Revenue Management
April 1995
Executive Summary
1. Revenues and Costs Directorate and Corporate Revenue Issues
The review of revenue management practices of the Revenues and Costs Directorate and issues of a "Corporate" nature resulted in the following broad conclusions.
The Revenues and Costs Directorate provides cheque validation and deposit services for the Bankruptcy and Corporations Branches through an organization known as the Validation Unit. During the review two matters were noted:
(a) deposits were not being made in accordance with the timeframe as required by Treasury Board regulations; and
(b) questions arose concerning the future cheque validation and deposit activity for the Bankruptcy and Corporations Branches. Currently, the Validation Unit is resourced by the Revenues and Costs Directorate. Future funding for this activity may be subject to budget limitations.
Effective April 1, 1994, RAMS became Industry Canada's departmental financial system. During interviews, program managers raised the issue of the revenue capabilities of RAMS. This matter is being addressed by representatives from the Revenues and Costs and the Services and Systems Directorates.
In this review, an attempt was made to determine if opportunities exist for additional revenues, either from new sources of activities or rate changes for fees currently charged. It is understood this matter is being addressed by senior departmental officials and Treasury Board.
Management Action Taken (July 2000)
The Comptroller's Branch continues to work with sectors and regions to improve and streamline revenue management processes and to ensure compliance with Treasury Board (TB) and legislative requirements. Since 1998, with the implementation of the Department's new Integrated Financial and Materiel System (IFMS), all policies and processes have been reviewed and all staff have received training in system and TB requirements for the control and deposit of public money. In addition, the Comptroller's Branch underwent a reorganization to combine the revenue management function with the main operational area, providing for increased focus and monitoring.
2. Bankruptcy Branch
The Bankruptcy Branch generates revenue of approximately $14.0 million annually. Opportunities exist for increases in two areas:
Fees for services have not been revised since 1992, when the current Insolvency and Bankruptcy Act was enacted. Rate increases of 5 percent or 10 percent, for certain services, could generate incremental revenue of approximately $0.7 million or $1.4 million annually.
Each year the Branch receives approximately $1.6 million, related to dividends and assets, from private sector Trustees that are unable to distribute these funds to creditors. Creditors and search houses (acting on behalf of creditors) may subsequently file claims for this money. Branch personnel verify claims for authenticity and where appropriate, make payment. Branch management has stated that processing claims for which fees are not charged, is a very labour intensive and costly process. A charge, which could generate revenues in the range of $80,000 (5%) to $160,000 (10%) annually, could be levied against the payments received from Trustees.
The Corporate Services Sector Validation Unit receives, validates and deposits a significant volume of small dollar value cheques including cases such as: Trustees remitting Superintendent Levy payments (individual cheques were noted for the amounts of .37˘ and .60˘); search clients remitting payments on account of services rendered (many cheques were noted for the amount of $8.00). As the cost to process low value payments is high for both the clients and the Department, the Branch should seek (or continue to seek) innovative ways to improve efficiency.
Management Action Taken (July 2000)
As a result of the review, a number of positive measures have been taken to improve the collection and control of revenues to the Office of the Superintendent of Bankruptcy (OSB). For example, revenue information systems and accounts receivable procedures have been improved and documented, and a credit card payment module has been added for namesearch clients. Further, as recommended, the OSB has reviewed its fee structure with input from its clients and will be recommending regulatory fee changes in the near future.
3. Corporations Branch
The Corporations Branch is a highly cost recoverable organization generating approximately $12.0 million in revenue annually with direct costs of approximately $4.0 million. It was noted during the review that opportunities may exist for further increases to the existing revenue base in two areas:
Fees for services have not been revised since 1985 with the exception of those for filing of annual returns. Rate increases of 5 percent or 10 percent would generate incremental revenue of approximately $0.6 million or $1.2 million respectively. Branch management believes current fees for services are excessive and further increases could impact negatively on the client base. Management's concern is understood but this matter should nevertheless be addressed.
During fiscal year 1993-94 the Branch performed approximately 40,000 corporate searches for which fees were not charged. As documented in the report, charges for these search services could result in new revenue in the range of $120,000 to $400,000 per annum. Some of the provincial "corporation" authorities currently charge a fee for search services. Notwithstanding Branch management's concern on the effect a fee implementation may have on the demand for services, this issue should be pursued.
In addition, an opportunity exists to reduce the workload on Branch personnel. Currently, existing corporate clients are required to file returns annually along with a fee of $50. Providing clients with the option of filing returns bi-annually could result, depending on the "take up" rate, in a significant reduction in work effort. Branch management has expressed concerns over the impact that bi-annual filing may have on the quality of their database.
Management Action Taken (July 2000)
The Operations Audit Branch recommended in April 1995 that the Corporations Directorate consider 6 recommendations. In accordance with the recommendations, the Corporations Directorate improved the annual return process by forwarding blank returns to corporations. It has recently slightly changed its approach in light of a joint initiative with the Canada Customs and Revenue Agency (CCRA) whereas CCRA supplies the annual return form as part of its T2 package. However, the annual return is still filed annually, as it was determined that bi-annual filing would jeopardize the integrity of the records of the Directorate. The filing date has however been changed to coincide with the filing of the income tax return (T2). The recommendations pertaining to the implementation of an automated cash register and levying fees for processing dishonoured cheques have been addressed. The remaining two recommendations pertaining to possible fee increases have been considered. However, in light of a recent Supreme Court of Canada decision (Re Eurig) requiring fees to be aligned to costs as well as market pressures, the Corporations Directorate is now focussing on reducing its fees.
4. Spectrum Management
A number of opportunities exist for either increases in revenue or improvement in Spectrum's cashflow:
Reinstatement fees (service charges for late payment) are levied if a renewal notice is not paid by the due date (March 31) or within 30 days of the due date (April 30). Additional charges are not levied beyond the later date. Implementation of ongoing reinstatement fees would result in incremental revenue or incentives for clients to pay accounts on a timely basis.
Occasionally clients do not pay accounts (or make reasonable payments on account) where disputes exist. Although reinstatement fees are levied, testing indicated that these fees may be cancelled upon late payment of the account. Spectrum would realize a cash flow improvement if clients made reasonable payments on account pending dispute resolutions.
Current legislation calls for annual licensing. Spectrum could realize a cashflow improvement through the implementation of a optional bi-annual licensing process. The program could also realize a reduced workload depending on the "take up" rate.
District offices are equipped with devices that permit monitoring frequencies, which could be used to monitor the use of frequencies by delinquent accounts. During visits to two district Offices, it was noted that the monitoring equipment was idle. Increased use of monitoring devices will provide evidence that could facilitate collection of delinquent accounts.
Since 1990 Spectrum has conducted compliance surveys to determine the extent of illegal use of frequencies. With the exception of the maritime shipping industry, the results have been very favourable. Six accounts (four delinquent and two cancelled), were tested and with the assistance of Inspection Officers, it was determined that three of the six clients were continuing to use the frequencies illegally. The audit sample is based on "known" clients and does not cover other communication device operators that have never been registered with Spectrum.
Current central agency deposit regulations require deposits to be made the same day upon accumulation of $500 or more and at least once a week when less than $500 is on hand. Visits to two District Offices indicated deposit activities were not in compliance with the requirement. The observed deposit fees charged by chartered banks were not material. Treasury Board is considering a relaxation of these regulations.
Management Action Taken (July 2000)
For the most part the recommendations have been addressed. Those recommendations dealing with reinstatement fees, cancellations and adjustments, as well as frequency of licensing, are in the process of being dealt with as part of a project to revamp licence fees in Canada. One of the key activities in the Report on Plans and Priorities for Industry Canada is the publication of a consultation document on the proposed new fee model.
An element of the implementation proposal of the new fee model, would see the Department replace the current financial system with an accounts receivable system that would track fee transactions and be used for revenue collection. The implementation of this proposal would eliminate the need for reinstatement fees and deal with cancellation adjustments.