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NFFN - Standing Committee

National Finance

 

Proceedings of the Standing Senate Committee on
National Finance

Issue No. 70 - Evidence - June 12, 2018


OTTAWA, Tuesday, June 12, 2018

The Standing Senate Committee on National Finance met this day at 9:30 a.m. in public to study such issues as may arise from time to time relating to federal estimates generally, including the public accounts, reports of the Auditor General and government finance (Topic: Auditor General of Canada’s 2018 Spring Report 1 (Phoenix)); and in camera, to study the subject matter of all of Bill C-74, An Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures.

Senator Percy Mockler (Chair) in the chair.

[Translation]

The Chair: Welcome to this meeting of the Standing Senate Committee on National Finance.

[English]

My name is Percy Mockler, a senator from New Brunswick and chair of the committee.

I wish to welcome all those who are with us in the room and viewers across the country who may be watching on television or online. As a reminder to those watching the committee, hearings are open to the public and also available online at sencanada.ca.

[Translation]

I would like to ask the senators to introduce themselves, starting on my left.

[English]

Senator Jaffer: Mobina Jaffer from British Columbia. Welcome.

[Translation]

Senator Pratte: André Pratte from Quebec.

Senator Moncion: Lucie Moncion from Ontario.

[English]

Senator Deacon: Marty Deacon, Ontario.

Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.

Senator Eaton: Nicky Eaton, Ontario.

[Translation]

Senator Dalphond: Pierre Dalphond from Quebec.

[English]

Senator Neufeld: Richard Neufeld, British Columbia.

[Translation]

The Chair: Thank you, senators.

I would like to recognize the clerk of the committee, Gaëtane Lemay, and our two analysts, Alex Smith and Sylvain Fleury, who team up to support the work of this committee.

[English]

Today, honourable senators and viewing public, we welcome the Auditor General of Canada, Mr. Michael Ferguson.

Mr. Ferguson, thank you for accepting our invitation. On behalf of the committee, I would like to recognize that every time we have asked for your presence, you have always said yes to us. Thank you very much for being here again this morning.

[Translation]

The Auditor General, Mr. Ferguson, is accompanied by Mr. Jean Goulet, Principal at the Office of the Auditor General of Canada.

[English]

Welcome to the Senate Finance Committee.

Colleagues, you will recall that Mr. Ferguson appeared before this committee on January 30 to discuss his fall report on Phoenix. Today the committee is interested in the Auditor General’s spring report entitledBuilding and implementing the Phoenix pay system, published on May 29, 2018.

Mr. Ferguson, I have been informed that you have some opening remarks, which will be followed by questions from the senators.

[Translation]

Mr. Ferguson, the floor is yours; please go ahead with your comments.

[English]

Michael Ferguson, Auditor General of Canada, Office of the Auditor General of Canada: 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.

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 per cent of all federal employees; and the second to replace the 40-year-old pay system used by 101 departments and agencies.

[Translation]

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 Phoenix 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 forego a pilot implementation of the system.

[English]

Phoenix executives ignored obvious signs that the Miramichi Pay Centre was not ready to handle the volume of pay transactions, that departments and agencies were not ready to migrate to the new system and that Phoenix itself was not 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 did not mention significant problems that they knew about. Finally, the decision to launch Phoenix was not documented.

In our view, based on the information available at the time, the decision to launch Phoenix was wrong. Phoenix does not 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.

[Translation]

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 the affected departments, and an underappreciation of the seriousness of the problems.

Before I close, I want to mention that our spring 2018 reports include a message from the Auditor General, in which I state my belief that the culture of the federal government enabled Phoenix to become an incomprehensible failure. I believe the committee should consider how that culture contributed to the failure.

[English]

Mr. Chair, this concludes my opening remarks. We would be pleased to answer any questions the committee may have. Thank you.

The Chair: Thank you, Mr. Ferguson.

Senator Marshall: Thank you very much for being here this morning, Mr. Ferguson.

In reading your report, I was looking at the organization chart that you presented on page 22. You mentioned in your report the lack of oversight. When you look at your report, there are so many committees and so many people involved in the system that it seems like one of the basic problems is that there was a lack of leadership with regard to the entire project. When you look at your comments regarding the Gartner report — and that is succinct — they advise that Phoenix might not be able to pay employees accurately and on time because the system had not been fully tested. That is really what happened in the long term.

You looked at the emails of the senior people involved. What did you see in the emails? Did those executives not read the Gartner report?

Mr. Ferguson: I will comment on a few things.

If you look at the diagram that you mentioned in Exhibit 1.2 on page 22 of the English version of the report, in terms of oversight of the project, you see that all of the lines concentrate on the Phoenix executives and there is only one line going to the deputy minister. Yes, there were many committees involved, but all the information that the deputy minister was getting — and, therefore, that the deputy minister was communicating — was all coming through the three Phoenix executives.

The Gartner report was something that the Treasury Board Secretariat decided to do. They decided to do it, I believe, in December 2015. It was completed in February 2016, which was also the original go-live date for the system, so the Gartner report was pulled together very late in the process.

As you mentioned, the Gartner report did highlight the important issues and problems with the system, but the report was also given to the Phoenix executives, who chose not to do anything with it. The oversight report and the problem with something like the Gartner report is that all of that information was going to the three Phoenix executives, who were primarily focused on meeting the budget and the timeline. They didn’t understand the seriousness of the problems that were being identified, but they were the only source of information for the deputy minister.

Senator Marshall: It would seem to me there were many people involved. For example, you mentioned Treasury Board. They got the report. When you read it, you wonder, did these people receive the report and never open the covers? Did they not look at it? Treasury Board is usually a cross-check on things happening within government. It would seem to me that they were independent and should have picked up on it. I also see Shared Services had an involvement here. It seemed that there were some people involved from outside that it is almost unbelievable that no one picked up on it. You have to wonder if anyone read the report. Everyone must have gone home at the end of the day and not thought about the system at all.

Mr. Ferguson: That is why we characterized it in the end as an incomprehensible failure of project management and project oversight. Again, within our report, you can see all the different steps taken and all the opportunities that presented themselves for Phoenix to be slowed down or stopped. You can understand where all of those decisions were made that led to Phoenix, but it is incomprehensible, essentially, as you say, to understand why someone along the way didn’t say, “Wait a minute. This is a bigger problem than we think it is. We need to put it on hold.”

That is why we felt, on the oversight, that there needed to be more independent assessment that was either going to the deputy minister or perhaps a group of deputy ministers. Again, as you see in this, there was no real oversight committee that the deputy minister had to report to, perhaps a committee of other deputy ministers. Things were pulled together at the very last minute. They decided to go to what is called PSMAC, which is a group of deputies, but that group of deputies was not given any authority in the overall project charter. They raised issues, but again the response that kept coming back from the Phoenix executives was, “Yes, we know about those issues. We have workarounds and ways of dealing with them.” Again, it is incomprehensible that no one understood the gravity of the problems that were surfacing.

Senator Marshall: What does this say now about the public service and government on a broader perspective? We are looking at Phoenix, and we see that as an incomprehensible failure. We are looking at other areas within government that have major problems. With Shared Services, we have heard about those problems. They have been trying to consolidate our email system for a number of years, and that hasn’t been very successful. It looks like the government may now be building a pipeline. I am looking at it and thinking that we cannot even pay our employees, and we are looking at building a pipeline. What does this say about the entire public service and the entire government?

Mr. Ferguson: As we finished up the audit, I realized that, as you well know, an audit can only go so far. An audit looks at all of the transactions and the evidence and can only go so far, so in addition to this audit and the other audits that we presented at the end of May, we also presented a message. In that message we tried to wrestle with that question. We called Phoenix an incomprehensible failure of project management and project oversight, but we also had two audits that touched on programs for Indigenous people. I commented in there that if you look at the long history of government programs for Indigenous people, you could only call those an incomprehensible failure as well in terms of being able to produce results for Indigenous people.

I tried to reflect on the fact that you look at the federal government, and the federal government has a management accountability framework, it has plans and priority reports, it has performance reports, it has internal audit groups and program evaluations, it has departmental audit committees and it has Auditor General reports. All of these things are supposed to be in the system to prevent something like Phoenix but somehow Phoenix still happened.

I comment that I believe there is something in the culture that somehow contributed to Phoenix. I don’t know exactly what that is, but I think now is the right time to reflect on if policies and procedures and controls were not sufficient to prevent Phoenix, what caused Phoenix and how could something like that be prevented in the future.

Senator Marshall: Well, leadership is a big issue too.

They are trying to fix Phoenix. We have had hearings on that. Any comments that you have with regard to whether you think they can fix Phoenix would be appreciated.

Mr. Ferguson: At the end of the day, one way or another, they have to get people paid the right amount on time. They need to figure out ways within Phoenix, however they do that, to get people paid the right amount on time. I would say it would be almost impossible to try to start up another system that would have to take all of the problems of Phoenix and start with all those problems. How could you expect that system to be successful knowing that it was going to get a lot of transactions that would not be right in the first place? That doesn’t necessarily mean that Phoenix has to be the long-term solution, but it does mean that they have to figure out how to get the errors reduced to a reasonable level within Phoenix so that they can then make a decision about what they want to do long term.

Senator Pratte: I am trying to better understand the thought process of the executives who manage Phoenix. For instance, they seem to have, all through their management of the Phoenix project, given priority to respecting the budget and the timeline of the project over any other consideration. As far as you know, was that their own decision, or did someone else tell them or order them that the budget was the primary consideration over everything else?

Mr. Ferguson: Again, based on the evidence that we were able to see, all we saw was that their actions indicated that they were primarily focused on the budget and the timeline.

As we say in the audit, the original budget amount for the information technology component of the project was about $155 million. When they hired IBM and presented to IBM what they wanted the system to do, IBM put an estimate on that and said it would cost $274 million to produce that system, so the Phoenix executives decided to cut back on the functionality of the system to bring it back within the $155 million. That is a very clear indication that they were focused on the budget. They cut out some very important functions, such as the ability of the system to pay people retroactively, which is one of the problems we keep hearing about in the system now. They did that to try and respect the budget.

Our point was that the original business case under which they had the project approved, and the $155 million for the information technology component, indicated that the system would be able to produce $70 million a year in savings, in reduced costs of processing pay. Our point was, okay, when they made the decision to cut back on the functionality because they felt they had to reduce from $274 million to $155 million, at that point they should have known the system would not be able to produce $70 million a year in savings because now the system functionality had been reduced. In our estimation, they should have gone back to Treasury Board one way or another and either said, “We need more money,” or, “Because we have had to cut back on the functionality, we will not be able to produce the $70 million a year in savings.” They didn’t do either one.

I can’t tell you exactly why they decided that the budget and the timeline were most important, but they made that decision. They should have understood that this decision would have other implications, primarily on the savings that were expected, but they didn’t do that, so they didn’t go back to Treasury Board at all.

Senator Pratte: You mentioned at one point that the executives in question perhaps did not understand the full range of problems they were facing. We know that they did not inform the deputy minister of all that they knew, but you also mentioned that maybe they didn’t realize the extent of the problems that the system had. Which is it? To what extent did they not realize that they were facing a real crisis?

Mr. Ferguson: They knew about the problems and the individual problems, but I would say they didn’t put them all together to understand the totality of the gravity of the situation and the risks. They should have presented the individual problems and individual risks to the deputy minister and others. Perhaps, if they had done that, the deputy minister or somebody else would have realized that when you put all of these together as different risks, this will not be a system that will work. It is not that they didn’t understand the individual risks; it is that they didn’t understand that when you put all of those risks together, the workarounds that they said existed were not going to be sufficient to let the system function as it should.

Senator Pratte: To me, this is incomprehensible in even the most basic sense. I can’t understand why someone, anywhere, starting from the deputy minister, did not ask the question at some point: Was a pilot done on this, and did it work? This is such a basic question that I can’t understand why someone didn’t ask that question at some point.

Mr. Ferguson: Originally, the project was supposed to have a pilot. The pilot project was one of the things they cancelled when they were going to try to meet the original budget. The only thing I can do is agree with you that that should have been a large red flag, not only to anybody else who knew about it but to the project executives themselves, that going forward with a project of this size and complexity without a pilot project was a huge risk.

Senator Pratte: Thank you.

Senator Jaffer: Thank you, Auditor General and Mr. Goulet, for being here and for the work you have done on Phoenix.

I have listened to you this morning, and I looked at your spring report and your last report. Throughout, and this morning also, you mentioned that the culture of the federal government enabled Phoenix to become an incomprehensible failure. In your opening statement in your spring report of 2018 you say that “the federal government needs to reflect on what I call incomprehensible failures. It needs to reflect on how much government culture stands in the way of achieving true successful results for people.” If I understood you correctly, a few minutes ago you said that you don’t know what that culture is.

What was it that made them rush into this or not share this? What was the pressure for them to not share this? Obviously, there was a failure of oversight. That is a given. But what was in the culture that made them rush into this? Did you understand that? Because I haven’t understood it.

Mr. Ferguson: Again, it is hard to understand that because that is trying to get to the motivation of the individuals involved.

Senator Jaffer: Yes, exactly.

Mr. Ferguson: As auditors, we can’t get in behind what conversations may have happened. Even between the project executives and the deputy it is hard because all we see is a deck that was presented. Obviously, we talk to people, but then all we get is sort of their view of those conversations, significantly after the fact and after people know that there has been a problem. We can’t get in to know what discussions happened between deputy ministers and ministers or what happened at Treasury Board. We don’t have the ability to do that. All we can do is follow the information to the point that it takes us. So I can’t speak to the motivation, but obviously the individuals involved felt that their priority was the timeline and the budget.

I think that in any information technology system project, the information technology people will usually tell you there are three aspects: how much it will cost, when you want it delivered by, and what you want the system to do. Usually the IT people will tell you that you can have two out of the three. They put the focus on the budget and the timeline, and they cut back on the functionality of the system, to the point that they cut out some very key features of the system.

Again, regardless of what their motivation was, and regardless of why they felt budget and timeline had to be most important, they still, in my estimation, had a responsibility to go back to Treasury Board. Because at the point that they cut the budget back from 274, or they cut back the functionality to try to fit within the $155 million budget, at that time they should have known that that system would not produce $70 million in savings, which is what they originally communicated that it would produce. At that point in time, regardless of their motivation or priorities, they had a responsibility to go back to Treasury Board.

Senator Jaffer: As I listen to you, as we have listened to other witnesses and as we have worked on this issue, the one thing that I am sure nags all my colleagues here is the person at the end who is suffering. I can’t imagine what it must be like for a single mom, who works diligently for us all, not to know if she will get a salary this month. Worse still, the T4 slips, we have understood from employees, are wrong; yet they have been told that, even if they are wrong, that is what they have to send to CRA. That is what I have understood.

I am not as conversant on what you do as I should be, but can you say what the cost has been to the employees who are suffering at the end of this because there wasn’t proper oversight or a proper system put in place?

Mr. Ferguson: In terms of the cost to individual employees, no, I don’t have an estimation of that. I think we are all aware of anecdotal stories, and there are enough of them around that it is not just one or two people. In fact, I remember early on when I was told about the issues in my own organization, I said this will eventually touch every single employee in the organization, one way or another; and I think that has pretty much come true, to different levels of seriousness. In the first audit we did, we talked about it having touched 150,000 employees at that point in time. It was almost all the employees that had their pay handled at the pay centre, so it has affected just about all federal civil servants.

In terms of a cost estimate, in the first audit we indicated that, based on what we knew at that time and for a short period of time, departments were estimating it would cost $540 million to fix the problems, but that wasn’t even going to be enough to actually fix the problems. I think since then a number of close to $1 billion has been used.

One of our recommendations in the first audit was for the Treasury Board Secretariat to put an estimate on what they think it will cost the government departments to deal with the issue. They are supposed to have that done just about this time now, so that number should be coming out soon. But, again, that is only the number in terms of the impact on the system and the federal public service. That is not the impact on the individuals.

Senator Jaffer: What is the main lesson we have learned from this? Obviously, government will always be buying expensive equipment and software systems. That is the nature of government. What is one lesson we could learn from all of this?

Mr. Ferguson: I can’t boil it down to one lesson. The reason for that is that when we did the audit, we made recommendations. We made recommendations about how this type of project should be managed. We made the recommendation that there needs to be independent oversight of this type of project. Those elements are very important — understanding the need for independent oversight and understanding that when there is a system being put in place that touches many departments, all those departments need to play a role and it can’t be just one department that is doing it. All of those things are important from a systemic point of view.

The other thing — as I mentioned earlier, and as you started with your question — is that somehow, despite all the controls that exist within the federal government that should have been there to prevent Phoenix, Phoenix happened. So there is a cultural component to this as well. I laid out in my message some of the components to the culture that I felt existed. I may not have it complete, and I may not have all of it right, but I think the federal government needs to step back and say that given we have an environment that has already many different controls in place, are we really going to prevent the next Phoenix by just adding more controls, or is there something more fundamental that needs to be done to make sure we don’t have another Phoenix?

Senator Eaton: Welcome, Mr. Ferguson.

To follow up on my fellow senators’ questions, last week was very interesting because the Treasury Board president came, and when you talk about not hitting targets, we went through the various line departments, and you’re talking about accountability. For many of the departments, like DND and Northern Affairs, there is no information about how well they had done on their targets — not available, not available, not available. That’s one thing that really bothers me.

The second thing is that same week, Senator Marshall and I went to the military policy conference, and I was talking to a senior person in the Canadian Navy about the problems we have when DND comes here, as well as Northern Affairs. When you ask them a question, you get talking points. You never really hear what’s going on. You find out when the parliamentary officer comes back and gives you snippets of what he sees. But you really never make any headway as to what has gone wrong with military procurement.

This senior officer in the navy said to me, “You know, I think the difference is, senator, that when the military goes before Congress” — and I think that’s for every line department — “they do it under oath so they can’t lie. They can’t mislead. They can’t give you talking points.” He gave me some examples of what he thinks the navy needs and what we’re hearing from DND. I said, “Why is that?” He said, “Because we only ever tell the government what we think we might get where there’s money. We don’t really tell them what we really need.”

You talked about this today. We have all these mechanisms. Why shouldn’t we be able to sit with DND, Northern Affairs and Global Affairs and say, “You spent X last year. How well did that money do? What were the results?”

Mr. Ferguson: That’s one of the things that has caused me to reflect. We have been doing 40 years of performance audits, and a lot of our performance audits look at those types of things. What are the performance measures in organizations? Too often we see that the performance measures do not reflect the actual performance. Last time I was here, we also talked about the CRA audit we had done on call centres, which very clearly illustrated that what CRA was saying was its performance was nowhere near what their actual performance was in terms of people getting answers from them, their inability to answer the question correctly, 30 per cent of the time they give the wrong answer, and the fact that they did drop out the blocked calls to make the number of answered calls look better. That’s a message that I’m trying to send to departments over and over again, that they need to start doing a better job with the performance information.

Senator Eaton: I’m sure you’ve seen this. In the Northern Affairs one, one of the targets was to increase the participation of First Nations students in schools, and there was so much money allocated to that, but then they couldn’t give us the results for the three past years, whether the students had increased or decreased. It’s simple things like that.

To me, this is not a partisan issue because it was the same thing under the Conservative government as under the Liberal government. It seems to be the machinery. Would it be better if officials came before a Senate or Commons committee and were put under oath? Would that improve things? Would that drive home the culture that you come to a Senate or Commons committee to tell the truth, not to evade the truth?

Mr. Ferguson: I can’t speak to all the procedures at committee; I’m not an expert on that. But certainly I think all departments have a responsibility to understand what the results of their programs are and be open and transparent about those results, whether it’s to a Senate committee, any other committee or just to the public in general. They need to be transparent about those results.

One of the other audits that we did issue at the end of May was an audit on closing the socio-economic gap between First Nations and other Canadians. In that audit, we did look specifically at the education issue that you mentioned, and we found that essentially over the last 18 years, the gap between First Nations people and other Canadians has widened slightly. It hasn’t gotten smaller over those last almost 20 years. We found that the department’s own number — and, in this case, the department was providing an accurate number — their number indicated that 49 per cent of Indigenous students who start Grade 12 drop out before the end of Grade 12. We went back and looked at those numbers further, and we said, what happens with students that start at Grade 9, which is the usual way to measure that? We found that three quarters of Indigenous students who start Grade 9 drop out within the four years you would normally expect a student to complete Grade 12.

So there are very discouraging results, and we keep going back and finding those indicators in our audits. I would like departments to take the indicators we put in our audits and just keep following those indicators for a number of years so they can tell you or anyone else who is interested whether they are making any progress.

There was a program put in place to prepare our First Nations people to go on to post-secondary. Over a four year period, the government spent $40 million on this program to try and prepare First Nations people to go on to post-secondary education, but only 8 per cent of the participants were actually able to complete the preparatory program. That doesn’t say how many went on to post-secondary and how many of them were successful in post-secondary. Only 8 per cent of them were able to complete that preparatory program. There are significant issues still in the education file.

Senator Eaton: It makes our job sitting on the Finance Committee a bit of a joke. It’s okay to say, yes, you’re spending X and X and you okay it. But if you can’t follow the money and see what the results are, or whether they met targets, why do they even bother coming before us?

Mr. Ferguson: I think it starts even before that. It starts with the performance reporting information that departments provide to the public. If you go back through a number of the different audits we’ve completed over the last number of years, you will see many different times where we have commented that we don’t feel that the information that departments have provided on some key indicators has accurately reflected their performance, and the CRA one is the worst example.

[Translation]

Senator Moncion: I have three questions for you. The first is related to a statistic appearing in your first report in which you stated that in 2012, there were 2,000 compensation advisors, that 1,200 advisors lost their jobs in April 2016, and that 460 of those 1,200 employees were replaced and wound up in Miramichi. You also stated that 80,000 rules had to be programmed into PeopleSoft or Oracle, due to the existence of 105 different collective agreements within government and 200 individualized programs, and that 51 per cent of the cheques that were issued were inaccurate.

In the comments we received, the Miramichi employees stated that when employees left their job, their files were incomplete or the employees’ data were not transferred to others. Thus, 90,000 employee files had not been transferred from the old pay system to the new one. Do you have anything further to add on this subject? Is this something you reviewed during your audit?

Mr. Ferguson: I will begin by responding, and then I will ask Mr. Goulet to provide you with more details. We had clearly indicated that the Miramichi Pay Centre was not ready to deal with that workload. One aspect of this problem was a backlog of files, and I think there may have been more files to process than what had been expected for the Miramichi Pay Centre. There were two aspects; a backlog for certain documents and files, but also a heavy workload, for which the pay centre was unprepared. Mr. Goulet can provide you with more details.

Jean Goulet, Principal, Office of the Auditor General of Canada: What Mr. Ferguson just said is quite correct. I would add that the 90,000 files you mentioned were brought to our attention well after we concluded our first audit, in which we referred to 45,000 files. We audited 45,000 files, not 90,000.

So, first of all, I cannot comment further on those 90,000 files. Secondly, there were several factors involved. There were the 45,000 files, and then there was the transfer of compensation advisors that took place between 2012 and 2015-16. During that transfer, some files were never closed whereas others came from Public Works Canada without being processed on time. Finally, the pay advisors’ capacity was well below what was expected of them, for very obvious reasons. They had neither the experience nor the training necessary to perform the processing as it had previously been performed by departmental compensation advisors.

Senator Moncion: My second question also deals with your report. In your document — I believe that it’s the one from November — you talk about incidents, high-impact pay requests that exceed $100. Secondly, you indicated the low-impact and no-impact pay requests. The calculation was made in June 2017. You indicated 258,000 high-impact pay requests, mainly, those greater than $100. Did these numbers increase or decrease, or remain stable? Were corrections made? I imagine that the files given priority were the high-impact ones. Was that part of your audit?

Mr. Goulet: For the purposes of the second audit, no, that was not part of the audit. We analyzed the project itself up until the decision to move forward. All that I can tell you is that the department releases a results update every month. It seems to indicate that there is a drop, but I cannot confirm that to you.

Senator Moncion: They told us that the cases related to maternity leave, in particular, had been resolved. There were four categories that were resolved at that time. I would like to know whether more work has been done. Has the number of cases decreased?

According to the public service pay centre dashboard, as of May 2, 2018, 607,000 pay action requests were pending for 200,000 employees served by the public service pay centre, and average of three pending transactions per employee. During the same period, close to 35,000 pay action requests were pending for 123,000 employees in departments not served by the pay centre, an average of 0.28 pending transactions per employee. Did your audit allow you to explain this discrepancy between the employees served by the pay centre and those whose compensation advisors are on site? Because there are also pay problems elsewhere, which are not tied to Phoenix.

Mr. Goulet: Thank you for your question, which has to do with the first audit. The basic difference is that those departments which kept their pay advisors retained the most experienced ones who were better placed to navigate the system. They had the necessary training and experience, whereas the 460 advisors in Miramichi were mostly hired on site, because of the 1,200 pay advisors in Ottawa who were let go, basically none of them wanted to work in Miramichi. The problem is really one of a lack of experience, expertise and training. However, even with their very experienced pay advisors, the departments whose functions were not centralized in Miramichi nevertheless had a very hard time solving some cases.

Senator Moncion: I would like to add something. You said in your report that the Correctional Service of Canada, the Coast Guard and the nurses, because of their shift work, isolation pay and other factors, were the most difficult cases to process in the pay system. They probably have at least three outstanding transactions per employee, since they were not properly integrated into the system. That fact was also underscored by the employees in Miramichi. Thank you.

[English]

Senator Neufeld: Thank you, gentlemen, for being here.

Maybe you’ve told us this before and I’ve just not listened or retained it, but can you tell me when the old system was decommissioned? We tend to get the fact that it was decommissioned first and then they started the new system, but I would like to know when the old system was actually fully decommissioned such that it wouldn’t work anymore.

Mr. Goulet: I can’t give you a date in terms of when it couldn’t work anymore. It continued to operate for the departments that didn’t deploy in February until the final deployment in April of 2016, and then afterwards the data was still available. I assume the data remains available to do a historical search or retroactive pay following the collective agreements.

There was a contingency plan, which we talk about in our report. If there had been a catastrophic failure at the start of Phoenix, the contingency was to revert back to the old system. I’m assuming that for a certain period of time it may have been possible to have done that, but we didn’t audit that part.

Senator Neufeld: Thank you.

In my previous life I was familiar with Treasury Board. I appeared many times before Treasury Board — not the federal government, obviously, but a provincial government. Treasury Board, at least what I learned from that process — I didn’t go to school to learn this, but I learned it through the process — was the gatekeeper. Treasury Board was the one that reviewed a lot of these things, especially for massive changes. I would say that changing the whole pay system is a massive change. It is not just that we’re only going to buy 20 cars instead of 10.

To me, Treasury Board and the ministers responsible — whoever they are; I don’t care who they were — had a huge responsibility to make sure that the system was running right. Would you agree with me there? There has to be a gatekeeper. We have talked about the government. I’m not sure if you mean elected people. We elect a government to actually be responsible. I know that when I was a minister, the buck stopped with me. If something went wrong, I was the person on the hot seat. It was not someone else, but it was me.

I want to get that from you. Is that what you mean by “government”? It’s the government, whatever government it is. I’m not trying to pick on a Conservative or a Liberal. I just want to know what you think.

Mr. Ferguson: Again, I tried to deal with that issue in the message chapter that went along with our report, because I look at that issue of who is to blame, who is accountable and who is responsible. Where I settled was, obviously, the executives have to take the blame for a project that failed, a project that they recommended essentially go ahead when it wasn’t ready.

But then you have to look to the deputy minister who was in place at the time and say, “Wait a minute. This happened on the deputy’s watch, and the deputy has a responsibility to ask questions and to do a certain due diligence to understand what’s going on.” Obviously, that didn’t happen.

Then you can look to the government that was in place, in a political sense, at the time of the decision to start the project. That government approved a project that did not have appropriate oversight built into it. It did not lay out what the role of Treasury Board was going to be and what the role of Treasury Board Secretariat was going to be. Was it going to be a committee of deputies that had some oversight? Also, they accepted that this project, which was going to cost about $300 million, of which $155 million would be IT costs, would be able to produce $70 million a year in savings, starting in year one, so totally pay for itself in essentially less than five years.

Then you can also look to the current government that was in place when the system actually went live, and despite the controversy around moving the pay advisers to Miramichi, the Phoenix project wasn’t mentioned as far as we could see in any mandate letters of any of the ministers. Obviously, just as the last government didn’t ask perhaps enough questions about the oversight and the governance, this government didn’t ask enough questions about the project and weren’t curious enough about it even though it was a significant project.

I think you can go back and look at all of those different places and see that either the project executives, the deputy minister or successive governments had opportunities to identify what was going on and say, “Wait a minute. We need to slow this project down because it doesn’t look like it’s going to work.”

Senator Neufeld: Do you think it’s a requirement that Treasury Board needs something written to them from the Prime Minister or whomever that says, “Treasury Board, this is your responsibility. I’m going to hold you accountable.” Do you think that has to happen? To me, I tend to think a little different. I think that should be the culture in the mind of the minister, the deputy ministers and the people who work in Treasury Board, that they are responsible because they’re the ones that allotted the money in the first place. They’re the ones, the bureaucrats and the minister, at least in the system I’m used to, who came to Treasury Board to prove this is what we want to do and this is how we’re going to do it.

Mr. Ferguson: My reference was to the individual mandate letters of ministers, not whether there should have been something to Treasury Board. Treasury Board approved the original project, so that was presented to them, how the project was going to be run and operated. That was Treasury Board’s opportunity to identify that the project did not have robust oversight built into it. As soon as they approve a project without robust oversight, there is a void in that oversight, and the Treasury Board Secretariat, the people that support Treasury Board, identified in December of 2015 that a problem was brewing, so that’s when they brought in Gartner, but at that point it was much too late. The project was ready to go, so again probably the Treasury Board ministers weren’t aware of that, and I’m only speculating on that. I think the problem started when Treasury Board approved a project that didn’t have that robust oversight built into it. Then there wasn’t any mechanism for any more information to come back to Treasury Board.

Senator Neufeld: I understand that. On January 13, our notes say Treasury Board got a document that said, “tests less than 50 per cent success.” That was on January 13, and they still went ahead six weeks later, on February 24, with rolling it out. I can’t imagine. Treasury Board, with something as large as the pay system for hundreds of thousands of people —almost everyone that works for government — gets a note, and there are other damning things they say, such as, “It’s going to be a bumpy ride. The system readiness is questionable.” Those should have brought up red flags for somebody, a minister or deputy minister or someone in the Treasury Board Secretariat to say,“Well, we have a problem here, and we still have the old system in place. We’d better do something different.” But even after they went live on February 24, on April 21, they went with more.

Is that what you call the “culture of government?” “I don’t really care. I will finish my work at five and I will leave, because then I will come back tomorrow and everything may not work and everything will work.” Is that laissez-faire? Is that what you are talking about?

Mr. Ferguson: In this case, we see, and you mentioned them, a couple of events where you would say somebody should have spoken up, and throughout our audit we identify that there were a number of those different steps all along the way where somebody should have said, “Wait a minute. This isn’t going to work.”

What I think happened was everyone who was aware of those issues brought those issues back to the project executives. The project executives had the authority for the project. The project executives kept giving the message of, “Yes, we know about those issues, and we know how we’re going to deal with them.” I think what ended up happening was — perhaps it was part of the culture aspect — no one was prepared to step outside of those lines of authority that were designed for the project and say, “No, this isn’t going to work. I’m going to find a way to put a hold on this project.” They would bring the issues forward — even the Gartner report went to the project executives — and they would all come back to PSPC to the project executives, who would say, “Yes, we know about those and we know how we’re going to deal with it.” No one said, “Even though I don’t have any direct authority for this project, I’m convinced this is not going to work and I’m going to find a way to stop it,” because ultimately, at the end of the day, they had no accountability or responsibility. They were not given a role in the oversight. They were not given a role of saying yes or no. That was somebody else, the project executives, so they didn’t have to wear that decision.

Senator Andreychuk: I want to understand just one point, following up on Senator Neufeld. At some point, I understand there was a cutback of the size of the project. Certain things were dropped off that might have made Phoenix workable. They were within a money squeeze and a time squeeze, so somewhere down the line people elected to make the project smaller, if I can call it that, and that ran into problems. Was that at the project executive level? Were those kinds of changes in Phoenix brought to any government level above the project executives?

Mr. Ferguson: Those decisions were made by the project executives. They originally had a budget of $155 million for the information technology component. When they took the design of the system to IBM, IBM said the system would cost $274 million, so the project executives decided to reduce the functionality of the system to bring it back within that $155 million. They cut out things like being able to handle retroactive pay, they cut out some system testing, and they cut out the pilot project to try to get back within that budget. So they made that decision.

The point that we make in the audit is that at that point, they had a responsibility to go back to Treasury Board and either say, “We need more money,” or to say, “Because we’ve had to cut back so much on what the system will do, it will no longer be able to produce the $70 million a year in savings that we originally said it was going to produce.”

They originally received an approved budget of $155 million, and they had originally had a project in which they estimated it would save $70 million a year. They should have known at the time that they had to cut back that in order to get the $70 million a year, they had to spend more money, and that if they were going to spend less money, they wouldn’t get the $70 million. Regardless of which decision they made, they should have gone back to Treasury Board.

Senator Andreychuk: You are saying there is no evidence of them telling anyone about the change?

Mr. Ferguson: That is right.

Senator Cools: Thank you very much, Mr. Ferguson, for joining us today.

We had a visit a couple of weeks ago at Miramichi with the staff there. I got the impression that they had gone through the gates of Hell to approach the gates of Heaven again. They were optimistic. We met with them, and they were eager to meet with us and to have a pleasant exchange. I found some of them quite lovable. What impressed me is that they were very confident that they had gotten to the other end of this hell. They were confident they were getting things under control. Our exchanges were very positive in that way. Maybe we have beat that horse a bit, and maybe we can move into the future now in terms of what promise will be held. Do you think this matter can soon be completely tamed?

Mr. Ferguson: I can’t speak to how long it will take. As I have said at other times, it has to be tamed one way or another. There can be all kinds of ways of doing that, from putting enough people on it, to doing calculations the system was supposed to do,to doing some of those calculations manually, get the result manually and then input the result, to changing some parts of how things are processed. There are many different ways they can try to solve the problem.

At the end of the day, they have to solve the problems, one way or another. Whether their decision is to continue on with Phoenix for the long term or whether their decision is to go another route for the long term, they need to get people paid within this system the right amount, on time. How long it will take them to do that, I don’t know. I am glad to hear that your impression is that they are confident.

Every year, we have to look at the government’s payroll expenses as part of our audit of the federal government’s financial statements. In the course of that work every year, we will have annual indications of whether we think the results are getting better or not. We are in that process right now, but I would say there are still significant challenges to getting all of these problems under control.

Senator Cools: Thank you for that, but it is also very clear that they misidentified, misunderstood or didn’t really perceive the magnitude of the problems. We should give them some time to recover from their wounds. Right now, I am counting on them to get it together.

Senator Deacon: I will be quick because my question was similar to the previous one of Senator Cools’ about stability, moving forward and learning from it.

There was immediate cause and effect in the pay system. When things don’t work, people don’t get paid. It is obvious to the public. It makes me wonder whether, in other areas of government, are there those festerings and brewings of other issues that don’t become as blatant because, frankly, it is not a paycheque. Perhaps that’s not a question you can answer.

Also, similar to Senator Neufeld’s line of questioning, when we are looking at accountability, my job was to press go with a new pay system for 9,000 employees — not 900,000 — and a new Internet system. The key piece of that, when I look back, is that it took three years to develop that culture of readiness, collaboration and accountability across a leadership team, as well as trust, teamwork and agility — all of those things that create the culture we need to move forward and create change.

When you talk about culture as a concern, I am looking forward to hearing how we are digging deeper into that to understand what it is so that employees who are valued feel they are also part of the solution, and also feel they can come to work and be proud of their future work.

I am not shooting after a specific answer; I’m just building on some of the comments made earlier.

Mr. Ferguson: I would like to pick up on the first part of the question. Actually, it is a significant concern, and it’s something the government needs to look at. Yes, Phoenix is obvious. It doesn’t do what it was supposed to do, and that shows up in people’s paycheques, so everyone sees it.

We have done a number of audits over the last little while. One of the issues we have raised many times is the fact that departments do not make sure that the data they are collecting is of sufficient quality. I am not talking about quantity; I am talking about quality. Departments have built IT systems to support programs, but then they don’t ensure that, in those systems, they have data of sufficient quality. This can be things like addresses stored in multiple different ways and not making sure that an address is stored in one way in a system. In some of these systems, address is critical to the program that system is supposed to be supporting.

While Phoenix is an obvious failure, I suspect and think there are other systems out there that do not do what they are and were supposed to do in support of government programs, but nobody notices them because they do not affect cheques. People just work around those systems. There is something government needs to do. They need to go back and ensure that all those systems they have operating have the right data in them, ensure they have the right controls over the data and are capturing that data in the right way to ensure those systems can support the programs they were intended to support.

Senator Deacon: It also comes back perhaps to what Senator Eaton was referring to and what we are looking for in being specific, clear and honest. This has to be a wake-up call for so many other departments, programs, data, analytics and antiquated recording systems. There also have to be islands of excellence. There must be departments, small and large, that are learning and doing the right thing. I see it as a two-way piece: A wake-up for the rest of the team but also departments that have been progressive and cutting-edge that other parts of the government can learn from.

Senator Moncion: IBM told us there was a transfer of data from one system to the next without human intervention, so the quality of the data that was automatically transferred should have been good or else it would have come out of the system.

Mr. Ferguson: When I referred to the quality of the data, I wasn’t referring to Phoenix per se but to other systems. As I understand it, if they were unable to transfer that data from one system to the other, that is when their contingency plan would have to have kicked in.

That is very common with financial or pay systems. The data quality is better. When I was referring to data quality issues, I was referring to other systems that get put in place, are operating and look like they have been successful but, in fact, haven’t been successful because those systems have data issues. I wasn’t referring to Phoenix having data issues on that original transfer.

Senator Moncion: Thank you.

[Translation]

Senator Dalphond: In this morning’s presentation, you talked about the need to change the culture of the federal government. In your report, you suggested that a new monitoring organization should be created to oversee major IT projects. If we create an additional level of monitoring, isn’t there a danger that this would prevent the culture from changing?

Mr. Ferguson: That’s why I said there are two aspects to this situation. On the one hand, there are the procedures and policies, but on the other hand there’s also the culture. It’s important for the government to address these two aspects to determine what changes have to happen in terms of procedures, but also what changes need to happen in the workplace culture.

In my opinion, when it comes to all of these major projects, the complex ones, it is important to review the level of monitoring which is necessary for a project to be fully implemented. When it comes to more complex projects like Phoenix, it’s important to have a high level of monitoring to make sure that the project is implemented well. But that’s not necessarily the way to fix all of the problems. We also have to look at the work culture within government and determine whether this culture is one of the reasons why we are grappling with that type of problem right now.

Of course, you are right to say that the risk is that this will simply lead to another policy, but I think that, in general, the way to solve these problems is not to pile on more rules, but to make sure that the work culture itself is outcomes-based.

Senator Dalphond: Thank you.

[English]

The Chair: With that, honourable senators, our session comes to an end.

Auditor General, thank you for your clarity and for the information and answering all of our questions. In the Standing Senate Committee on National Finance, our objective is — and these are words that will ring true to the Auditor General’s office too — about transparency, accountability, predictability and reliability. Mr. Ferguson, thank you very much for bringing additional light on the Phoenix pay system. We will, without a doubt, table our report in the Senate, and we will send you a copy.

Before we suspend to move into an in camera meeting, do you have any additional comments in closing?

Mr. Ferguson: Mr. Chair, I would like to thank the senators for their interest and obvious engagement in this issue and the fact that there are things that need to change in order to ensure we don’t have another Phoenix happen in the future. Again, I am grateful for the interest the senators have shown in this.

The Chair: Thank you.

(The committee continued in camera.)

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