Finance Committee on June 19th, 2006

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

If resources were reallocated, could there be a better return on investment?

[Sheila Fraser]

I think that is probably a viable conclusion to make. We obviously don't have any evidence of this, but there are higher-risk sectors to which fewer resources are allocated than certain other sectors. A reallocation of these resources should lead to better performance.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Do you have any concrete examples of sectors where more resources should be allocated, where the risks are greater, or where the resources allocated are too great for...

[Sheila Fraser]

Let me give you an example of an audit we conducted recently on trusts. There are two types of trusts, testamentary trusts and living trusts. The department dedicates a lot of resources to testamentary trusts because it has to issue a sort of certificate to indicate all taxes have been paid.

And yet, the trusts involving the most money are living trusts and not testamentary trusts. There are far fewer audits and measures taken in relation to living trusts. So here, the allocation of resources should be reviewed.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

I see.

The union representatives who appeared before the committee last week spoke at length about staffing. In your presentation, you said that this was an area in which improvements could probably be made. And you said “that progress seems to have been slower than expected” in this area. Could you tell us what problems you have observed at the agency in relation to skills-based staffing? How much more progress needs to be made in order to have more satisfactory results?

[Sheila Fraser]

We had planned, at the time, to do an audit of human resources management. They wanted to implement a management framework, but weren't very far along with its development. For example, neither the job descriptions nor competency profiles were completed. Nor was validation of the profiles. For staffing, there was a pool of prequalified staff. This system seems a bit mixed up.

In addition, some concerns were shared with us, namely that some staff had apparently been transferred within the agency without competition or posting. The way all of that worked was not clear to us. We raised those concerns with management. We encouraged them to check whether there was a problem and to finish their work, especially with regard to the competency profiles and the management framework. We told them we would be back. And that's what we are going to do this year. Our report, which will focus on one aspect of human resources management, is to be released next year.

[The Chair, Conservative, Brian Pallister]

Merci, Monsieur St-Cyr.

Mr. Turner, for seven minutes.

[Garth Turner, Conservative, Halton, ON]

Thank you.

Welcome to our witnesses. It's nice to have you here.

I have a question about the competence of the CRA based on your experience in the audit. We have a lot of changes in regard to the budget that we now have at hand. There's the GST tax reduction, which is a fairly major thing for the CRA to implement, as well as a myriad of tax changes, including a lot of new tax credits, plus changes to the income tax rates and personal exemptions.

Based on what you know of the agency right now, do you feel the CRA is on top of all of this? Is it competent to do it? Does it have the internal controls and mechanisms necessary to implement the number of changes in the compressed time that is available?

[Sheila Fraser]

Again, it's not an area where we have done any specific audit work. We hesitate to comment when we haven't actually done an audit.

I guess all I can say is that in discussions they have certainly indicated the need or they're very aware of all the changes. I think they have tried to foresee some to the extent possible to change the systems as they can.

Other than that, all I can say is that they've been able to do it in the past. I think probably a discussion to have with them would be on how they manage so many in such a short period of time.

[Garth Turner, Conservative, Halton, ON]

There's nothing that you've discovered, there are no red flags, and nothing is troubling or of concern to you now in advance of that.

[Sheila Fraser]

There's nothing that would indicate there would be a significant problem with it, based on past work that we have done and the competency of the people there. They've certainly always been able to respond to these measures. I would expect they would be able to do it again.

[Garth Turner, Conservative, Halton, ON]

What do you think the CRA should be doing right now to collect outstanding tax debts? I know this is a concern of yours. How do they do that without terrorizing all of us who are taxpayers? Is there some mechanism that you would like to see? Are there things you'd like to see them do that they're not doing?

[Sheila Fraser]

The major issue we were raising in that audit was that they manage a very large sum of receivables. The amount, in and of itself, is always going to be large, because they're collecting, essentially, $1 billion a day. So any amount outstanding is going to be in the billions.

What we were saying is that they aren't paying enough attention to which collection methods are the most efficient. They have various methods that they could use. They need to have better information, too, to identify the higher-risk taxpayers earlier, and, if necessary, take action more quickly on those. I think the taxes of the average citizen--in fact, most citizens--are already paid through deductions at source, but they need to be able identify those taxpayers who have....

In the hearing we had before another committee, the agency agreed with that. They say they're starting to develop the data-mining techniques so that they can identify that people around an organization may have gone bankrupt three or four times in the past--which should be a flag to them if ever they start to become late in their payments--so that they have better information to manage the risks around that.

They need better tracking of those accounts, and also, we said they need to better understand the makeup of that $18 billion. Were there certain sectors where they needed to do more education programs or different kinds of programs to encourage those people to pay their taxes? So it was really around the management of it.

[Garth Turner, Conservative, Halton, ON]

On a related point, the underground economy obviously has been with us, some people argue, since the GST was introduced in 1991, and that it has flourished more. Do you think the CRA is doing enough to attack the underground economy and bring it above ground?

[Sheila Fraser]

We looked at that audit in 1999. At that point, the agency had put quite an effort into the underground economy, if my memory is right. There had been a number of people brought in specifically to deal with that.

I think our major conclusion was that it wasn't obvious to us. They weren't tracking the results, so it wasn't obvious whether those efforts were actually doing something. We were questioning whether all this effort had actually given something. In order to be able to know if the efforts that you're doing are having an effect, you have to have that kind of management information so that you know, well, maybe this approach is working better than others, so we'll concentrate here. Others may be not as efficient or as effective, and we'll stop doing that and do something else. It was that kind of management information, which they didn't have at that time.

[Garth Turner, Conservative, Halton, ON]

Do they now?

[Sheila Fraser]

We haven't done a follow-up on that audit.

[Garth Turner, Conservative, Halton, ON]

Are you planning that?

[Sheila Fraser]

I would suspect that at some point in time we'll go back, but it's not on the books for the immediate future.

[Garth Turner, Conservative, Halton, ON]

I have one last question, off topic.

I'm constantly amazed at how you do your job and how it is possible for you to do your job. It seems you're all over everything. Do you have enough resources? It seems to me insurmountable, the task that you face, but you obviously do it. Do you do it with enough resources? Are you satisfied with what your office has to work with to accomplish this?

[Sheila Fraser]

We have indicated that at the present time our resource level is appropriate. We may go back, and we've indicated to Parliament--to the public accounts committee and to government--that we will have to reconsider our resourcing level after this year, because we were given new mandates.

There are certain crown corporations, for example, that we are auditors of for the first time this year, and we wanted to go through the first year to see what level of effort was involved in that. We had, quite frankly, sufficient carry-forward from previous years to be able to absorb it this year, but we will be reassessing that.

Just to make the other point, our universe is unlimited. The number of audits we could do is unlimited, in a way, except that we have to judge what we think is an appropriate level for Parliament to be able to deal with, and for government departments to be able to deal with as well. So we do about 30 performance audits a year, in addition to the 100-and-some financial audits that we do, and we have quite a process to decide which ones we're going to look at.

[The Chair, Conservative, Brian Pallister]

Out of curiosity, further to Mr. Turner's question, when was the last time the Auditor General's office was audited?

[Sheila Fraser]

We have a financial audit every year that is in our performance report.

We consider ourselves a bit of a professional organization. We had a peer review done of our financial audit practice, and I believe the report came out in 1999-2000. Excuse me, the first one on the financial audit was done by a private sector firm.

We also wanted to do one on our performance audit practice, and the challenge there was who would adequately do a peer review, because the private sector doesn't really do this kind of work.

We were the first country to ask an international team to do a peer review of our performance audit practice. It was an audit led by the National Audit Office of Great Britain, with the participation of the audit offices of Norway, the Netherlands, and France. That came out in the spring of 2004.

We will be planning to do another peer review, which I hope will cover the whole office before the end of my term.

[The Chair, Conservative, Brian Pallister]

Thank you.

Madam Wasylycia-Leis, you have seven minutes.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Thank you, Mr. Chairperson.

Thank you, Madam Fraser, and your staff for being here today.

This issue of tax debt gets a lot of Canadians riled up. We all got mail, I'm sure, after your report came out, and it was duly reported by the media.

A typical response that we get is like the one I got from a Mr. Kapz on Pickley Crescent in Winnipeg. He says:

When Auditor General Sheila Fraser presented her most recent report, the item that irritated me the most was the fact that the federal government is owed some $18 billion in back taxes. I have to pay my income tax quarterly, and if my annual tax return is inaccurate, Canada Customs and Revenue is immediately after me to make up any shortfall. Yet there are apparently thousands of citizens, businesses, and corporations who owe far more than I do....

This person goes on to say that we've got the law, there just doesn't seem to be the will to collect.

I'm wondering, since you were at this in 1994—it's 14 years later, and we've gone from $5 billion or $6 billion in taxes owed to $18 billion—is it a question of the law not being strong enough? Do we need to make amendments to the CRAA? Or is it a question of the will to collect taxes? And is that because there are consequences for decision-makers if we go too hard after certain bodies for tax evasion?