PACC Committee Report

Pursuant to Standing Order 108(3)(e), the Standing Committee on Public Accounts has the honour to present its

SEVENTH REPORT

The Standing Committee on Public Accounts has considered Chapter 8 of the December 2001 Report of the Auditor General of Canada (Canada Customs and Revenue Agency: Managing the Risks of Non-Compliance for Commercial Shipments Entering Canada) and has agreed to report the following:

INTRODUCTION

The Canada Customs and Revenue Agency (CCRA, the Agency) plays a key role in protecting Canadian society and monitoring the passage of goods and people across Canada’s borders. In its 2001 Performance Report, the Agency says that the primary responsibilities of its Customs Services business line are to:

Monitor and control the import and export of controlled and restricted goods, interdict contraband, prevent the entry of prohibited materials and inadmissible and undesirable persons, and administer domestic and trade legislation.[1]

In 2000-01, the Agency’s operating budget for Customs Services was $515 million, approximately 16 percent of its total budget. The CCRA employs 7,206 customs employees (approximately 8,000 at peak periods) who work in 147 land border offices, 13 major airports, 3 major ports, and other customs facilities across Canada.

Over the past decade and more, Canadian governments, importers and the CCRA have found ways to promote faster and easier entry of commercial goods into Canada. Canadian governments have also worked to liberalize trading relations, particularly with the United States and Mexico. The success of all these efforts is reflected by a rapidly increasing flow of goods into the country. In the past eight years, commercial shipments entering Canada have grown from 7 million a year to over 10 million today. This has increased the workload on the Agency. During the last fiscal year, for example, the Agency used the resources available to it to release over 23 million courier shipments, process 10.6 million commercial releases, service 161,000 commercial importers, and process $357 billion in imports.[2] This growing trade in commercial goods combined with an increased awareness of the need to protect Canadian society following September 11 2001 has heightened the challenges faced by the Agency’s customs program.

It was as a consequence of the importance of the Agency’s Customs Services’ responsibilities and their cost that the Committee decided to review Chapter 8 of the Auditor General’s December 2001 Report (Canada Customs and Revenue Agency — Managing the Risks for Commercial Shipments Entering Canada).

To assist it with this review, the Committee met on 2 May 2002 with Mrs. Sheila Fraser, the Auditor General of Canada, and Mr. James Hood (Principal) and Ms. Lilian Goh (Director) of the Office of the Auditor General of Canada. Mr. Denis Lefebvre, Assistant Commissioner, Customs Branch represented the Canada Customs and Revenue Agency. Mr. Lefebvre was accompanied by Mr. Mike Jordan, Director General, Trade Policy and Interpretation Directorate.

OBSERVATIONS AND RECOMMENDATIONS

As indicated, the Agency faces some critical challenges in fulfilling its responsibilities. Meeting these challenges requires the Agency, with the resources available to it, to achieve an optimal balance between protecting Canadian society and facilitating the entry of legitimate commercial goods essential to maintaining a modern economy.

The audit found that the CCRA has done well in addressing part of its responsibilities. As reflected by figures cited above, considerable progress has been made in easing the entry of legitimate commercial goods into Canada. The Agency’s inspection regime for shipments is “stable and flexible and well-understood by employees and importers.” The actions intended to speed up the processing of commercial goods, as set forth in the CCRA’s 1990 Customs 2000: A Blueprint for the Future, have been successfully implemented. These include providing more service options to meet the needs of individual importers, increasing the use of electronic data interchange (EDI) to exchange information with clients, and registration of certain regular importers and pre-approval for their imports of certain specific goods. The Auditor General reports that many commercial shipments “now clear the border in less than five minutes under normal circumstances.” She goes on to observe that the CCRA now meets the needs of individual importers better by providing several ways for them to have their goods released, calling this a significant accomplishment. In addition, about 65% of releases and 98 percent of accounting transactions are now processed through electronic data interchange (EDI).

Increases in the volume of shipments entering Canada coupled with measures that streamline processing at the border highlight the need for a more focused effort to detect illegal goods. And since shortened processing times come partly as a result reducing the paperwork burden on importers, there is an enhanced need to verify that those bringing commercial goods into Canada are in compliance with existing rules and regulations. The necessity for rigorous compliance verification will increase with implementation of Customs Self Assessment (CSA), which will rely heavily on importers to provide accurate information on their activities. Yet targeting high-risk shipments and compliance verification are the very areas in which the Agency has made the least progress.

The Agency has accepted the Auditor General’s observations and her recommendations. The Committee welcomes this positive response, but noted that the Agency had not provided an action plan detailing how and when recommendations will be implemented. It is important that the Agency have such a plan for several reasons.

In the past, the Agency has encountered difficulties when it has not developed implementation plans. In the early 1990s, the CCRA began work on a periodic verification regime. In 1994, the Auditor General commented favourably on this new approach but expressed concerns regarding the absence of a plan to guide its implementation. In 1997, a follow-up audit discovered that progress in putting the plan into action had fallen short of the Agency’s expectations. This recent audit has found, once again, that slow headway has been made. This experience shows that the Agency needs an action plan if it is to resolve shortcomings in the manner recommended by the Auditor General.

Furthermore, an action plan is needed to dispel ambiguities surrounding the Agency’s intentions. For example, while the Agency has accepted the Auditor General’s recommendations, it sometimes uses imprecise terms to describe the actions it will take to fulfil them. Thus, it is not uncommon for the Agency to say that it “will continue to improve the accessibility of targeting information,” that it is “currently exploring options,” that it “continues to make efforts to improve,” or that it “will make efforts to ensure” that certain outcomes occur. In other areas, more precision is offered, but target implementation and completion dates are often absent. An action plan should clear away any remaining vagary, give the Agency a road map to follow to achieve desired results, and provide a benchmark against which its efforts can be evaluated by parliamentarians and Canadians.

Mr. Lebvre indicated that the Agency has started work on an action plan but that it had not been completed. Although he was initially reluctant to do so, he agreed to provide a summary of this plan to the Committee. This plan was submitted to the Committee in October 2002. While the Committee welcomes the development of this plan, it notes the lack of specific timelines for the actions proposed in it. The Committee therefore recommends:

RECOMMENDATION 1

That the Canada Customs and Revenue Agency strengthen its action plan by specifying implementation and completion dates for each action and submit the revised plan to the Standing Committee on Public Accounts no later than 28 February 2003.

The Committee believes that Parliament must be informed of progress being made in operationalzing the plan as well as the outcomes achieved by corrective actions. The Committee therefore recommends:

RECOMMENDATION 2

That the Canadian Customs and Revenue Agency include a discussion of progress achieved and the results obtained as a result of its efforts to improve its management of the risks surrounding non-compliance of commercial shipments entering Canada in its Performance Report for the period ending 31 March 2003.

Following its review of the evidence, the Committee wishes to draw attention to several matters that it believes require immediate remedial action.

The CCRA has adopted a risk-management approach to its enforcement and compliance work. While this is entirely appropriate, shortcomings in the Agency’s application of this approach potentially compromise its effectiveness.

Risk management is highly reliant on the quality and availability of relevant information. Yet the Agency’s systems for storing and retrieving information, and the kind of information that it gathers, are not entirely suitable for the kinds of demands that must be satisfied.

The computer systems used by Customs officers to target high-risk shipments, record and plan examinations, and conduct compliance verifications are inadequate. Officers have to refer to several computer systems, some of which are not easy to use, to get the information needed to identify high-risk shipments. Similarly, the information that the Agency collects on its enforcement efforts is “difficult to retrieve in a format useful for analysis. ” Customs officers enter the results of most of their examinations in one computer system and information on seizures on another. Some examinations are reported on a manual system. The Auditor General comments that “it is time-consuming and sometimes impossible to gather all this information and use it to develop a comprehensive [border management] plan” that sets examination goals and priorities. The system for recording the results of verifications is outdated, difficult to use, and does not meet the needs of compliance verification managers and officers.

Information that is collected and stored is not adequate either. The Agency only has information for the last three years on the number of examinations it has conducted, the number of times these examinations have resulted in seizures, and the source of referrals for such examination. Sometimes the data that the Agency does have on examinations and seizures is inaccurate. The Agency does not collect information on whether or not it is conducting more examinations than in the past, or information that would show if improved targeting has produced more enforcement actions. Crucial data the Agency needs to inform its post-release verification plan is lacking and better information on individual importers’ compliance history is needed.

Until the Agency improves its computer and information management systems and collects all appropriate data, risk identification, enforcement activities, compliance verification, and overall planning efforts will fall short of what is needed. Although the Committee recognizes that the Agency has some remedial actions planned and underway, it wishes to emphasize the need for timely action and therefore recommends:

RECOMMENDATION 3

That the Canadian Customs and Revenue Agency conduct a thorough assessment of its data and information systems requirements related to all phases of its management of commercial shipments entering Canada and include its planned response to this review in its Report on Plans and Priorities for 2004.

Another crucial factor, particularly when it comes to compliance verification, is an adequately trained staff. This is particularly important in view of the significant alteration that the Agency is making in the way that verifications are conducted. These changes will require customs officers to acquire new skills in such fields as auditing and accounting. The audit report, however, lists numerous instances in which customs officers had indicated that their training, as well as guidance, was inadequate. The Committee is aware that the Agency is committed to improving its training regime and is taking some important steps in this direction. Because appropriate training is indispensable to effective compliance verification, especially as Customs Self Assessment (CSA) is implemented, the Committee recommends:

RECOMMENDATION 4

That the Canadian Customs and Revenue Agency complete and begin implementation of its core curriculum and long-term learning strategy for compliance verification officers prior to the implementation of Customs Self Assessment and include a discussion of the progress made and results obtained in its performance report for the period in question.

The Committee takes note of, and shares, the Auditor General’s concern that is going ahead with Customs Self Assessment before its compliance verification regime is solidly established. Accordingly, the Committee recommends:

RECOMMENDATION 5

That the Canada Customs and Revenue Agency complete testing and implementation of its new approach to post-release compliance verification prior to establishing Customs Self Assessment.

The Committee is concerned by a situation described by the Auditor General at the Ambassador Bridge in Windsor. The audit found that the facility for examining shipments carried by truck is about two kilometres from the bridge. According to the report,

Unless officers escort a truck from the bridge to the facility, which rarely happens, the Agency cannot ensure that the truck goes directly to the facility or that no one tampers with the shipment.

As the Auditor General points out, “Some of the unescorted shipments may be high risk.”

The Agency’s response was to send a directive to all officers providing guidelines defining high-risk shipments so that they could determine which shipments should be escorted. This is an appropriate short-term solution but more must be done. It is noteworthy that the audit was completed prior to September 11 and the heightened awareness of security requirements that followed in the aftermath of that catastrophe. In light of that event, the Committee believes that the Agency must take additional actions in response to the situation at the Ambassador Bridge. The Committee therefore recommends:

RECOMMENDATION 6

That the Canada Customs and Revenue Agency conduct an immediate assessment of the Windsor examination facility in order to identify permanent solutions to security concerns raised by the Auditor General of Canada. Relocation of the facility to a location closer to the Ambassador Bridge should be among the solutions considered. A report containing the options considered, the solutions identified, and an action plan must be tabled in the House of Commons no later than 31 March 2003.

CONCLUSION

The Agency’s responsibilities for protecting Canada while facilitating the smooth flow of legitimate goods into the country are of such importance that good performance reporting to Parliament is vital. Yet at the time of the audit the Auditor General observed that “the performance reports to date on the commercial aspects of the Customs program have been limited.” The Agency recognized that it was not collecting enough information to analyse whether it was achieving the objectives of its Customs program in any systematic way.

Following completion of the audit, the Agency released its Performance Report for the period ending March 31, 2001. In accordance with the Act that established the Agency (Canada Customs and Revenue Agency Act), the Auditor General evaluated the fairness and reliability of the information contained in the Report. Her overall assessment was quite positive and the both the Agency and the Auditor General are to be congratulated for their work. The Committee notes in particular the following statement by the Agency that demonstrates a level of openness that is altogether too rare in reports of this kind. The Agency tells Parliament and Canadians that:

The lack of a mature performance measurement framework does not mean that Customs is not well managed. We simply lack the quantitative evidence to confirm the qualitative evidence from our clients and partners, and management’s judgement.[3]

The Committee believes that such honesty reflects precisely what performance reporting is meant to accomplish and lends great credibility to the rest of the Report’s contents. This openness gives parliamentarians and others an opportunity, not to criticise the Agency, but to understand the challenges it faces and to join with it in the search for creative, effective solutions. The Committee sincerely hopes that other departments and agencies, as well as Treasury Board Secretariat, take note.

For its part, the Committee expects that the Agency will proceed to develop a mature performance measurement regime and that it will gather and use the quantitative evidence it needs to reinforce its management practices and accountability reporting. Provided that this is done, and provided that recommendations made by this Committee and the Auditor General are effectively implemented, the Agency should be able to find the right balance between protecting Canadian society and helping to ensure a healthy economy.

Pursuant to Standing Order 109, the Committee requests that the Government table a comprehensive response to this Report.

A copy of the relevant Minutes of Proceedings (Meeting No. 52 of the 1st Session 37th Parliament and Meeting No. 7 of the 2nd Session 37th Parliament) is tabled.

Respectfully submitted,

JOHN WILLIAMS, M.P.

Chair