Finance Committee on June 19th, 2006

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Was it badly run before?

[Sheila Fraser]

I don't know that we can say it was badly run. I just think that in today's world and in the complexity of the operations of the CRA, the board of management—and in particular, I would say, the audit committee—puts more discipline into it.

Just the fact that they have to produce an audited financial statement every year.... There is no other large department that has to do that. Now they're working towards it and would like to have it in place by 2009. It wasn't easy to get to the point we're at today, and I think the management has been improved because of the conditions that have been put on the agency.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

But the agency still has a minister—

[Sheila Fraser]

Yes.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

—so they still have to answer through a minister. But I'm not sure what the role of the minister is. We're hoping to have her come before the committee.

Is this a problem with the other departments? Should we now be asking that the other departments be turned into agencies? Is there that much of a discrepancy or difference in the way an agency and a department are run? I don't want to open up a big....

[Sheila Fraser]

There are a number of initiatives under way in departments. The Comptroller General, for example, wants to have departments produce audited financial statements by 2009, or at least to start to get there. He is also introducing audit committees that have external representatives. So it's starting, certainly.

To have more external independent oversight in departments would be a good thing. I would hope this audit committee process that's under way will do that.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Pacetti. Your time is up.

It's now Mr. Dykstra's opportunity to ask some questions. Mr. Dykstra, five minutes.

[Rick Dykstra, Conservative, St. Catharines, ON]

Thank you, Mr. Chair.

I just have a couple of questions.

In 2002, in one of the audits you'd actually completed around the tax administration writeoff and forgiveness, you documented that the agency has reasonable controls in place to guard against inappropriate writeoff of taxes owed, but it needs to strengthen the system by taking accrued interest into consideration and grouping related party accounts together when considering approval to write off an account.

I just wondered how that played into the discussion we're having today about the amount of money owing and the amount that's been written off. It seemed in 2002 that you were warning that this was an issue and was something the agency needed to pay attention to. Having said that, in 2006 we saw the numbers grow rather than recede. I wonder if you could comment on that.

[Sheila Fraser]

In the audit on writeoffs, we were talking about accounts deemed uncollectable that are completely written off. Some efforts could be made in future if the account were to be reactivated, but the agency won't continue trying to do a lot of collection.

In the last year, as Mr. Hood mentioned, there was a little over $2 billion of writeoffs, which was about double what it had been in previous years. The agency made a concerted effort to try to clean up their accounts, and encouraged the people looking after the accounts to write off those that were deemed uncollectable.

Our previous audit indicated that there was a sufficiently rigorous process in place, so accounts wouldn't be written off unnecessarily, and that is of course one of the dangers in the tax administration system. Should there be weaknesses in that system, somebody could just write off accounts inappropriately, but our audit was generally positive on the framework there. What we were saying again, and it comes back to a recurring issue, is that they needed better information. They needed to understand related accounts and how much is involved in that. You would hope that kind of information would help them going forward, so if these accounts or the people related to them reappeared, they could track them a little more closely.

[Rick Dykstra, Conservative, St. Catharines, ON]

It gets to the point I was going to try to make, or get some clarification from you on, and that is this whole issue of high risk and the identification of high risk.

Throughout, in terms of reviewing the work you've done examining the agency over the past number of years, it continues to relate to the issue of higher risk and the inability to really identify exactly what that is. I wondered how any improvements could be made, because you identified this on a number of occasions, yet we're still talking about it.

[Sheila Fraser]

The agency recognizes and agrees with us, as I mentioned in this hearing we had just a couple of weeks ago. They were talking about new systems they wanted to put in to do data mining, which is obviously one of the ways to get there.

We don't expect it to be resolved overnight. It will take time, because systems will have to be changed, and the techniques used for analysis are going to have to change. There is a recognition, and we are hopeful they are starting to move on this.

[Rick Dykstra, Conservative, St. Catharines, ON]

I asked CRA to state their priorities for the coming year, and they named three: core capacity, maximizing the particular model of governance, and maximizing their delivery of business. The CFIB added one more, and that was expanding service priority, so they're actually delivering the service. I know whenever people pay taxes no one's happy, but at least it would be a bit better.

One of the things you ended your report with this year, and why this means a lot to me from a go-forward perspective, is this quote:

However, there is still no detailed plan outlining the steps the Agency will take to address the specific challenges outlined in the vision or the measures that will be used to gauge progress toward its goals.

It's fine to talk about what those priorities might be, but how are they going to be able to measure and account for the goals they set themselves?

[Sheila Fraser]

I believe the vision we're referring to is on the collections only, and they did indicate to a public accounts committee that they will come forward to that committee with an action plan in September. So this committee could also ask them for that detail if you were interested.

[The Chair, Conservative, Brian Pallister]

Thank you, Madam.

We'll continue with Mr. Pacetti.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, Mr. Chairman.

We are here for the five-year review of the act. Should the committee recommend that the agency's mandate be expanded? Is there any reason why we shouldn't extend its mandate? Are there any advantages to converting a department into an agency, or is that a step backward?

[Sheila Fraser]

We have found that the agency's governance regime has advantages. The regime has brought greater rigour and more attention is paid to administrative aspects, which are obviously what concerns us the most. We haven't done a detailed audit of human resources, but it appears to us that the agency could set up whatever regime suits it, which is understandable given its size and also...

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

I know you haven't done a detailed audit of human resources, but you have heard some comments and you have audited other departments to some extent.

When the department was turned into an agency, some people wanted to return to the public service and others wanted to remain at the agency. Some people came to see us to ensure that their rights as employees would be respected. Do you think that the agency is having problems along those lines?

[Sheila Fraser]

That's not something we've studied or audited.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Okay.

A question for Mr. Hood--or maybe, Ms. Fraser, you can answer. Basically, when we're looking at collections—I understand the rotation and all that—what is the age factor of the $18 billion? Is it 30 days, 60 days, 90 days?

[Sheila Fraser]

I'll ask Mr. Hood to respond. There is a fair percentage that is over two years; 50% is over two years old.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

But does that make sense? From my experience, I would think that would make sense, because you would only start collecting after a debt is more than a year or two years old. I don't think you would start collecting.... It would take forever to put it in collection, first of all, and it would have to be over a certain amount.

[Sheila Fraser]

The taxpayer has 90 days in which to object. Once that 90 days is up, the account is considered in collection.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

In collection, but they don't assign anybody to collect that amount until a certain amount of time--

[Sheila Fraser]

Those accounts go into various streams, depending on.... For some of them it's an automated system in which people will get a notice, phone calls, letters, all of that.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Yes, I know. But when you get the phone call, then you start getting the harassment. The letter is usually after 90 days, but I think it takes over a year, if not two years, before somebody actually picks up a phone and calls you for money.