tax directorate.

The international tax directorate, which was established in November 1991, is the focal point of all international tax enforcement and compliance issues. The international tax area is big business. In 1993 taxpayers reported to Revenue Canada $248 billion in related-party cross-border transactions, $166 billion of which were between related parties in Canada and the United States. The technical committee on business taxation noted that even relatively small shifts in income allocated to Canada from related-party transactions have the potential to cause a significant change in the domestic revenue base.

The complexity of the issues the directorate must deal with is daunting. Issues include transfer pricing, electronic commerce, global enterprises and their related-party transactions, tax havens and harmful tax competition, international financing arrangements, tax treaties, and non-residents carrying on business in Canada or disposing of taxable Canadian property.

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The continuing growth of electronic commerce and globalization of businesses, the never-ending creation of complex financial instruments, and the sophistication of global enterprises and their professional tax and financial advisers will continue to present challenges to Revenue Canada's international tax directorate.

It's clear the directorate requires staff who are highly skilled and who understand Canadian tax laws and the tax laws of other jurisdictions as well. Our audit showed that human resource issues need much attention.

Weaknesses in human resource management in the directorate, coupled with the often cumbersome human resource management rules in the public service, have resulted in long delays in the staffing process. We noted that the directorate could take action to speed up the staffing process. The chapter illustrates the unusually long time it takes to mark examinations and establish eligibility lists. Good candidates may lose interest if they have to wait long periods of time before being offered positions.

[Translation]

Despite having recognized since 1994 the urgent need for a human resource plan, the Directorate is still developing a comprehensive plan and human resource strategies linked to its business plan.

The department has acknowledged that the need for reliable human resource information systems and data bases affects not only the International Directorate but the whole department.

The Directorate will need to have a robust human resource strategy to ensure that as people at senior levels retire or transfer, their positions are filled with competent and experienced people. A reliable human resource information system will be needed to support the implementation of this strategy.

We found that auditors in regional offices have an average of less than three years' experience in international tax. Out of a current staff of 80 people at headquarters in Ottawa, only 31 employees were there in April 1995. Many key positions, including positions of leadership, are filled using secondments, redeployments and acting assignments. This approach to staffing has resulted in a lack of stability and continuity and may pose a risk to the quality of the work. When you have to match wits with some of the brightest and most highly paid private sector tax minds in Canada, it makes sense to use permanent staff who are committed to practising in the international tax area.

Mr. Chairman, there are currently five senior positions in the Directorate: a director general and four directors. As we pointed out in the chapter, in September 1996 the director general was transferred to another branch of the department. A staffing action was undertaken shortly thereafter and an appointment was made in October 1997—one year later. Since the completion of our audit, that director general has also left and in February 1999 the position was being filled through an interim appointment. The four director positions were also being filled through acting or interim appointment.

At the time we concluded our 1996 audit on enforcing the Income Tax Act for large corporations, the branch had a number of competitions underway. Since then, these staffing actions have been started, aborted and restarted. Meanwhile, private sector tax professionals continue non-stop to devise and refine tax strategies to advance their clients' interests, which may not necessarily meet the intent of our tax laws.

[English]

This past month the department released a seven-point plan for fairness. It noted that fairness requires equal treatment regardless of age, race, status, location, background, sophistication, access to professionals, political influence, assertiveness, or size of business. To provide fairness and a level playing field, a highly skilled and stable workforce is required to ensure that sophisticated multinational taxpayers with access to expensive professional advice all pay their fair share of taxes.

Directorate staff are expected to interact with senior people in the largest corporations and with skilled tax professionals in the private sector and other governments. They are also expected to exercise good judgment when interpreting complex transactions and complex tax laws.

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Attracting and maintaining the necessary workforce can be achieved through developing the current workforce, hiring new people with the right skills, and providing a suitable environment that enables personal growth and career progression.

The solutions to a number of the problems we have outlined rest solely with the department. It would be unwise to expect the proposed new Canada Customs and Revenue Agency by itself to resolve the directorate's or the department's human resource problems. It's important that the directorate develop a plan as soon as possible to hire, retain, and train key employees. Our recommendations were targeted to achieving that outcome.

This audit was our first project dealing with the activities of the international tax directorate. In future audits we'll examine and report on other important aspects of the directorate, such as transfer pricing and non-resident tax issues.

Mr. Chairman, that concludes my opening statement. My colleagues and I would be pleased to answer the committee's questions. Thank you very much.

The Chairman: Thank you, Mr. Desautels. Now we'll turn to Mr. Barry Lacombe from Revenue Canada for his opening statement.

Mr. Lacombe.

Mr. Barry Lacombe (Assistant Deputy Minister, Verification, Enforcement and Compliance Research Branch, Revenue Canada): Thank you very much, Mr. Chairman and members of the committee. It's a pleasure to be here with you today.

We welcome the opportunity to come here this afternoon to speak to you about how Revenue Canada is responding constructively to the findings and recommendations of the Auditor General concerning the audit that was conducted of the international tax directorate of the verification, enforcement, and compliance research branch of Revenue Canada.

I want to say at the outset that we very much value the work the Auditor General has carried out in studying the international tax directorate's human resource management processes. The conclusions the Auditor General reached in his report, while at times pointed, are largely consistent with our own views. His observations and recommendations support and reinforce the actions we have been undertaking in addressing the problems the directorate has experienced.

The actions we've embarked on will ensure the directorate can respond effectively on behalf of the Government of Canada to the challenges presented by the dynamic and rapidly changing policy environment of international trade, international finance, and international taxation.

To provide a backdrop for the discussions this afternoon, I would like to briefly go back to review the basis for the directorate, the challenges it has faced and will face, and the steps we have taken to ensure it can respond effectively in the future.

The international tax directorate was created in late 1991. It was created to enhance Canadian businesses' competitiveness and to protect the Canadian tax base by ensuring compliance with Canadian legislation applying to non-residents and to international transactions. Since that time we have witnessed a rapid and continuous evolution into international economic processes and practices.

To ensure we could respond to the changes in the international environment, we had to restructure the organization in 1994 to expand its mandate. This of course had an impact on the organization's human resource requirements. Those changes in the directorate's operating environment are not over—far from it.

The nature and scope of international trade and finance are changing so profoundly that it is doubtful we will see stability in this field for many years. Participants in the global economy are engaging in worldwide or regional multilateral trade agreements, and economic partnerships such as the European Economic Community and MERCOSUR are being created and are immediately evolving to address new economic challenges and new trade opportunities.

All the while, every trading nation in the world is working to come to grips with the increasing complexity of international financial transactions, particularly as electronic commerce becomes a mode of operation for business worldwide.

The problems the international tax directorate has faced regarding human resource management issues are not unimportant. The Auditor General reported that we are experiencing difficulties in human resource management in the directorate and recommended that we take action to correct those shortcomings. We agree that there were significant concerns, and we have been taking specific corrective actions. I would refer members of the committee to the departmental action plan contained in the department's response to the audit report.

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Mr. Chairman, I know you and the members of this committee are familiar with the problems the public service has experienced in finding and retaining staff. The international tax directorate is by no means the only organization that has had to face these challenges.

The staffing challenge we have faced with the international tax directorate has been compounded by the rapid changes that international economics and commerce have undergone in the past decade. The skill sets, training, and experience requirements have changed dramatically in response to the evolution of international taxation issues.

I am pleased to say we have launched a number of initiatives in the branch that will ensure the international tax directorate has a qualified and well-trained workforce. For example, we are developing an accelerated development program for our auditors. This program will be piloted in the international tax directorate this year.

With respect to the Auditor General's observation that too many of the management positions in the directorate have been filled on a temporary basis using interim arrangements, no one would claim this approach was an optimal one. Within the current system, staffing is a prolonged process. Furthermore, once a person has been hired for a specific position, it is difficult to change that person's duties or functions in response to changes in the business environment. With the human resource management framework flexibility that the agency allows, we will be able to hire and move people with greater ease, to their benefit and ours.

Within the current system, interim arrangements were a necessary expedient if we were to carry out the mandate of the directorate effectively.

I am pleased to tell you we've made progress in the staffing of management positions within the directorate, at the director general level and director level, and I can tell you we are nearing completion of staffing for these critical positions. These steps address the concerns expressed by the Auditor General about management stability in the organization.

In addition, we plan to introduce a self-directed career development program to ensure we are able to develop management expertise internally. As well, we will be developing pre-qualified pools of candidates for forecasted vacancies to reduce the time required for staffing critical management positions.

We have also made great progress in developing a comprehensive human resource management plan for the branch. We have put in place a comprehensive staffing plan that will ensure the directorate has and will continue to have a full complement of staff with the appropriate qualifications, training, and experience. And we are putting in place, through the department's corporate administration system project, a human resource information system that can provide directorate management with reliable financial and human resource management information.

The actions to address the shortcomings identified by the Auditor General are now in train. I would also note that in the longer term, as an agency, we will have greater flexibility to tailor our human resource strategies to meet the unique business needs found in the international tax directorate.

The Auditor General observed that the Canada Customs and Revenue Agency in and of itself will not resolve the problems he identified in the international tax directorate. We agree that the agency is not a universal panacea. However, the effort the department has put into upgrading its planning and accountability systems—something the Deputy Minister of National Revenue, Mr. Rob Wright, spoke about to this committee a year ago—addresses in a global sense the concerns the Auditor General raised. Agency or no agency, the problems that were identified are being resolved.

The efforts we have put into upgrading our human resource management systems will of course be incorporated into the new agency. Indeed, we believe these systems will be enhanced as we have a more flexible and adaptive human resource framework in which to operate.

While it is true that the agency needs to be supported by a solid human resource framework, the creation of the Canada Customs and Revenue Agency will strengthen the link between human resource plans and business plans. That linkage will be an integral feature of the overall departmental planning process. This will allow the agency to better predict its human resource requirements so that it can take the necessary actions on a proactive basis. Such a system will help ensure that the problems identified by the Auditor General do not recur.

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In closing, Mr. Chairman, I once again thank the Auditor General and his staff for the care taken in looking at the problems we have faced and for their recommendations for remedial steps. I would also like to assure you that we have taken measures to ensure the international tax directorate is well positioned to carry out its mandate of enhancing Canadian trade competitiveness on the international stage and protecting the tax base to ensure Canadians benefit from this economic activity.

I would be pleased to answer any questions the committee may have, and I look forward to the discussion.

Thank you.

The Chairman: Thank you, Mr. Lacombe.

Mr. Mayfield, first round, eight minutes, please.

Mr. Philip Mayfield (Cariboo—Chilcotin, Ref.): Thank you, Mr. Chairman.

I'd like to thank members from the department and the Auditor General and his staff for being here today. I look forward to the discussion also.

The reorganization began in 1994, five years ago, which is not really a short time, I don't think. Today I read the report and see we have a temporary director general, and the four directors are not permanent either; they're temporary. Almost 40% of the 80 staff members are there on a temporary basis. After five years, this really seems to be a chaotic situation for something so important to the revenue base of our nation.

Can you explain to me a little more clearly so that I can understand it? What are the problems that would force us to be in this position today?

Mr. Barry Lacombe: Let me try to explain what happened.

First of all, in terms of the senior management positions, we did change the organization in 1994. All the job descriptions and everything else were approved in 1995. The director general was there and continued to be there until September 1996, at which time that director general chose to accept another position within the department. We immediately began a staffing process for that director general position. That took us a little over a year.

We had to go through a process of writing the specifications, which were not hard to do, because we already had the job. In this case we decided to look at candidates both within the government and outside, so there was that process of looking at applicants and so on. We had, I believe, 53 applicants for the job. We had to screen those applicants. We then had to convene interviews with 40 applicants, and coordinating everyone's time took more time. We then had to have testing of one type or another, so that's really what stretched it out.

It took about a year, as the Auditor General reports in his report, for us to do that.

Mr. Philip Mayfield: What distresses me, though, sir, is that today we still have a temporary director general.

Mr. Barry Lacombe: Today we still have a temporary director general. We had a director general who came in after that competition, and again, that director general left in November 1998. As we said in the opening statement, we will be ready to appoint the new director general. Right now it's just gone through the Public Service Commission.

Mr. Philip Mayfield: Without asking how long the new man is going to be on the job, or the new woman, as the case may be, what are the problems that cause these people to leave after such a short term? This is an extremely important job. Policy decisions depend upon it. It seems as though a whole list of priorities are being put in abeyance until we get these personnel problems sorted out. What are the problems within the department? Is it that they're not paying them enough? Is there too much stress in the job, or not enough direction?

Mr. Barry Lacombe: Just so that you'll understand this, let me say again that the first director general was in there from 1991 until September 1996—normal career, did the job.

Mr. Philip Mayfield: But the second one wasn't there so long.

Mr. Barry Lacombe: The second one was there for a year. They may have found the job too demanding or not to their taste. There's a whole host of possible explanations.

The new person who's coming into the job we believe is going to be there on a long-term basis.

Just to highlight the importance we attach to this and to make sure there's a reasonable balance, as part of this process, we will also be naming a deputy director general.

Mr. Philip Mayfield: That announcement is imminent, is it?

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Mr. Barry Lacombe: That announcement is imminent.

Also, we will be announcing one of the director positions. Let me, sir, just let me tell you a little bit about the director positions so that you'll understand this.

Mr. Philip Mayfield: If I can interrupt you, I have another question I want to ask you in this round, and I want to make sure I have time.

Mr. Chairman, how much time do I have left, please?

The Chairman: Four minutes.

Mr. Philip Mayfield: Okay.

Well, sir, if you'll wind yours up quickly, we'll get on to the Auditor General.

Mr. Barry Lacombe: Okay, well maybe I could take four and a half minutes, sir.

Some hon. members: Oh, oh!

Mr. Barry Lacombe: One of the directors is from Justice. They will be appointed by the Public Service Commission into one of those director positions. From a Justice perspective, they had been dealing with international transactions for a large number of years.

Another director is a member of the department's executive development program, and they've been in their position at the directorate level for three years.

Another one of the directors previously worked at the international tax service office and has about 30 years' experience with the department.

So those directors are experienced. Now we're just finalizing, and we will be finalizing those competitions for two other director positions.

Sorry; I hope I haven't taken too long.

Mr. Philip Mayfield: I think maybe the chairman will be gracious enough to let me get on with the other part here.

I don't really have a clear understanding of what the problems are. The most I heard was, well, maybe it was too much for him. That really isn't the answer I might have expected—without prejudging what you would have said.

Because of time limitations, I want to turn to the Auditor General and his staff, if I may.

Included in the Auditor General's report is the department's action plan. Mr. Desautels, I would like to have you or Mr. Minto or your other colleague, Mr. Elkin, if you could, tell the committee this. In studying this plan, do you feel with some certainty that this plan is going to do the job and carry the weight of fulfilling the shortcomings you describe in the rest of your report?

The Chairman: Mr. Minto.

Mr. Shahid Minto (Assistant Auditor General of Canada): Thank you, Mr. Chairman.

The plan is fairly detailed. For a couple of things, the dates have almost arrived, and the committee may be interested in finding out the status. For example, one of the shortcomings we talked about in the chapter was that there hadn't been a comprehensive human resource strategy, even though the department has been made aware of the need for that since 1994. It seems to me that was supposed to be on track by spring 1999, which is here, so you may want to take a look at that.

Will this solve the problem? From where we sit, we have no problems with the department's intentions. The issue really always has been to match actions with intentions. The plan sets out a bunch of actions, which we will monitor on your behalf.

We are very comfortable with the objectives they've set for themselves and their intentions. As for the actions, we have not done a follow-up yet to see where they are on them.

Mr. Philip Mayfield: Thank you.

Then I'd like to turn back to you, Mr. Lacombe, if I may. In your statement you mention that you put in place a comprehensive staffing plan that will ensure the directorate has and will continue to have a full complement of staff. Then in the next sentence you say you are putting in place, through the department's corporate administration system project, a human resource information system.

Following the lead of Mr. Minto, taking into account your statement here and looking at the dates you have included in your department's action plan, have you hit the first phase that you said you were going to in February 1999? And what about the spring 1999 date you have for completing a business plan? How are we doing on those projects?

Mr. Barry Lacombe: In terms of staffing of the international tax directorate, as of March 1, 60% of the staff were indeterminate or in their substantive positions. We do have an appeal on an AU-4 competition. If that appeal is resolved, we're ready to go, and that would bring us up to over 80% of the staff being in their indeterminate positions. For all other positions, a staffing action is under way.

So we are well positioned to make sure everyone is in their indeterminate position, but we do have a problem with an appeal on an AU-4 competition.

In terms of the specific actions, I will go to the department's action plan at the back of the chapter.

Do you want me to cut it off? That's okay; I don't mind.

The Chairman: No, continue on.

Mr. Philip Mayfield: It's me he'll interrupt, not you.

Mr. Barry Lacombe: That's okay. I've seen the Monty Python thing where they cut you off.

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The demographic study is indeed under way, and we expect to have results from that in March. Let me also say there is the departmental information system, but we were well aware of this. In 1994 the Public Service Commission did a study of auditors and the demographic profile of auditors for the public service. Revenue Canada has about 99.5% of all the auditors in the federal public service. At that point, as soon as soon as we saw that demographic profile, we started to put in place a series of initiatives so that we could develop them, because we knew the age profile and the demographic profile.

As for competency profiles, we have a contract under way with a firm that is developing those competency profiles.

A recruitment and apprenticeship program has been developed. On May 12, I believe it is, we will be bringing the first recruits into that program, and it will be starting at the Revenue Canada facility in Rigaud.

An accelerated development program for officers will be introduced early in fiscal 1999-2000. We're on track for that. An assistant director of verification and enforcement and an assistant director of the investigations trainee program will start early in fiscal 1999-2000. We'll be on track for that.

So we are on track, and we will be sharing this information with the committee, but equally important, with our colleagues from the Auditor General's office, because we're not at odds with this. We want to succeed as well.

Mr. Philip Mayfield: Oh, I'm sure you do.

Mr. Barry Lacombe: If there are things we can do, we want to do them.

The Chairman: Thank you, Mr. Lacombe.

[Translation]

Mr. Cardin, please go ahead.

Mr. Serge Cardin (Sherbrooke, BQ): First I want to thank Mr. Lacombe who has already answered quite satisfactorily my first question.

Of course, international tax rules are become more and more complex and the market is also getting wider. We are talking about $248 billion. This is a significant amount and its impact on the tax base is also substantial.

At the present time, is your department not involved in the training of international tax experts? I have heard that people from the private sector, reputable accounting firms, spent some time with you to acquire expertise in the international tax area. It all depends on the way you are going undertake the training of international tax auditors, but don't you think that you might keep on training tax professionals who will promptly leave to join the private sector, because, as you said yourself, they are better paid?

[English]

Mr. Barry Lacombe: That's a series of excellent points.

We have lost some staff to the private sector. The international area is an area of growth for us, as I've said. It is also an area of growth for the private sector firms, and they have attracted some people away from Revenue Canada.

At the same time, we recognize that we have to have skilled people to do it. A series of inducements, if you will, get people to stay with Revenue Canada, not just pay. For example, career progression, working conditions, the interest of the work, and the ability to follow a career path that has a number of ranges of interest are all very important elements of us retaining our staff.

When you take a look at what we've lost, I think we've lost about 12% of our international staff to the private sector. That may be a little higher than in other areas, but in other areas such as tax avoidance or whatever, we're also sometimes losing staff. That's part of the normal churn.

I can also tell you we do have people from the private sector who want to come to Revenue Canada and work. Right now there may be a little bit of an imbalance, with more going out to the private sector than coming in, but that's part of the normal shifting of market conditions that goes on. That's simply the way the market works.

What we need to do, as the Auditor General has said, is create that good work environment so that people want to stay with Revenue Canada and so that they can see clearly how they can develop their careers with Revenue Canada.

We also believe they should be appropriately and adequately compensated. One of the benefits of the agency, as I think Mr. Wright has said, is that we will be in a position to conduct our own collective bargaining and perhaps be better able to take into account the specific circumstances of certain of our employees in the bargaining process.

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So there is this give and take. We will be training people and losing them to the private sector, but we will also be gaining people from the private sector.

And some people would argue it's not all bad if we're losing some people to the private sector, because everyone knows Revenue Canada employees are very highly skilled, and if they can bring that high level of skill to the private sector, it makes for the better administration of the tax system, particularly since we operate on a voluntary compliance basis. So the better the private sector tax professionals are, the better we are and the better the system works.

[Translation]

Mr. Serge Cardin: You said that 12 people have left. On the other hand, mention is made in the report that auditors have an average three years' experience in international tax. So the churn has to be greater than mentioned.

[English]

Mr. Barry Lacombe: A number of factors go into it. First of all, the growth in the number of international tax auditors is triple. Not a lot of people have these skills, so basically you're forced into a situation where you have to take skilled auditors from other areas and have them develop international expertise.

So we have had a significant growth in the number of our auditors. Some have left for other parts of the department; there's no doubt about that. Some have accepted management positions and are no longer doing audit work as such. But the big thing has been this growth.

That three years' experience in international should be coupled with the 17 years' experience they've had within Revenue Canada. So they're not novices, so to speak. They do have 17 years' experience within Revenue Canada and then have moved to the international stream.

You're going to see more of that, because what we're trying to do is strengthen. As the Auditor General says, we need very skilled people in our international area. So we will be taking skilled people from other areas and we'll be investing, and we do invest now, a lot in international training so that these people can get the international skills to do the job.

This whole area has been a growth area, both for us and in the private sector, and that's something we have to realize. We're going to have to train people and give them that expertise so that they will be able to do the job.

But they're not all novices. The average experience within the department is 17 years.

[Translation]

Mr. Serge Cardin: On the one hand, according to the Auditor General, the proposed new Canada Customs and Revenue Agency will not by itself resolve all your human resource problems. You did mention the Auditor General's comment but you seem to give much greater importance to the Revenue Agency and to feel that it will solve the majority of your Directorate's problems. I should like to know on what points the Auditor General and you disagree.

[English]

Mr. Barry Lacombe: As you look at things, the Auditor General in his chapter has a list of some staffing processes that, from anyone's point of view, took too long. In it the Auditor General talks about the length of time required to mark examinations. I forget the exact reference, but a section of the Auditor General's report does that.

One of the things we are doing and that we will be better able to do under the agency is create pre-qualified pools of people. In other words, you don't have to always do a test of knowledge at the time of a competition. We know what skills international auditors of various levels should have. You can do that well in advance of any competitive process. We would agree with the Auditor General on that. That can knock a lot of time off the staffing process.

So I don't think there's any disagreement. The agency does provide us with some additional flexibilities. Those additional flexibilities obviously are going to be very important us, but unless we do some of the other things, we won't maximize the benefits from those flexibilities. So I don't think we're at odds here.

David, do you want to say something on the agency?

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Mr. David Brown (Director General, Human Resources Agency Team, Revenue Canada): First, anything we say about the agency is qualified by the fact that we're still some way ahead of the agency being introduced. The legislation, Bill C-43, still needs to be passed, and the government still needs to establish the date for the agency to begin. We will then need to appear before our board of management to establish a human resources policy framework, a framework of processes that will allow us to manage our human resources. So there are still a number of steps to go through.

But as Mr. Lacombe has indicated, we are intending to try to take seriously the fact that the government is asking us to look at our human resource management systems and tailor them to the kind of business that Revenue and Customs are engaged in, and to build our systems around that.

One of the areas where we will have the most flexibility, where we'll be able to go back to first principles and to the nature of our requirements, will be the area of classification, so trying to identify the types of work being conducted in the agency and the people we need to attract and retain.

Secondly, we'll have much greater flexibility in the area of staffing. We'll be able to establish our own rule book, one that meets management requirements.

The third area is recourse. We hope to be able to give employees access to fair but also quick redress in any situation in which they don't feel they've been properly dealt with. Especially when you take the area of staffing and the kinds of procedures involved in that and combine that with recourse, I think we should be able to shorten very considerably the sorts of delays that now exist in the system and meet a number of the points the Auditor General has raised.

The Chairman: Thank you, Mr. Cardin.

Mr. Myers, eight minutes, please.

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

Mr. Lacombe, I want to congratulate you on your department's action plan. It sets out nicely your outlines, initiatives, expectations, as well as timelines and such.

In the area that describes your activities, I wonder if you could explain a little bit further this self-directed career development program, which you're anticipating to be introduced in the year 2000.

I also want to know, with respect to the pre-qualified pools of candidates, whether or not there is a lag time between when they're in the pool and when they're hired, if that's a concern or a consideration in whatever form.

Then I have some more questions I want to pose.

Mr. Barry Lacombe: Let me come at responding to your question, Mr. Myers, in two ways. I'll talk about this, and then perhaps David can talk about how we're going to embellish on what we're doing under the agency.

In terms of the self-directed career development program, right now we know the kinds of vacancies we're going to have three, five, and 10 years from now. We're still polishing that with the demographic study that's discussed up above. We know roughly the skills you need to have to be able to do those jobs. It doesn't matter whether it's international or tax avoidance, or if you're going to be auditing large files or small or medium-sized businesses, income tax, GST, or whatever.

We're providing ways in which staff can take courses we offer within the department to equip themselves so that they're ready for those jobs in the future. We're going to develop this self-directed career development program so that if I'm interested in an international job, I will know exactly what I have to do to equip myself to be ready for that job in two years, five years, or whatever my pace is.

The second question was on the pre-qualified pools of candidates for forecast vacancies. As I indicated earlier, right now, for virtually every competition, we run some tests or examinations. If we could do those at regular intervals throughout the course of the year, then we would have a pool of candidates who already meet the knowledge requirements for the job, so we wouldn't have to confound and duplicate that process for each staffing action. We could move more expeditiously. That was one of the points the Auditor General rightly noted in his chapter, about how long it took to mark exams, because people get busy doing other things and so on. We think we can do that.

• 1620

We surveyed our employees in verification and enforcement right across the country, and we did this in conjunction with the unions. Coming out of that, we developed an action plan that would enable us to move forward on these things. We want to do that in concert with our employees.

Many of these things are being extended as we move to the agency. If time permits, maybe Mr. Brown can embellish upon what I've said from the point of view of how they would be with the agency. But I hope that answers your question.

Mr. Lynn Myers: Yes, it does, actually.

Maybe Mr. Brown can comment, because I want to get back to this business of the move to the agency status and what human resource assistance will be transferred and/or provided there.

Mr. Lacombe, I think in your opening comments you noted the link between human resources plans and business plans. I wonder if maybe, in answering that other question, Mr. Brown could note that as well and perhaps explain that a little bit further, and also indicate how that's being strengthened under what's being proposed, if in fact that's happening.

Mr. David Brown: Perhaps I could begin with your last question first, because I believe Mr. Mayfield was also touching on the same issue.

We said in the departmental action plan that we would be using this year's business plan as a first effort to take as far as possible exactly this objective of bringing together the human resource planning and the business planning of the organization.

The business plan is still in the internal approval process. It will, before too long, go to Treasury Board and ultimately become a document, and at least a summary of that will be extended to Parliament. So I think you'll have an opportunity to compare this year's business plan with last year's. We certainly are very conscious of this undertaking, and we've tried to make sure human resource issues are brought integrally into the business plan.

I should say that from my perspective, one of the things that's helped enormously is that our deputy minister, Mr. Wright, attaches a very high priority to using the opportunity of the agency to overhaul our human resource management systems, starting with getting the internal accountability structures right to make sure human resource planning is properly addressed, since it does represent such a large part of departmental resources.

I don't know if there's time. I could go on on the subject of career support.

Mr. Lynn Myers: Maybe we can come back.

I want to get a sense, Mr. Lacombe, of whether other tax administrations face similar problems to what's been identified here. Specifically, I note the Auditor General highlighted transfer pricing and electronic commerce. So maybe, in a global sense, you can give me a response to the first part, and then specific to those two items, I would be interested in the answers.

Mr. Barry Lacombe: The international area is of concern to all tax administrations, and all tax administrations are facing the same sorts of challenges to having highly qualified people in this area. Many are pursuing the same strategy we are, which is that at the end of the day, you have to take some experienced people and some new people, and train and develop them, recognizing that you may be losing some to the private sector as you do this. That seems to be what everyone's doing.

I was at the Pacific Association of Tax Administration meeting in October—that's the U.S., the Australians, and the Japanese—and then I also visited New Zealand. They were all experiencing the same kinds of issues we were experiencing.

In electronic commerce, Canada, from a tax perspective—probably from all perspectives—is in the lead in the world. We have had the report of the minister's advisory committee on electronic commerce. The minister has responded to that report. We have great support in terms of advisory committees. I can tell you the minister's report has been translated into Italian and German. It's seen by the European Union as perhaps the lead report by any tax administration on electronic commerce. We have received a series of very nice reports on how the report is being used, and we're continuing to work on that. It's a very high priority for the department and the minister.

• 1625

In terms of transfer pricing, as you may know, the U.S. changed its transfer pricing legislation I think in 1995. The U.S. became very aggressive with respect to penalties and documentation. Canada has changed its transfer pricing legislation. We have been out consulting with private sector tax professionals over the last year or so on transfer pricing.

The Ernst & Young study that was referred to, or the study done by the business committee on taxation, which was referred to earlier by the Auditor General, found that Canada was one of the most demanding tax administrations in terms of documentation and wanting to see documentation on transfer pricing. We are working industriously to strengthen even more what we can do on transfer pricing. It is an important area, as the Auditor General has stated, and we want to make sure we're as ready as we can be to do it.

The government has given us additional resources. We know we have to train these resources so that we can deal with transfer pricing. So we still have progress to make, but we're making progress on each of those issues.

Just so that you know, the OECD had its meeting on electronic commerce in Ottawa. One day was on tax, and Canada was in the leadership role on that conference. So we've made a significant contribution, and we're working so that we won't get caught on the issue of electronic commerce.

Mr. Lynn Myers: I have to say I'm very impressed, because that bodes well for all of us. Thank you very much.

The Chairman: Thank you, Mr. Myers.

Mr. Mayfield, we're now into the second round, so it will be four minutes this time. Thank you.

Mr. Philip Mayfield: Thank you very much.

I'd like to ask Mr. Lacombe or Mr. Brown this question.

In the third point of your response to the Auditor General's report, you link the human resource information system with the corporate administration system project, and then you refer to your action plan for further details. The last thing it says is that the implementation will begin on 1 April this year.

What I'd like to have you do, if you would, please, is describe this project in some detail so that I and the committee will have a better understanding of what this is.

Mr. Barry Lacombe: Mr. Brown will answer that question.

Mr. David Brown: I'll do my best, in any case.

The corporate administrative systems project is sponsored by the financial and administration branch of the department and also the human resources branch. Its genesis goes back to the year 2000 millennium bug issue. It was recognized that our financial management systems were headed for a crash on January 1, 2000 if nothing was done.

So some years ago—and I'm afraid I don't have the dates, but we could get you details if you're interested—it was decided that we should upgrade our financial systems and automate and integrate them to a very considerable extent. As part of that exercise, a contract was awarded to a major software company, SAP, and that's the system being introduced.

About two years ago—as I say, I don't have the precise dates in my mind, but I think I'm right—it was decided to add into that project the human resources management systems, which also needed updating. So in effect we have contracted with SAP to establish an integrated system encompassing both financial and human resources information requirements.

In the case of human resources, we've taken the existing information systems in the areas of staffing, classification, official languages, employment equity... A number of them were maintained by different sub-disciplines, if you like, within the human resources area. We've taken those systems and integrated them into the corporate administrative system. One of the most important things this allows us to do is pool the individual databases that exist into something larger and more comprehensive.

• 1630

At the same time that all of that is going on, the department is in the process of extending its internal electronic mail network to make it as universal as possible. The objective, broadly speaking, is that all people with supervisory responsibility and also all people providing support services to managers, so financial and human resource specialists, would have access through the network, wherever they are in the country, to this common database. Of course that then increases the power of the information and our ability to operate in a more uniform, common way.

As far as dates are concerned, the financial component, which is the one that's been in planning longer, is slated to begin, as indicated in the report, on 1 April. For the human resources system, there is a slight delay, but my understanding is it will come onstream 1 July of this year. The training, as indicated in the document, did begin in both cases in February and is going on right now.

Mr. Philip Mayfield: I have just one short question to follow up. It seems from your description that this system is largely an internal system. Is there a provision for it to include your job search, the people who have made applications, your headhunters' reports, and your pool of prospective personnel who may be involved at a later date? Does it go beyond the department, or is it just an internal system?

Mr. David Brown: The system as it's being introduced this summer is, as you describe it, strictly internal. We are now in the process, though, of doing the needs assessment to build a second generation of that system and also to look at requirements for additional technology and information support, including the kind of thing you're talking about. We're very conscious of the fact that when we become responsible for our own recruitment, we need to have reliable automated means of being able to take résumés, manage them, and process the kinds of transactions the department will need to go through.

Mr. Philip Mayfield: Thank you, sir.

The Chairman: Thank you, Mr. Mayfield.

[Translation]

Mr. Cardin, please go ahead.

Mr. Serge Cardin: Earlier I spoke about the Revenue Agency and I'm coming back to it. Bloc Québécois members were not totally in favour of the setting up of that agency. At the time I wasn't aware of the comments made by the Auditor General regarding the agency. He said:

The proposed agency by itself will not resolve the problems mentioned in this chapter.

I should like you to comment on and clarify how we could improve the situation.

Mr. Denis Desautels: Human resource management under the present system at Revenue Canada, and in the government as a whole, is quite a challenge especially with regard to staffing. Also, job classification and salary flexibility are quite complex issues at the present time. Therefore, I have some sympathy for Revenue Canada.

However, in spite of all that I do feel that this issue should have been much better managed. We cannot put the blame entirely on the lack of flexibility that Revenue Canada should get when the agency is established. Obviously, some things should have been done better.

In the future, the proposed new agency with its additional flexibility with regard to human resources management will certainly make things easier provided that Revenue Canada make full use of the flexibility provided by the new agency.

Mr. Brown has just told us that the present Deputy Minister, Mr. Wright, intends to take advantage of the new agency to innovate with regard to human resource management, and I think that this is the key.

• 1635

It would be useful to us, today or at a later date, to learn in greater detail from Revenue Canada about its plans with regard to the human resource management improvements they hope to make as a result of the new legislation. The secret really is to fully use the flexibility and not to reproduce, in the new agency, the systems which existed in the past in that department. It would be nice eventually to hear what Revenue Canada has to say about that when its plans are more clearly defined.

Mr. Serge Cardin: Earlier, mention was made that the setting up of the agency was some distance away. At some point, you stated that the number of employees would rise from 80 to 129. In view of the fact that the agency is not going to be set up tomorrow, we wouldn't be able to use that argument. Therefore, while the number of employees rises from 80 to 129, what concrete factors would come into play so that things work better than in the past?

Mr. Denis Desautels: Mr. Chairman, as was stated in our chapter and even in the action plan of the department, there is a great need for better and more strategic planification of the human resource management. Revenue Canada did not need to become an agency to do so. Although that agency status is quite impending, there must be an immediate improvement in some of the practices followed up to now with regard to staffing.

We heard earlier Mr. Lacombe describe the length of time necessary and the process to be followed for staffing. It is an extremely complex process which makes it extremely difficult for a body of that size to fully and properly operate when so much effort has to be devoted to staffing. Therefore it is important to find ways, with or without the agency, to shorten the delays and to give the agency the human resources it needs to meet the challenge it has to face.

Mr. Serge Cardin: Mention was made of an increase from 80 to 129 in the number of employees over a seven-month period. We are practically at the end of that seven-month period. This is March. People must have been hired. Are things easier? Simply based on your report and your goodwill in the future, you are going to have a hard time getting the 49 employees who will not be there in two or three months.

[English]

Mr. Barry Lacombe: Yes, the staffing actions are under way.

There are things we can do in the absence of the agency. Again I'll refer back to the Auditor General's report, where the Auditor General rightly pointed out the length of time between the start of a staffing process, some exams that were given to candidates, and the marking of those exams. It doesn't matter whether the agency is there or not. If you're not going to mark them in a time-effective manner, you're not going to mark them in a time-effective manner.

So the trick is to create the pre-qualified pool so that you can do that. That's what we're doing. We're replicating jobs so that we can get things classified more quickly.

We've taken a number of measures, but we believe we will have those additional resources on-line. I want to make clear that those additional resources on-line start next fiscal year, which is a week from now or something like that.

• 1640

So yes, there are things we can do, but the agency gives us additional flexibilities. It's up to us to use those flexibilities and maximize them, as Mr. Desautels has said. That's what we intend to do.

[Translation]

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

[English]

I've said before at these types of meetings and I have to say again, thank goodness we have an Auditor General who gives us a report, and then the agency responds by saying they will do this and they will do that and they will do something else. One has to wonder what would have happened if the Auditor General hadn't brought the issue to our attention.

In the Auditor General's opening remarks he says the directorate will need to have a robust human resources strategy, because many key positions, including positions of leadership, are filled using secondments, redeployments, and acting assignments. He goes on to say in paragraph 14 that at the time of the 1996 audit on enforcing the Income Tax Act for large corporations, the branch had a number of competitions under way, and since then, these staffing actions have been started, aborted, and restarted.

There is a fairly long litany of problems and complaints. In paragraph 15 he talks about the need for a highly skilled and stable workforce, and in paragraph 17 he discusses the importance of the directorate developing a plan as soon as possible. So my question to the Auditor General is this.

After you've heard the testimony this afternoon, Mr. Desautels, are you feeling a little happier that they're on the right track, or do you feel they still need some motivation in their department?

Mr. Denis Desautels: Mr. Chairman, I'm encouraged first of all by the fact that we seem to agree on what the situation is and what it calls for. Secondly, I believe there is a willingness on the part of the department to act on the problems we raised and the recommendations we made. All of that is encouraging.

The proof of the pudding will be in the eating. Before long, we'll have to see how the department succeeds in actually staffing this particular directorate the way it needs to be staffed. The intention certainly is there, and I'm encouraged by that. I hope the department will be successful in implementing that and really staffing well and rapidly that directorate.

The Chairman: Perhaps you can tell us, Mr. Brown or Mr. Lacombe. We talked about this position taking a whole year to fill. I'm sure the morale of the applicants is affected as they're sitting there waiting, each and every one of them hoping they're going to get a promotion, and nothing happens, nothing happens, nothing happens. The morale in the department has to suffer. Why are these things being allowed to happen in the first place?

Mr. Barry Lacombe: We can improve our processes to shorten it, but some of it is a function of the appeals process. We have had some jobs—and I think there's some reference to this in the Auditor General's report—where the job has been appealed, and that appeal may not get heard until a year or a year and a half after the fact.

The Chairman: Why is that? I'm trying to think. I understand the need for fairness to ensure there's no cronyism and so on in the promotion system, to ensure we've hired the best and the most capable people. But I'm trying to get my mind around this notion that it takes years to resolve a position in its finality, with the application, the exams, the marking, the interviews, and so on, and then after you make a decision, an appeal process kicks in and it goes on and on. Therefore the person who thinks he has the job is now going to be on tenterhooks, hoping he can keep his job for another year.

What kind of human resources management do we have that tolerates this type of situation? It cannot be good for morale.

Mr. Barry Lacombe: I totally share your view that it's not good for morale.

I can tell you that one of the things I was involved with over the past year, as we were preparing for the agency, was some work on recourse. In that work we had an opportunity to talk to a number of organizations that had experienced similar issues with an appeals process, and they had found solutions that expedited the process so that things weren't held up for a year or a year and a half but were redressed within 30 days.

• 1645

Part of the work we want to do in the human resource regime with the agency is be able to take a look at some of those flexibilities to see if we can do similar kinds of things.

The Chairman: I understand the appeal process allows someone who didn't get the job to say, “But you didn't consider my qualification here and my skill there and my expertise somewhere else. I want you to reconsider the whole process.”

Mr. Barry Lacombe: Right.

The Chairman: An appeal process usually means someone made a gross error. In the court system, it's an error in law. You can't appeal the decision because you don't like the decision. You can only appeal the decision if someone made a mistake. It seems to me the human resource promotional system allows people to come back and appeal because they didn't like the decision. I'm trying to find out how that crept in and what you are going to do to get it out of there.

Mr. Barry Lacombe: Well, I'm not the right person to ask, Mr. Williams, about how it crept in.

The Chairman: Well, how are you going to get it out, then?

Mr. Barry Lacombe: The kind of human resource regime we're looking at with the agency brings in what I might call modern human resource techniques, human resource management, that would enable us to overcome that particular problem.

All I can tell you is that, as I said, as part of the buildup and preparation for the agency, I had the opportunity to visit a number of what are considered the best firms to work for, and they have put in place vehicles. Those vehicles tend to be less formal, so that the appeal can get dealt with on its merits in a very timely way.

The Chairman: When you say “timely”, are you talking about maybe a couple of weeks?

Mr. Barry Lacombe: It's 30 days, and that's a big jump. But I can't give you the answer on the way the appeal...

I know, for example, that for some jobs, the appeal process has gone for two, two and a half, or three years. In fact for one that I know of, it's gone on for over five years.

The Chairman: I have to say I am absolutely incredulous that someone has gotten a promotion and someone else is appealing that promotion for up to five years, and he still can't feel confident that he has the job. If the appeal wins, he's gone and someone else has it.

Mr. Barry Lacombe: We totally agree with you that there has to be a fairness to the system, as you point out, but there also has to be a reasonableness in the length of time. Look at the employee whose job is at risk under those circumstances. Look at the manager who has to try to manage in that circumstance.

The Chairman: Well, that's right, but I'm looking at you, and you're an assistant deputy minister, and I'm trying to hold your department to account and say this has to be brought up to modern standards where management can make a decision and award someone a promotion, and on that basis, the decision is made. If there are serious errors in process, that could be appealed, but management has to have the right to say they prefer applicant A over applicant B and the decision is done. Why do we end up with this? There must be a huge cost, as well, to go through that appeal process.

Mr. Barry Lacombe: Yes.

Go ahead, David.

Mr. David Brown: Mr. Chairman, if I may step in, you might be interested in an assessment we did a couple of years ago of the staffing process and where the time went. The overall conclusion we came to was that it takes 166 calendar days to complete a closed competition, to go through all the stages. If it's appealed, on average it takes another 90 days. So your average competition will take the better part of nine months.

Where you get the appeals being extended is the fact that they have to go outside the department, in the first instance to the Public Service Commission. If those are appealed to the courts, that can take much longer. As a department, every year we have a couple of dozen cases at least in the Federal Court, and some that go to the Supreme Court, with a very high rate of the initial management decision, or at least the initial outcome of the competition, being upheld.

One of the problems is that people can appeal not just the serious errors of process, if you like, but also the minor ones. Part of what we will be able to do as an agency is sift out the smaller procedural issues, making sure there still is some access to recourse by employees, but reserving the full-blown, rights-based type of appeal system for the cases that really merit it.

• 1650

The Chairman: You say management quite often wins these appeal cases, especially the ones that go to court. Do the people who lodge the appeal end up having to pay the cost, as a disincentive, rather than just throwing in appeal after appeal?

Mr. David Brown: No. Currently the cost structure does not provide a disincentive.

The Chairman: So who's paying? The taxpayer?

Mr. David Brown: That's right.

The Chairman: He pays for both sides? He pays for the management costs to uphold their decision and he pays for the costs of the claimant who has lodged the appeal? This must be very costly indeed.

Mr. David Brown: That's correct.

The Chairman: And there's no disincentive to anybody to lodge an appeal, no matter how frivolous it is?

Mr. David Brown: Apart from the fact that it prolongs the situation, no.

The Chairman: And management have allowed these types of rules to be introduced into the contract?

Mr. David Brown: Well, in many cases we're looking at rules that are there as part of the public service-wide framework of legislation. We're also often having to deal with the consequences of judicial interpretation of those rules.

The Chairman: You mention in your statement, Mr. Lacombe, and I'm quoting:

With the flexibility of the Agency Human Resources framework, we will be able to hire and move people with greater ease, to their benefit and ours.

But I understand that when the agency is created, the PSAC rules are just going to move right over. So where are you going to get your flexibility from?

Mr. David Brown: I'm not sure what you have in mind in saying “the PSAC rules”.

The Chairman: Well, basically the union-management agreement that's currently in place is going to move right over. So what is going to change? You're still going to be bound by the same collective agreements.

Mr. David Brown: Without trying to get too far into the technicalities, there are essentially three sources of the rules in the area of human resources that we operate under.

One is the Public Service Staff Relations Act, which as you say is the one that governs labour relations. We continue to be under that act.

The second area of legislation is the Financial Administration Act, which creates the employer role generally and establishes the basis for most aspects of human resource management.

Then the third is the Public Service Employment Act, which is specifically about the process of staffing—of appointment, promotion, and career development.

In the case of the Financial Administration Act and the Public Service Employment Act, we will no longer be subject to those rules. Instead the applicable legislation is the agency legislation, and the rules will be ones established by the agency board of management. It's in those areas in particular that we expect to gain a much more flexible system, one that's much more responsive.

The Chairman: In your own document, “Human Resources for the Canada Customs and Revenue Agency” of January 1998, it says, and I'm quoting:

In the meantime, the existing staffing system under the Public Service Employment Act (PSEA) will remain in effect, including the existing system for priority consideration and placement.

Are you saying that statement will cease to be true when the agency is created?

Mr. David Brown: That's right.

The Chairman: So after that, you'll be able to create your own flexibility.

Mr. David Brown: Exactly.

The Chairman: Mr. Mayfield.

Mr. Philip Mayfield: Thank you, sir.

Mr. Lacombe, in your statement at the beginning of our session here, you mentioned that the nature and scope of international trade and finance are changing so profoundly that there is not likely to be much stability. I presume in saying that, you're anticipating a certain degree of instability in the department, relating to this international tax directorate. Is that true?

Mr. Barry Lacombe: I'm sorry, Mr. Mayfield. What I really meant was it's going to continue to be an area of growth and high priority, and it's an area that becomes more and more complex. The nature of financial instruments that are being used, the nature of relationships amongst and between companies, multinationals, and so on... It's an area that is continuously becoming more and more complex. So I meant lack of stability in the sense of a change, and we have to be in a position to be able to respond to those changes.

• 1655

Mr. Philip Mayfield: As I listened to the dialogue between Mr. Brown and Mr. Williams, I had this image in my mind of this fast-growing area of trade and finance, and at the same time, the department is shackled by policies that take up to five years to give a person a permanent job.

I'm also aware of the Auditor General's concern that it doesn't take a big shift to cost the government a lot of revenue. Do you have any understanding or any knowledge of the cost of the kinds of problems you're having in human resources—the cost the government is paying by the lack of revenue as well as the amount of money that's being put out? It must be enormous. So many things are looked at, they're scheduled, they're slated. How about this area?

Mr. Barry Lacombe: I don't have those figures with me, but in our business plans or in our accountability documents to Parliament, we do show that. We show the revenue recoveries we would achieve through our international audit activities. So that information we can provide to you, if you would be interested in seeing that.

Mr. Philip Mayfield: I guess I'm just looking at the kind of urgency, the kind of motivation, that perhaps would spur the department on to make these changes in an expeditious way, simply because of the cost and the loss at the same time.

Mr. Barry Lacombe: Believe me, everyone in the department—I shouldn't say everyone in the department, but we in the department—very much want to get on with the agency, because as the Auditor General has said, we see that the agency will create a framework that will enable us to deal with many issues more expeditiously and better than we can deal with them now. But we still have to step up to the plate and deal with them, and that's very much what we want to do.

The deputy is very committed to strengthening human resource management and sees it in exactly the same way you've seen it, which is that these are lost opportunities for us. We need to have people who are skilled and able to do the job, and that involves a full range of recruitment, training and development, retention, and making sure people can grow in their careers and deal with changes as those changes are occurring.

If I can just say this, our people are perhaps amongst the most skilled public servants there are. They have to deal with the most complex things. Take the Income Tax Act and just how deep it is, or the Excise Tax Act and the growing complexity. As the Auditor General pointed out in his opening statement, they're going toe to toe with some of the best-paid tax professionals, and we need to make sure we can have those people. I think the agency is going to help us to do that a lot.

Mr. Philip Mayfield: I think what you're saying actually goes without saying, because we anticipate this kind of rigour on the part of the private sector at least, and hopefully it's there in your department as well.

You suggested that you would commit to providing some information either in your report to Parliament or to the committee. I'll take you up on that, if you would. I would really like to know the costs of some of these things. I don't suppose it would be necessary to ask how much it would cost to appeal a situation for five years, but...

I want to ask the Auditor General this.

You have mentioned the lost opportunities and the loss of money. In looking at this situation, sir, have you and your officials made any estimate of these losses?

Mr. Denis Desautels: No, so far we have not been able to quantify the loss in revenue that these staffing problems can bring. Hopefully the losses are not that huge, but in the end there's a need to service everyone more rapidly because of these staffing problems.

In fact these people are meant to answer a lot of questions about transfer prices and other arrangements between Canadian companies and their foreign affiliates, which don't get results fast enough. There's a lot of uncertainty for everyone concerned. So there's not only loss of revenue but also a failure to service Canadian companies as quickly as they should be serviced.

• 1700

We intend to look further into that. For instance, I mentioned that we were going to be looking into transfer pricing. So we're going to be looking into a specific area of international taxation, and we will detail to what extent that is being well done or not and what are the consequences of that.

Mr. Philip Mayfield: Thank you. I see I didn't make the last cut in the chairman's decision, so I'll thank you, gentlemen, very much. I've enjoyed this discussion very much.

The Chairman: We might have a chance to come back to you, Mr. Mayfield, for another question.

Mr. Philip Mayfield: I think I'm finished, sir.

The Chairman: Okay.

[Translation]

Mr. Cardin, please go ahead.

Mr. Serge Cardin: There have been other reports. This is not the first time that human resource management and staffing problems are mentioned. They exist in other departments and other agencies. In the present circumstances, we seem to say that by creating an agency will make it possible to solve the problems. Would it not have been better, at some point, to deal with the human resource management and staffing system of all the departments, to make things easier and to increase efficiency and effectiveness?

In this instance, we are going to establish a new agency to deal with the human resource management problems. Does this mean that other departments with human resource management problems will also want to set up agencies? Instead of having departments we're going now to have agencies with new redesigned human resource management. We know that agencies' accountability is much less evident.

Therefore, either we tackle the whole human resource management system or we are going to set up agencies almost everywhere. This is just a comment but you may reply if you wish.

[English]

Mr. David Brown: I'll offer a comment, and Mr. Lacombe may well have something to add.

Ultimately it's for the government itself to explain why it decided to proceed case by case with our agency, the Food Inspection Agency, and the Parks Agency, and not to tackle the larger picture all at once. I think it's fair to say that perhaps one reason they did choose to proceed at least with the revenue agency is that we are a largely self-contained organization. There's relatively little traffic, in terms of movement of people, between the Department of Revenue and the rest of the public service. People join our department and become lifers within it, notwithstanding the fact that in certain areas we have a higher attrition rate than we would like.

So I think the feeling was that, especially if you're going to look for more dramatic changes or more experimental changes, if you like, than might be possible on the scale of the entire public service, our organization was one of a sufficient scale where we could try something interesting and hope to make it work at the same time.

[Translation]

Mr. Denis Desautels: Mr. Chairman, I find Mr. Cardin's question extremely interesting and relevant. The government has chosen to deal in a piecemeal fashion with some of the problems which exist in human resource management. Today it deals with Revenue Canada. At some other time, it established the Food Inspection Agency and Parks Canada.

These are three important units which were given a different status to help them in part resolve their human resource management problems. But the other departments are still looking for answers and, just as is the case with Revenue Canada they face significant problems which result in far too long delays in the staffing process, which is contrary to the efficiency standards we are trying to reach.

Perhaps Revenue Canada could be used as an experimental ground. I hope it will be able to demonstrate how some changes in the human resource management approach could benefit the whole of the public service.

Mr. Serge Cardin: Thank you very much.

• 1705

[English]

The Chairman: I have a question, Mr. Lacombe. Now that Revenue Canada is becoming an agency, the Auditor General and I were talking to the senior central agencies in Australia and New Zealand. I'm thinking specifically of New Zealand, where they now have chief executive officers running their agencies or departments and a minister handling the political responsibilities, and the CEO of the department says, “Okay, I will deliver what you want.”

I understand that last year Mr. Rob Wright, the Deputy Minister of National Revenue, told this committee he has an accountability contract with all of his ADMs. How is that working? Can you tell me?

Mr. Barry Lacombe: Yes. The deputy minister does have accountability contracts. In fact we're in the process of finalizing them for next fiscal year. They cover a wide range of things. They cover human resource management, as Mr. Brown has said, program expectations—

The Chairman: On the human resources, does it set out, for example, expectations of reducing the number of people on temporary assignments and reducing the number of appeals? Does it set out clear criteria or objectives to be achieved? What kinds of things are in this accountability contract?

Mr. Barry Lacombe: There would be clear objectives of things to be achieved. It would depend upon the particular area and the particular domain as to the relative balance, because priorities would vary between particular areas, depending upon what issues might be there.

There's no doubt these are going to improve as we proceed over time. It is an interesting thing. The deputy, Mr. Wright, takes these very seriously. I think you're going to see a maturation of these over time so that they will become even better than they are now.

The Chairman: Let me ask you this question. The Auditor General has pointed out the deficiencies in the human resource management of this branch of Revenue Canada. Is the improvement of the human resource issue part of the accountability contract for the international tax directorate?

Mr. Barry Lacombe: Yes, it will be.

The Chairman: It will be, but it hasn't been.

Mr. Barry Lacombe: If you look at our accountability to Parliament document, you will see that explicitly stated in there as a priority, and that carries through into the accountability contract.

The Chairman: So it's right in the accountability contract between the deputy minister and the appropriate ADM—say you—that, for example, as the Auditor General has said, human resource management is an issue that needs to be resolved seriously and there is room for great improvement? You have talked about improvement. Are these goals and objectives going to be set out so that each year you're going to have a human resource policy or management system that is more effective and more efficient and serves Canadians and the department better?

Mr. Barry Lacombe: Exactly right, and in the specific case we're dealing with, the international tax directorate, this will be one of the clear accountabilities for the director general and the management team within the international tax directorate.

The Chairman: If the contract objectives are not achieved, are there any penalties?

Mr. Barry Lacombe: Well, that shows up in someone's performance and in the way in which one would choose to rate someone's performance. We want to be able to, as Mr. Brown has said, take more cognizance of human resource management in rating the performance of people.

Mr. David Brown: I should add that it's not just the performance, but for executives, it's the performance pay. So it's directly linked to the bottom line in the pocketbook.

The Chairman: Did you want to add anything to that, Mr. Desautels, based on the discussions we had with the Treasury Board of New Zealand on these agreements between the ministers and the deputy ministers and the contracts they had?

Mr. Denis Desautels: Here in Canada the application of performance pay, or pay at risk, as we've come to call it, is relatively recent, and I'm not sure we've developed the right performance appraisal systems yet to fully translate that into a dollar figure. It's something that needs to be worked on. The concept seems to be valid, and each department, especially a big department such as Revenue Canada, needs to develop an approach to that concept that everybody will understand and that will be a meaningful performance appraisal and remuneration system.

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The Chairman: The other thing on accountability is this. We have just been able to get the government departments to table performance documents every fall, based on a report of their own performance. Now that you're going to be an agency, do you know if you'll still be required to table a performance document in Parliament? It may be outside your jurisdiction; I'm not sure.

Mr. Barry Lacombe: We can get back to you, Mr. Williams, with the answer.

The Chairman: Yes, I'd appreciate that, because now that we have these departments reporting on these performance documents, we would hate to lose that ability of Revenue Canada.

Mr. Desautels, do you have something to say on that?

Mr. Denis Desautels: Yes, Mr. Chairman. I think the new agency will be required to file an annual performance report that lays out how well they've achieved the objectives they have given themselves. In addition to that, our office will have to provide Parliament with some assurance of the reliability of the information contained in the agency's performance report.

Mr. David Brown: Mr. Chairman, if I may add something, clause 88 of Bill C-43 addresses the annual report, and it says, among other things, that the annual report must include information about the agency's performance with respect to the objectives established in the corporate business plan, as well as a summary statement of any assessment by the Auditor General of Canada of the fairness and reliability of that report.

The Chairman: I'd like to see in your report your progress on human resource management. We have seen in other departments that issues raised by the Auditor General haven't even rated a mention in the performance document report tabled in the fall. So I would hope Revenue Canada would see this is an issue parliamentarians will want to be kept apprised of.

That would seem to be the end of the questions, unless anyone else has any more. So now we'll ask Mr. Desautels for a closing comment.

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

Our chapter tried to point out that despite the very complex and cumbersome staffing system in government, Revenue Canada, and particularly this directorate, could have done better in how it managed these particular problems. One other way to put it is that you should not let the things you can't do stop you from doing the things you can do.

In any case, I hope that's history. The new agency seems to be close to reality, and if that's the case, that should help provide flexibility on classification, on salary competitiveness, and on staffing approaches.

But to be successful, the directorate, and I suppose all of the new agency, will need to have a human resources plan that is linked to their business plan and that is kept up to date continuously. Within that, I would like to see as much use of their new flexibilities as possible to simplify the staffing process and shorten it considerably. The timelines we are now seeing are simply unacceptable in order to have an efficient organization dealing with very serious business challenges.

So the new agency must change the existing culture and shorten considerably their timelines. Even with that kind of streamlining, it's possible to maintain fairness in the system for all concerned.

Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Desautels.

The meeting stands adjourned.