:
Good morning, everyone, and welcome. This is meeting number 81 of the Standing Committee on Public Accounts on Tuesday, November 28, 2017.
I would remind everyone—and we have a large audience today—that today's proceedings are televised, so I would kindly ask you, if you have cellphone or other communications devices that you can mute, to please do that at this time or to shut them right off.
Today we are studying report 1, “Phoenix Pay Problems”, from the 2017 fall reports of the Auditor General of Canada.
As our witnesses this morning, we have, from the Department of Public Works and Government Services, Marie Lemay, deputy minister, as well as Les Linklater, associate deputy minister. From the Office of the Auditor General of Canada, we have Mr. Michael Ferguson, the Auditor General of Canada, and Jean Goulet, principal. From the Treasury Board Secretariat, we have Ms. Yaprak Baltacioglu. She is the secretary of the Treasury Board of Canada. We also have Cécile Cléroux, assistant deputy minister of human resources, management transformation sector, from the office of the chief human resources officer.
Welcome.
I understand that we have a number of opening statements this morning.
We'll begin with the Auditor General, please.
:
Mr. Chair, thank you for this opportunity to present the results of our report on Phoenix pay problems.
[English]
In 2009, the Government of Canada began to transform the way it processed pay for its 290,000 employees. Public Services and Procurement Canada was responsible for this transformation of pay administration initiative.
The initiative had two projects: one to centralize pay services for 46 departments and agencies that employed about 70% of all federal employees, and the other to replace the 40-year-old pay system used by 101 departments and agencies with a new system called Phoenix.
Since Phoenix went live in February 2016, the federal government frequently could not pay federal public servants accurately or on time. Our audit examined whether Public Services and Procurement Canada worked with selected departments and agencies to fix Phoenix pay problems so that government employees would receive their correct pay on time.
This audit is important because the government's pay problems have had a financial effect on tens of thousands of its employees, and the system has to be fixed.
We found that the pay problems continued to grow throughout the period of our audit. A year and a half after the government launched the Phoenix pay system, the number of public servants waiting for a pay request to be processed had reached more than 150,000 in the 46 departments and agencies whose pay services were centralized.
Those 150,000 employees were waiting for about 500,000 pay requests to be processed. Those numbers do not include the outstanding pay requests in the 55 departments and agencies whose pay services were not centralized, and also do not include the outstanding requests required by the recently signed collective agreements with federal public service unions.
[Translation]
Problems grew to the point that the value of outstanding pay errors totalled more than half a billion dollars at the end of June 2017. This amount consisted of money that was owed to employees who had been underpaid, as well as money owed back to the government by other employees who had been overpaid.
Departments and agencies struggled with Phoenix pay problems from the time the system went live. However, it took Public Services and Procurement Canada four months to recognize that the problems went beyond normal processing levels. Since that time, the department has been reacting to problems and has implemented few permanent solutions. In fact, 16 months after the problems first arose, there was still no governance structure in place.
In our opinion, there are two parts to the solution for the Phoenix pay problems. The first priority is to pay people the right amount on time. However, after that is achieved, there will still be work to do to get a system that processes pay efficiently. The longer-term solution needs to last and be as efficient as it can be.
Public Services and Procurement Canada told us that it was developing a comprehensive plan, including detailed cost information, to resolve the pay problems. However, it had not finished that plan by the end of our audit.
To put in place a viable solution to the pay system problems, the government needs to identify and address the root causes of the problems; exercise strong oversight of the steps taken to resolve the problems; and ensure that there is strong collaboration that includes Public Services and Procurement Canada, the Treasury Board of Canada Secretariat, and the affected departments and agencies.
[English]
In our view, fixing the Phoenix pay system will take years and will cost more than the $540 million that government organizations have so far estimated they will spend to solve the problems. We found that the department of health in the Australian state of Queensland had to deal with a similar situation, and it took eight years and over $1.2 billion to find solutions to most of its pay problems.
We made four recommendations to Public Services and Procurement Canada and two recommendations to the Treasury Board of Canada Secretariat. They both agreed with the recommendations.
[Translation]
Mr. Chair, this concludes my opening remarks.
We would be pleased to answer any questions the committee members may have.
:
Good morning, everyone.
Thank you for the invitation to appear before you this morning to discuss the Phoenix pay system.
As secretary of the Treasury Board, I support the board in its role as the employer of the core public service. In this capacity, my senior management team and I are fully committed to doing our part in ensuring that public service employees are paid accurately. It is an unacceptable situation, one that has touched far too many of our employees.
I would like to thank the Auditor General for his analysis and his recommendations on how to stabilize the pay system. His report is important input into the work underway.
[English]
This morning, I would like to address his two recommendations for the Treasury Board Secretariat specifically.
The first is that the secretariat establish, with Public Services and Procurement Canada, timelines for departments and agencies to submit accurate pay information, and that it support PSPC, departments, and agencies in the development of performance measures to track and report on the accuracy and timeliness of pay. We agree with this recommendation. In fact, we have already advanced work towards fulfilling this commitment.
In collaboration with PSPC, we will establish standardized timelines for HR transactions that lead to a pay action by June 30, 2018. We will also work with departments and agencies to establish and implement a comprehensive approach that links the HR world to actual pay processes. To better track and report on pay actions, we will set out performance measures that will be rolled out in fiscal year 2018-19. Finally, we will collaborate with departments and agencies to track and report on key HR metrics, including timeliness of pay.
The Auditor General's second recommendation for TBS is on costs. He recommends that the secretariat, again with the support of PSPC, departments, and agencies, track and report on the cost of resolving pay problems and implementing a sustainable solution for all departments and agencies. We agree with this recommendation.
The comptroller general of Canada is leading a government-wide exercise to better understand the full picture of actual costs.
[Translation]
That work is underway. It is a rigorous process, based on international best practices. It will determine all costs incurred to date and put in place a framework to track future costs. It will involve significant consultation with departments and central agencies to ensure a proper understanding of the data. We expect that exercise to be completed by May 2018.
[English]
In closing, let me reiterate that my department and the TBS senior management team are, and have been, fully engaged on this file.
[Translation]
The Auditor General's recommendations and the resulting efforts to address them will contribute significantly to the work that is already underway.
Mr. Chair, this concludes my remarks. I would be pleased to answer the committee's questions.
Mr. Chair, I want to thank you and the members of the committee for the opportunity to address the report of the Auditor General with respect to the Phoenix pay system.
I am pleased to be joined by my colleague Les Linklater, who leads the integrated team that is now focused on stabilizing the pay system.
Let me begin by saying that since my arrival at PSPC, in April 2016, eliminating the negative impact on employees from the implementation of the pay transformation has been my number one priority, the number one priority of my department, and as has noted, her number one priority as well.
It is clear to us that there is no greater issue facing the public service. More than half of the employees are facing some form of pay issue. At my department, we see first-hand the very real impact this situation is having on employees—those waiting for missing pay and those working without rest to help resolve this situation. I am deeply sorry for the hardship being felt by the public servants and their families.
I want to thank the Auditor General for this important study. We agree with the report's findings and accept its recommendations. The report aligns with the findings of previous reviews and validates the measures we are taking to stabilize the pay system. We have provided a management action plan, which details specific commitments and key milestones for achieving them.
[Translation]
I will elaborate on this actions in a few minutes, but first I would like to provide a brief summary of what has transpired over the past year and a half.
We now know that the original planning for this project failed to take into account the full scope and complexity of this major transformation. The crucial linkages between pay and associated human resources processes and systems were not properly understood across government. This had enormous implications, and we did not immediately grasp the full extent and impact of pay problems that emerged after Phoenix went live.
In addition, we did not have the needed resources to properly implement Phoenix or effectively manage the challenges that followed. By the time Phoenix was fully implemented in April 2016, more than 700 compensation positions had been eliminated in the 46 departments being serviced by the pay centre. While departments not serviced by the pay centre kept their staff, this massive reduction meant that valuable expertise and capacity were not available when we needed them most.
At first, reports of pay errors were taken to be one-off issues and not unexpected with the implementation of a major information technology transformation project. However, by June, it became apparent that there were serious problems. The increasing number of pay issues quickly outstripped our capacity to respond.
[English]
More compensation advisers were urgently needed. However, building capacity is a major undertaking, and we were starting from scratch. In addition to finding new employees, significant time and effort was needed to on-board trained individuals.
On June 17, eight weeks after full implementation, we announced the opening of our first satellite office. Then we hired additional staff at Miramichi, established additional satellite pay offices across the country, added more than 250 compensation advisers, and opened a client contact centre to handle employee calls for assistance.
These measures helped address several urgent issues while ensuring that the 300,000 public servants were getting paid every two weeks. They reduced the occurrence of the most serious pay problem—employees not receiving pay at all. They also allowed us to bring down wait times for parental and disability leave, which unions asked us to prioritize.
However, major challenges remain. A large queue of transactions had formed at the pay centre. At the same time, the government was concluding negotiations for 20 collective agreements. Compensation advisers processed pay increases, signing bonuses, and retroactive payments for some 184,000 employees, which led to payments of more than $615 million over the summer.
[Translation]
This additional work proved much more complicated than expected. Calculating retroactive payments going back as far as four years required data to be pulled from the government's now-decommissioned pay system, as well as significant manual calculations.
We are not seeing our queue decrease, as we are dedicating efforts to process important payments associated to collective bargaining agreements. However, in total, we are processing more transactions a month than we are receiving and we have essentially tripled this output since May 2016.
Once we have implemented the collective agreements and dealt with the upcoming tax season, we will be able to shift more capacity to reducing the queue. In addition to responding to pay problems, we are focusing on their root causes.
[English]
This has highlighted two important realities. First, given that human resource processes are directly linked with employee pay, we know that an integrated pay and HR approach is needed to address issues. Second, as it was clear that our department alone could not identify or implement solutions, we needed a whole-of-government approach. As a result, we have begun implementing a series of measures focused on bringing the pay system to a point of stability. Our immediate aim is to reduce the number of late transactions and the wait times for missing pay.
Our actions fall into four broad areas, namely, accountable and informed decision-making, improved processes and technology, increased capacity and service, and partnership and engagement. I will give you a few examples, but more detailed information on these actions is available on our website.
An integrated team of senior officials from PSPC and Treasury Board Secretariat is now leading our overall effort to stabilize the pay system both at the pay centre and across the entire government. A strong governance model that brings together views and realities from across the public service is supporting the work of the integrated team. This includes a working group of ministers, an interdepartmental working group, and a deputy ministers oversight committee, which I co-chair with my colleague, the chief human resources officer at the Treasury Board Secretariat.
[Translation]
To improve processes and technology, we are focusing on common human resources practices, processes and systems that don't work with Phoenix and cause delays. Our solution needs to be integrated, from initial staffing action, to pay request, to pay receipt. Taking a holistic view will ensure that our pay system works effectively and efficiently from start to finish.
At the pay centre, we are preparing to organize compensation staff into small groups that will focus on specific departments and agencies, creating greater efficiencies and providing more tailored support to employees. To increase our capacity and improve services, we have hired 680 additional compensation staff, in effect more than doubling the staff complement we had when Phoenix was launched. And we plan to add up to 300 more over the next several months.
Recognizing the need to provide more useful support to employees, we also plan to enhance our contact centre by hiring up to 100 employees. This will allow employees to get detailed information about their pay files directly from public servants working at the client contact centre.
[English]
The final area is partnership and engagement. Departments are engaged, and the union management community has been meeting regularly to discuss Phoenix-related issues and solutions. Improved reporting and data analysis will be provided to departments and agencies and will inform decision-making.
Mr. Chair, we know there are no quick fixes or shortcuts. We need to continue to pay some 300,000 employees every two weeks and process the late transactions. We are focused on stabilizing Phoenix, and the measures I have just mentioned will help get us there. Again, more details can be found on our website. These measures are fully aligned with the Auditor General's recommendation, and we will be posting quarterly updates of them online.
In addition, we are looking longer term to consider options for how we can increase the efficiency and sustainability of this system. Our immediate focus is on helping affected employees, but eventually we want to deliver an efficient pay system that provides public servants a modern and easy-to-use pay experience.
Collectively, it's clear that we underestimated the complexity of the pay transformation initiative. The Goss Gilroy review identifies lessons in key areas that we're now using to fix the pay system. The second report of the Auditor General should provide additional guidance. It is also our responsibility to ensure that these lessons will be applied to other government transformation projects.
[Translation]
Before concluding my remarks, I want to again acknowledge the patience of dedicated public servants who have endured hardship through no fault of their own. They simply want to know when they will get paid. While we do not have a precise timeline, we are doing everything to end this frustrating situation as quickly as possible.
I also want to thank our dedicated employees at Public Services and Procurement Canada and across departments and agencies who are working tirelessly to ensure that their colleagues are paid accurately and on time.
I know that pay issues are exerting pressure and stress on employees. Where employees are facing hardship situations, we are prioritizing support. I want to assure you that, when those situations are brought to our attention, departments and agencies act quickly to deal with them.
I would be pleased to respond to any questions you may have.
Thank you.
I know personally that there are very talented public service employees in my riding of Nepean, in Ottawa-Gatineau, and elsewhere in Canada. These are very highly qualified people, and they have a great deal of expertise. Some have the feeling that they were not involved, and they were not consulted in designing or developing or implementing the system.
I know that one of the root causes for the big mess we are in is the overreliance of the federal government on outside contractors. According to the report, I believe the federal government spent $2.7 billion on IT staffing, bringing in professionals from outside rather than relying on trained public servants.
Alex Benay, Canada's chief information officer, said, “more investment is required in better preparing internal IT staff to address the needs of the [Government of Canada]”. I think that is one of the root causes, in my opinion.
Now, the unions, the Professional Institute of the Public Service of Canada, which represents I think about 50,000 employees, wants the government to scrap the Phoenix system and start from scratch. I think PIPSC president, Debi Daviau, said give us a year and we'll build a working replacement for this troubled system. I understand that the Public Service Alliance of Canada is also in support of this.
To the Deputy Minister Marie Lemay, have you had any discussions on this issue?
Please keep it short, as I have a very short time.
:
Thank you, Mr. Chair. I want to continue with some reports.
[Translation]
The CFOs from a number of departments met on January 13, 2016, to assess the readiness of the Phoenix system a few weeks before the launch.
Here are their observations. The Correctional Service of Canada, which has shift workers, reported a testing success rate of 50%. The failure rate, then, was 50%, so that is huge.
[English]
It says:
There was no live data environment to understand the system
No report to perform analysis on error on pay sheet
Training at the last minute
[Translation]
Agriculture and Agri-Food Canada reported the same thing, in other words, a testing success rate below 50%. The department also indicated that it didn't know how to resolve the problem at the time of testing.
After conducting 25 tests, Employment and Social Development Canada determined that system readiness and effectiveness was questionable.
[English]
As well, the RCMP said, “No issue log of issues and defects. The error rate is going up.” At Public Safety, it's exactly the same thing, “Testing result issue: 30% errors not satisfactory.” The RCMP also talked about the fact that the “Test over promotion/overtime failed” and asked, “What will be the work around?”
[Translation]
The Canadian Coast Guard raised the potential consequences of delaying Phoenix implementation.
Employment and Social Development Canada also had this to say:
[English]
“At go live it will be 'bumpy'.”
[Translation]
In short, Mr. Chair, the assessment of all the departmental directors at the January 13 meeting, mere weeks before Phoenix was to go live, showed that the system still had major flaws.
Earlier, Deputy Minister, you said that, in the previous report, errors had been made because each organization was working in isolation. Here, however, we have a meeting attended by most, if not all, of the departmental directors involved in the first launch of Phoenix.
Why did the department not take into account the major red flags raised by those who would be responsible for managing the problems?
Last week the Auditor General reminded us that government departments are too focused on their own activities instead of the perspective of the people we serve. I want to thank Ms. Lemay for highlighting the negative impact and hardship the Phoenix implementation has had on our public servants. I empathize with the tens of thousands of employees who have not been paid properly, whether they're underpaid, overpaid, or waiting for other types of adjustments, but they are not the only people who are outraged at what is happening. When Canadians are hearing from the Auditor General that $540 million is what's needed, at the minimum, to fix the Phoenix system, they too deserve an apology.
My colleague Mr. Arya pointed out that consultants must have evaluated the system before and during the rollout to offer their advice. As we know, one such review was completed by Gartner Incorporated, and it included a dozen significant risks. Departments, for example, had not completed end-to-end testing. They had also not fully implemented the training programs that were required. To make matters worse, as was pointed out by my colleague Mr. Whalen, the Gartner report was not made available to the minister until six months later.
This is how an article in yesterday's Ottawa Citizen characterized the situation:
After nearly a decade in development, Phoenix suffered the flaw of unstoppable bureaucratic momentum. The directors of the project seemed not inclined to pay much attention to last-minute advice unless it happened to line up with where they were going anyway.
This brings me to the question I have today. Where are going, and are we going to fix this? I think that's on the mind of every Canadian who has come across this issue.
I've heard today that 700 employees have been hired. I've heard apologies. Are we going to strike the right balance? There was a decrease in pay advisers in 2014. Now you're hiring a whole bunch of new people to try to get caught up with all the transactions that have not been processed.
At the end of the day, I know that when you have a train that is moving, and it is moving fast, and you have problems with the train, you can add people to it, but if you don't stop it and go back and fix the problem, then it's only going to go faster. To me, this is a train that is continuing to speed up. When you look at the graphs in the Auditor General's report, you see how the situation has exacerbated itself with an exponential increase in the number of public servants with outstanding pay requests and the number of outstanding pay requests in total. The problem comes across as an unstoppable train.
Perhaps you don't have an answer for this, but how are you going to strike the right balance with respect to training and with respect to the number of employees? This number of $540 million is a starting point. We've heard that in Australia it has cost over $1 billion.
Canadians really want to know.
I won't repeat a lot of the great comments that were made around the table. I'll go straight to one of my major concerns. The Auditor General has raised the fact that the government is looking at spending over half a billion dollars to correct this situation. When we compare this situation with that of Australia, it was a lot smaller, basically one department with 78,000 individuals, and it took them seven years and more money than that.
I hear from Mr. Linklater that we are still in the root cause analysis report. We haven't completed that yet, so we are still looking at root causes. We've kind of identified them over the last period of time, but we still haven't finalized that.
We talked about the action plan here, and the lack of one. It took seven years for Australia to fix something that was fairly simple—complex but smaller. Let's put it that way. I look at your action plan. We can turn to the management action plan that you provided to us. For ease, I'll look at report reference number 1.98. The description of the final expected outcome is that, at the end of 2018, “[e]mployees receive timely and accurate pay in accordance with established targets, priorities and service standards. Within this context, the number of pay requests in the queue declines and timeliness and accuracy of pay processing consistently meets service standards.”
Basically, what you are telling us today, in your action plan, is that by the end of 2018 we should be on the road to full recovery and everything will be on the road to having addressed all the issues. The root causes will be addressed. That means the capacity will be met.
I am very concerned. If another country, a place like Australia, took seven years to figure out an issue that was a lot smaller than this—probably less complex because of all the collective agreements we need to address and all the work that needs to be done—I can see why Canadians would also have a lot of doubt about this plan.
Mr. Linklater, can you please explain that to us?