Public Accounts Committee on June 6th, 2006

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you very much, Chair.

Thank you all for your attendance today.

I'm going to be focusing primarily on some of the specifics around why 12 years after the audit we've still got major issues unresolved that were already been identified in 1994.

If I might, Chair, I'd just like to put on the record two paragraphs, one from 1994 and one from now. In the 1994 audit, the Auditor General said, and I quote:

The Department has undertaken a number of initiatives to modernize collection operations. Further improvements are needed. In our view, overall collection performance could be enhanced and the cost of collections could possibly be lowered by improving results-oriented information, strengthening standards of performance at the collector level, instituting effective risk scoring and debtor profiling of accounts, fast-tracking collection of all large debts, and evaluating the effectiveness of collectors and teams in recovering cash on amounts owing.

That was in 1994. Now, 12 years later, the Auditor General says, and I quote again:

We found that the Agency's approach to assessing tax debts for risk continues to have major weaknesses that impede their timely and efficient collection. We also found that the Agency has taken some steps to handle tax debts efficiently, but much more needs to be done. Management lacks the information it needs to understand the makeup of the tax debt and to develop strategies and allocate resources in a way that would significantly improve the situation. It also lacks the information it needs to determine whether it is using efficient and timely processes to collect tax debts.

Those quotes can be found in the researcher's documents.

My simple question is why they sound so very similar. Why? Why do we have a whole series of problems that need to be addressed? For the most part, I think you agreed to address them, and 12 years later the findings are very similar. I'd like to know why. Why wasn't more done on these priority issues, as they were previously identified?

[William Baker]

I think first of all we don't disagree with what you're saying. More needs to be done. I don't think it's necessarily the case that every weakness found in 1994 is exactly the same weakness as is found today, but some are the same.

[David Christopherson, NDP, Hamilton Centre, ON]

Sure. Many.

[William Baker]

I can tell you that based on my many years' experience at Revenue and particularly over the last 20 years, notwithstanding the size of the agency, we have to be extremely thoughtful about where we make investments in terms of, for instance, new information technology systems, risk management, and so on. There is quite a delicate balance to keeping the revenue administration operating properly, so in any given period of time we're targeting investments in certain areas. Reference was made earlier to “targeted investments in the GST”, for instance, in the 1990s, to get that system up and running. Recently, the Revenue Agency implemented a revised corporate tax system. At any point in time, there is focus in certain areas.

I can tell you, just based on the brief time I've been back at the agency, that the attention being focused on the collections file is quite significant. I'd like to point out one thing in particular. Collections used to be part of a section of Revenue under the control of an assistant commissioner who looked after many aspects of the operation. For the last couple of years we have had an assistant commissioner, Mr. Proulx, who has been assigned primary responsibility for the tax collection function. I think that increased senior leadership focused on that, as well as the development under way on what we've referred to as the integrated revenue collections project, which is a critical system development project that is coming into its own, is going to make a big difference.

But we don't dispute that there's more work to do.

[David Christopherson, NDP, Hamilton Centre, ON]

Thanks. I hear you, and I know it's complex. I don't want to sit here and be an armchair quarterback and tell you to fix it, but I have to tell you that's still not a really good answer as to why so many things still remain unresolved a dozen years later.

I have two questions for the Auditor General.

One, given the amount of money that's involved here, I do think it is fair to ask why it took so long for your department to go back to this group and do the follow-up. It just seems like a long time when you've identified key problems. Obviously it involved tens of millions of dollars over that period of time. Is there a reason, Auditor General, why your department would wait so long to go back in?

[Sheila Fraser]

I don't think there's any real good reason I can give you, simply that the planning of the issues that we audited in the department.... We would do two or three audits a year, and for many years it tended to be done on a cyclical approach. We would cycle through, for example, corporate tax, individual tax, trust tax, so by the time we got around to it....

I'm not sure that's a particularly good answer.

[David Christopherson, NDP, Hamilton Centre, ON]

It's on the weak side. It's been identified, and I'm sure you'll work to address it. Hopefully we won't see too many large gaps like that in the future.

I would like you to comment on what you heard--I was using your words. You made both comments out of 1994. Now that you've heard what the department has to say, can I hear your thoughts on what you've heard as an explanation?

[Sheila Fraser]

The comment I'd like to make is that the agency has agreed with the recommendations, it has indicated that this is a priority, and they are articulating this vision--2010--which, if put in place, would address many of the issues that have been raised. The main issue we're raising in this is that we really think there needs to be more detailed, concrete action plans to support that. This is not going to be an easy thing to do, and it will take time to introduce these more sophisticated risk management techniques and information systems.

What we would like to see are more concrete action plans and specifics about how this is going to be accomplished. That would give us more reassurance that it is being made a priority, and that it will get addressed over time.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you.

I note in your opening comments that as much as the department puts a big focus on that vision, you do have specific concerns, and I want to put out those very concerns. You write in your report today that the key question with regard to the vision is when you will see the desired results. You're commenting that we may wish to ask the agency to provide us with a detailed action plan and timetable for completing the vision, and regular progress reports.

It sounds like a good idea. Are you willing to undertake to do that at this point?

[William Baker]

Absolutely. On our own, we are developing action plans to effect these changes, and we would expect the committee, in the form of its report following this review.... If that were requested, we would most certainly respect that request.

[David Christopherson, NDP, Hamilton Centre, ON]

I would then, Chair, ask you to just hold a spot for a motion at the end, where we would pass something. I'm going to propose that we pass that, that we ask for that information and that we put a deadline on when that report is coming--with the information in there.

Thank you, Mr. Chair.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Christopherson.

We're going to go now to Mr. Wrzesnewskyj for eight minutes.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Thank you, Chair.

Mr. Baker, it seems you always get the easy files.

I'd like to go to the Auditor General's opening remarks. Under point seven, she said, “We found that management does not have a good understanding of why the amount of tax debt is growing at a faster rate than total taxes paid...”. There are a number of flags raised, but this was the big one, it appears. Out of that, in conclusions drawn, the key question is, when will we see the desired results?

I'd like to step back. I'm not quite sure, in the information that we have.... I assume the department would have accurate information. In this committee we often talk about matching expenses to the years, accrual accounting. We get into all of those issues. But nowhere could I find information that shows the debts or taxes not collected matched to the revenues for those years. We have an aging graph, but that would show....

I'm just wondering--this is very worrisome--do we have accurate enough information to substantiate this statement?

[Sheila Fraser]

On page 245 of the report, in exhibit 8.3 we show the tax debt at the end of the year compared to total cash receipts, year by year, from 1996-97 to 2004-05, and it shows that tax debt has grown 88% and cash receipts have grown 48%.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Yes, but that's not exactly what I'm getting at. It's for a particular year, the actual revenues that are generated and separating out past bad debts that have been collected. For instance, after 1994 there was a call centre established. It was soon after the introduction of GST. It appears that the call centre was quite effective. I might have the numbers wrong, but it was $2.3 million per person at the call centre--or $3.2 million, one or the other--that's been collected.

What I'm having difficulty in getting at is numbers that show that for a particular year these were the revenues that we should have been able to collect, this is the shortfall. It is removing and pealing away what's happened in past years. You could have overlaid your business cycles. We were into a recessionary period and a post-recessionary period, besides the extremes of bankruptcies, and a lot of people extend...one of the things they try not to do is pay their taxes. So there isn't real clarity in the graphs and the numbers that we could bite down on and say that.... It appears there is a problem, but I'm not 100% sure that the statement can be accurate without having the correct information.

[William Baker]

Mr. Chair, we certainly can disaggregate data to show, for particular revenue streams, which tax debts emerge each year. Of course, there are often complicating factors. But it's not quite straightforward. For instance, if someone files a notice of objection or appeals an assessment, that suspends that debt. Often, if it's a corporate tax file, it could be years before there's a resolution of that objection or appeal. But we can tell you in a particular year and disaggregate that. I don't think that detail is in the report, but that information is available in our data system.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

I think with that sort of conclusion, that data would have been helpful to provide some additional clarity.

There's a sample breakdown of the types of debts out there, and personal debt seems to be the highest category, followed by corporate, then GST and payroll. Is there an average size to those? Once again, for interest's sake, I think the collection methods in each would be quite different.

[Guy Proulx]

It's very hard. The answer to your question is yes, there is an average, but it is divided by how many owe and what's the value. An average is quite often a very bad representation of what the true reality is.

I can tell you that most of our volume is with individual debt, but the amounts are generally smaller. Many Canadians come into issues owing $1,000, $1,500 and things like that. Quite often they are seniors, because they have multiple sources of income but not enough source deduction on each, and they come at time of filing and they owe small amounts.

So there is a variety, and that I think is exactly the point the Auditor General is making in terms of our capacity to analyze. Our systems were not built to do that kind of analysis. We need to build the data so we can do that type of analysis, so we can basically have a better and more strategic way to approach these types of circumstances. If there are seniors with lots of small amounts, we can apply a strategy to it that could be different from the strategy for self-employed Canadians who are short on their quarterly instalments, who owe us $25,000 at time of filing. That's a different business challenge to us than collecting from seniors.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Which flows into my next question.

For instance, with that call centre, which you reference as a success, having set that up, do the callers specialize in the type of debt, whether it's GST, personal income, size of debt, etc.?

[Michael Snaauw, Director, Accounts Receivable Division, Taxpayer Services and Debt Management Branch, Canada Revenue Agency]

Mr. Chairman, the workloads are streamed separately, because the accounts come into the agency on the different cycles. GST is on a different remittance cycle; T1 is the annual cycle. But the actual call centre agents who make the calls--and the calls are actually initiated by a predictive dialler--swap between one workload and another because the skill sets and training are quite generic.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Thank you.

Coming back to the comments I made about business cycles, is there any preparatory work done? For instance, if we know that we're into an expansionary cycle, and it appears that we will be for a number of years.... We look at the past most of the time here. But do we plan forward to say that at a certain point interest rates are going to go up, people are potentially going to get themselves into trouble, and the consequences of that, based on data, show that we'll have an increasing demand for people, for instance, in the call centres or as field workers, and so on?

Thanks.

[Guy Proulx]

There is a whole lot of data that's external to this agency, which I believe, and we recognize it, we're not making strategic use of--levels of indebtedness, the ease of achieving and obtaining credit in the private sector. When you get into the dilemma of not having enough cashflow to pay all your creditors, including taxes, who draws the short straw? That's where we need to have our processes in place so we can predict, through mathematical models, what those trends will be and then develop them into the future. That is part of our future vision.

I'll come back to your question. At the call centre, every year we have estimates of workload. Call centre agents get ramped up at different times and peaks in the year. They are trained. Their job is not the hard core collection; it's the friendly, rehabilitative attempt to get the taxpayers to manage their tax debts in the same way as they manage their private sector debts, which is to entice them to pay, telling them that this is the easy way to get out of this problem. Otherwise, we have collection powers that will get more definitive and more harsh--legal action and garnishees and things of that nature.

So while we would like to have better statistical packages and information about the true performance of our call centre, because it was done with the goal of initiating those calls, we know it's efficient, and program evaluation people in our own agency have concluded that a 30% reduction in workloads materialized out of that call centre, and that people do voluntarily comply.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Proulx.

Mr. Sweet, you have eight minutes.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

Thank you.

The real issue, to me, is one of fairness, when there is $8 billion not collected, and of course there's another $6 billion as well. I think most of us have had constituents come in at some time to talk about their issues in cases where they felt they were harshly targeted for collection. For them to see $14 billion uncollected when they've had to capitulate is a tough one. So I'm asking the questions in that frame of mind, so we will fix this, so people who do honour our tax system, who do pay, feel that there's some confidence that everybody else is complying as well.

The Auditor General mentioned in the report that the vision was...I think the term you used was “optimistic”. Is it too optimistic, do you think, as far as being able to put in some kind of framework and some performance standards is concerned?

[Sheila Fraser]

I think, Chair, that the term we used was “ambitious”—