Thank you, Mr. Chair.
We thank you for this opportunity to speak to the finance committee about our experience with the Canada Revenue Agency, as you carry out the five-year review contemplated in subsection 89(1) of the Canada Revenue Agency Act.
Today I'm accompanied by Jamie Hood, the principal responsible for performance audits and the annual assessment of the agency's performance information, as well as Marion McMahon, the principal responsible for the annual financial statement audits that we conduct at the agency.
Mr. Chairman, we undertake a considerable amount of work each year in the agency — almost 43,000 staff hours are budgeted for 2006-2007. First, we conduct performance audits such as the status report on the collection of tax debts we tabled in the House on May 6. Second, the agency produces two financial statements that we audit on an annual basis. One financial statement presents how the agency has used its annual appropriations totalling about $3 billion, while the other presents the results of the activities the agency performs on behalf of other entities — primarily the administration and collection of more than $300 billion in taxes annually. Third, we assess the fairness and reliability of the information about the agency's performance that is included in its annual report. Fourth, each year we audit a statement showing the income and capital taxes assessed and paid to the provinces pursuant to federal-provincial tax collection agreements. Finally, from time to time the agency is included in other government-wide performance audits conducted by my office.
From a performance audit perspective, we have focused our efforts over the past five years primarily on examining how the agency manages the risk of non-compliance with tax laws. The agency has limited resources and cannot be everywhere at once. It must make trade-offs in deciding where to deploy resources to deal with competing threats to the tax base. We have found that, with some exceptions, the individual compliance programs are generally well designed but that the agency needs to improve its overall risk management framework and the manner in which it allocates its resources.
We have not yet completed any performance audits that look specifically at the new authorities granted to the agency. In 2004 we began an audit that was designed to assess the new competency-based human resources management regime being put in place. However, we found that progress was not sufficient to warrant an audit at that time. We felt, and other agency internal studies confirmed, that the agency had tried to do too much, too soon, without a full understanding of the cost, scope, and complexity of the task.
We provided the agency with a summary of concerns that we identified and indicated that we would return at a later date. We currently anticipate beginning an audit of human resources management in the fall of this year, with another human resources audit tentatively scheduled to begin about a year later.
From a financial audit perspective, we can say that the nature, quantity, and relevance of financial information being provided by the agency have improved since its departmental days. An important contributing factor to these improvements has been the legislative reporting requirements set out in sections 87 and 88 of the agency's enabling legislation. They require audited financial statements to be included in the agency's annual report, which is first submitted to the minister and then tabled in each house of Parliament. Our two annual audits of the agency's activities and its administered activities, as described earlier, have resulted in unqualified auditor's reports since the inception of the agency.
Although preparation and audit of these statements is not without significant challenges, particularly the statements addressing the agency's administered activities, we have observed incremental year-over-year improvement.
Our assessment of the fairness and reliability of the agency's performance information — another new reporting requirement included in the agency's legislation — has contributed to advances by CRA in developing its performance management and reporting framework. Corporate business plans now have clearer expected results, and the agency's performance information has steadily improved over the years in terms of providing more concrete, clear, and measurable results that are better linked to the agency's business strategies. Although much progress has been made, some improvements are still needed, for example, in reporting how the agency's administrative functions are contributing to the achievement of corporate objectives.
Mr. Chairman, there have also been positive developments in the tax collection arrangements with the provinces. These agreements were recently revamped and now include stronger accountability provisions — in particular, a requirement for my office to provide reports to the provinces on the proper design and effective operation of controls that have an impact on determining provincial revenues. The first of these new reports is expected to be issued sometime during 2007.
An important and unique aspect of the Canada Revenue Agency's CRA enabling legislation was the creation of a Board of Management. The Board of Management was given a mandate to oversee the organization and administration of the agency and the management of its resources, services, property, personnel, and contracts. Although we do not interact on a regular basis with the board as a whole, we believe that it has instilled a heightened sense of accountability in the agency. The board has also created several committees to deal with specialized aspects of its responsibilities, including an audit committee.
The audit committee has had a positive impact on financial oversight of the agency's operations. It is comprised of experienced, well-qualified financial professionals. The committee meets regularly, with meetings attended by representatives of both internal audit and my office. We have observed the members playing an important and effective role with both management and our staff.
What can my office say about the extent to which the agency has lived up to the expectations set out when it was created? Well, I believe we can say two things. First, we can identify areas where specific aspects of the agency's enabling legislation have led to positive changes. The legislative requirements for audited financial statements and for an assessment of the fairness and reliability of the performance information included in the agency's annual report have improved the quality of performance information available for decision-makers and the public at large. Further, the enhanced oversight provided by the board of management has contributed to strengthened business planning, a more rigorous performance measurement framework, and improved accountability to the minister and the provinces.
Second, in terms of the benefits anticipated from the agency's new human resource management and administrative authorities, there are indications that progress has been slower than anticipated. Our attempt to audit the agency's competency based resourcing initiative has been deferred to allow the initiative to reach a more mature state. And performance reporting related to the administrative areas where the agency was granted special flexibilities currently provides limited insight into the impact the agency's corporate services are having on the organization.
Mr. Chair, that concludes our opening statement. We would be pleased to answer any questions that committee members may have.
Thank you.
