Good afternoon, colleagues.
This is meeting number 105 of the Standing Committee on Public Accounts, on Thursday, June 14, 2018.
For our guests, right now, as Madam Mendès was saying, there is a tribute to going on, so Mr. Christopherson will be with us momentarily. We did try to hold off as long as we could just so that members could be there for that event.
I should also say that we are televised today. I encourage all those in the audience, members of the media, and members of the committee to please put your cellphones on vibrate, silent, or whatever setting will diminish distraction. We would certainly appreciate that, and thank you in advance.
We are here today in consideration of “Report 1—Building and Implementing the Phoenix Pay System” of the 2018 spring reports of the Auditor General of Canada.
We are honoured to have with us this afternoon, from the Auditor General's office, Mr. Michael Ferguson, Auditor General of Canada, and Monsieur Jean Goulet, Principal. From the Department of Public Works and Government Services are Ms. Marie Lemay, Deputy Minister, and Les Linklater, Associate Deputy Minister. From the Treasury Board Secretariat, we have Mr. Peter Wallace, Secretary of the Treasury Board of Canada, and Ms. Sandra Hassan, Assistant Deputy Minister, Compensation and Labour Relations Sector.
Welcome to all. We look forward to your comments.
We will open this afternoon's committee meeting by hearing from our Auditor General.
Mr. Ferguson, go ahead, please.
Mr. Chair, thank you for this opportunity to present the results of our second audit of the Phoenix pay system, in which we looked at building and implementing the system. Joining me at the table is Jean Goulet, the principal who was responsible for the two audits of Phoenix.
In 2009, Public Services and Procurement Canada started its transformation of pay administration initiative to transform the way it processed pay for its 290,000 employees. There were two projects: one to centralize pay services for 46 departments and agencies that employed 70% of all federal employees, and the other to replace the 40-year-old pay system used by 101 departments and agencies.
In this audit, we reviewed Public Services and Procurement Canada's development and implementation of the Phoenix pay system. We examined whether the decision to launch the new pay system included considerations of whether the system was fully tested, functional, and secure, and whether it would protect employees' personal information.
We concluded that the Phoenix project was an incomprehensible failure of project management and project oversight, which led to the decision to implement a system that was not ready. In order to meet budgets and timelines, Public Services and Procurement Canada decided to remove critical pay functions, curtail system tests, and forgo a pilot implementation of the system.
Phoenix executives ignored obvious signs that the Miramichi pay centre wasn't ready to handle the volume of pay transactions, that departments and agencies weren't ready to migrate to the new system, and that Phoenix, itself, wasn't ready to correctly pay federal government employees.
When the Phoenix executives informed the deputy minister of Public Services and Procurement Canada that Phoenix would launch, they didn't mention significant problems that they knew about. Finally, the decision to launch Phoenix wasn't documented.
In our view, based on the information available at the time, the decision to launch Phoenix was wrong. Phoenix doesn't do what it was supposed to do. It has cost hundreds of millions of dollars more than planned, and it has affected tens of thousands of federal government employees and their families.
In my opinion, when I look back at our first audit of Phoenix pay problems, there were three issues that were common to both the Phoenix implementation project and the department's response to the post-implementation problems. Those were a lack of oversight or governance to guide management activities, a lack of engagement with affected departments, and an underappreciation of the seriousness of the problems.
Mr. Chair, this concludes my opening remarks. We would be pleased to answer any questions the committee may have.
Good afternoon. Thank you, Mr. Chair.
I'm joined by our Associate Deputy Minister, Les Linklater.
We appreciate the opportunity to appear before the committee to discuss the Auditor General's latest study of the Phoenix pay system.
Public Services and Procurement Canada accepts the Auditor General's recommendation. Before I discuss the measures that PSPC will be taking in response to the Auditor General's report, I want to emphasize that this is, above all, about people. Problems with the pay system have taken a heavy toll on our employees. It is an unacceptable situation for which I am deeply sorry.
I want to assure you that we have a dedicated group of people working very hard to address their colleagues' pay issues.
The auditor general's spring report examines the planning and development of Phoenix from April 2008 to April 2016.
We recognize that there were serious flaws in the planning and implementation of Phoenix and in the broader transformation of pay administration initiative.
Cost and timelines were prioritized, and constrained the outcomes of this project. In this context, poor decisions were made. Critical elements of the project, including system functionality, testing, change management and training, were removed or deferred.
These decisions, coupled with the elimination of 700 compensation positions, and the resulting loss of critical capacity and expertise, led to a government-wide transformation that could not perform as planned. It also meant that the government was unprepared for this significant change.
Within the senior levels of Public Services and Procurement Canada, and I would say across government, the project's scope and implications were vastly underestimated. The Goss Gilroy report also cited this fundamental gap as a central failing of the project.
I don't believe anyone wanted this to happen or acted with ill intent. However, without question, the development and implementation of the project were severely flawed.
It is clear that the two senior executives leading the project, who reported to the deputy minister, did not properly assess the complexity of the undertaking, the cumulative impact of their decisions, or the seriousness of the early warnings. The performance of these senior executives has been assessed and appropriate measures have been taken. They are no longer involved in pay administration, and they did not receive performance pay for their work on Phoenix during 2015-16, when the system was finalized and launched.
As I mentioned, this situation has caused significant stress for many employees. Understandably, people want someone to blame. What has happened is unacceptable. The Auditor General has identified that senior executives at PSPC made significant mistakes, but has also acknowledged that there were oversights and governance issues. I believe that there were multiple points of failure and we have to learn from all of them.
Accountability needs to be coupled with authority for projects like the pay transformation to succeed. Public Service and Procurement Canada officials had full authority over Phoenix but not over the government-wide human resource processes, for example. We should have had an integrated HR-to-pay approach all along.
We must ensure that these mistakes are not repeated. We need to do better. We need to give our people the tools and the environment needed to succeed. The Auditor General's report provides advice that is helping us move forward.
I would like to turn now to the specific recommendations offered by the Auditor General in his spring report, which focus on future planning of government-wide IT projects.
Public Services and Procurement Canada has a long history of managing large-scale complex projects. Pension modernization and the long-term vision and plan for the Parliamentary precinct, are among the 430 projects we currently manage for our department, which represent a total budget of over $13 billion. Currently, we also manage over 2,400 projects for other government departments.
Managing large-scale projects requires rigorous and effective processes. While Public Services and Procurement Canada has those processes in place, our experience with Phoenix has highlighted the need for an enhanced approach to managing complex, enterprise-wide IT projects.
To address that need, Public Services and Procurement Canada will develop a tool to help us determine whether specific projects under our responsibility should be managed through an enhanced government-wide IT project management approach or through departmental project management practices and processes.
We will also develop an enhanced project management playbook that will outline how government-wide IT projects are to be managed and will address governance and oversight, project management, and the audit function.
The tool and the playbook will ensure that we have robust governance and oversight for all government-wide IT projects under our responsibility, as recommended by the Auditor General.
Furthermore, this approach will include a stakeholder engagement plan in projects, as well as a formal software upgrade plan and a comprehensive contingency plan.
Finally, we will ensure that internal audits provide the Deputy Minister with the appropriate assurances regarding project governance, oversight and management. We are going to make sure that the Deputy Minister has access to independent advice.
We're also working hard to make a more fundamental change to how the department operates, a change that goes beyond the technical and project management practices. As you know and have heard, we have a recognized world-class public service. Having said that, there is always room to improve, and within PSPC we are working very hard to foster a workplace culture in which employees feel free to have honest discussions, ask tough questions, and speak candidly when the situation calls for it.
For example, the public service pay centre has taken great strides over the last 18 months to build an environment that fosters employee engagement. This approach has fostered employee-led solutions that are helping us work through the backlog, improve working conditions, and provide better client service.
Within the broader department, we've initiated a transformation to change the way we work, change the way we deliver services, and green the way we work. Our transformation team has met with employees at all levels to have discussions about the type of culture we have and the one we aspire to. I am personally overseeing the culture element of our transformation. This won't be accomplished overnight, but it's important work that demands sustained attention. We have developed a road map and have started on our journey.
In February 2017, I appointed the first mental health ombudsman, an independent function that reports to me directly. He has met with close to 500 employees so far, providing a safe space and guidance as to the tools and help available. He has produced two reports to me, and we're implementing the recommendations.
We are committed to sustained efforts in that area. Moving forward, however, our immediate priority remains helping employees experiencing pay issues. I'd like to take a moment to highlight our recent efforts and the positive impact that they're having.
In May, Minister announced the roll-out of the new pay pod approach to stabilize the system and better support employees.
Pay pods are teams of pay specialists who are assigned to exclusively serve specific departments or agencies. In the three departments that participated in the pilot project, pay pods reduced overall case backlog by 30% overall and their backlog older than 30 days has gone down by 41%. These are promising results, and we are optimistic about the roll-out of pay pods over the next year.
We've also expanded both our capacity and capability to address employee pay issues. We have nearly tripled the number of compensation staff from 550 when Phoenix was implemented to over 1,600.
We have improved the quality of service provided by the client contact centre. Before, service representatives could only give employees the status of their cases. Service representatives now have direct access to pay files and can provide employees with detailed pay information when they call the centre.
While there is still much to be done, we are beginning to see slow but steady progress. With the exception of a small fluctuation, our case backlog has steadily declined for four straight months. The pay centre processed 5,000 more cases than it received in April and 25 more in May. We expect this positive trend to continue as the pay pods are expanded.
Paying public servants on time and correctly is our department's top priority, and we are working relentlessly to make that happen. Moving forward, we must learn from the mistakes that were made. We must encourage a culture shift that inspires frank and open discussion. Lastly, we must ensure something like this never happens again.
Thank you very much for your time.
I will be pleased to answer your questions.
Thank you very much for inviting me here today to discuss the Auditor General's report on building and implementing Phoenix. This is an important dialogue, and I want to emphasize that I personally welcome it and look forward to being of assistance to this committee and to other parliamentary committees. I am pleased to be here with Sandra Hassan, who is the assistant deputy minister of compensation and labour relations for Treasury Board Secretariat.
As you know, the Treasury Board is the employer of the core public service. As its secretary, I support the board in that role.
As such, I want to begin by stating that the government is resolutely focused on meeting its responsibility to pay its employees accurately and on time.
We are sorry that employees are experiencing pay issues that affect their lives and those of their families, and we take that, obviously, extremely seriously. That is why we are working diligently and will continue to do so to resolve these pay issues and to also help those employees who have been adversely affected. For example, we are making sure that advances are made and paid on a priority basis. We have also provided flexibility in the recovery of overpayments, and we have set up claims processes to compensate employees for expenses or financial losses because of Phoenix. These measures are aimed at mitigation and undoing some of the damages that have been done. Obviously, we're also working closely with Madam Lemay and PSPC, which are leading the enormous effort to stabilize the pay system.
That does lead me to the AG's recent report and his concerns that Phoenix may not be the last “incomprehensible failure” in project management. We are obviously deeply concerned by that finding, take that enormously seriously, and are determined to learn the lessons associated with that and ensure that we mitigate future risks and deal with these issues. IT projects are always risky. In a way, that helps our position going forward.
In 2017, Treasury Board Secretariat did commission the Goss Gilroy report to examine some of the very issues raised by the Auditor General. The report outlines a series of valuable lessons that we are now applying to government projects. That report, along with the Auditor General's recommendations, form foundational guidance for how government will manage projects in the future. That is an ongoing lesson, and something we are committed to do.
I would like now to turn briefly to the recommendation for the Treasury Board Secretariat in this most recent Auditor General's report.
The recommendation states that TBS should, for all government-wide information technology projects, carry out independent reviews of the projects' key decisions to proceed or not, and inform the projects' responsible Deputy Minister and senior executives of the reviews' conclusions.
We agree, of course, with this recommendation, and we will conduct independent reviews of government-wide projects, as Treasury Board, to identify and implement any required corrective actions. We will communicate the conclusions and remedial actions required, and we will, of course, follow up on those.
In the interim we are changing the role of the chief information officer to further ensure that government-wide IT initiatives are well planned and that we stay on top of the execution of those initiatives. We are also strengthening our policies and improving governance.
I would now like to update you on the progress we have made on the Auditor General's two recommendations from his fall report.
The first is that the secretariat, along with our colleagues in PSPC, establish timelines for departments and agencies to submit accurate pay information, and that we support our colleagues in PSPC and departments and agencies in the development of performance measures to track and report on the accuracy and timeliness of pay. I can report that the secretariat, in collaboration with PSPC, is making good progress. We will provide the information to this committee as soon as possible.
The second recommendation was that the secretariat, with the support of PSPC, along with departments and agencies, track and report back on the cost of resolving pay problems and implementing a sustainable solution. The office of the comptroller general has been working diligently on a government-wide cost estimate covering historical costs, the projected investments needed to stabilize the Phoenix system, and of course, the operating costs. The model is in place. We are undertaking the runs of that model. It is nearly done, but we are also making sure that the information is verified with our colleagues in PSPC.
The report has not yet been finalized, and I apologize for the delay in releasing the report. We expect to have it done shortly. It's important, however, in learning lessons from Phoenix, that we get this accurate and we are prioritizing accuracy over timeliness in this regard. Of course, we will be sharing it with the committee as soon as we possibly can.
I would now like to draw your attention to one of the Budget 2018 commitments to address the ongoing challenges with Phoenix.
The budget provided $16 million for TBS to work with experts, public sector unions, and technology providers on a way forward for a new pay system.
As we explore various options, we will have relentless focus on the user and a system that links HR transactions with pay transactions.
As much as we would like this to happen overnight or as quickly as possible, the reality is that we will need to take some time to get this right. That's an absolutely critical lesson. That means thoroughly applying all of the lessons, governance structures, and other approaches that we have learned through the very difficult lessons of Phoenix to this work going forward.
In conclusion, I would like to restate that my department, along with the senior management team, remain fully engaged on this file and we welcome and appreciate the dialogue with the Auditor General and with parliamentarians on this vitally important issue.
Thank you very much, Chair.
My apologies to you and my colleagues. I think it was mentioned that I was in the House for the tribute to my former leader and, as one of his former deputies, I definitely wanted to be there. I hope you understand.
This is one of those times—after 14 years—when you read this report, and you're still like, how can this be?
I recognize and I'm going to do my best to keep separate the issue of the one-off here, versus the broader cultural issues that we'll pick up on Tuesday. There might be some overlap, but my intent will be as much as possible to stay focused on this report.
Having said that, you can't escape certain words that have been used. I've been around long enough in the public accounts business, and done enough international public accounts business, to know that when an Auditor General of the rank and status in the world that our Auditor General has, Mr. Ferguson, uses words like an “incomprehensible failure”, in that world, that's about as close to swearing as you can get.
I would like to ask Mr. Ferguson something, and the other two reps can get ready, because I'm going to be coming to them next.
That's a huge statement. The last time I saw anything that wide in its scope and that scathing was, quite frankly, the sponsorship scandal, where virtually every rule that was there was broken. You really have to go back that far to find something that is this big in its breathtaking failure.
Mr. Ferguson, you said “incomprehensible failure”. Obviously you're speaking to a lot of the checks and balances that didn't work, because we've heard that there are robust systems in place, and check and balances. I want to give you an opportunity, for my opening remarks, to put a little more flesh on the term “an incomprehensible failure”. Why the word “incomprehensible”, sir?
First I want to acknowledge that it is National Public Service Week, and it is a time for all Canadians to express their thanks for the hard work of our public servants. As Ms. Lemay alluded, great work is being done such as pension modernization and a long-term plan for our parliamentary precinct, all within Public Services and Procurement Canada, which of course now takes me to Phoenix.
I agree that Phoenix was a complex undertaking from the start. As has been pointed out today, getting together on one new system, a 40-year-old legacy system, 290,000 federal employees, 101 departments and agencies, all with different pay systems and functions is a tremendous undertaking. But it seems to me that basic project management best practices were simply ignored.
Four officials, including the project director and three executives from PSPC, as Mr. Deltell had inquired about, were in charge of the Phoenix project. The Auditor General, in his report—paragraph 1.32—wrote:
||...Phoenix executives scaled back the project’s functions to save money or time. In the spring of 2012, after the planning phase of Phoenix, IBM told Public Services and Procurement Canada that Phoenix would cost $274 million to build and implement. The Treasury Board had approved a Phoenix building and implementation budget of $155 million in 2009. We found that Public Services and Procurement Canada did not consider asking the Treasury Board for more money to build and implement Phoenix. Instead, Phoenix executives decided to work with IBM to find ways to reduce the scope of work to fit the approved budget.
How could that have happened? How could a team of four people, without considering the vast array of functionality that was required and set out through the various departments that were going to be using this new system, in the presence of IBM, which was there to customize and build the software to specific project requirements, and PeopleSoft, which had developed the software platform to process the pay that was going to be customized by IBM...? With the people involved at the table, somebody must have said this system is not being tested properly, that this system will not work because functionality is being removed and the entire purpose of standardizing and bringing forward a new modernized system of pay is to ensure that it provides the functionality that is needed.
How could this have happened? How did that team of four people make that decision without anyone noticing?
I have two areas. I don't know if I'll have enough time, but I see that we have time on the clock. I'm hoping colleagues will agree that if we have residual questions we'll use that time to do that, but I only have two right now, assuming I get satisfactory answers.
The first thing I want to do is to point out to colleagues and everyone that this Auditor General is constantly looking at individual reports and trying to extrapolate from that government-wide problems, which, if addressed on a government-wide basis, would help us to avoid these kinds of things.
I'd just like to point out that it wasn't that long ago, colleagues, that Mr. Ferguson was here telling us that in his view, what government needs to do is to “do service well”. By that, he meant to measure the impact on the citizens who are affected, and to ask whether they are getting the service and whether they are getting the value. In this case, that constituency would be the people who work here, and I just want to point out that the deputy has mentioned a couple of times that one of the things they did wrong was to measure internally how well we moved from one desk to another or from one step to another while losing sight of the holistic overview.
As we go about looking at the Auditor General's sweeping remarks about overall government, let's understand that his track record is pretty good in terms of recognizing areas that are problematic across the board. This is just a prime example of getting yourself lost in the details and forgetting what it is all about. It is all about making sure that the people who work for this government get paid in a timely fashion and in an accurate fashion, and that got lost.
Next week, when we visit the other issue that the Auditor General has raised, I would hope we keep in mind that his track record on these kinds of things is very good.
I'm just a simple guy from Hamilton, and I have trouble understanding how it is that the departments went ahead without doing the test. To me, it was like somebody putting on a major play and saying, “Meh, dress rehearsal, shmess rehearsal. We don't need to worry about that. Let's just go straight to it.” Speaking from the report, the Auditor General says:
||We also found that Public Services and Procurement Canada did not test Phoenix as a whole system before implementation and did not know whether it would operate as intended....
||A pilot would have allowed the Department to determine if the system would work in a real setting without affecting pay that was still being processed by the old pay system....
||This pilot was the Department’s chance to test a final, live version of Phoenix before implementation.
Here's the punch line:
|| The pilot could have allowed the Department to detect problems that would have shown that the system was not ready.
It's just a common sense point of view, and I'll start with you, deputy. How could it be that a test to see if it works was deemed to be something superfluous and was set aside in whatever other interest, budget or otherwise? How could that final test, as one of the checks and balances, ever be just brushed away by someone making responsible decisions? How could that be, deputy?
I'm a substitute member, so I don't have the whole context. Rather, I will focus my energies on two parts, the problem that arose at the outset and the changes that we should now see concretely on the ground.
The problem seems clear to me: the project is put forward, we ask how much it will cost, we're told that we only have 55% of the money, so we reduce functionality and pilot projects.
I have worked in a technology system like this in Nova Scotia before in a context of change. I have several years of experience. I know that if the project that I have in mind or that is proposed will not be presented the way it was designed, it's a problem. To build a house, the foundation must be firm. I am amazed that it was determined that it was acceptable for the project not to proceed as planned and to remove pieces of it when it is a major change that affects all of Canada. This is a problem.
From my 30 years of experience in administration, it seems impossible to me that three people under the deputy minister's responsibility could make such a decision. That's impossible. These people need to talk to the deputy minister. If I were minister of the department in question today, I would also like the deputy minister to tell me about the problem and possible solutions. It is almost incredible that this could happen. If a major project is designed and employees do not notify the manager that there is a problem, it is highly problematic.
That's the first part of my comment. You can clarify that, if you want.
You also mentioned that change takes place at three levels: practice, culture, and transformation. Can you give me an example of the measures you have implemented to date for each of these aspects, so as to give us hope that it will work better?
With your indulgence, I want to make a brief reference to the message we will deal with on Tuesday, where it's very specific to Phoenix, to keep us focused, if you will allow me, sir.
One of the key things in public life these days—and we're all in it to one degree or another—is transparency and accountability. I know this is not easy for you. It's not supposed to be. Somebody has to be held accountable. Lest you think that we get off when we go knocking on thousands of doors and the question on the doorstep is, “How did I do?”, let me tell you, you learn about transparency and certainly about accountability.
One of the things, Chair—and I have mentioned it before—that hit me the hardest, given all my years on this committee, was that in that report, there was a message to us—and it's strictly on Phoenix—from the Auditor General posing the question about who is to blame. In the context of that, he said, “It's a difficult question to answer because it's as if the Phoenix project was set up to avoid responsibility—either by design or by accident.”
Mr. Ferguson, is there anything you want to add to that? It's pretty damning, especially even the hint of somebody in the bureaucracy deliberately setting it up so that it wasn't clear who made the decisions. An accident is a little less so, but it's still hugely problematic.
Could we have your thoughts on that, sir?
Then, Mr. Wallace, to give you fair notice, I'm going to be coming to you to ask for a commitment about what you're going to do in your challenge function going forward to assure us this won't happen again.
Mr. Auditor General.
Let me be very clear. You will never get an absolute assurance from me, because life is messy. There are enormous challenges. I say that not, frankly, to duck accountability but to indicate to you that we will do everything we can to mitigate risk. However, risk is a reality. The challenge here is how we prevent small problems from becoming enormous, incomprehensible problems.
Let me go through a number of steps that we have already undertaken, and then speak to something a little more fundamental than that.
We have, of course, put in place a stronger role for the chief information officer. We have updated our information technology and management policies. We put in place much stronger governance in terms of deputy ministers' committees with clearer lines of accountability. We have ensured that Treasury Board is engaged in a much more meaningful way in two forms of the challenge function: the fiscal challenge function, and now a much stronger role for the IT challenge function as well. We have created a number of very important digital standards around interoperability, access to cloud, and a whole variety of things absolutely critical to avoiding these things and allowing for broader vendor interface as well.
We have put in place an enormous amount of work on a project management strategy under the office of the comptroller general. We have put in place a variety of multi-level governance models associated with all those things.
However, to very clear, those are all hurdles. They are all step points. They could become bureaucratic friction unless we take the core lesson seriously. The core lesson here is that these things are not there to be manoeuvred around. They are there so that we actually understand what we are doing. We take appropriate risk but not disproportionate risks with taxpayer values, with the privacy of our employees' information, with our fundamental need to pay our employees accurately and on time, or any other IT project.
We are putting all those measures in place. They will be very helpful, but what they will require is vigilance all the way through to make sure that those values, what those policies represent, are actually part of the lived experience of the organization. That will never provide you with the absolute assurance that you seek, as you will understand, but it will provide you with, and I hope to provide parliamentarians with, an understanding that we are learning these absolutely critical lessons.
We take them fantastically seriously, as you are correct that we do not enjoy this experience. We understand the absolute imperative of getting these things right on a going-forward basis.
I need to add one other piece. I do need to reiterate that accountability is fundamental and it is our belief that we can increase and augment the accountability regimes as well.