Cost to fix Phoenix pay system to surpass $540 million, auditor general says

government of canada

The federal government's chronic salary struggles will take more time and more dollars than the three years and $540 million projected to fix the snafu-stricken Phoenix public service pay system, the auditor general warned Tuesday – an escalating "fiasco" that the governing Liberals laid squarely at the feet of their Conservative predecessors.

Auditor Michael Ferguson even went so far as to warn that the government may be "in a similar situation" to Australia, where a comparable problem has already cost more than $1.2 billion over the last eight years and still isn't completely fixed.

Ferguson's review of the disastrous Phoenix pay system detailed just how many and how often public servants are either being overpaid and underpaid, how badly federal officials gauged the size and the scope of the problem, and how the government under-reported the number of outstanding pay problems even as issues grew.

In all, there were 150,000 employees with pay problems that needed correcting at the start of summer, and a value of over $520 million worth of mistakes.

The Liberals will provide a full and detailed cost estimate to fix the system, but not until next May, with plans to finalize by next month a preliminary road map of dozens of projects aimed at fixing Phoenix.

Public Services Minister Carla Qualtrough said the government would look at all options for the long-term, including whether Phoenix will still run the federal pay system. But she also didn't mince words when she addressed the genesis of the problem.

"The previous government botched the Phoenix pay system from the start," she told a news conference in the foyer of the House of Commons.

"They spent $309 million to create an unproven and flawed pay system, and prematurely booked $70 million in savings per year. They rushed the design and implementation, and they did not train staff – in fact, they terminated 700 special compensation staff before Phoenix was launched."

When asked whether scrapping the system would make financial sense, Ferguson wasn't convinced, noting the pay software alternatives that would be available today aren't all that different than the one the government bought.

"If they started all over again, it's hard to see how they would actually end up in a better situation," Ferguson said. "Their only real option is to try and resolve the problem within the system as it exists."

Conservative Leader Andrew Scheer disputed Qualtrough's version of events.

"It was this Liberal government that decided to rush the launch of it, even over the objections of a third-party analysis that this government asked for," Scheer said.

"They commissioned a third-party analysis of whether or not they should proceed and whether it was ready; the analysis said that it wasn't, (but) they decided to overrule that and go ahead with it. It was this government's decision to press the start button."

The problems with Phoenix stood out among all the issues Ferguson found the government needed to right in his latest batch of audits. Among the audit findings:

  • Callers to the Canada Revenue Agency got the wrong answer to questions 30 per cent of the time, above the 6.5 per cent error rate the agency publicly reports – and that's only when they were able to actually get through to an employee; only 30 per cent of calls placed by auditors were connected.
  • Immigration, Refugees and Citizenship Canada didn't monitor whether Syrian refugees were being properly integrated into Canadian society, including basic information such as how many children were enrolled in schools.
  • Health Canada couldn't say whether its oral health program for First Nations and Inuit children helped in any way.
  • Female offenders weren't getting the rehabilitation they needed, especially those with mental illnesses; some prisoners with severe impairments or at risk of suicide continue to be held for observation in segregation cells, against the advice of experts.
  • Cadets at Royal Military College were academically challenged, but the school didn't ensure they learned proper military conduct, ethics or adequate leadership skills.

Combined, the audits amount to what Ferguson describes as a bureaucratic focus inward, rather than thinking about the people they are there to serve. It's a message Ferguson has delivered before, but the government has yet to hear, he said.

That message appeared to ring loudest in Ferguson's review of Phoenix, which the Liberals themselves requested last year.

The report says the government has set aside a lot of time, money and staff to deal with Phoenix, but it hasn't tackled the underlying causes or developed a long-term sustainable solution.

"Unacceptable just doesn't capture the seriousness of this issue," Ferguson said. "This has to be the government's main priority to get this resolved, because it is touching so many of the civil servants and they need to get this right."

The IBM-designed Phoenix system was supposed to save $70 million a year by modernizing, consolidating and centralizing pay processing.

Instead, the government has re-hired hundred of experts to deal with a relentless barrage of pay problems. The Senate has pulled out of Phoenix, and departments and agencies have had to implement workarounds to make sure employees get paid.

Statistics Canada, for instance, kept its old pay system in place for the army of temporary workers hired for the 2016 census.

Ferguson only looked at what happened since the Liberals took office. An audit about what went wrong in the lead-up will be released in May.

The Liberals green-lighted the $310-million system shortly after coming to office, despite concerns it wasn't ready to handle the 80,000 different rules overseeing issues like parental leave or compensating those in temporary supervising roles, known as acting pay.

Unions have suggested they're open to simplifying pay rules that complicate the system.

Acting pay makes up one-quarter of all outstanding pay issues – a queue that as of the end of June sat at 494,500, or about five times what it was when Phoenix launched in early 2016. About 49,000 employees have waited more than a year to have their pay issues resolved.

In the last fiscal year that ended in March, some 62 per cent of employees sampled were paid incorrectly at least once, the report found.

The causes of pay problems were myriad, including pay experts who couldn't enter data into the system half the time to fix errors because doing so would cause further mistakes.

Even as the backlog of cases grew, the report says the government under-reported the numbers by about 30 per cent because it excluded requests that didn't have a dollar value, or that it didn't believe would take a lot of time to process.

"We see that over and over again," Ferguson said.

"Departments are sometimes putting out numbers that don't give people the full picture. They give a picture from a certain point of view from within the department and I think that's what we're seeing here."