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1998 September Report of the Auditor General of Canada

Main Points

15.1 The success of Revenue Canada's programs depends largely upon voluntary compliance with tax requirements by individuals and businesses. We believe that one of the many factors affecting the likelihood of their voluntary compliance is their perception of the conduct of Revenue Canada's staff. An organization like Revenue Canada, with its decentralized operations and the extensive exercise of judgment by employees, must take adequate precautions to minimize the risk of employee misconduct. Our audit looked at various means that the Department employs to promote integrity among its employees.

15.2 All of these means, taken together, form an important foundation for the promotion of integrity in Revenue Canada. The Department investigates incidents of misconduct; discipline is imposed on employees found guilty of misconduct; and, on the whole, management takes appropriate action, where weaknesses are highlighted by incidents, to prevent similar misconduct. Further, distributing statements of its mission, vision and values and three key booklets on conduct are important steps Revenue Canada has taken toward promoting an ethical culture. Most employees have received some formal training on expected conduct.

15.3 There are areas where improvement will help Revenue Canada reinforce this sound foundation. Because the disciplinary process can be slow, its effectiveness as a deterrent to similar misconduct may be diminished. While management takes action to correct weaknesses highlighted by incidents, at times its responses are slow and focussed narrowly on local rather than department-wide weaknesses. Further, information provided on values and conduct is not presented in a way that allows easy understanding, and training is uneven. The Department takes few steps to monitor the level of employees' understanding of expected values and conduct. Nor does it provide an individual whom employees can consult on a confidential basis on issues of integrity.

Introduction

15.4 The success of Revenue Canada's tax, transfer payment, customs and trade administration functions depends primarily upon voluntary compliance with the applicable laws by individuals and businesses. For example, individuals are expected to report their income accurately and to pay the tax required by law; travellers entering Canada are expected to declare the nature and value of certain items that they bring into the country and to pay any duty required by law. Revenue Canada operates various facilitation programs to encourage compliance, and enforcement programs to detect those who are not compliant. For the most part, however, it depends not on these programs but on its expectation that the vast majority of people will comply with their obligations voluntarily.

15.5 We believe that one factor affecting the likelihood of voluntary compliance is the way individuals and businesses perceive the integrity of Revenue Canada's staff. Organizational integrity is thus an asset whose value lies, in part, in its influence on the behaviour of stakeholders with whom Revenue Canada does business. Like physical and financial assets, organizational integrity is something that demands investment, safeguarding and maintenance. This audit looked at how effectively Revenue Canada manages the asset we are calling "organizational integrity."

Focus of the audit
15.6 There is no single, consistent definition of control for organizations. In the narrowest sense, it means ensuring that specific procedures are followed. In the broadest sense, it means creating the conditions that lead to the achievement of the organization's objectives. This suggests that Revenue Canada, in controlling to minimize the occurrence of incidents of employee misconduct, brings a variety of elements to bear on the problem. In past audits of Revenue Canada, we have examined aspects of the Department's internal control systems. We have made recommendations on its internal controls, where we considered it necessary, and followed up to review the implementation of the recommendations. In this audit, we looked at elements that fall into two categories: elements of the Department's "culture," which includes what is sometimes referred to as "informal control"; and elements that represent the learning that takes place as a result of incidents having occurred.

15.7 In designing internal control systems, organizations typically focus a lot of attention on removing opportunities for employee misconduct. In our emphasis on organizational culture, we focussed on what keeps employees from behaving improperly even when opportunities for misconduct remain. Internal controls cannot function without formal and informal ethical support mechanisms; a strong ethical culture provides a guidepost for employee action. Our emphasis on learning from incidents of misconduct focussed on an important process by which organizations ensure that their policies, procedures and systems are responsive to newly discovered threats in their environments.

15.8 This is our second report on our work on the topic of ethics in the public service. The first one, a study reported in May 1995, dealt with ethics and fraud awareness in government. The study proposed an ethical framework for government. Elements of that framework, such as a statement of principles, leadership and training, were also addressed in this audit. The topic of ethics in a government environment is an important theme that will continue to command our attention.

15.9 In performing this audit, we concentrated on three of the Department's business lines at the operational level - collections, audit, and customs - as well as on certain headquarters functions. Further details on the audit objective, scope and criteria are presented at the end of the chapter in the section About the Audit .

Observations and Recommendations

The Environment in Revenue Canada

Like any organization, Revenue Canada is vulnerable to employee misconduct
15.10 It will come as no revelation that Revenue Canada is vulnerable to employee misconduct. In the past several years, a number of incidents have been reported publicly (see Exhibit 15.1) :

  • A collections officer became overzealous in his pursuit of a debt owed to Revenue Canada, inflicting financial and psychological distress upon the debtor.
  • A manager accepted a bribe from a taxpayer suspected of tax evasion, in exchange for dropping the investigation.
  • A collections officer devised a scheme for claiming fraudulent refunds of Goods and Services Tax.
  • A manager colluded with a number of employees to make fraudulent claims for overtime pay and received kickbacks from the employees.
  • A customs officer was charged as an "inside man" in a scheme involving the diversion to domestic use of liquor bound for export (and, therefore, excise-tax-free).
  • A manager tried to convince several contractors to make fraudulent claims for the work they were undertaking for the Department and to pay the manager kickbacks.
15.11 We reviewed the documentation relating to all 285 incidents of potential employee misconduct reported to Revenue Canada's Security Directorate during the period 1 January 1995 to 30 June 1996. The results of our review provide an indication of the kinds of vulnerability to employee misconduct that are present in Revenue Canada.

15.12 The most frequent kinds of reported incidents are described in Exhibit 15.2 . Many of these incidents can be clearly associated with employees; other incidents cannot. A prime example of an incident that may not be possible to link specifically to employees is theft, since the Department does not necessarily know the perpetrator's identity. When we completed our review of reported incidents, 69 of the 285 incidents had been referred outside the Department. Of the remainder, in 96 cases the occurrence of misconduct was confirmed and the offending employee was identified; in 115 cases either the occurrence of misconduct or the identity of the employee was not confirmed; and in 5 cases the investigation was still ongoing.

15.13 It is difficult to draw any conclusions about the rate at which incidents occur. Bearing in mind that Revenue Canada has approximately 40,000 employees, 285 incidents in 18 months may not seem like a particularly high number. At the same time, academic studies of other segments of society strongly suggest that the number of incidents of misconduct that are reported is much lower than the number of incidents that actually occur.

15.14 We believe that the nature of Revenue Canada's operations makes it more vulnerable than many other departments and agencies to certain forms of employee misconduct. Like other departments that employ peace officers, Revenue Canada faces vulnerabilities associated with its customs operations. In addition, Revenue Canada is unrivalled among government departments in the scale of its collections and its audit operations - operations that also involve significant vulnerabilities.

15.15 The head of the federal government's Task Force on Public Service Values and Ethics identified two conditions that are sources of ethical challenge for individual public servants: the exercise of judgment and discretion in decisions; and decentralization and delegation of authority. Both of these conditions are present in Revenue Canada. Whether it is a collections officer negotiating a payment schedule with a debtor, an auditor assessing a taxpayer, or a customs inspector conducting a search of an inbound traveller, each has to use judgment and discretion.

15.16 We supplemented our analysis of reported incidents with information on employees' perceptions of the kinds of vulnerability the Department faces and the precautions it takes to deal with this vulnerability. This information was drawn from face-to-face interviews with 174 employees who were selected as a purposive sample from different hierarchical levels, operational functions, and geographic regions within Revenue Canada. The kinds of vulnerability that employees noted were very similar to those found in our analysis of reported incidents. Sixty-two percent of the employees we interviewed felt that the precautions the Department takes to deal with the identified vulnerabilities are excellent, or very good. Another 28 percent felt the precautions were adequate.

15.17 Risk management is an integral part of good management practice. It involves identifying, assessing and addressing risks or vulnerabilities to which an organization is exposed. Although Revenue Canada's managers apply elements of risk management, the Department acknowledges that the process needs to be more formalized. It now has a draft risk management policy that addresses all sources of risk, both internal and external to the Department, including ethical risks. To convey its requirement for formalized risk management, the Department has conducted a number of workshops and is pilot-testing a training course.

Incidents of Misconduct

15.18 We have discussed some of the ways Revenue Canada is vulnerable to employee misconduct. While the Department has internal control systems to guard against the occurrence of abuse, it is not realistic to expect that incidents of misconduct can be entirely eliminated in an organization of Revenue Canada's size and with its lines of business. Incidents of misconduct can and do happen in any region and at any hierarchical level within Revenue Canada. This means that all parts of the Department must have the means to deal with incidents, which entails first becoming aware that they have happened. Only then can the Department investigate the incident, discipline the offender, and take steps to prevent similar incidents. Exhibit 15.3 provides an overview of the processes for handling incidents, from reporting to final discipline.

Incidents of misconduct are reported
15.19 We found that a wide range of people have detected and reported incidents. While almost a third of the incidents we reviewed had been reported by people outside the Department, managers and other departmental employees had reported the other two thirds. Two factors encourage people to report incidents of misconduct: first, they have information on what and to whom to report; and second, their working environment is supportive of such reporting.

15.20 The Revenue Canada employees we interviewed knew that they should report incidents of misconduct. When we asked what steps they are expected to take upon learning of an incident, almost 75 percent of them stated that they should notify management or a supervisor. The next most frequent response (17 percent) was that employees should report the incident to security. These are, indeed, the courses of action recommended by the Department's security booklet.

15.21 The extent to which an organization supports the reporting of rule violations is an important indicator of both its commitment to its own rules and its credibility in the eyes of its own employees. Seventy percent of the departmental employees we interviewed felt that their work environment was very supportive of the reporting of infractions, and another 20 percent stated that it was somewhat supportive.

The Department investigates misconduct
15.22 Once an incident of potential misconduct has been reported, the Department investigates to determine whether misconduct has actually occurred and whether the offenders can be identified with certainty (Exhibit 15.4) . Revenue Canada's central investigative body is its Security Directorate at head office. Through discussion, the Directorate and local management determine who should investigate a given incident. Depending on the nature of the incident and the expertise required, this could be the Security Directorate, local management or the appropriate police authority. The Directorate had conducted the investigation in almost 60 percent of the incidents we reviewed. Thefts of money must be reported to the local police and bribery cases turned over to the RCMP; harassment cases may be handled by local management.

15.23 Incidents are supposed to be reported immediately by local management to the Security Directorate. The Directorate requires up-to-date information to enable it to brief departmental senior management each week on all security incidents. Despite a requirement that incidents are to be reported immediately, in 68 percent of the cases we reviewed, the Security Directorate had not been notified of the incident within three days of its occurrence. As might be expected, the seriousness of the incident seemed to be a factor in determining how quickly incidents were reported: the Directorate was immediately notified more often about the most serious incidents.

15.24 In fact, it was primarily the most serious infractions that were brought to the attention of the Security Directorate. There is a tendency to resolve many infractions at a local level or informally, rather than to report them at the outset to the Security Directorate. This is the tendency in other organizations as well. Most organizations tend to experience many more minor rule violations than major ones.

15.25 Regardless of who undertook the investigation in Revenue Canada, we found that they started their investigation of incidents relatively quickly. Close to two thirds of the investigations we reviewed began within seven days of the incident's discovery; one third of investigations were started within one day. The duration of the investigations by Revenue Canada ranged from one day (mostly for thefts turned over to the local police) to about 9 months. Most are completed within 60 days.

Misconduct results in discipline and other corrective action
15.26 On completion of an investigation, the investigator reports to the manager of the location in which the incident occurred, who then determines what disciplinary action, if any, is appropriate. Discipline may serve either or both of two purposes. For the most part, it is meant to deter both the offender and other employees from like misconduct in the future. However, in rare circumstances it is meant to impose a penalty on the offender for specific misconduct. Its success can be judged only by how well it achieves both purposes.

15.27 In Revenue Canada, an offender's delegated manager in consultation with a staff relations advisor and, if appropriate, other departmental officials determine the disciplinary action for a specific incident. Departmental guidance reveals the general principle that the more serious the misconduct, the more severe the discipline (see Exhibit 15.5) . We found that the severity of discipline tended to increase with the gravity of the incident. However, it was a weak pattern. In part this is because the Department takes into account a number of factors in determining what discipline is appropriate, such as the nature and seriousness of the misconduct itself and the past history of the individual involved.

15.28 Employees have the right to grieve disciplinary actions applied against them. The grievance process has four potential steps within the Department. Should employees still be dissatisfied with a disciplinary decision involving suspension, dismissal or financial penalty, they may go outside the Department for an adjudication hearing.

15.29 Grievances were heard in 40 percent of the cases we reviewed in which disciplinary action had been imposed. Over 85 percent of grievances went to the final level in the Department or to adjudication.

15.30 It is interesting that of the cases we reviewed, those involving the most serious infractions tended to move along more quickly in the reporting and investigation stages than did those involving lower-level offences, but tended to slow down considerably in the disciplinary and grievance stages. There appears to be a relationship between the seriousness of the offence and the time it takes to impose a final disciplinary action. In part this is because more serious cases are more likely than less serious cases to be grieved.

15.31 Discipline is not the final action that the Department needs to take as a result of misconduct. It needs to correct any weaknesses highlighted by an incident in order to prevent similar incidents. These could be weaknesses in systems and procedural controls or in information and training provided to staff.

15.32 We studied incidents of misconduct in which there were indications of weaknesses requiring attention, to determine what action management had taken. In most cases we reviewed, management had acted to correct observed weaknesses. On the whole, its responses were appropriate.

15.33 The preceding paragraphs demonstrate that Revenue Canada reacts in a determined and responsible manner to serious incidents of misconduct. We are not aware of any serious incidents for which the Department failed to arrange for an investigation, to impose disciplinary action, or to initiate action to correct any control deficiencies that had contributed to an incident's occurrence. While we did note certain areas for improvement (see paragraphs 15.54 to 15.87), we do not wish to undervalue the sound practices that are currently in place.

15.34 We wanted to discuss early in this chapter the Department's experience with incidents of misconduct for two reasons. First, by doing so we illustrate the nature and range of incidents to which Revenue Canada is vulnerable. Second, we feel that this discussion reveals much about Revenue Canada's attitude toward employee misconduct. Having set the stage, the chapter will now look at some of the things the Department does to promote the prevention and detection of employee misconduct.

Promoting an Ethical Culture

15.35 We have noted that Revenue Canada is vulnerable to employee misconduct and that incidents do occur despite internal control systems. Internal controls are only one element in the overall control regime. The other element involves motivating people to act with integrity even when opportunities exist for misconduct. A strong ethical culture within an organization provides such motivation for employees.

15.36 The modern trend in organizations is to make deliberate choices about the kind of culture they want to nurture, and to use vision, mission and values statements, in part, to convey information about that culture. We looked at Revenue Canada's revised vision, mission and values statements to see if they appeared to promote an ethical culture, and we found that they did. The opening sentence of the Department's vision statement reads: "Revenue Canada will be recognized and respected by clients for its integrity, fairness, and innovation in administering high-quality, yet affordable programs." Further, Revenue Canada's stated values include integrity, professionalism, respect and co-operation (Exhibit 15.6) .

15.37 The Department's mission, vision and values statements compare favourably with similar statements put out by private sector organizations. Together, they form a strong foundation for ethical conduct. Some improvements are still possible. For example, the vision statement could give greater recognition to the interests of employees, as it has to the interests of clients and government.

15.38 These important statements were in departmental planning documents, the latest version of which was distributed to employees during the summer of 1997. Managers received the strategic plan containing the full mission, vision and values statements, while other employees received a pamphlet with the mission, values and a condensed vision statement.

Leadership is key in promoting an ethical culture
15.39 Publishing and distributing statements of vision, mission and values are important, but are only a part of what is needed to instil an ethical culture in an organization. Employees look to senior management to determine whether these statements are really expected to guide conduct or whether they are just empty rhetoric. A stated and visible commitment by senior management is essential to establish and maintain an ethical culture. Openness is one sign of management's commitment.

15.40 Lower-level managers whom we interviewed in offices across the country often noted that their senior managers operate with openness. However, a recent joint union-management survey of auditors suggests that managers and employees do not share a common view of the degree of openness displayed in the Department. In their answers to the survey questionnaire, fewer than 25 percent of the auditors described the current culture of Revenue Canada as open.

15.41 The involvement of employees at all levels in the Department - those on the front line as well as those in the boardroom - is needed to create an ethical culture. Revenue Canada's senior management encourages managers to discuss issues with their employees. For example, senior management asked local managers to make use of National Public Service Week and the distribution of the harassment policy to discuss issues with the staff. In addition, there were local activities. We heard about "town hall" meetings to distribute information to employees and to discuss departmental initiatives. One office had formed an employee-management team to promote a professional workplace environment.

Information provided to staff
15.42 In addition to the mission, vision and values statements, Revenue Canada revised three key booklets that convey to employees its expectations for their conduct. The revised booklets on standards of conduct, conflict of interest and security were distributed to employees in 1995. All employees need their own copies to facilitate their understanding, provide ease of reference, and enhance acceptance of the documents' provisions. The great majority of the employees we interviewed had received copies of the documents.

15.43 Finding other opportunities to repeat the messages contained in written codes of conduct reinforces management's efforts to promote an ethical culture. Over three quarters of the employees we interviewed reported that they receive information on employee conduct from departmental sources such as memos, directives, and team meetings. Managers and supervisors were more likely than front-line staff to receive such information.

Ethics training
15.44 Employees need to know what is expected of them and what the consequences will be if the rules are not followed. Providing them with written information and expecting that they will read and understand it is not a sufficient strategy on its own. Employees receive so much information that they may not have time to read and understand it during the course of their normal working day. Training that takes place away from the regular work setting and allows employees time to concentrate on the information being conveyed is a vital supplementary strategy. Aside from conveying needed information, providing formal training courses conveys a sense of the importance and seriousness that management attaches to the issues being covered.

15.45 Over 85 percent of the employees we interviewed said they had received some formal training at some point in their career on the subject of expected behaviour.

15.46 The arrival of new employees also provides the Department with an opportunity to convey its values and standards of conduct through training. Although there is no department-wide orientation course for new employees, two of the three business lines we reviewed have their own courses. Orientation training is part of both the in-residence training program for new customs inspectors and the technical training program delivered locally to new auditors.

15.47 After the orientation period has passed, training focusses on what employees need to know to do their jobs. Technical training for employees emphasizes how to apply legislation and use standard operating procedures, but it also covers some aspects of standards of conduct and values. Common subjects that are addressed in technical courses are the rules regarding confidentiality of client information and standards of professionalism to be applied in dealing with clients. Managers who participate in formal training also have an opportunity to reinforce commitment to the departmental values by relating their past experiences.

15.48 An important part of a manager's job is making decisions, and the training that managers receive reflects this reality. Values-oriented training is being emphasized with the aim that managers will apply the Department's values implicitly in their decision making. To this end, Revenue Canada's strategic plan is reviewed in the first-line managers' course and forms the basis for discussion during the middle-management orientation program.

15.49 About 65 percent of employees we interviewed rated the ethics-related training that they had received as excellent or very good. Another 27 percent rated the training as adequate. For them, it is important that courses be clear and relevant to their tasks, provide concrete examples that define misconduct, and spell out the consequences for potential offenders.

15.50 Formal training is not the only way that Revenue Canada's management nurtures its ethical culture and conveys the standards of conduct it expects. Through communication and example, Revenue Canada's senior managers encourage other employees to act with integrity. Managers who serve as role models for proper conduct during on-the-job training demonstrate the Department's ethical culture in action. Exposure to such examples is an integral part of absorbing a new employee into the work environment.

Staffing practices
15.51 One might expect that it would be easier to maintain an ethical environment if an organization hired only employees having the highest moral character. Precautions can be taken, but guarantees are not possible.

15.52 Compared with other government departments, Revenue Canada hires a great many new employees. It has an opportunity in the hiring process to assess the character of potential employees. The opportunity occurs in the process of interviewing and performing checks on candidates selected as potential employees. The extent of these reliability checks depends on the security classification of the job. For the majority of Revenue Canada's positions, the checks include looking for any past criminal record.

15.53 In its letters of offer, Revenue Canada includes a paragraph outlining the requirement for new employees to certify their understanding of and adherence to the conflict-of-interest code described in the booklet attached to the letter. However, neither the standards of conduct nor the security booklets are mentioned in the letter of offer. Whereas adherence to the conflict-of-interest requirements is a continuing condition of employment, the broader concept of meeting acceptable standards of conduct is not.

Areas for Improvement

15.54 We have described various elements of the framework that Revenue Canada employs to promote integrity among its employees. The investigation of potential incidents of misconduct, the imposition of discipline, and the correction of control deficiencies are three key elements. Other elements include the publication of mission, vision and values statements and the three key booklets on conduct that seek to describe the kind of organizational culture that Revenue Canada wishes to nurture. These publications are supported by training that reinforces some of the main messages and by an environment that is regarded by 70 percent of the employees we interviewed as conducive to the reporting of observed instances of potential misconduct.

15.55 All of these elements, taken together, form an important foundation for the promotion of integrity in Revenue Canada. Still, we find that promoting ethical behaviour is a preoccupation of a great many organizations and that there is a wide body of knowledge that could be drawn upon to further strengthen Revenue Canada's foundation. Because of the vulnerabilities it faces, as revealed by the incidents of misconduct that it has experienced, Revenue Canada needs to always remain open and receptive to ideas that will help it to reinforce the framework that is now in place. This section describes certain areas for improvement that came to our attention.

There are some impediments to reporting incidents of misconduct
15.56 Two possible reasons come readily to mind that explain why people may not report incidents of misconduct to appropriate authorities: first, they may lack information on what and to whom to report; and second, their working environment may not be supportive of such reporting.

15.57 What to report to whom. While employees we interviewed know that they should report misconduct to their managers, managers we spoke to generally are not clear on what type of incidents to report to the Security Directorate. While some managers felt that all cases had to be reported, others indicated that it would depend on the nature and seriousness of the incident. According to departmental policy, managers are to report incidents of employee misconduct to the Directorate. However, managers often considered employee misconduct to be a staff relations issue that ought to be handled by them and not by security. In view of this confusion, the Department currently is clarifying its policy on the reporting of employee misconduct to the Security Directorate.

15.58 The booklets on standards of conduct, conflict of interest and security lack information on whom employees can contact for advice on how to apply the policies the booklets describe. Without any other information, presumably employees would contact their supervisors. While this would be an acceptable course of action in most cases, employees may hesitate to ask questions that concern their supervisors' judgment. At such times it would be beneficial to have an individual who could be consulted on a confidential basis. Some organizations have created the position of "ethics advisor" to handle, among other things, inquiries of this type. An ethics advisor can also act as an intermediary between an employee who wishes to report an incident anonymously and the organizational unit that investigates incidents. Providing such protection to employees helps to remove impediments to reporting, because it assures employees that there will be no negative repercussions on them as a consequence of reporting an incident. Six of the 54 employees we interviewed who had suggestions to improve the reporting of incidents said they would want assurance that reporting would carry no repercussions (Exhibit 15.7) .

15.59 An environment that supports reporting. Ninety-one percent of the managers we interviewed regarded the work environment as very supportive of the reporting of infractions; however, only 59 percent of front-line staff we interviewed shared this view of the work environment. It is somewhat troubling that the front-line staff we interviewed perceived their environment as less supportive of incident reporting, because it is front-line staff who may be in a better position to observe misconduct as it occurs. We noted two situations in which misconduct had continued unchecked for over 11 months before someone eventually reported it to management.

15.60 A number of factors can contribute to employees' reluctance to report incidents of misconduct. One factor is the inherent desire to trust their colleagues. Employees can be very reluctant to make allegations about a co-worker unless they are reasonably confident that the allegations are well founded. This reluctance could be greater if their supervisors or co-workers are also aware of the misconduct but have not reported it. While it is not desirable to have a system that disciplines someone on the basis of an unfounded allegation, neither is it desirable to have a system that fails to hold to account those who commit improper acts. What is needed is a system that encourages the reporting of suspected misconduct, and follows up on reports with an investigation that respects the rights of the alleged perpetrators.

15.61 Another factor that could deter reporting is the perception that management will fail to act on reported misconduct. Employees interviewed in a recent internal audit expressed concern about the negative impact on morale when appropriate action is not taken to correct unacceptable behaviour of colleagues, including supervisors. One way to assure front-line staff that senior management does act on reported misconduct is to tell them what action has been taken. The Department could periodically distribute a report that summarizes the disciplinary measures it has taken.

15.62 Revenue Canada should study the merits of creating the position of ethics advisor, whom all departmental employees could consult on questions of values and conduct.

Department's response: In the context of the move to Agency status, Revenue Canada will consider the merits of creating a position of ethics advisor.

Application of discipline
15.63 To apply discipline fairly and consistently, managers need to know the Department's discipline policy and to have information on the discipline imposed for past incidents. The departmental guidelines on discipline date from before the administrative consolidation of Revenue Canada and are currently being revised. Revenue Canada does not have a data base on disciplinary actions it has imposed. While staff relations advisors have access to a data base of government-wide cases that were decided by adjudication, not all types of incidents necessarily go to adjudication. We were told that local staff relations advisors do not normally discuss incidents or discipline with colleagues in other Revenue Canada offices except those in the head office Human Resources Branch. Managers must rely for their information on the experience and memory of their staff relations advisors.

15.64 Dealing with individual cases is only part of the process of managing the Department's discipline and grievance programs. For the Human Resources Branch, another part is managing the programs at a strategic level. Variation exists in the disciplinary action for similar misconduct in the Department. Without a data base on disciplinary action, the Department cannot analyze trends in discipline decisions. With no trend analysis and little sharing of information, the Department is hindered in its efforts to ensure fair and consistent application of discipline. A recent internal audit recommended that staff relations advisors and managers be made aware of the disciplinary action being imposed in other offices. As a result, Revenue Canada is planning to capture information on all disciplinary actions, to analyze it and to report to senior management. For its analysis, the Department would need to capture the mitigating factors to understand why this variation in discipline exists for apparently similar misconduct.

15.65 As shown in Exhibit 15.8 , we found that in 23 of 42 cases we reviewed with no grievances, final disciplinary action was imposed within 30 days of the completion of the investigation of an incident of misconduct. In a further 16 cases, final disciplinary action was imposed within 31 days to 6 months, leaving 3 cases in which it took from 6 months to 2 years for final discipline to be imposed. Researchers in the criminal justice field have learned that harsh penalties have a limited deterrent effect due to the lower probability that they will be imposed. In contrast, even relatively mild penalties imposed promptly and with certainty have a greater deterrent effect.

15.66 It is essential that the salutary effects of discipline be achieved while still protecting the rights to due process of employees found guilty of misconduct. It is for this reason that the grievance process exists. Where a grievance is involved, the average time to determination of final discipline is much longer, although a penalty will most likely have been served on the basis of the initial imposition of discipline. We reviewed 31 cases in which the initial discipline was grieved. Disciplinary action is often reduced following a grievance. For example, two times as many suspensions of more than 10 days were initially called for as were finally imposed.

15.67 Revenue Canada should study the discipline process to determine whether it is possible to increase the proportion of cases in which final discipline (or where a grievance occurs, initial discipline) is imposed within 30 days of the completion of the investigation of an incident of misconduct.

Department's response: Revenue Canada will study opportunities to maximize the proportion of cases where disciplinary action is taken within 30 days of the completion of an investigation into misconduct.

Corrective action is slow and narrowly focussed
15.68 We studied incidents of misconduct in which there were indications of weaknesses requiring attention, to determine what action management had taken in addition to any disciplinary action. While management's responses to rectify observed weaknesses were for the most part appropriate, at times the responses were very slow. For example, in the 1994 case of a major refund fraud by an employee, Revenue Canada has taken some action in the most critical areas of identified weakness but the work is not yet complete.

15.69 In the population of incidents we examined, a factor frequently contributing to the occurrence of incidents was a lack of prevention on the part of Revenue Canada - poor security, failure to follow standard procedures, and poor training. Lack of prevention had also been apparent in previous similar incidents, but additional measures had not been taken to reduce the possibility of recurrence. In one case, the premises of other tenants of a building housing Revenue Canada offices had been broken into three times during a three-month period. No preventative action was taken until a break-in occurred at the Revenue Canada office itself.

15.70 Except for major incidents, there is no concerted effort by the Department to learn from incidents of misconduct that have national implications. Corrective action taken in one office is not conveyed to other offices to prevent similar incidents, even when the affected local office thinks there may be national implications. Providing information to other offices may alert managers there to potential weaknesses in their systems. Recently, the Security Directorate took a step that should help the Department deal with weaknesses highlighted by incidents. In its covering letters for investigation reports, the Directorate began including recommendations to correct weaknesses identified in specific incidents.

15.71 For those incidents that have significant national implications, Revenue Canada should ensure that remedial action is applied to all organizational units that are at risk.

Department's response: Revenue Canada concurs with this recommendation and continues to ensure that remedial actions on incidents that have significant national implications are applied to all affected departmental areas. Cases of misconduct involving financial administration that are reported to the Security Directorate are subsequently provided to the Financial Administration Directorate. In the Financial Administration Directorate, the cases are always reviewed and analyzed. When it is deemed that they have national implications or when it is deemed that a reminder/reinforcement is the appropriate response, financial policies, procedures or guidelines are prepared in the timeliest manner possible. These are disseminated in the form of electronic messages or by memorandum to all Regional Financial Advisors or in the form of a Financial Administration Bulletin to all Revenue Canada offices.

The Department does not monitor staff knowledge of expected conduct
15.72 Providing information and training to employees does not guarantee that they will understand and do what is expected of them. Employees' lack of understanding of departmental values and standards of conduct increases the risk of their misconduct. Management, therefore, needs to know the extent of employees' understanding in order to adjust, as appropriate, the Department's formal controls, information dissemination and training.

15.73 Revenue Canada's managers believe that employees understand what kinds of conduct are acceptable. However, many of the employees who were asked during an internal audit indicated that they were not fully aware of the Department's expectations or the consequences of misconduct. Aside from the internal audit, the Department has taken few steps to determine the level of employees' understanding of standards of conduct.

15.74 Surveys are one way to learn about the knowledge and attitude of employees regarding standards of conduct. Revenue Canada has undertaken few surveys of its employees, however, and none have dealt with the standards of conduct.

15.75 As part of this audit, we asked managers and other employees three questions about information contained in the booklets on standards of conduct, conflict of interest and security. The first question asked what employees should do upon learning about a security incident. Almost 92 percent of those we interviewed stated that they would notify their manager or security - the correct response. The second question asked about the disclosure of client information. The employees we interviewed tended to be more hesitant about disclosing information than they could be under the law. The third question asked whether departmental employees were treated the same as others who deal with the Department as private individuals. Over 90 percent responded correctly that treatment was the same. While our three questions do not constitute a definitive assessment of the knowledge of departmental employees, they do suggest that more study in this area could provide useful information. The responses to the first and third questions show that a noteworthy minority of employees are unclear about some fundamental rules. Responses to the second question suggest that most employees may be unduly cautious about disclosing information, and this may be preventing these employees from responding to queries as fully as the Department would like.

15.76 Revenue Canada should monitor employee knowledge of the Department's expectations for conduct, through the use of staff surveys or other suitable means.

Department's response: In the context of the move to Agency status, Revenue Canada will consider various means to monitor employee knowledge of departmental expectations for conduct.

Information for staff needs improvement
15.77 Information is important not only in permitting the Department to correct systemic weaknesses but also in conveying the Department's expectations to individual employees. Organizational codes of ethics generally endeavour to encourage ethical behaviour by communicating values and guiding principles that employees are to practise in their daily work. The Department's booklet on standards of conduct is more like a code of ethics than the other booklets, although the conflict-of-interest and security booklets and several other related documents also contain information that could be included in a code.

15.78 Each employee is responsible for acquiring a working knowledge of the information contained in these sources. This is a lot of material for employees to learn in depth. We feel that a brief, easy to understand and easy to retrieve "code of ethics" document, highlighting the key information that employees need to know, would be a more effective means of communication. The material for this document could be extracted from the standards of conduct, conflict-of-interest and security booklets. This is an opportune time to note our concern, since Revenue Canada is currently updating the standards of conduct and security booklets and could easily add a new code of ethics to the initiative.

15.79 Our wish to see a code of ethics document is also rooted in concerns we have about how information is conveyed in the present booklet on standards of conduct. The opening message from the Deputy Minister could encourage ethical conduct more actively, along the lines of communications we have observed in private sector organizations. Further, the preamble that sets the stage for what follows could better reflect Revenue Canada's mission, vision and values statements. Making a link that demonstrates the consistency between these statements and the standards of conduct would heighten awareness of the importance of ethics.

15.80 Some of the language in the standards of conduct booklet is excessively legalistic, and this may hamper understanding. Moreover, the booklet focusses on what the standards of conduct are, with very limited discussion of why the standards exist. A statement of the standards unaccompanied by the underlying rationale does not give employees the same encouragement to adopt as their own the values and guiding principles that are the foundation of the standards. This can be critical, since in situations where the application of the standards is not clear-cut, a thorough grasp of the values and guiding principles will enhance the likelihood that an employee will choose the best course of action.

15.81 Leaving aside matters of content, we also have a concern relating to the distribution of the present set of booklets. Employees certify their understanding of the conflict-of-interest booklet, but only acknowledge the receipt of the booklet on standards of conduct. Because no acknowledgement of the security booklet is required, employees could conclude that the document is of low priority to management. Indeed, when we asked about the receipt of the three key booklets, fewer employees could recall receiving the security booklet than the other booklets. We believe that the distribution of all three booklets (and, in future, the code of ethics as well) needs to be controlled using procedures that reinforce the importance the Department places on them.

15.82 Revenue Canada should provide information on values and conduct to its employees in the form of a brief, easy to understand overview ethics document.

Department's response: In the context of the move to Agency status, Revenue Canada will examine the development of a briefer, easier to understand information document on ethics, values and conduct.

Ethics training is uneven
15.83 Providing employees with written information on expected conduct and expecting them to understand it is not a sufficient strategy on its own. This strategy needs to be supplemented by training.

15.84 There is now no course devoted exclusively to the subject of Revenue Canada's values and standards of conduct. To the extent that they are covered, it is during courses primarily devoted to some operational topic. About 85 percent of the employees we interviewed had received some formal training on ethics; however, the training coverage is uneven. In the orientation course for new customs officers, departmental values are specifically addressed. In contrast, the course for auditors had not been updated to include departmental values as such, though it did refer to concepts that correspond to them. Both courses cover the booklets on standards of conduct and security, but they stress different aspects. Neither course discusses the conflict-of-interest booklet; however, participants are asked to read it. As for the third business line we looked at, Revenue Canada had no national orientation training for new collectors at the time of our review, but some local offices had developed orientation courses. Subsequent to our review, the Department introduced an orientation course for new collectors. In addition, the Department is currently developing a department-wide orientation course for its employees.

15.85 The time when an employee first joins the Department is a logical point at which to provide training on standards of conduct. Another logical point is when the Department issues new standards. Revenue Canada could have provided training for all of its employees to coincide with the distribution of its three key booklets on conduct. We learned that a few local managers did hold information sessions when they distributed these booklets, but this was not part of a Department-wide initiative.

15.86 Employees we interviewed want training to occur on an ongoing basis in order to reinforce issues relating to standards of conduct. They need to be reminded of what is and is not acceptable conduct. Our analysis of incidents of misconduct supports the idea that reminders are needed. Over 40 percent of the offenders were veteran employees who should have known what conduct the Department expects of them. Although employees want refresher training, we found that the Department provides it only in the areas of harassment and security awareness.

15.87 Revenue Canada should ensure that all new employees are given uniform training on departmental values and standards of conduct and that veteran employees are given uniform refresher training on departmental values and standards of conduct at appropriate intervals.

Department's response: An introductory training course on conduct and values is already in place within the Department for new collections staff at Revenue Canada. The Department will examine the feasibility of expanding this course for presentation to all new staff. It will also examine potential mechanisms for updating veteran staff on these issues.

Conclusion

15.88 In this chapter we considered the various means that Revenue Canada uses to promote integrity among its employees. The Department investigates incidents of potential misconduct, imposes discipline, and corrects control deficiencies highlighted by incidents. In addition, Revenue Canada has published mission, vision and values statements and three key booklets on conduct that seek to describe the kind of culture that the Department wishes to nurture. These publications are supported by training that reinforces some of the main messages, and by an environment that is generally regarded by employees as supportive of the reporting of potential misconduct.

15.89 All of these means, taken together, form an important foundation for the promotion of integrity in Revenue Canada. However, because of the vulnerabilities it faces, as revealed by the incidents of misconduct that it has experienced, Revenue Canada needs to remain vigilant in promoting integrity.

15.90 There are certain areas for improvement that will help it to reinforce and build on the solid foundation that is now in place. Discipline is imposed for misconduct; however, the disciplinary process can be slow and this may diminish its effectiveness as a deterrent to similar misconduct. While management takes action to correct weaknesses highlighted by incidents, at times its responses are slow and focussed narrowly on local rather than national weaknesses. Further, although information and training on values and conduct are provided to employees, the information is not presented optimally for ease of understanding, and training is uneven. The Department takes few steps to monitor the level of employees' understanding of values and conduct and the resulting impact on vulnerability to misconduct. Nor does it provide an individual whom employees can consult on a confidential basis on issues of integrity.

About the Audit

Objectives

Our audit objectives were to determine whether the Department:

  • communicates and promotes compliance with corporate values;
  • monitors vulnerability to employee misconduct;
  • identifies, investigates and reports incidents of misconduct;
  • applies discipline against employees who are guilty of misconduct; and
  • analyzes causes of incidents of misconduct or other indications of vulnerability and takes remedial action in response.

Strategy and Scope

The following diagram, a conceptual framework for total risk, helps explain our audit strategy. It shows three components of total risk: two are the components that reduce risk; the third is the residual risk to which the Department is exposed. The first component that reduces risk is internal controls and internal audit. Internal controls are the traditional methods and measures put into place by management to prevent and detect both error and employee misconduct. Internal audit provides the Department's management with an independent evaluation of certain aspects of its operations.


The second component that reduces risk is compliance with corporate values. Compliance with corporate values is not dictated in the same sense as is compliance with internal controls; rather, compliance comes about through management's actions to convince employees to comply and through the Department's operating as a "social unit".

Residual exposure to risk leaves some potential for incidents of employee misconduct to occur. When employee misconduct is identified, it is investigated and discipline is applied, as necessary. Feedback from the monitoring and analysis of incidents may result in corrective action on internal controls and in means to encourage compliance with corporate values.

We examined how Revenue Canada acts to reduce the risk of employee misconduct by encouraging compliance with corporate values, and the processes that result in corrective actions. The audit did not include a review of internal controls, since there is extensive coverage of them in our other audit work. The examination concentrated, at the operational level, on three business lines (collections, audit and customs) and on certain headquarters functions.

Approach

We performed a survey using a structured questionnaire, with responses gathered in face-to-face interviews. The purposive sample of 174 employees was selected to achieve representation according to a number of dimensions: (1) position - managers, supervisors and front-line staff; (2) business lines - audit, collections and customs; and (3) location - regions and headquarters. The questions asked in the survey dealt with five areas: information for employees; training; vulnerabilities to misconduct; reporting of incidents; and staff knowledge. In addition to the formal survey, we conducted many free-form interviews, mainly with managers.

We reviewed the documentation relating to all 285 incidents of potential employee misconduct reported to the headquarters Security Directorate from 1 January 1995 to 30 June 1996. We used a standardized data collection instrument to gather information in a manner that would facilitate subsequent analysis. This period was chosen because it was recent enough to ensure that all relevant information would still be on file (in accordance with the Department's records-retention policy) yet old enough that a significant number of cases would have progressed to their final outcomes.

We compared the content of several key departmental publications/documents related to the subject matter of the audit with those of private sector organizations. These were the mission, vision and values statements and the standards of conduct, conflict-of-interest and security booklets/handbooks. We also examined the training materials related to several in-house courses delivered to employees involved in the audit, collections and customs business lines, to determine the extent to which they contained material relevant to the subject matter of our audit.

In addition to the major sources cited above, we reviewed information contained in various other documents and data bases.

The examination phase of this audit was conducted as a collaborative effort between the Office of the Auditor General and the Internal Audit Service Division of Revenue Canada.

Criteria

We expected to find:

  • a stated and visible commitment by senior management to establish and maintain accepted standards of conduct and performance in the Department.
  • clear procedures and guidelines mandating and explaining accepted practices and expected conduct and discipline for misconduct, communicated to all employees and updated based on the evaluation of results and experience.
  • clear and specific assignment of responsibilities for the prevention, detection and investigation of potential or suspected incidents of breaches in controls and compliance.
  • vulnerability assessments conducted by managers to identify, document and prioritize compliance and control risks associated with their areas of responsibility.
  • investigation and adequate documentation of potential incidents of non-compliance and of breakdown of controls, followed by appropriate corrective action and disciplinary measures, if needed.
  • a comprehensive and reliable reporting system to inform senior management and, as necessary, its staff about the actions taken following incidents and the lessons learned.

Audit Team

Assistant Auditor General: Shahid Minto
Principal: James Ralston
Director: Victoria Saunderson

Paul Chabot
Anne Hardy
Mimi Hong
Catherine Johns
Paul Reed
Alex Rennie

For information, please contact James Ralston.