Public Accounts Committee on Nov. 28th, 2017

[The Chair, Conservative, Kevin Sorenson]

Good morning, everyone, and welcome. This is meeting number 81 of the Standing Committee on Public Accounts on Tuesday, November 28, 2017.

I would remind everyone—and we have a large audience today—that today's proceedings are televised, so I would kindly ask you, if you have cellphone or other communications devices that you can mute, to please do that at this time or to shut them right off.

Today we are studying report 1, “Phoenix Pay Problems”, from the 2017 fall reports of the Auditor General of Canada.

As our witnesses this morning, we have, from the Department of Public Works and Government Services, Marie Lemay, deputy minister, as well as Les Linklater, associate deputy minister. From the Office of the Auditor General of Canada, we have Mr. Michael Ferguson, the Auditor General of Canada, and Jean Goulet, principal. From the Treasury Board Secretariat, we have Ms. Yaprak Baltacioglu. She is the secretary of the Treasury Board of Canada. We also have Cécile Cléroux, assistant deputy minister of human resources, management transformation sector, from the office of the chief human resources officer.

Welcome.

I understand that we have a number of opening statements this morning.

We'll begin with the Auditor General, 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 report on Phoenix pay problems.

In 2009, the Government of Canada began to transform the way it processed pay for its 290,000 employees. Public Services and Procurement Canada was responsible for this transformation of pay administration initiative.

The initiative had two projects: one to centralize pay services for 46 departments and agencies that employed about 70% of all federal employees, and the other to replace the 40-year-old pay system used by 101 departments and agencies with a new system called Phoenix.

Since Phoenix went live in February 2016, the federal government frequently could not pay federal public servants accurately or on time. Our audit examined whether Public Services and Procurement Canada worked with selected departments and agencies to fix Phoenix pay problems so that government employees would receive their correct pay on time.

This audit is important because the government's pay problems have had a financial effect on tens of thousands of its employees, and the system has to be fixed.

We found that the pay problems continued to grow throughout the period of our audit. A year and a half after the government launched the Phoenix pay system, the number of public servants waiting for a pay request to be processed had reached more than 150,000 in the 46 departments and agencies whose pay services were centralized.

Those 150,000 employees were waiting for about 500,000 pay requests to be processed. Those numbers do not include the outstanding pay requests in the 55 departments and agencies whose pay services were not centralized, and also do not include the outstanding requests required by the recently signed collective agreements with federal public service unions.

Problems grew to the point that the value of outstanding pay errors totalled more than half a billion dollars at the end of June 2017. This amount consisted of money that was owed to employees who had been underpaid, as well as money owed back to the government by other employees who had been overpaid.

Departments and agencies struggled with Phoenix pay problems from the time the system went live. However, it took Public Services and Procurement Canada four months to recognize that the problems went beyond normal processing levels. Since that time, the department has been reacting to problems and has implemented few permanent solutions. In fact, 16 months after the problems first arose, there was still no governance structure in place.

In our opinion, there are two parts to the solution for the Phoenix pay problems. The first priority is to pay people the right amount on time. However, after that is achieved, there will still be work to do to get a system that processes pay efficiently. The longer-term solution needs to last and be as efficient as it can be.

Public Services and Procurement Canada told us that it was developing a comprehensive plan, including detailed cost information, to resolve the pay problems. However, it had not finished that plan by the end of our audit.

To put in place a viable solution to the pay system problems, the government needs to identify and address the root causes of the problems; exercise strong oversight of the steps taken to resolve the problems; and ensure that there is strong collaboration that includes Public Services and Procurement Canada, the Treasury Board of Canada Secretariat, and the affected departments and agencies.

In our view, fixing the Phoenix pay system will take years and will cost more than the $540 million that government organizations have so far estimated they will spend to solve the problems. We found that the department of health in the Australian state of Queensland had to deal with a similar situation, and it took eight years and over $1.2 billion to find solutions to most of its pay problems.

We made four recommendations to Public Services and Procurement Canada and two recommendations to the Treasury Board of Canada Secretariat. They both agreed with the recommendations.

Mr. Chair, this concludes my opening remarks.

We would be pleased to answer any questions the committee members may have.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, sir.

We'll now turn to our Treasury Board Secretariat and Ms. Baltacioglu.

[Yaprak Baltacioglu, Secretary of the Treasury Board of Canada, Treasury Board Secretariat]

Good morning, everyone.

Thank you for the invitation to appear before you this morning to discuss the Phoenix pay system.

As secretary of the Treasury Board, I support the board in its role as the employer of the core public service. In this capacity, my senior management team and I are fully committed to doing our part in ensuring that public service employees are paid accurately. It is an unacceptable situation, one that has touched far too many of our employees.

I would like to thank the Auditor General for his analysis and his recommendations on how to stabilize the pay system. His report is important input into the work underway.

This morning, I would like to address his two recommendations for the Treasury Board Secretariat specifically.

The first is that the secretariat establish, with Public Services and Procurement Canada, timelines for departments and agencies to submit accurate pay information, and that it support PSPC, departments, and agencies in the development of performance measures to track and report on the accuracy and timeliness of pay. We agree with this recommendation. In fact, we have already advanced work towards fulfilling this commitment.

In collaboration with PSPC, we will establish standardized timelines for HR transactions that lead to a pay action by June 30, 2018. We will also work with departments and agencies to establish and implement a comprehensive approach that links the HR world to actual pay processes. To better track and report on pay actions, we will set out performance measures that will be rolled out in fiscal year 2018-19. Finally, we will collaborate with departments and agencies to track and report on key HR metrics, including timeliness of pay.

The Auditor General's second recommendation for TBS is on costs. He recommends that the secretariat, again with the support of PSPC, departments, and agencies, track and report on the cost of resolving pay problems and implementing a sustainable solution for all departments and agencies. We agree with this recommendation.

The comptroller general of Canada is leading a government-wide exercise to better understand the full picture of actual costs.

That work is underway. It is a rigorous process, based on international best practices. It will determine all costs incurred to date and put in place a framework to track future costs. It will involve significant consultation with departments and central agencies to ensure a proper understanding of the data. We expect that exercise to be completed by May 2018.

In closing, let me reiterate that my department and the TBS senior management team are, and have been, fully engaged on this file.

The Auditor General's recommendations and the resulting efforts to address them will contribute significantly to the work that is already underway.

Mr. Chair, this concludes my remarks. I would be pleased to answer the committee's questions.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much for your presentation.

We'll now move to our deputy minister, Ms. Lemay.

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

Thank you very much.

Mr. Chair, I want to thank you and the members of the committee for the opportunity to address the report of the Auditor General with respect to the Phoenix pay system.

I am pleased to be joined by my colleague Les Linklater, who leads the integrated team that is now focused on stabilizing the pay system.

Let me begin by saying that since my arrival at PSPC, in April 2016, eliminating the negative impact on employees from the implementation of the pay transformation has been my number one priority, the number one priority of my department, and as Minister Qualtrough has noted, her number one priority as well.

It is clear to us that there is no greater issue facing the public service. More than half of the employees are facing some form of pay issue. At my department, we see first-hand the very real impact this situation is having on employees—those waiting for missing pay and those working without rest to help resolve this situation. I am deeply sorry for the hardship being felt by the public servants and their families.

I want to thank the Auditor General for this important study. We agree with the report's findings and accept its recommendations. The report aligns with the findings of previous reviews and validates the measures we are taking to stabilize the pay system. We have provided a management action plan, which details specific commitments and key milestones for achieving them.

I will elaborate on this actions in a few minutes, but first I would like to provide a brief summary of what has transpired over the past year and a half.

We now know that the original planning for this project failed to take into account the full scope and complexity of this major transformation. The crucial linkages between pay and associated human resources processes and systems were not properly understood across government. This had enormous implications, and we did not immediately grasp the full extent and impact of pay problems that emerged after Phoenix went live.

In addition, we did not have the needed resources to properly implement Phoenix or effectively manage the challenges that followed. By the time Phoenix was fully implemented in April 2016, more than 700 compensation positions had been eliminated in the 46 departments being serviced by the pay centre. While departments not serviced by the pay centre kept their staff, this massive reduction meant that valuable expertise and capacity were not available when we needed them most.

At first, reports of pay errors were taken to be one-off issues and not unexpected with the implementation of a major information technology transformation project. However, by June, it became apparent that there were serious problems. The increasing number of pay issues quickly outstripped our capacity to respond.

More compensation advisers were urgently needed. However, building capacity is a major undertaking, and we were starting from scratch. In addition to finding new employees, significant time and effort was needed to on-board trained individuals.

On June 17, eight weeks after full implementation, we announced the opening of our first satellite office. Then we hired additional staff at Miramichi, established additional satellite pay offices across the country, added more than 250 compensation advisers, and opened a client contact centre to handle employee calls for assistance.

These measures helped address several urgent issues while ensuring that the 300,000 public servants were getting paid every two weeks. They reduced the occurrence of the most serious pay problem—employees not receiving pay at all. They also allowed us to bring down wait times for parental and disability leave, which unions asked us to prioritize.

However, major challenges remain. A large queue of transactions had formed at the pay centre. At the same time, the government was concluding negotiations for 20 collective agreements. Compensation advisers processed pay increases, signing bonuses, and retroactive payments for some 184,000 employees, which led to payments of more than $615 million over the summer.

This additional work proved much more complicated than expected. Calculating retroactive payments going back as far as four years required data to be pulled from the government's now-decommissioned pay system, as well as significant manual calculations.

We are not seeing our queue decrease, as we are dedicating efforts to process important payments associated to collective bargaining agreements. However, in total, we are processing more transactions a month than we are receiving and we have essentially tripled this output since May 2016.

Once we have implemented the collective agreements and dealt with the upcoming tax season, we will be able to shift more capacity to reducing the queue. In addition to responding to pay problems, we are focusing on their root causes.

This has highlighted two important realities. First, given that human resource processes are directly linked with employee pay, we know that an integrated pay and HR approach is needed to address issues. Second, as it was clear that our department alone could not identify or implement solutions, we needed a whole-of-government approach. As a result, we have begun implementing a series of measures focused on bringing the pay system to a point of stability. Our immediate aim is to reduce the number of late transactions and the wait times for missing pay.

Our actions fall into four broad areas, namely, accountable and informed decision-making, improved processes and technology, increased capacity and service, and partnership and engagement. I will give you a few examples, but more detailed information on these actions is available on our website.

An integrated team of senior officials from PSPC and Treasury Board Secretariat is now leading our overall effort to stabilize the pay system both at the pay centre and across the entire government. A strong governance model that brings together views and realities from across the public service is supporting the work of the integrated team. This includes a working group of ministers, an interdepartmental working group, and a deputy ministers oversight committee, which I co-chair with my colleague, the chief human resources officer at the Treasury Board Secretariat.

To improve processes and technology, we are focusing on common human resources practices, processes and systems that don't work with Phoenix and cause delays. Our solution needs to be integrated, from initial staffing action, to pay request, to pay receipt. Taking a holistic view will ensure that our pay system works effectively and efficiently from start to finish.

At the pay centre, we are preparing to organize compensation staff into small groups that will focus on specific departments and agencies, creating greater efficiencies and providing more tailored support to employees. To increase our capacity and improve services, we have hired 680 additional compensation staff, in effect more than doubling the staff complement we had when Phoenix was launched. And we plan to add up to 300 more over the next several months.

Recognizing the need to provide more useful support to employees, we also plan to enhance our contact centre by hiring up to 100 employees. This will allow employees to get detailed information about their pay files directly from public servants working at the client contact centre.

The final area is partnership and engagement. Departments are engaged, and the union management community has been meeting regularly to discuss Phoenix-related issues and solutions. Improved reporting and data analysis will be provided to departments and agencies and will inform decision-making.

Mr. Chair, we know there are no quick fixes or shortcuts. We need to continue to pay some 300,000 employees every two weeks and process the late transactions. We are focused on stabilizing Phoenix, and the measures I have just mentioned will help get us there. Again, more details can be found on our website. These measures are fully aligned with the Auditor General's recommendation, and we will be posting quarterly updates of them online.

In addition, we are looking longer term to consider options for how we can increase the efficiency and sustainability of this system. Our immediate focus is on helping affected employees, but eventually we want to deliver an efficient pay system that provides public servants a modern and easy-to-use pay experience.

Collectively, it's clear that we underestimated the complexity of the pay transformation initiative. The Goss Gilroy review identifies lessons in key areas that we're now using to fix the pay system. The second report of the Auditor General should provide additional guidance. It is also our responsibility to ensure that these lessons will be applied to other government transformation projects.

Before concluding my remarks, I want to again acknowledge the patience of dedicated public servants who have endured hardship through no fault of their own. They simply want to know when they will get paid. While we do not have a precise timeline, we are doing everything to end this frustrating situation as quickly as possible.

I also want to thank our dedicated employees at Public Services and Procurement Canada and across departments and agencies who are working tirelessly to ensure that their colleagues are paid accurately and on time.

I know that pay issues are exerting pressure and stress on employees. Where employees are facing hardship situations, we are prioritizing support. I want to assure you that, when those situations are brought to our attention, departments and agencies act quickly to deal with them.

I would be pleased to respond to any questions you may have.

Thank you.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much to all for your comments. I'll just quickly state that I represent a rural riding in Alberta with not a lot of public servants. Calls into my constituency office on the Phoenix pay system now outnumber those on immigration. Most members of Parliament in urban areas have very high immigration files. In my rural area, it's about 65% to 70% Phoenix pay.

I thank you, Ms. Lemay, for recognizing the hardships that have been caused through this, because I can tell you, when we have constituency staff—all of us could tell the same stories—who are dealing with these hardships day after day, it takes a toll on staff as well.

We're going to move into the first round of questioning, to Ms. Mendès. Ms. Mendès, please, you have seven minutes.

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

Thank you very much, Mr. Chair.

I want to thank everyone for joining us today.

It is clear that we are primarily focusing on the most important element of Mr. Ferguson's report—the way those government processes affect individuals. In this very specific case, the entire federal public service has been affected by our decision—and I am talking about the Government of Canada—to replace an outdated pay system. I think everyone agrees that the system had to be replaced.

The problem here is the lack of preparation. I'm sorry, but this was not an unexpected occurrence. Similar things are happening in other countries, but there are lessons to be learned from that. I find this to be extremely difficult for the entire federal public service, which has been suffering the consequences of those errors simply because, based on what I have read and heard, the government had not exercised due diligence when it transitioned to a pay system that is so different from the previous one.

Ms. Lemay, your comments are definitely appreciated by all public servants. But the fact remains that they are going through difficult situations. I'm not even talking about those who have not received all the money they are due, but those who have been overpaid and are now being asked to repay rather large sums of money they don't have. That has affected their access to some credits, such as the Canada Child Benefit. They no longer have access to those kinds of credits and, suddenly, they are being asked to repay money they really don't have.

How can you meet those employees' expectations?

[Marie Lemay]

Thank you for your question.

I want to begin by reiterating that everyone is affected by the implementation of Phoenix. It is actually even difficult for us to imagine to what extent people are affected. We receive questions, comments and messages on this issue every day. I can tell you that, last summer, the priority was really to pay people who had not been paid and the people who were going on maternity or disability leave. We had to establish priorities.

In my opening remarks, I said that we were lacking the capacity I feel we should have had for the transition, and that is why we had to choose. Of course, at that point, overpayments were not our priority. The priority was rather given to people who had not been paid. Of course, over time, overpayments are becoming an increasingly stressful issue for employees.

So we have implemented a process where, if the overpayment is more than 10%, we will not recover it unless we have negotiated an agreement with the employee. Cases where the system has not worked have been brought to our attention, but those are exceptions. The rule, in most cases, is that we will not recover the money until we have reached an agreement with employees, so as to ensure that they have received everything they were owed and have the means to repay us.

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

I'm sure you understand that this also affects all kinds of other aspects of their lives.

[Marie Lemay]

Absolutely.

The Treasury Board has established a claims unit to help people who have been affected in other programs. If they think they are owed money, the claims unit has been established and can meet some of those needs.

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

What affects us the most is the very human factor of this entire issue and the reason why we still don't have, a year and a half later, a very clear answer on how long it will take to resolve this issue.

I know that it is very complex and I know that you prefer, for the time being, not to provide a resolution date you would not be able to honour.

However, given all you have talked to us about in terms of an action plan and measures you have taken to resolve the issue, don't you have an idea of when we could expect to see a minimum of regularity in the system?

[Marie Lemay]

If I may, I will make a small comparison with last year.

The system now has a much greater capacity. I said that we have re-staffed nearly all of the 700 compensation positions that had been cut, but that's not all. We have also doubled the staff complement. We have a liaison unit to respond to employees. When it comes to the capacity to analyze reports, we were also lacking the resources needed to make good decisions. We now have an integrated team with the Treasury Board. I talked about it in my opening remarks.

My colleague Mr. Linklater leads a unit that integrates anything to do with public services and the Treasury Board. That is very important because we now have a government-wide approach, and we understand the issue and the complexity of the problems. Mr. Linklater could talk to you about a series of proposed measures that will enable us to reduce wait times and the number of transactions.

In June and July, we saw a decrease in the inventory of transactions. Afterwards, we had to emphasize transactions related to collective agreements. I'm not saying that in a negative way, as it is a good thing. The government settled collective agreements that had expired nearly four years ago and that means retroactive payments and signing bonuses—in short, that is money for employees, so it is important for that to be done. However, compensation officers spent a lot of time on that, so the inventory of pending transactions started to grow again.

So we think that, as long as we have not completed the transactions associated with collective agreements, the inventory of transactions will not decrease. Another issue is the tax season for 2017. We know that this period will be more difficult, but we anticipate that, as soon as we have completed these two steps, we will be able to focus much more capacity on transactions and reduce the inventory.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much.

Thank you, Ms. Mendès.

We'll now move to Monsieur Deltell.

Mr. Deltell, you have seven minutes.

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

Thank you so much, Mr. Chair.

Ladies and gentlemen, welcome to your House of Commons. Of course, our thoughts are primarily with those tens or hundreds of thousands of Canadians who are currently suffering because of the Phoenix pay system.

As Mrs. Mendès was saying earlier, we all understand that, after 40 years, the pay system had to be revamped. We also all understand that revamping a pay system that affects so many elements is an extremely fragile and delicate endeavour. We also all understand that, on two occasions in 2015, as reported by the document dated December 4, 2015, the government delayed the implementation of the Phoenix system in order to avoid problems that unfortunately occurred.

Yet on February 24, 2016, the minister gave the green light for the Phoenix pay system's implementation, with the entire host of problems that move involved.

Ms. Lemay, were you the one who advised the minister to go ahead with the implementation?

[Marie Lemay]

Thank you for your question, Mr. Deltell.

I came on the job on April 11, 2016, so I wasn't there to make that recommendation. I am, however, up to speed and can therefore share with you the information I have.

The then minister, Ms. Foote, was briefed on the subject, but that was at the end of February. The issue wasn't whether to go ahead but, rather, whether the system was ready. The third-party study indicated that we should proceed with implementation, that we had checked with the other departments, that everyone was ready, and that the system would be implemented on February 24. Therefore, that's what was done.

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

Yet, on January 2016, you received a report that didn't indicate quite the same thing. According to that report, of the 124 elements analyzed, 58 revealed serious problems. You went ahead despite that.

Why did you ignore the recommendations of the report indicating that nearly half of the analyzed elements had serious problems?

[Marie Lemay]

Could you tell me which report you are referring to?

A number of them were done.

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

It's the “Summary of Phoenix Testing Results”, version 3.1, dated January 20, 2016.

[Marie Lemay]

In terms of the process that was followed in accordance with Treasury Board rules, I can tell you that we were required to complete a report before launching the system. The third party who produced that report was the firm S.i. Systems. The firm concluded that the benefits of launching Phoenix outweighed the risks of delaying its implementation.

As you pointed out, Phoenix's launch was delayed because problems identified in the fall had to be resolved. When it was presented to the deputy ministers committee in late January, there were still problems, but they were not deemed to be critical. I believe there were 124, but I think the existing system had somewhere around a thousand. It was determined at that time that mitigation measures had been taken.

Mr. Deltell, as a side note, I would point out that one of the challenges we faced with this project was the fact that each of the measures was analyzed separately. Take, for example, the 124 problems that were identified at a given point in time. Whenever flaws were detected, mitigation measures would be taken, but no one had a holistic view of the project or the risks involved. I would say the compound risks weren't properly assessed at that point.

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

Still, it's unfortunate that the January 20 report didn't count for more.

You're talking about elements that were analyzed in isolation. We are talking about 124 people. On January 13, 2016, you met with the CFOs—

[Rémi Massé, Liberal, Avignon—La Mitis—Matane—Matapédia, QC]

I have a point of order, Mr. Chair.

Sorry, Mr. Deltell.

I'd like you to help me get something straight, Mr. Chair.

The committee's objective today is to consider the Auditor General's report and findings, which cover the period from system launch to June. We may all wish to review the past, and we will have the opportunity to do so given that the Auditor General will be tabling another report a bit later.

My question is whether, today, we should focus on the Auditor General's report that covers the period from when the system went live up to now. We all want to find solutions and we can all go back over the sequence of events, but we won't fix anything that way. I think we have to keep our attention turned forward and focus on the Auditor General's report.

[The Chair, Conservative, Kevin Sorenson]

Thank you.

We do know that the Auditor General will be coming with another report in the spring in regard to the timelines that were missed and that failed. I think, though, that what Monsieur Deltell is trying to say is that there were reports there that weren't listened to, and that if departments are going to say that the Phoenix pay system is ready, it puts the government and everyone in a bad light.

I think we have to be aware that the Auditor General will be coming with another report in the spring, but I think you're laying the foundation as to what the Auditor General says in his report.

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

Yes. May I remark, Mr. Chair, that in paragraph 1.6, we're talking about the launch, the start-up, in terms of this problem. This is why I address the issue of just a few days and few weeks before, not—

[The Chair, Conservative, Kevin Sorenson]

Carry on. That won't be taken out of your time.