Chapter II – Implementing the Act

Part E: Administrative Authorities

General Intent of the Legislation

Sections 60 to 86 of the Act set out the powers of the Agency in respect of expenditures, contracts, provision of services, intellectual property, and real property. These sections provide the Agency with numerous powers beyond those provided to line departments, providing specific administrative powers to carry out the general authority given to the Agency in section 30 of the Act. The Act’s administrative provisions, like those for human resources, were designed to permit the Agency to fulfil its mandate as efficiently as possible.

The administrative powers given to the Agency resulted in reduced roles for Treasury Board and Public Works and Government Services Canada. Prior to the Agency’s creation, Treasury Board Secretariat had set real property and procurement policy, which had been applied on Revenue Canada’s behalf by Public Works and Government Services Canada. This is not to say, however, that the Agency is without oversight in these matters, as Treasury Board and its Secretariat continue to play an important role in the development and approval of the Agency’s Corporate Business Plan, which includes operating and capital budgets.

The Agency’s core work is to assess and collect income and other taxes. The main business of the Agency is commercially oriented, involving characteristics fundamentally different from the normal type of regulatory work in government. Given this reality, it was recognized that the Agency should not be limited to having its legal work done under the statutory mandate of the Department of Justice. Therefore, the Agency was also given increased flexibility for the procurement of its legal services.

Agency Expenditures

Statutory Provisions

Section 60 deals with the expenditure of funds by the Agency. It provides the CRA with the flexibility to carry forward into the next fiscal year any monies that were appropriated by Parliament and which are unexpended at the end of any fiscal year, unless Parliament specifies otherwise. It also provides the Agency with the flexibility to spend any revenues that it receives by way of fees, disposition of property, and payments under contracts. This provision does not apply to taxes, duties, penalties, or interest collected under the program legislation and which are deposited directly into the Consolidated Revenue Fund.

As noted in Part B of this chapter, the Agency is subject to the Financial Administration Act with respect to its appropriations. The above provisions, then, need to be read in light of the requirements placed upon the Agency by the Financial Administration Act. Together they govern the expenditure of public funds by the Agency: the Financial Administration Act provides that the Agency is subject to the same accountability to Parliament as are other government departments, while the above provisions give the Agency additional flexibilities on the expenditure side.

Implementation

The CRA has had recourse to use the lapsing provisions of the legislation each year since its creation. Over the five-year period, the lapses have averaged about 3% to 5% of the Agency’s appropriation annually and have been of benefit for fiscal planning purposes.

The provisions allowing the Agency to expend money it receives by way of fees, disposition of property, etc., were never intended to provide a major source of revenue for budgetary expenditure. Over the five-year period, these revenues have averaged less than 1% of the Agency’s overall budget annually. With the departure of Customs, this figure will fall even further.

More importantly, however, recognizing that it was a new model for alternative service delivery and accountable to Parliament for its performance, the Agency undertook from its inception to enhance the accuracy and reliability of its financial and performance reports to Parliament by modernizing both its comptrollership and its financial administration control framework.

The establishment of the Board of Management and the preparation of a Corporate Business Plan and an Annual Report that focused on performance in relation to that plan also created an impetus for innovations in Agency comptrollership. This direction was reinforced by government-wide attention to comptrollership issues.

Modern Comptrollership

An initiative known as “Transparent Management for Results” was adopted as one of the three objectives for change under the first Corporate Business Plan’s management improvement agenda. It tied a manager’s budget and expenditures directly to the achievement of results. It also encompassed many of the elements of the government-wide “Modern Comptrollership Initiative” launched by Treasury Board in 2001.

The Agency continues to improve on its strong base of comptrollership, principally in respect of planning and resource management, cost management, knowledge management, and asset management. A high priority is being placed on reinforcing a comptrollership culture through workshops and training in the executive and management communities within the Agency.

Financial Administration Control Framework

It is axiomatic that good comptrollership practices be supported by reliable, capable information systems. Beginning in 1999, first in the former Revenue Canada and then in the Agency, work was undertaken on the design and implementation of a “Corporate Administrative System” (CAS) to modernize financial management and improve financial and accounting controls. The Agency’s CAS is a true enterprise resource planning system that fully integrates financial and human resource management systems. This integration has enabled the Agency to achieve a high level of functionality and productivity in its financial and human resource business processes.

Just as CAS forms the basis for better budget, expenditure, and cost management, new corporate and client accounting systems have been implemented to strengthen controls and accounting and reporting processes for the revenue streams that the Agency administers. A new Revenue Ledger (RL) System is the capstone of a network of systems that together provide a framework to ensure that revenue transactions are accurate, complete, properly authorized, and processed in a timely fashion. The RL was a crucial element in the Agency’s ability to respond to the Government’s adoption of accrual accounting for tax revenues in the accounts of Canada. The Auditor General has issued an unqualified opinion on the Agency and its financial statements for each year of operation since 1999-2000.

While both the CAS and RL systems have matured to be very effective in meeting the purposes for which they were designed and built, their initial implementations were not without challenges. In the case of the CAS, for example, the Agency discovered in consolidating the functions of some thirty legacy systems into a single, horizontally-integrated system, that many of the legacy systems had not been designed with cost-effectiveness of overall processes in mind, and, thus, significant reengineering of business processes was required. Nevertheless, as these types of challenges presented themselves, the Agency took action to respond to them. As a result, today it has internal business processes and systems that support its operations effectively and efficiently.

Sound Financial Management and Administration

The Board of Management, through its Audit and Resources Committees (since merged to form the Finance Committee), has been active in promoting sound financial management throughout the Agency. Quarterly status reports on expenditure, revenue, and accounts receivable performance are given to the Board. Internal audit work is also reviewed quarterly, with particular emphasis on the Agency’s ongoing efforts to improve its system of internal control. At the request of the Board of Management, a new quarterly budgeting and expenditure reporting system was also implemented in the Agency. This system has facilitated better in-year expenditure management and, at all levels of management, an improvement in the understanding and knowledge of the Agency’s financial status.

Contracts, Agreements, and Other Arrangements

Statutory Provisions

Section 61 states that for contracting purposes the Agency is an agent of Her Majesty and is, therefore, synonymous with the Government. Section 62 permits the Agency to contract with Her Majesty for which purposes it is deemed not to be an agent of Her Majesty. This permits the Agency to procure services directly from other departments and agencies.

As discussed earlier, section 63 permits agreements with provinces to administer a provincial tax or other fiscal measure (see pages to ).

Section 64 places limits on the Agency’s contracting authorities with respect to several federal-provincial arrangements, while Section 65 limits the Agency’s authority to enter into international contracts, except for the procurement of goods and services.

Section 66 gives the Agency power to procure goods and services (except legal services) from outside the Public Service of Canada. This means that the Agency can procure its own goods and services directly from the private sector or the provinces and territories.

Section 68 allows the Agency to purchase services from the PSC on a cost-recovery basis.

Sections 71 and 72 give the Agency ownership rights to its intellectual property with the right to license, sell, and otherwise make available such property.

Implementation

From a narrow perspective, the above provisions for contracting and procurement are necessary for the day-to-day operations of the Agency and, as such, are not unusual or particularly noteworthy. The Agency has fully complied with the provisions placing limitations on its authorities. On the other hand, it has had recourse to the provision regarding the purchase of services from the Public Service Commission; the Agency contracts with the PSC for the provision of language training, career counselling, and other services (to the order of about $300,000 annually). The provisions pertaining to the ownership of intellectual property were used (in a minor way) when Customs was part of the organization, but the CRA has not had any activities since Customs’ departure that would be encompassed by them.

In a wider context, however, and similar to what we saw with respect to what the Agency had done to ensure the expenditure authorities were administered in a thoroughly professional, transparent, and accountable fashion, the move to agency status prompted a major overhaul of policies and procedures in contracting, procurement and general administration of the Agency.

Following proclamation of the Act, the Board of Management approved new administrative policies for procurement and contracting. New policies and guidelines were also introduced for such things as travel, relocation, commuting assistance, mail, environmental development, sustainable development, resource management, information management, e-mail, internal use of paper, and use of alternative media.

The Agency’s first Corporate Business Plan identified Administrative Reform and Renewal as an objective for change. All administrative and financial policies, processes, and organizations impacted by the legislation were reviewed. The consolidation of the Agency’s warehouses and forms call centres is an example of the benefits of this process. By May 2003, 11 warehouses were consolidated into two distribution centres for forms and publications (Mississauga and Winnipeg). The results were streamlined processes, improved tracking capabilities, reduced inventory costs, and standardized high-calibre client service (both external and internal).

Overall, the savings from the administrative reform and renewal project between 2002 and 2004 totalled $37.4 million. These came from initiatives for publishing, telephony, e-procurement/strategic sourcing, warehouse review, headquarters re-organization, and real property annual lease savings from the warehouse review.

One of the most significant successes occurred in the area of contracting and materiel management. Following an analysis of Agency purchases of commodities (from office supplies to laptop computers), it was found that significant savings could be achieved by better leveraging the Agency’s purchasing power and by implementing an agency-wide electronic procurement tool. Through the exercise of its new authorities, the Agency has established a national long-term contract for the provision of low-dollar, high-volume office supplies, envelopes and paper, information technology equipment and services, and translation services.

While the introduction of the Agency’s new contracting regime has been generally successful, certain adjustments have been necessary. A recent internal audit of the contracting process revealed that a wide delegation of contracting authority to budget managers who did not have the volumes of transactions needed to sustain their contracting expertise resulted in reduced compliance with prescribed procedures. To alleviate this situation, delegation of contracting authority has been significantly retracted and now resides with a smaller cadre of contracting specialists. Certain other complementary measures were also taken to strengthen controls over contracting.

Real Property Services

Statutory Provisions

Sections 73 to 86 set out the powers of the Agency with respect to real property and immovables. These give the Agency the right to own, acquire, lease, and sell property (sections 74-76). It may also transfer to and receive property from the provinces (section 77). It may provide utilities and services, and grants in lieu of taxes in relation to its properties (sections 81, 82). Together with consequential amendments to the Federal Real Property Act and the Financial Administration Act, these provisions provide the Agency with extensive autonomy to purchase, sell, lease, and transfer to and from the private sector, provinces and territories, federal departments, and international bodies. The Agency retains the resources of the Crown to defend itself against private liability claims.

Implementation

In response to its new authorities, Agency senior management chose to enter into a new business relationship with Public Works and Government Services Canada (PWGSC) that:

• builds on an existing long-term relationship, given that the majority of real property services have historically been provided by PWGSC;
• minimizes financial risk to the Agency; and
• uses a framework consisting of a Memorandum of Agreement and a Services Agreement as the foundation for this new relationship.

The Agency occupies real properties owned by PWGSC or leased by PWGSC from private sector owners. The only property owned by the Agency itself was lost when Customs properties were transferred from the Agency.

The two organizations have signed a Real Property Memorandum of Agreement and a Real Property Services Agreement. The framework agreed to with PWGSC creates important incentives for sound management of both supply of and demand for real property services. Already, partial implementation of the framework has achieved savings in space consumption. When implementation is complete, further similar savings are expected, as are savings through the application of fit-up standards and through the voluntary relocation of operations from higher-cost to lower-cost properties. In addition, reduction of overlap and duplication between the Agency and PWGSC has created administrative savings. At present, only the administrative savings have been captured by the Agency; the other savings still reside within PWGSC.

Legal Services

Statutory Provisions

Section 67 of the Act establishes that the Attorney General of Canada is the source of legal advice and has charge of the Agency’s representation in all litigation to which it becomes party. The section does, however, permit the Agency to engage its own legal officers and outside counsel with the approval of the Attorney General or the Cabinet.

Section 69 allows legal proceedings to be brought against the Agency in the Agency’s name. It is a standard provision in the enabling legislation for government corporations. Section 70 protects third parties from capricious action on the part of the Agency. It is similar to a provision governing Crown Corporations in the Financial Administration Act.

Implementation

The provisions of section 67 differ from those applying to most departments and agencies which are bound under the Department of Justice Act to use the services of the Department. This was the situation for the former Department of National Revenue, which was the largest client of the Department of Justice, consuming about 25% of its client-dedicated resources. The Senior General Counsel of the Legal Services Branch in the Department of National Revenue carried out responsibilities under a joint appointment as Chief Counsel. In Justice, he had special accountability to the Deputy Attorney General and a reporting relationship with the Assistant Deputy Attorney General for Tax Law Services. In Revenue Canada, he had special responsibilities as the Revenue Deputy’s delegate for the legal aspects of Revenue operations and policies, and, as such, was a member of Revenue’s senior management and policy committees. In this respect, Legal Services was a branch within Revenue and was expected to provide strategic counsel across the Department. The service was integrated with Revenue Canada operations to be sensitive to its priorities and objectives. The Legal Services Branch acted as a window for Revenue Canada to the larger Justice service, ensuring that it was appropriately coordinated to assist Revenue Canada in achieving its objectives and priorities. This arrangement was carried on in the new Agency when it was established in 1999, and it is still in force.

The Justice legal services are co-ordinated through national networks of counsel from litigation offices, the Legal Services Branch, numerous speciality branches at the Department of Justice, tax counsel at the Department of Finance, and Agency officials.

The Agency has not taken action under section 67 to engage its own legal counsel. There are two reasons for this. The first is budgetary. While the Agency incurs significant legal costs, most of the larger Justice service is provided to the Agency at no cost to it. Secondly, and more importantly, the Agency has generally been well satisfied with the Justice service and has relied on the special joint responsibility of its Chief Counsel to provide the necessary accountabilities in continuing with the service. There has been regular reporting from Justice on the costs of the larger service, and Justice was able to manage developing work pressures and priorities of the Agency.

The provisions of sections 69 and 70 are standard provisions for an agency such as the CRA and, as such, are not particularly noteworthy.

Assessment of the Administrative Provisions

In the administrative domain, the CRA set about to reduce cost and improve internal service levels through a broad program of technology-based re-engineering. Through the exercise of the new legislative authorities, the Agency has improved its efficiency and effectiveness and realized some significant ongoing savings.

The Agency’s overhead has been substantially reduced, largely through a comprehensive administrative reform initiative. Between 2002 and today, the internal administration operating costs were lowered by a cumulative amount of more than $37 million. The ongoing annual savings are expected to be $17 million. Expenditures in the finance and administration area have decreased approximately 10% in the last three years and now represent slightly less than 9% of the Agency’s expenditures, down from 10% in 1998-1999.

Changes were introduced in the way the Agency purchases goods and services with significant results. In the 2004-05 fiscal year, it will spend some $21 million less to acquire goods and services than it would have under pre-Agency practices. Lower costs have been realized on everything from office supplies and computer equipment to IT consulting services. Effectively, the Agency has managed to make the CRA purchasing dollar go 20% farther – clearly much better value for money.

In the area of real property management, circumstances have prevented the Agency from going as far as it planned in the first five years of agency status. Nevertheless, the Agency has instituted some interesting innovations in the delivery of real property services. Public Works and Government Services Canada and the Agency have signed a Real Property Memorandum of Agreement and a Real Property Services Agreement that effectively commits the two organizations to a partnership approach to demand and supply management. Already, partial implementation of the framework has achieved savings in space consumption and in the cost of administration of the real property management function.

The innovations in Agency comptrollership have resulted in more comprehensive and clear reporting, inside and outside the Agency, on financial matters and on performance. The Agency’s financial and performance reports are supported by important developments in information systems capabilities and in the procedures used to analyse, interpret, and present data. Both CRA financial specialists and the broader community of managers at all levels in the Agency play significant roles in the Agency’s modernized comptrollership.

Not unexpectedly, the more attention the Agency focused on systems, procedures, and managerial competencies, the more opportunities for improvement it identified. Thus the Agency continues to have a full slate of enhancements under way as new projects replace completed ones. The Office of the Auditor General, for one, is keenly interested in the progress the Agency is making and is encouraging the Agency to continue to make enhanced comptrollership a priority.

Building from the previous relationship between the Customs component of the Canada Border Services Agency (CBSA) and the CRA, the Agency undertook to establish the CBSA as a separate enterprise within CAS, thus providing CBSA with the same benefits being realized by the CRA. The provision of such a service by one agency to another is somewhat of an exception in the federal government. Normally the organization itself or a common service provider such as Public Works and Government Services Canada would provide these types of services. As the integrated Enterprise Resource Planning (ERP) approach and the strategy being employed for adding a user are both important “best practice” examples that could be leveraged by a government-wide common service provider to the general benefit of the federal government, Public Works and Government Services Canada is watching this development closely. The Agency will continue to show leadership as the Government looks to establish shared services and new administrative arrangements across government as a whole.

The Agency has made significant progress during its first five years, and plans to continue to build upon its record of innovation and accomplishment. The Agency will continue to improve financial and administrative services through initiatives that:

• continue the evolution of the methodology for accrual accounting of tax revenue, and improve the performance of, and controls in, the suite of systems that support the methodology;
• introduce a new Personnel Cost Planning system that exploits the power of the Agency’s integrated financial and human resource systems, and support it with training for managers at all levels in budget, expenditure, cost and results management;
• upgrade facilities security wherever necessary across the Agency and improve the security of the Agency’s information systems;
• support the Agency’s three-year Sustainable Development Strategy; and
• introduce a next-generation e-procurement tool to support expanded use of strategic sourcing arrangements.

The administrative autonomy and flexibility provided by the Act have resulted in administrative practices that demonstrate the Agency’s commitment to a business-like approach to the administration of programs. This in turn has been particularly useful in forging new partnerships with provinces, territories, and other government departments for the administration of tax and benefit programs.