Opening Statement to the Committee On Public Accounts

Chapter 31 - Revenue Canada - The Financial Management Regime

Chapter 32 - Revenue Canada and Department of Finance - Understanding Changes in Tax Revenues: GST

(December 1997 Report of the Auditor General)

L. Denis Desautels, FCA
Auditor General Of Canada

Mr. Chairman, thank you for this opportunity to present the results of our audits on The Financial Management Regime at Revenue Canada and on Understanding Changes in Tax Revenues: GST. Accompanying me are Mr. Minto, Assistant Auditor General, and Ms. Gadomski Ruta, audit Principal.

Revenue Canada's 40,000 employees collect about $850 million and pay out $425 million on average each working day. Given the Department's sheer size, and the nature of its operation, good financial management is of paramount importance because even minor inefficiencies or extremely small rates of revenue leakage can translate into millions of dollars.

Chapter 31

• How good is Revenue Canada at getting the $850 million in average daily tax receipts quickly to the bank?
• How good is legislation in the area of mandatory bank remitting?
• How good is Revenue Canada in accounting for financial transactions and meeting stakeholder information needs?
• How good are Revenue Canada's systems and practices for planning, performance monitoring, and containing financial risks.

For example:

• The system used to account for the over $18 billion in annual deposits by Customs is archaic, labour-intensive, slow and prone to error.
• Effective cash management systems to monitor promptness of deposits are not in place.
• Information meant for monitoring and analyzing program statistics is often not validated, and errors exist.

For example,

• The lack of effective cash management systems has resulted in Revenue Canada's relying primarily on local and regional initiatives and internal reviews to monitor day-to-day activities. While this may help to reduce the risks, our audit found that performance in the promptness of deposits varies considerably across offices and across revenue streams. In turn, the government is foregoing several millions of dollars in potential interest revenue each year because Revenue Canada is not getting all tax payments to the bank as fast as it could, and its present systems do not provide the necessary management information for timely corrective action.
• Five years into the new regime to process personal tax returns, there are still significant weaknesses in systems meant to contain financial risks. Revenue Canada has made strides in cleaning up data essential to analyze trends in non-compliance of returns and to assess the effectiveness of its criteria for flagging risky returns. But it has done only a limited analysis of these data. Because several social programs are linked to an individual's assessment, undetected errors in returns will also impact on the billions of dollars paid in social benefits each year, both federal and provincial.

In addition, as part of our cash management review, we found that provisions for mandatory bank remitting do not exist for all types of tax revenues. The Committee may wish to review existing legal provisions for mandatory banking with a view to ensuring that all taxpayers are treated fairly and equitably when making payments to the Government, regardless of the type of tax. The Department has a number of initiatives either planned or under way to deal with our other observations. Members of the Committee may wish to obtain assurances from the Department that plans to deal with all shortcomings be in place and executed in an appropriate and timely manner.

In our opinion, Revenue Canada is now at a stage where it needs to give more attention and higher priority to ensuring effective financial management throughout the organization. The proposed move to a Revenue Collection Agency will only add substantial new financial management pressures. Steps need to be taken now to ensure a strong foundation.

Chapter 32

After GST revenue for the year ended 31 March 1996 turned out to be $800 million lower than the 6 March 1996 Budget forecast, and $400 million lower than the previous year's actual revenue, the Department of Finance and Revenue Canada tried to explain the decrease. However, we found that they had not produced a conclusive, adequately supported explanation.

We identified a five-step process that the departments ought to have followed to ascertain the cause of the revenue decrease. We found that they did not follow the process to the minimum extent required, and did not make use of all available data. Some of the unused data were considered unreliable.

Other matters affecting analytical capability include:

• the need for a co-ordinated effort within Revenue Canada;
• the limited amount of data reported on GST returns; and
• the way Revenue Canada records figures for "GST declared" and "input tax credits".

Mr. Chairman, that concludes my opening statement with respect to both chapters 31 and 32. I would be pleased to answer your Committee's questions.