Public Accounts Committee on Dec. 10th, 2018

[Ted Gallivan]

It starts with the legislation. It's fairly broad. It says that the minister “may”, and then it kind of stops there. The agency does have criteria and does have procedures to follow, but we want to, and have to, leave room for judgment. These requests are subject to judicial review. Because the law allows for this discretionary waiving of penalty and interest, we can't prescribe that it's exactly six days for a bank balance or exactly 25 days if there's a flood.

We have to, and I think we want to, leave it to the discretion of individual auditors to think about the client, put the taxpayer at the centre of the decision, and make a judgment that's particular to the circumstances of that taxpayer.

[Randeep Sarai]

I'm fine with that. What concerns me is what's sensitive to one adjuster versus another. That's my issue. One might be much more sensitive to a flood or a health issue, while another might be super-hard and say, “I don't give a damn if you had a heart attack, if your husband was in the hospital, or if you had a flood you had to deal with. I just care about my taxes.”

How is the adjuster given guidelines on how to weight those issues?

[Ted Gallivan]

That's why our own internal audit, in bringing to our attention this risk of inconsistency, led us to our need to clarify the guidelines—specifically, for example, in the financial institution delays. We'll put in examples: “This is clearly a serious situation. This is a less serious situation.”

You're right that we can always improve and tighten the guidance. The caveat I was leaving was that we just can't prescribe it. It can't be a formula. I think we definitely need CRA officials to exercise their judgment. We want to avoid the types of situations you heard about from your colleague, situations of somebody waiting an unacceptable period of time. We want them to have some discretion, even at the risk of having some inconsistency.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Gallivan, and thank you, Mr. Sarai.

Mr. Christopherson is next, please.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you, Chair. I appreciate another round.

I want to say to Mr. Gallivan that I really liked what I heard you say about being proactive with the smaller amounts. If there's an example of exactly what we are talking about—and I thank Mr. Sarai for focusing on that—it's the thing about unfairness. On the one hand there's lots of money, and part of the process is that we'll take a look and see if you should get some of that back, and on the smaller stuff—again, the little guy, the one who's easy to push around—we say, “Nah, we won't do that.” Introducing that element of fairness is really the key, at least for me. That's what's missing—fairness.

As you know, that's a major Canadian trait. We like to think we're fair-minded people. I think people have a right to expect that from a powerful, important and potentially intrusive agency like the one you both operate, so I thank you for that. That was good news.

On page 7, in paragraph 7.41, again this speaks directly to what we were just talking about. It reads:

We also found that Agency policies and procedures defined circumstances to waive or cancel interest, but did not define the period of time considered to be an undue delay. The Agency left this to the auditors’ discretion.

Any time there's discretion, there is the opportunity for corruption.

My question is to the Auditor General's office. I would assume—or you would have said something, but I want to reinforce it—that you found absolutely no evidence or concern around potential corruption on the part of individuals who have the power to waive big amounts of money that someone either pays or doesn't have to pay.

Please just give me some assurances.

[Jerome Berthelette]

Mr. Chair, if the team had found that, we would have reported it.

[David Christopherson, NDP, Hamilton Centre, ON]

Then you found no evidence whatsoever. Okay. I just wanted that on the record. I suspected that.

This is my last question, Chair. All these inconsistencies obviously are big enough to form the focal point of an Auditor General report. It doesn't get much bigger than that.

I'm going to ask both entities to respond to this question: Where were the internal audit committees? Why didn't they find this before the AG had to roll in and find it?

I'm going to ask Mr. Hamilton why, and then I'm going to ask Mr. Berthelette to comment on what you found when you looked at the internal audit function. I'm assuming you had to touch on that.

[Bob Hamilton]

As I referenced earlier, part of our goal is to not wait until the AG points something out to us, but to actually proactively uncover it. I think this is a good example.

You were at paragraph 7.41. If we go down to paragraph 7.43, we see a reference to our internal audit in this area where we had already done some work to uncover this issue.

We haven't solved it yet, but it was an area where we worried, as I talked about earlier, that we may be leaving a bit too much scope for inconsistency.

As Ted said, it's true we can't necessarily prescribe everything, but we can be much clearer with our employees about what our expectations are and what the guidelines are. We have committed here to do that. This was something that we found in our internal audit. My hope going forward is that we find more and more things internally that can then be verified, checked or elaborated on by the Auditor General.

This is one example. I wish we didn't have the problem, but we did uncover the problem, and we agree with the Auditor General.

[David Christopherson, NDP, Hamilton Centre, ON]

If I'm clear, you're suggesting that your internal audit committees did identify some of these things, but just not everything. Will you be upping the game of the audit committees too, to make sure they can do a more comprehensive job?

You're right that in a perfect world, you wouldn't make any mistakes. If you did make any mistakes, your internal audit committee would find it. In a worse case, they don't, and luckily the AG rolls in.

I assume you're going to try to beef up that capacity so they would find more of these kinds of things, because they slipped through the cracks of your audit committee, obviously.

[Bob Hamilton]

Yes, and to be fair, I believe we have one of the best internal audit shops I've seen. We actually have a management board that has directors, and an audit committee.

We can always up our game for sure, but I think the group does a pretty good job of looking at the agency, looking at the risks we face and our risk tolerances, and deciding where to focus their efforts.

This is one they identified. Could we do a better job of making sure we identify all of the high-risk areas? Probably yes, but I would say it is generally a high-functioning internal audit team. I don't know if the AG would agree with that or not, but that's my perception of it.

We do, though, need to think about how we proactively uncover those areas that are high risk or could become high profile.

[David Christopherson, NDP, Hamilton Centre, ON]

Or unfair.

Mr. Berthelette, would you comment, please?

Then I'll have finished, Mr. Chair.

[The Chair, Conservative, Kevin Sorenson]

Mr. Berthelette—no, it's Mr. Dompierre.

[Martin Dompierre]

Mr. Chair, to echo what Mr. Hamilton just said, we are attending the audit committee, for example, and we are sitting in on and hearing these audits that are presented. One example, as mentioned in paragraph 7.46, was an audit specifically on taxpayer relief. We did look at that audit and the methodology they used, and we identified that they had done a good job in identifying some of these inconsistencies. Therefore, I think when we have reports like that, we can use these reports and quote them, as we did in this report.

[David Christopherson, NDP, Hamilton Centre, ON]

Just to make sure I understand, in a layperson's words, basically you're agreeing with Mr. Hamilton that they do a pretty good job. They caught some of this stuff. They were looking at it. Obviously they didn't get it all—you did—so I think it's still fair to say that they could do a better job, because some of it fell through.

You are acknowledging that on some of these things, they did catch it. Let's hear it specifically, because I think the answer is yes.

[Martin Dompierre]

Yes.

[David Christopherson, NDP, Hamilton Centre, ON]

I like to end on a positive note. I actually do.

What I heard was that Mr. Hamilton thought they had a pretty top-flight internal audit process. Do you feel the same way?

[Martin Dompierre]

I will always feel the same way, Mr. Chair.

[David Christopherson, NDP, Hamilton Centre, ON]

That's good to hear.

[Martin Dompierre]

I think we complement each other as organizations. They do a certain audit based on their own risk assessment, and we try to do other audits that are not duplicating theirs but are looking at similar issues. At the end, we and they both produce some good results.

[David Christopherson, NDP, Hamilton Centre, ON]

That's very good to hear.

Thank you, Mr. Chair.

[The Chair, Conservative, Kevin Sorenson]

On that, does their internal audit ever get counsel from an Auditor General? Is that a conflict, or is that good practice? Is your internal audit by CRA people, or do you bring in...? You have an internal one, meaning CRA does it. Do you ever counsel with the OAG and say that something is problematic or...I don't know, whatever they may do on their internal one? Is there ever consultation back with the OAG?

[Bob Hamilton]

Mr. Chair, I'll take a stab at answering that.

It is internal. Our internal audit is by CRA employees, a team that reports to me and to the audit committee of the board. There is a fair amount of back-and-forth with the Auditor General, so I would say there is consultation about particular issues, things they might see or things that we're seeing.

I'm not sure if I'd go so far as to say we're seeking their advice on a particular issue, but that may have happened in the past. I don't know. I'll ask the AG staff if they know. Otherwise, I can check back in, but I would characterize it as two independent groups that try to coordinate, where possible, so they're not duplicating each other's work.

[The Chair, Conservative, Kevin Sorenson]

Thank you.

Madam Mendès is next.

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

Thank you very much, Mr. Chair.

I'd like to refer you all, because I'd like this to be on the record, to a report from the Professional Institute of the Public Service of Canada, called “Shell Game: How Offshore Havens, Loopholes, and Federal Cost-Cutting Undermine Tax Fairness, A Survey”. It was a survey done of CRA professionals.

I'm going to quote three little parts of it.

I'll start my first one with an attempt to translate it to French, because I'd like this to be on the record in French.

According to the survey, only 16% of the agency's professionals feel that the agency has adequate audit coverage capacity to ensure tax laws are being applied fairly across the country. The 2012 budget cuts are still being felt today.

I'll move on to the next excerpt.

The CRA by comparison has surprisingly limited resources. In 2012, sweeping budget cuts were introduced to the agency. As a result, spending levels and staff counts have yet to return to pre-2012 levels. When adjusted for inflation, a $500-million annual budget shortfall exists between 2012-13 and today. This level of underfunding doesn’t make sense. Not only does tougher enforcement result in a fairer system, it also more than pays for itself. The finance department’s own numbers show a ten-dollar return for every dollar invested in combating international tax evasion and aggressive tax avoidance.

Here is the final quote.

When asked in our survey, over 8 out of 10 CRA tax professionals (81%) who responded agreed that “Tax credits, tax exemptions, and tax loopholes disproportionately benefit corporations and wealthy Canadians compared to average Canadians.”

If I could get your reactions to these quotes—if you were able to listen to them—I would really be grateful. I think, from the professionals themselves, we also have a measure of the challenges they face to reach this fairness that we want for the Canadian taxpayer.

Thank you.

[Bob Hamilton]

I'll respond to some of that.

Obviously that was a survey of one of our unions within the agency, or we have a part of that union. I take it seriously when our employees are surveyed and voice those opinions.

What I would say is that we try to do the best job we can at the agency with the money that we are given. Frankly, as we've talked about in this session, recently we have received additional money, largely for compliance but also to increase services.

With that money we have at our disposal, we try to make the best use out of it. That's not just to generate additional money for the government, as we have talked about earlier, but also to do so in a fair way, to look at our procedures and ensure that we're collecting the right dollar of tax—not too much, not too little.

I take the point that with more money maybe we could do more audits and we could do more activity, but my job is to make sure that with the money we have we are doing an efficient job—making maximum use of technology, making the best use of the data that we have, hiring the best people.

We are also instilling the idea in the audit community that, yes, there's a job to go out and generate money through audit to make sure we're getting the right amount, but there is also a service element in what we do. In some cases it might even be more expensive to run, but that element is to educate people. We have a complex tax system and people can have complex business structures, so we need to try to explain to them what we're doing. That's a part of the audit as well.

My comment on the study is that obviously we need to make sure we're making the best use of the money we have to get the best tools for our people and make sure that our auditors and other employees at CRA are as well equipped as they can be to do the job that we're giving them.