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1996 September Report of the Auditor General of Canada

Chapter 20—Revenue Canada—Creating One Revenue Canada: The Administrative Consolidation of Customs and Excise and Taxation

Main Points

Introduction

Focus of our audit

Observations

The Operational Context

Implementation was constrained by the operating environment
Administrative consolidation in an uncertain legislative environment

Steering the Process at the Corporate Level

A discernible vision for administrative consolidation
The Department developed objectives and principles of consolidation
Senior management made it a priority to keep staff informed
Clients were informed about benefits of administrative consolidation
Senior management demonstrated ownership and involvement
The organizational design eliminated major duplication of functions

The Business Number

New possibilities for better management of information
A key milestone in managing information services
A strategic investment
A technically complicated system involving new technologies
Good communications were critical to success
The project was split into manageable components
Project was well managed
Testing was inadequate
Effective internal and external review process
Completing the conversion process

The Business Window

Good planning and project management
Generally good employee communications and involvement
Stakeholders adequately informed and involved
Not enough attention to the impact of combining different work cultures
Improved accessibility of counter service but continuing concerns about telephone service
Additional training needed
Revenue Canada slow to determine classification of business window staff

Conclusion

About the Audit

Assistant Auditor General: Shahid Minto
Responsible Auditor: Jim Ralston

Main Points

20.1 Beginning in 1992, the formerly separate departments of Customs and Excise and Taxation were brought together into one department, Revenue Canada. Our audit of the "administrative consolidation" of Revenue Canada selected three aspects on which to judge success:

  • corporate management of administrative consolidation;
  • the introduction of a single business number for each business client; and
  • the opening of "business window" service sites across the country.
20.2 Our examination found there were good practices common to the three aspects that helped make their implementation successful. These included:

  • a clear overall vision and principles to guide the process;
  • the commitment and involvement of senior management;
  • good communication with stakeholders and employees at all levels; and
  • good project management.
These practices were particularly important given the special difficulties involved in administrative consolidation, including an uncertain legislative environment and the challenge of combining different work cultures.

20.3 A number of areas still require improvement, including levels of service and classification of staff in the business window activity. The business number project also faces a major challenge in January 1997, when all remaining businesses will be required to convert to the new system.

20.4 Administrative consolidation has been and continues to be a challenging task and, for the most part, it has been well managed by the Department. On the whole, with respect to the aspects we examined, we conclude that administrative consolidation is establishing a solid foundation for:

  • streamlined operations;
  • improved service; and
  • enhanced compliance.
It has also made possible new ways of using and integrating information, both internally and in co-operation with other levels of government.

Introduction

20.5 Revenue Canada is the federal government's second-largest organization, with 39,000 full-time equivalents. The Department assesses and collects revenues for the federal government and nine provincial governments, administers tax credit programs, effects social and economic payments through the tax system, enforces compliance with trade policies, and protects the integrity of Canadian borders in the international movement of goods, services and people.

20.6 What is now one department was formerly two separate organizations, Revenue Canada-Customs and Excise and Revenue Canada-Taxation. The administrative consolidation of the two organizations started with the appointment of a single person to act as Deputy Minister for both departments, effective 1 October 1992. On 12 May 1994 the Department of National Revenue Act was amended to permit the administrative consolidation.

20.7 Administrative consolidation began at a time of rapid change. Increasingly, the public was demanding open, fair, accountable and productive government, placing more emphasis on values and rights. Technological change was accelerating, making an interconnected, integrated, electronic-based revenue department not only a possibility but an expectation.

20.8 In addition, funding limits were placing added pressure on existing activities and on the resources available to make needed changes. There was also an increasing awareness of the need to collect money owed to the government by the underground economy; the government was looking to Revenue Canada for help in reducing the deficit.

20.9 The overall objectives of administrative consolidation were to:

  • develop a more effective, consistent and harmonized approach to the delivery of the Department's legislative mandate;
  • enhance client service;
  • create substantial opportunities for efficiency gains through a more streamlined organization, shared resources and elimination of duplication;
  • manage the intellectual and knowledge assets of the Department to the best advantage of the government and its clients;
  • strengthen the Department's contribution to national competitiveness;
  • install an electronic infrastructure that would allow the Department to act as a prime catalyst of electronic commerce in Canada, thereby contributing to national prosperity;
  • create a model organization that would be greater than the sum of its current component parts and capable of adapting rapidly to accommodate changing needs and priorities; and
  • build a capable and committed workforce sharing a common vision of service excellence.
20.10 As administrative consolidation proceeded, it became a banner under which ongoing departmental initiatives were included (see Exhibit 20.1 ). Two of these initiatives, the 1992 six-point plan for Customs and the eight-point plan for Goods and Services Tax (GST) and Taxation, were to increase the focus on clients in departmental operations. Other initiatives with the same goal included simplifying the individual tax return, streamlining the appeals process, and opening public counter services in taxation centres.

Focus of our audit
20.11 As Revenue Canada's efforts to implement administrative consolidation are well under way, we concluded that this was an opportune time to address the topic.

20.12 Administrative consolidation has involved more than 50 separate projects at headquarters and in the regions. It required extensive changes in organizations, values, systems, practices, plans and directions. Our audit focussed on three major aspects:

  • the Department's steering of the whole consolidation process at the corporate level;
  • introduction of a single business number, which facilitated the consolidation of its registration and information resources; and
  • opening of business window service sites, which entailed the consolidation of human resources from different work cultures.
20.13 Further details about our objectives, scope and criteria can be found at the end of the chapter in the section About the Audit . We hope that the findings of this audit will be useful to other departments and agencies undertaking similar consolidation of their resources.

Observations

The Operational Context

Implementation was constrained by the operating environment
20.14 Revenue Canada was faced with two constraining factors in its administrative consolidation. First, it had to continue operating while it was consolidating. It had to answer enquiries, assess tax returns, process travellers and goods entering Canada, collect revenue, and audit taxpayers. As one official said, "It was like changing the wiring with the lights on."

20.15 The second constraint was the new reality of downsizing. For the last few years Revenue Canada, like other government departments, has been subject to decreases in its ongoing operating budgets to support expenditure reduction. At the same time, the government has given the Department new measures to implement, which has kept the overall budget relatively constant. Also, as a part of Program Review, departments have had to look at their programs and decide which ones to continue. No Revenue Canada programs were dropped in that exercise. The Department is now undergoing a re-engineering of its major operations to help it meet the imposed reductions. Further, in 1994 the government stated that it wanted to reduce the space it occupied, by a target of 10 percent over five years. As of 1996, Revenue Canada has reduced its space by approximately 7 percent.

20.16 These factors limited the human and financial resources that could be allocated to consolidation projects. In addition, with these various factors at work, the Department could not attribute reductions in its operating costs and space to administrative consolidation alone.

Administrative consolidation in an uncertain legislative environment
20.17 Revenue Canada had to be brought together legally as well as operationally. Two factors resulted in delays and uncertainty in the consolidation of Customs and Excise and Taxation into one department: the amendment of the Department of National Revenue Act , and the issues surrounding a proposal for a Department of Public Security.

20.18 The Department of National Revenue Act is the enabling authority for both of the former departments, Revenue Canada-Customs and Excise and Revenue Canada-Taxation. That Act authorized a separate deputy minister for each of the two departments, and required them both to report to the Minister of National Revenue.

20.19 The departments needed legal authority to consolidate. One existing authority that might be expected to apply could not be used, because it applied to a transfer of powers from one minister to another; in this case there was only one minister. Nor could the Department of National Revenue Act be left as it was, because it stipulated that there were two deputy ministers. Revenue Canada had to request an amendment to the Department of National Revenue Act .

20.20 Circumstances intervened to slow the amendment. Shortly after the October 1992 appointment of a single individual to act as Deputy Minister for both organizations, the Department identified the need to change the founding Act. It had to be placed on the parliamentary agenda, but Parliament did not sit from the end of June 1993 to January 1994 because of the summer recess, an election and a change of government. Once Parliament resumed sitting, Revenue Canada acted quickly. In fact, the amendment to the Department of National Revenue Act was the first bill tabled in the new Parliament, in January 1994. It received royal assent on 12 May 1994.

20.21 Until the Act was amended, two key components of the consolidation were on hold: Revenue Canada could not finalize its new organizational design; nor could it appoint people to positions. This left staff feeling uncertain about their future.

20.22 The second cause of delay and uncertainty resulted from a proposal to create a Department of Public Security. On 25 June 1993 the government announced it was considering the creation of a Department of Public Security that would include Customs border operations. The Public Security issue had two main effects. First, it further delayed the finalization of the organizational design: departmental staff had to develop plans for transferring operations and resources to Public Security. Second, it upset staff. The union representing Customs staff favoured this direction; it was concerned about a decline in border protection under a consolidated Revenue Canada. Following the election, the new government announced on 4 November 1993 that it had dropped the idea of a Department of Public Security. Union concern continued, however.

Steering the Process at the Corporate Level

20.23 Steering the consolidation process toward the desired objectives was a vital part of bringing together two separate departments; management's goal was to ensure the overall success of the consolidation (see Exhibit 20.2 , which was prepared by Revenue Canada)

A discernible vision for administrative consolidation
20.24 Early in the consolidation process, senior management articulated a vision of what Revenue Canada would be like with the two departments combined into one. The vision contained many elements, some general and others more specific. For example, it envisioned Revenue Canada as a single entity that would conduct business in new ways and treat clients as clients of the whole Department. It also saw improved service for clients through the greater use of technology and through access to all programs by "single windows". The two major initiatives examined by this audit, the business number and business window, were consistent with this vision.

20.25 Senior management communicated its vision in different ways, both internally and externally. Managers learned about the vision from a news release and then, in more depth, from documents and in speeches at regional and headquarters conferences in early 1993. Parliament and the public learned of the consolidation from news releases, Budgets, the Estimates and departmental presentations. Early messages have been repeated and different aspects have been reinforced over the years.

20.26 The vision of administrative consolidation clearly reflects government priorities announced before and after the October 1992 appointment of a single Deputy Minister for Revenue Canada. Both the vision and the priorities, for example, emphasize improving and clustering client services; streamlining and consolidating operations; lowering costs by reducing overlap and duplication; applying appropriate information technology; and integrating databases.

The Department developed objectives and principles of consolidation
20.27 The Department's overall vision provided sufficient detail to guide the initial planning and implementation of the consolidation of Customs and Excise and Taxation. Senior management did not prescribe the details; it allowed those working on the various projects to develop the details to attain the vision.

20.28 There is no single document or master plan that contains all the elements of a plan to consolidate Revenue Canada. Planning was an iterative process. Detailed objectives and guiding principles were developed for the consolidation process. Senior management shared them with managers from across the Department, and defined a framework for projects. Some of the projects were at a corporate level ' for example, revising the departmental mission, designing an organizational structure and defining a human resource strategy. Other projects were related to specific activities, such as setting up single access points for client enquiries and integrating accounting. Ongoing initiatives, such as the introduction of the single business number, were added to the framework.

20.29 Senior management assigned leaders for each project. It freed up departmental people to work full time or part time on administrative consolidation projects. Where appropriate, it included both headquarters and field office staff on the project teams.

20.30 Many of the projects were interrelated and could not operate in isolation. The Department formed a committee of the project leaders to keep each other up-to-date on the progress of projects. In some cases, project teams worked even more closely.

20.31 Management did not set a final deadline for administrative consolidation. It wanted to take the time to do it right. Some areas could be consolidated quickly. Other areas would require extensive modification and take years to complete. This was a wise move, given the delays encountered (mentioned in paragraph 20.17).

Senior management made it a priority to keep staff informed
20.32 From the beginning, management realized that it was critical to communicate its vision and its progress to its employees. Senior management discussed employee communication in its first committee meeting following the October 1992 appointment of the single Deputy Minister. The Department made advising staff a guiding principle of the consolidation process. A large part of the communications and consultation strategy, approved in early 1993, dealt with employees. The strategy put the onus on managers to keep staff informed.

20.33 The Department used numerous means to communicate with its employees about administrative consolidation. All employees received memoranda from the Deputy Minister and regular issues of the departmental newsletter, which contained information on senior management, organizational changes and other consolidation projects. Managers both in headquarters and in the regions attended conferences and information sessions to hear project team leaders and to discuss consolidation issues in groups.

20.34 Besides providing information, management wanted feedback from employees. Branch and regional heads appointed administrative consolidation co-ordinators to help information flow between the branch or region and those working on consolidation projects at headquarters. Senior management set up a telephone line so that staff could call for information and provide feedback; however, few calls were received. We were told that more questions and feedback were conveyed directly to the project teams. Following the information sessions, managers discussed issues raised with their staff and sent in their comments on the issues. Some managers complained about the short time allowed for this exercise.

20.35 Managers and staff told us time and again that there cannot be too much communication about changes of the magnitude of those involved in administrative consolidation. While some staff felt overloaded with information, others felt they had not received enough. Information takes a long time to sink in: some staff, for instance, did not realize that the implementation of the consolidated organization was being slowed by the wait for a legislative amendment.

20.36 Communicating with unions was one of management's guiding principles for the consolidation process. Senior management meets formally with the national executives of the unions about twice each year to discuss issues of mutual importance. Since 1992, departmental managers have presented information and documents on administrative consolidation to discuss at these union-management meetings. In addition, there have been a number of informal meetings and presentations each year. While there has been concern about the effect on staff of consolidating Customs and Excise with Taxation, management's relationship with the various staff unions has been good.

Clients were informed about benefits of administrative consolidation
20.37 Revenue Canada operates on a philosophy of voluntary compliance and open communication with its clients. This philosophy is clearly reflected in documents developed for the consolidation of the Department. For example, communication with clients is one of Revenue Canada's guiding principles for consolidation, and forms a major part of its communications and consultation strategy. The strategy defines its target audiences; specifies that messages are to be tailored to the interests of the audience; and requires the continued use of existing formal and informal relationships with client groups. This strategy was distributed to managers to use in communicating with parties outside the Department.

20.38 The Department spread its messages about administrative consolidation by various means. The Minister and Deputy Minister spoke about the benefits of administrative consolidation at meetings and conferences of client organizations. The Minister wrote to mayors of border cities and to members of Parliament to ease concern about border protection. The Department reported in Part III of the Estimates and made presentations to parliamentary committees on the benefits and status of its consolidation. It discussed administrative consolidation at various advisory committee meetings; these meetings were a part of its regular consultations with clients.

Senior management demonstrated ownership and involvement
20.39 Employees of Revenue Canada whom we interviewed are convinced that their senior management is committed to a consolidated Revenue Canada. This commitment was continuously demonstrated by management's attendance at employee briefings and in speeches, memoranda and articles in departmental newsletters.

20.40 Senior managers made consolidation a priority. They worked together to decide on the significant consolidation matters. Initially, the 16 senior managers from headquarters formed a special committee that met periodically. The regional heads were not initially on this committee because of their number; it would have been unwieldy to operate the committee with an additional 23 people ' the heads of all the Customs, Excise and Taxation regional offices. When the organizational structure was finalized in 1994, all 18 heads of the headquarters branches and regional offices became the new senior management committee of Revenue Canada. This committee went on to deal with any outstanding administrative consolidation matters.

20.41 The senior management committee, however, could not run the process of administrative consolidation alone. Help came from two sources: a secretariat and project teams. The secretariat ran the day-to-day affairs and co-ordinated and monitored progress for the committee: it prepared documents, reviewed project reports, gave information to the senior management committee and asked the committee to make decisions. The project teams conducted and are still conducting the detailed work necessary to consolidate the Department.

The organizational design eliminated major duplication of functions
20.42 One of the goals of administrative consolidation was to eliminate duplication. Consolidation was a means to become more efficient, not necessarily to reduce staff.

20.43 As a rule, a certain amount of overlap and duplication can be eliminated when two organizations are brought together. Revenue Canada's corporate functions in headquarters are an illustration. In October 1992, each of the two departments had separate functions for human resources, communications, information technology, finance and administration. Combining these two sets of corporate functions into one was a logical first step to eliminating duplication. The process was begun just after the 1992 appointment of the single Deputy Minister.

20.44 A more difficult task was to design the consolidated headquarters operating branches and field organization. This involved thousands of employees spread across the country, with separate operations for Customs, Excise and Taxation. After study, Revenue Canada decided to combine operations for income tax and commodity taxes, including GST, since they were so similar and dealt with essentially the same clients. This lengthy process started in 1994 and is still taking place both in headquarters and in field operations. When it is completed, there will be one tax services office in each field location, instead of two in some cases ' reducing the number of offices from 75 to 51. The Department decided that headquarters operating branches should mirror the organization in field offices. The various operations that had been handled by the six headquarters branches of Customs, Excise and Taxation are now realigned into six Revenue Canada branches that reflect field operations (see Exhibit 20.3 ).

20.45 Further, instead of separate regional offices for Customs, Excise and Taxation, there is now one office handling all operations in each region. This has reduced the number of regional offices from 23 to 6.

20.46 In the consolidated Revenue Canada, Customs operations in headquarters and in field offices have not been combined with those of Excise and Taxation. The Department is currently undertaking a review of the organization of its Customs operations and is continuing the fundamental redesign of these operations announced in September 1992. However, Customs is sharing common corporate services such as finance and administration with neighbouring tax services offices.

The Business Number

20.47 The business number is a unique business identifier designed to replace the multiple numbers that an estimated 2.4 million Canadian businesses now must have to deal with the federal government. The business number provides simplified, accessible and faster registration and information services to Revenue Canada's business clients. At the same time, it benefits the Department by reducing costs, saving time and enhancing its revenue accounting and enforcement abilities. The business number also facilitates the sharing of information with other departments and levels of government.

20.48 Canadian businesses have long expressed their desire to simplify the way they deal with government. The business number addresses this concern by eliminating the need to register separately for four of Revenue Canada's lines of business ( payroll deductions, goods and services tax, corporate tax, and import/export duties ' see Exhibit 20.4 ). Revenue Canada staff can now answer questions on basic account information about each of a business's several accounts through a single point of contact. If information about a business ' such as its address ' changes, one call is sufficient to update its accounts at Revenue Canada. The business number reduces the paperwork and time spent by business people who supply the information and by federal employees who collect and use it.

20.49 This concept was announced in the February 1992 Budget. A detailed proposal for the business number project was prepared by an interdepartmental working group. In September 1992, the project was transferred to Revenue Canada. When administrative consolidation was announced, it became clear that the business number's similar objectives would facilitate administrative consolidation. Business number registration began in 1994 as a pilot, and since April 1995 has been available to businesses across Canada. All new businesses registering in one of the four Revenue Canada lines of business receive a business number (see Exhibit 20.5 ). In response to requests from the business community, existing businesses were given two years ' until 31 December 1996 ' to convert voluntarily to the new numbering system. After that date, conversion will be mandatory.

20.50 Broadly speaking, administrative consolidation is meant to improve both efficiency and organizational effectiveness. Improvements are to be realized through better use of physical, human and information resources. The business number uses information resources as a source of improved efficiency and effectiveness. It represents the key to better access and co-ordinated use of the automated business information possessed by the two former departments of Customs and Excise and Taxation.

20.51 Applying the business number concept requires information technology, but it is important not to confuse the concept with the technology. In this section of the chapter, we will talk about both, but it is the concept that is of more significant interest here. Having said that, it so happens that Revenue Canada did a very good job of developing the business number system. We want to acknowledge this as a significant accomplishment in its own right.

New possibilities for better management of information
20.52 If government can manage information resources more effectively, it can compensate for the loss of other resources due to restraint measures. It is this potential that makes the business number so interesting. Better management of information resources includes planning their acquisition and use, restructuring and consolidating, eliminating duplication and waste, and assigning new responsibilities. The government's traditional preoccupation with material assets is being overtaken by a concern with information and knowledge. What people and organizations know is becoming more important than what they have.

20.53 The business number is a flexible system that can be expanded to other Revenue Canada lines of business, for example, excise taxes. Equally important, it facilitates single-window services and the sharing of information among government departments. Departmental lines of business using the business number as their identifier can now share registration information easily, subject to legal constraints on sharing information. This has rarely been done in the past, due to the lack of a common identifier.

20.54 In 1994 the Treasury Board Secretariat, the central agency responsible for information technology standards across all federal government departments, cited the single business number in the Blueprint for Renewing Government Services Using Information Technology . The Secretariat sees the business number as an example of one-stop services that will reduce duplication and improve government operations. It also sees it as an example of delivering government services in a more useful way, using common collection and analysis, and sharing of information. In 1995 the Treasury Board ministers approved a plan to implement the Blueprint. The purpose of the plan was to allow for "improved services while significantly reducing costs through the accelerated implementation of the Single Window concept, supported by enabling information management and technology." The business number has now been incorporated into the Treasury Board Information Technology Standards.

20.55 Statistics Canada currently maintains a list of businesses to support its statistical programs. It has signed a protocol with Revenue Canada that provides Statistics Canada with business number registration records and provides Revenue Canada with "standard industrial classification" codes. Once implemented in March 1997, the system is expected to provide Statistics Canada with a more complete list of businesses, combined with consistent industrial codes. It will allow the agency to further minimize the surveying of businesses while improving the quality of its statistical output. For Revenue Canada, the protocol will permit the acquisition of consistent codes at lesser cost.

20.56 A desire to improve client service has prompted all levels of government to provide some form of "single window" service to reduce overlap and duplication. Revenue Canada and the Province of Ontario are now examining the use of automated workstations at which business users can register for both provincial and federal programs, using the business number as the common identifier. The registration process is only the first step, however. Other potential benefits of co-operative ventures with the provinces include shared federal and provincial information and computing resources, improved information and increased government efficiency. Lessons learned with Ontario are expected to be applied to other provinces adopting the business number.

A key milestone in managing information services
20.57 Implementation of the business number is a key milestone for both Revenue Canada and the federal government in the management of information services. This issue is of critical importance for modern organizations. The business number is the first major project visible to the public that demonstrates Revenue Canada's commitment to providing services in an integrated way. Because the system allows auditors and administrators to access a complete and common body of information, it should have longer-term compliance benefits. Implementation of the business number is the foundation from which a broader range of integrated services can be developed in Revenue Canada, the federal government and the provinces.

A strategic investment
20.58 Revenue Canada viewed the business number project as a strategic investment, and believed that its benefits would flow from the elimination of duplicate data collection and from subsequent projects, notably the integration of accounting systems and improved sharing of information. Revenue Canada funded this project internally and used the budget process to obtain Treasury Board approval for the project. The approved budget of $54.4 million was complete and comprehensive. The project appears to be under budget.

A technically complicated system involving new technologies
20.59 The heart of the business number project is the creation of a new information technology system to accept the registration information, using the business number as a common identifier. The business number system is a very large and complex project. It incorporates new technologies ' like reusable code, database and client server technologies ' that move Revenue Canada into the future. The business number system links the existing programs, but also is flexible enough to allow others to be added later. The fact that the programs being linked were running at different data centres and using different technologies added significantly to the project's complexity.

Good communications were critical to success
20.60 Recognizing that successful implementation of the business number depended on communication, co-operation and commitment, the project team created a network to ensure that those concerned were kept informed. Representatives from all key areas within Revenue Canada attended meetings at which they received updates on the progress of the business number project and offered expert advice on issues that affected their areas. A representative from each of the six Revenue Canada regions and a local co-ordinator from each affected office were selected to ensure that information flowed quickly and efficiently to and from the field offices.

20.61 Information about the business number was communicated in many different ways. There were staff briefings, articles in all the departmental newsletters, a travelling roadshow visiting the regions, and e-mail open lines for information and questions. Members of the project teams travelled to Revenue Canada offices delivering information sessions. Articles were written for internal and external publications, and professional associations were briefed. Each affected business was mailed information about the business number.

The project was split into manageable components
20.62 Due to the magnitude of the changes that the business number project would bring, it was decided to break the project into smaller, more manageable pieces: a pilot phase, national implementation, and future expansion and enhancements. The eight-city pilot identified the need for significant revisions to the training methodology and training approach, averting major problems that could have occurred had national implementation started without benefit of the pilot.

20.63 The implementation dates were phased in across Canada to ensure a smooth transition. This allowed headquarters production staff to be available in field offices when each came on-line. An evaluation of the pilot projects concluded that about 70 percent of the business clients invited to convert believed that the business number was a positive change, offering significant improvement in business and government efficiency. The pilot and national implementation caused almost no disruption to continuing operations.

20.64 Some initially slow service during the pilot and national implementation was quickly corrected. The reliability of the system continually improved during the pilot and national implementation phases, as well as during subsequent enhancements. This phased approach was successful in bringing together, in a tight timeframe, four very different programs, which used different technologies and database structures and had different staff cultures.

Project was well managed
20.65 The business number was the first project involving four major business programs in the new consolidated Revenue Canada. This made the management process very difficult. Dealing with the many management issues added greatly to the complexity of project management.

20.66 Senior management established separate user and information technology project teams, led by experienced project managers who were given the authority they needed. The information technology project team was strongly results-oriented and had the advice of experts assigned to review the project. There were regular committee meetings of both project teams, chaired by senior management, so issues tended to be resolved between the meeting dates. This approach forced people to talk and work together. The user project team peaked at 25 people and there were more than 50 on the information technology project team, but the implementation of the business number could not have occurred without the involvement of hundreds of other individuals. Another key factor was that the project teams were made up of people from both of the former departments, which added credibility to the whole process.

20.67 The business number project made good use of contractors. Revenue Canada maintained ownership and control of the project and used outside contractors as support staff and trainers. The Department's approach was to train its staff in the use of the new technologies rather than relying entirely on contractors. This approach was good for morale, staff development and retention of corporate memory. It also made good use of project management tools.

20.68 The project was adequately resourced and staffed, although there were some minor delays caused by a shortage of qualified programmers. Future plans that incorporate new technologies need to be based on the availability of trained staff or contractors.

Testing was inadequate
20.69 Testing of the business number system before implementation was done under severe time pressure due to in-house deadlines; thus, all planned tests were not completed. System problems appeared in the pilot and, to a lesser extent, during national implementation. Testing was late and fragmented among the various lines of business, and different practices and tools were used. Both of the former departments lacked a formal quality assurance and control function. However, in the fall of 1995, Revenue Canada pulled together the various testing groups as part of the administrative consolidation process. In April 1996, an internal task force was formed to review current practices and to recommend a single consolidated production assurance model, including process, policies, tools and techniques.

Effective internal and external review process
20.70 Internal audit and other peer groups were continually involved during the development of the project. Internal audit participated in the project from the start and provided an ongoing review throughout its development. Internal audit's advice was timely, and the project team found its suggestions very useful. Several independent organizations were also brought in throughout the project to review various technological aspects. Their studies indicated that the project was well managed and systems development was efficient. An external system review group was set up by senior management to review the system's design and its use of computer resources. Its report was received before the end of the design phase so it was possible to make the required changes early.

Completing the conversion process
20.71 As of 30 April 1996, more than 875,000 of an estimated 2.1 million existing businesses had converted to the business number system. Revenue Canada expects that by the 31 December 1996 deadline, 25 percent will still remain to be converted. In addition, over 300,000 new businesses have registered for business numbers.

20.72 There is a risk, because 60 percent of companies had failed to convert as of 30 April 1996, that there will be an overload of work in January 1997. However, the Department is confident that it can handle the situation. The field offices say that they have adequate resources and plans to deal with the work. The problem is not the business number system, but rather the data in the existing program databases. Revenue Canada is currently cleaning up these databases to eliminate duplicate and unused accounts. Starting 1 January 1997, it will print out possible account matches for all remaining unconverted clients so that staff can attempt to verify them. If no contact can be made with the client, a best guess will be made and a request for confirmation mailed. The end result is expected to be a more accurate registry than exists in the current programs.

20.73 The business number has the potential to improve Revenue Canada's service and enforcement capabilities. However, these results are not guaranteed if the changes required to fully implement the business number concept are not carried out properly. At this point, we can say only that the Department is off to a good start. The key to future success lies in managing the risks that present themselves along the way.

The Business Window

20.74 The business window provides businesses with one point of contact for dealing with Revenue Canada, either over the counter, by telephone or in writing (see Exhibit 20.6 ). Using a business window, businesses can open Revenue Canada accounts, make enquires and obtain publications and information from the same location, at the same time. The business window concept, along with the business number, provides a good foundation for better, faster and more efficient service to business. It is expected to help Canadian businesses be more competitive, and to reduce costs to both business and government by minimizing overlap, duplication and paperwork. ( see photograph )

20.75 Initially, the business window includes Revenue Canada's four main lines of business: payroll deductions, the goods and services tax, corporate income tax and import/export duties. By October 1995, Revenue Canada had introduced business windows in 48 offices across Canada. They include a total of more than 400 staff and handle an estimated 3.8 million business enquires per year, most of which are telephone enquiries.

20.76 The consolidation of GST and Taxation staff was a major challenge. The organizations had very different organizational structures, cultures, computer systems, compliance policies, levels of job classification and levels of authority. The challenge was to bring together people who had not worked closely in the past.

Good planning and project management
20.77 The business window was piloted along with the business number and then phased in, by region, across the country. In the national implementation stage the staff were co-located, a lesson learned from the pilot stage.

20.78 A national plan and a plan for each business window location were developed, covering all aspects of installing and operating the window. The national project team was in regular contact with staff and stakeholders throughout the country. The plans and project details were managed and monitored through regular contacts and meetings at all levels. Plans were implemented on time for the most part and almost exclusively with existing resources. However, there was no cost-benefit analysis or formal business case prepared for the business window project. The Department did not feel this was required since it viewed the business window as a strategic investment.

20.79 A national service delivery model (part of the national plan) was developed to form the basis for each business window. The model specified that the establishment of the business window would not reduce service levels. Before the business window, there had been separate service levels for Customs and Excise and for Taxation lines of business. One limitation of the model was that it did not define which of the prior service levels would apply to the business window. (See also paragraphs 20.90 to 20.97.)

Generally good employee communications and involvement
20.80 An internal communications plan was developed to keep managers, employees and unions aware of progress on the project. Specific activities included the use of electronic bulletin boards, printed newsletters and on-site information sessions. Despite these efforts, some staff in offices we visited complained about the information available to them on the project's implementation. These staff wanted to be provided with current information on an ongoing basis.

20.81 A significant number of employees were involved in the various projects and committees created to develop the business window. Regional co-ordinators, local co-ordinators, local and regional teams and pilot project teams were established. In some offices, union representatives were part of the management team.

20.82 Teams were set up in each of the six regions, and every local office had an implementation team. The level of staff involvement in implementation varied from office to office depending on how the team was set up. The majority of the staff we interviewed indicated that they had been adequately involved. Some staff indicated that their involvement had been limited and they felt they should have had more influence on the outcome.

Stakeholders adequately informed and involved
20.83 Significant efforts were made to inform clients and other stakeholders through national mailouts and consultations. In addition, there were regional and local consultations with the various business and professional associations. Feedback was also obtained through a stakeholder survey and the ongoing use of client comment cards.

Not enough attention to the impact of combining different work cultures
20.84 Administrative consolidation brought together the 14,000 full-time equivalents in Customs and Excise and the 25,000 in Taxation. (The Customs and Excise department had consisted of 9,000 full-time equivalents in Customs and 5,000 in Excise.) Customs and Taxation are long-standing programs; GST, the largest component of the Excise program, was introduced in 1990. The implementation of the business window combined staff from GST and Taxation.

20.85 As noted previously, the organizations had different histories, organization structures, computer systems, compliance policies and levels of authority . All of these contribute to establishing the work culture. Work culture affects all aspects of work including interaction among people. (It should be noted that most of the Customs operations remain separate and therefore are less affected by the combining of cultures. Customs had limited involvement in the business window.) We chose to look at issues involving work culture in our audit of the business window because it was a good example of a situation that involved people from various cultures having to work together.

20.86 The Department made some effort to deal with the cultural differences. It established a support network of change counsellors across the country to assist managers and employees, including those in the business window, in understanding and coping with changes in the organization. In addition, individual offices took a variety of steps to deal with the cultural differences. For example, at least one office had staff from the former two departments get together to discuss and become familiar with each other's cultural differences. Also, several regional work teams held sessions on team building and resolution of conflict.

20.87 In spite of these efforts, employees in the business window raised many concerns about the cultural change. Many GST staff expressed a "feeling" of takeover by Taxation. There were frequent comments about having to move from the newer GST facility to the older, sparser Taxation facility, and having to do without such things as faxes and photocopiers. Dress codes, rules of conduct, and hours of work also changed. As well, the time reporting and production measurement systems adopted by the new organization came from Taxation. Even though the Department felt the decision on the systems was justified, it had the effect of reinforcing the feeling of takeover.

20.88 Size differences added to cultural differences. There was a perception that larger organizations are more formal and less personal. Business window staff from the former GST offices believed that their previous organization was more closely knit and had more informal communications among divisions than the new, combined organization.

20.89 Comments from staff at the business window clearly indicate that they would have benefited from more up-front discussion about combining the cultures. However, we recognize that combining cultures cannot happen in a short time and will take several years to accomplish.

Improved accessibility of counter service but continuing concerns about telephone service
20.90 The business window has improved access to counter services now that clients can obtain all information and services at one location instead of several. In addition, 10 more cities now have access to counter services for the four business programs where it used to be available for only one. These service improvements should reduce the cost of compliance for most business taxpayers who use more than one counter service.

20.91 One objective of the business window project was to maintain the existing level, grade and quality of telephone services during implementation. The level of telephone service measures a caller's chances of getting into the queue to speak with an agent; the grade of service measures the length of time before the call is answered; and the quality of service refers to the accuracy of the answer. Before the introduction of the business window, the four programs provided different levels, grades and qualities of service. However, we found that although the grade of telephone service for GST enquiries has remained the same since the opening of the business window, the level of service has declined.

20.92 Our interviews with staff and review of documents revealed a continuing concern about meeting the telephone demand. Budgets for client services are being reduced, which threatens to reduce the level and grade of service. Next year, the Department plans to test an automated voice response system to respond to client enquiries and to direct others to the appropriate area for service. As well, the Department intends to give more comprehensive training to business window staff. The Department expects these efforts, along with the increased knowledge and skills that staff gain from experience, to deal effectively with resource reductions without further deterioration in service levels.

20.93 We looked at telephone response rates (level of service) after the business window opened. Our review indicated that in the offices we visited where records were kept, the likelihood of getting through on a local call for all programs ranged from 15 percent to 28 percent. We compared these results with the only available data on previous levels of service, an internal study of GST telephone enquiries completed shortly before implementation of the business window. The study was based on a survey conducted in January and February 1995. It indicated that previously, for the same offices, the likelihood of getting through on a local call had ranged from 31 percent to 99 percent. In all our visits, staff in the business windows indicated concern about their inability to answer calls.

20.94 The Department has also gathered data on 1-800 response rates since the implementation of the business window. These data show average response rates, by office, ranging from 26 percent to 99 percent for the periods sampled. Comparable information prior to the establishment of the business window for the 1-800 number was not available.

20.95 We also looked at wait times (grade of service) after the implementation of the business window. Our review indicated that, in the offices we visited where records were kept, the wait times ranged from 62 to 199 seconds. We compared these results with the above-noted internal study of GST telephone enquiries. That study indicated that previously, for the same offices, the wait times had ranged from 36 to 204 seconds. (Comparable information prior to the establishment of the business window for the other major line of business, payroll deductions, was unavailable.)

20.96 A GST study conducted shortly before implementation of the window stated that 48.6 percent of the answers given had been fully correct, 27.6 percent partially correct and 23.8 percent incorrect. We were not able to obtain any comparable post-implementation statistics on accuracy. The Department plans to conduct a survey early in 1997 to determine the level of accuracy of responses given.

20.97 Business window cost per transaction is monitored locally, regionally and nationally. Business window service response is monitored locally and sometimes regionally. Efforts are under way to establish national standards for service response, but these had not been completed as of June 1996. We expect that these efforts will include consultation with stakeholders. Once the service response standards are established, the Department expects that the results will be monitored locally, regionally and nationally.

Additional training needed
20.98 The operation of the business window requires a general knowledge of all four of the Department's major lines of business, but staff had previous training in only one. Accordingly, a training program was established for the pilot stage, consisting of six modules and lasting approximately five days. The training program for the pilot was validated and refined for national implementation, based on an employee survey and comments from pilot trainers and trainees.

20.99 Despite the refinements made, many of the staff stated that they needed more training in the areas that were new to them in order to respond confidently to client enquiries. Where extended classroom training was provided, staff said they were more comfortable answering questions. Additional training could be provided on the job through regular group or team discussions, coaching, and pairing of more experienced staff with new staff members.

Revenue Canada slow to determine classification of business window staff
20.100 All front-line business window enquiries officers are classified as either PM1s or PM2s. The PM2s are more senior-level service providers whose pay range is higher than that of PM1s. These PM1 and PM2 officers first obtained their classification based on the descriptions of their jobs that existed prior to administrative consolidation and their assignment to the business window. Job descriptions were amended and classification levels were reviewed when staff went into the business window.

20.101 Both PM1s and PM2s now handle a mix of level 1 and level 2 enquiries in the business window. (Level 1 enquiries include non-complex topics from each program; level 2 enquiries are generally more complex and often require specific account adjustments and/or specialized technical knowledge of a particular topic). This has resulted in officers who do equivalent duties being in positions classified at different levels. This situation is perceived as inequitable and is disturbing to employees.

20.102 Revenue Canada has been slow to resolve this matter. The Department explains that this is due to the use of a process involving employee consultations in its development of national jobs, and the need to align these jobs with other jobs in the Department. The Department informed us that in August 1996, two new job descriptions will be implemented to operate in the window, one a Client/Business Services Agent (PM1) and the other a Senior Business Services Agent (PM2), with clearly differentiated responsibilities. They will replace the amended job descriptions currently in use. The Department expects that employees now classified at the PM2 level will be assigned to PM2 jobs.

Conclusion

20.103 Administrative consolidation has been and continues to be a challenging task for staff at all levels of Revenue Canada. Our audit of three key aspects of the process indicates that, for the most part, the Department is managing this task well and meeting the objectives it set for itself.

20.104 Administrative consolidation has established a solid foundation for streamlined operations. Combining the two departments has eliminated major duplication of functions in both headquarters and field operations. Introduction of the single business number is expected to reduce the paperwork and time required for collecting, accessing and processing information.

20.105 The business number has created new possibilities for integrating information and services in Revenue Canada, the federal government and the provinces. A number of these possibilities are already being explored.

20.106 The business number and business window are providing simplified and more accessible service to Revenue Canada's business clients. Improvements in telephone service at the business window are still required. The classification of business window staff needs to be resolved as soon as possible.

20.107 While the process is not yet complete and a number of areas require improvement, administrative consolidation has provided the Department with valuable experience in managing organizational and technological change. Much of this experience could be usefully applied by other departments and agencies facing similar challenges.

About the Audit

Objectives

Our audit objective was to examine whether the process followed in administrative consolidation was appropriate and adequately managed and whether the results of some of the significant administrative consolidation initiatives demonstrated that stated objectives were being achieved.

Scope

Our examination looked at three aspects of administrative consolidation: corporate management (the Department's steering of the whole administrative consolidation process), the business number and the business window.

The business number is a new business identifier that will be common to all accounts of each business. The business number is the foundation on which Revenue Canada can provide simplified, accessible and faster service to its business clients, and enhance its compliance programs. Other federal government departments and provincial governments have expressed an interest in using the business number in their operations. Our goal was to look at whether the foundation is solid enough.

Business windows are new, single-window service sites opened across the country to provide Revenue Canada's business clients with registration and enquiries services. The business window represented an opportunity for us to examine the process of bringing together departmental areas that provide service to business and to look at how the Department handled issues affecting its staff and clients.

Criteria

In bringing together two organizations to form one:

  • There should be a discernible vision of administrative consolidation that is consistent with government priorities.
  • Senior management should demonstrate its commitment to and involvement with administrative consolidation.
  • Senior management should inform staff, including union representatives, and stakeholders about the direction and status of administrative consolidation and involve them in its design and implementation to the extent practicable.
  • The new organization should have plans for administrative consolidation that are consistent with the vision, and should respect legal authorities throughout the administrative consolidation process.
  • Significant projects should be supported by cost-benefit analysis.
  • Projects should be split into manageable sub-projects; staffed with capable project teams; delivered according to plan; and monitored and evaluated.
  • Administrative consolidation should take place in such a way that required operations continue to be delivered at specified standards, facilities meet operational needs and adequate resources are provided to complete the consolidation.
  • The Department should ensure that in managing the human resource change process it handles with some sensitivity the existing operational and cultural differences and the placement of people in the new organization.
  • There should be sufficient staff with the required skills available when needed to deliver operations to the desired standard.
  • The organization design for the consolidated department should provide for elimination of duplication.
  • Systems and practices should ensure there is a solid foundation for implementation of management's overall vision and plans and for the efficient delivery of operations.
  • Results attained should be measured and compared to the results anticipated.

Audit Team

John Adshead
Amanda Corbin
Bryan DePape
Catherine Johns
John Pritchard
Victoria Saunderson

For information, please contact Jim Ralston, the responsible auditor.