Public Accounts Committee on June 14th, 2018

[The Chair, Conservative, Kevin Sorenson]

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 Mr. Mulcair 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.

[Michael Ferguson, Auditor General of Canada, Office of the Auditor General]

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.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. Ferguson.

We will now move to Ms. Lemay, please.

[Marie Lemay, Deputy Minister, Department of Public Works and Government Services]

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 Qualtrough 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.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Ms. Lemay.

We'll now turn to Mr. Wallace, please.

[Peter Wallace, Secretary of the Treasury Board of Canada, Treasury Board Secretariat]

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.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. Wallace, for your testimony.

We'll now move into the first round of questioning. It's a seven-minute round.

We'll go to Ms. Mendès, please.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

Thank you very much, Mr. Chair.

Thank you all for joining us once more.

For the record, Ms. Lemay, in terms of page 10 of your statement, you said 25 instead of 25,000 and considering that 25,000 is a very good number, I'd like it to be on the record.

[Marie Lemay]

Thank you.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

I am sorry. I wanted to be sure it was the right number.

I would also like to repeat that you were not the serving deputy minister when the pay system was launched, and neither was Mr. Linklater. Neither one of you was in the position at the time.

I see, however, that you have taken a lot of steps and acted in accordance with the recommendations in the auditor general's fall report. You have started to deal with many of these issues.

In the meeting we had with the Clerk of the Privy Council last Tuesday, something struck me. Both Mr. Wernick and Mr. Ferguson agree that the Phoenix system is a failure and they agree on the nature of the failure. However, they do not agree on the ideas of “incomprehensible” and “comprehensible”.

I can see and hear your recommendations and your interpretation of the recommendations you have been given in the auditor general's two reports. I would like to hear your impression. In your view, are the mistakes in preparing, implementing and launching Phoenix comprehensible enough for you to be able to learn lessons on correct those mistakes?

[Marie Lemay]

In hindsight, yes. We are able to learn from it, and that is what we are doing at the moment. We will put them into effect.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

I should probably put that question to Mr. Ferguson.

For you, Mr. Ferguson, is the incomprehensible part more about how we got there and not necessarily the mistakes that were made, since we understand the mistakes that were made, but it's just that we don't understand why those mistakes were made or were allowed to me made? Is that how it was incomprehensible for you?

[Michael Ferguson]

Certainly, there is that nuance to that word “incomprehensible” in this context. Yes. You can look at it and you can understand all of the different decision points that were made and how those decision points or decisions that were made at those points led to implementing Phoenix when it was not ready to be implemented.

However, as I have said a number of times before, it is incomprehensible to me how it could have been allowed to happen.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

Yes.

[Michael Ferguson]

The way I've described that is, again, with all of the different controls in place in government, which are there to prevent something like Phoenix from happening, how was it possible that it could have happened?

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

I think I got that and I understood that the nuance was more about “How could it happen?”, if we have all this.

We understand what happened and we know where the mistakes were made.

However, Ms. Lemay, I am going to go back to some of the observations you shared with us, especially the one that, in 2009, when the decision to change the pay system was made, the priority went to cost and timelines, but not to the final objective that we wanted to achieve.

For more than a year, I have often been hearing that, in decisions about tendering, the government should be much more concerned about the end results than about the costs that will be involved or the timelines it has to meet.

In your opinion, is that part of the culture that we have to change in terms of the way in which the government does business with contractors?

[Marie Lemay]

Well, costs and timelines are always important. However, they must not be the dominant factor in the decisions. What we have learned over time is that investments must be made in order to reap the benefits of those investments. Spending more time to plan at the beginning of a project and taking the time to invest in good planning that will deliver the results is indeed a practice that should be put into place.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

I think that we can all agree that it would certainly have helped the system operate properly if the pay system experts who were already working in the public service had been kept. They would probably have been much better placed to train the new people who were going to be employees in the Miramichi Pay Centre sooner or later. In addition, they also already had a very instinctive understanding of what a pay system requires.

It seems logical to me. You can't send everyone with expertise in and a knowledge of the system off into retirement without really having conducted tests and reassured everyone that the new system is well managed and that it works properly. The fact that we have 1,600 employees in the pay centre rather than the anticipated 500 or 600, proves that we cannot do without human expertise.

[Marie Lemay]

As you said, I was not there when the project was being planned, but I was there when the project was put into operation. However, it became very clear that we were in catch-up mode from the outset. As you said, we lost a part of the capacity and the learning curve…Clearly the training was inadequate and the change management…A host of factors came into play, but because we did not have the capacity, we could not address the issues and we were in catch-up mode.

In June, we announced that we were going to have satellite offices and we started to hire people. However, those people were not always available any more and we realized that we really did need some expertise. We had difficulty recruiting employees and we had to train people again. Today, in fact, Mr. Linklater and his people are training new compensation advisors, because there are none. We have had to rebuild that capacity.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Ms. Mendès.

We'll now move to the first round of questioning for the opposition side.

Mr. Deltell, you have seven minutes.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Thank you very much, Mr. Chair.

Ladies and gentlemen, welcome to the House of Commons,

First and foremost, we all have to make decisions in our lives and sometimes we make mistakes. However, the most important thing is to have the facts and rely on them, and be sure those facts are correct.

Clearly, if we make decisions based on flawed information, our decisions will be flawed as well.

Mr. Ferguson, earlier you said that the executives responsible for Phoenix didn't mention certain serious problems they were aware of, when they told the deputy minister of Public Services and Procurement that the system was launched.

If I recall correctly, you mention three Phoenix executives in your general report. Is that correct?

[Michael Ferguson]

Yes.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Do these executives work for Public Services and Procurement Canada, or for another department?

[Michael Ferguson]

They work for Public Services and Procurement Canada.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Therefore, they report to the deputy minister of Public Services and Procurement Canada.