Canada Revenue Agency Administrative Consolidation The Integration of Customs and Taxation Canada

A Brief History

Before the 1994 administrative consolidation, Revenue Canada, Taxation administered direct taxes and Revenue Canada, Customs and Excise administered indirect taxes. Customs and Taxation are long-standing programs. Revenue Canada Taxation and Revenue Canada, Customs and Excise reported to the same government Minister. But, they were managed as two separate departments. GST (Goods and Services Tax), the largest component of the Excise program, was introduced in 1990.

In 1994, the two departments were merged by legislation into one department – Revenue Canada. Administrative consolidation brought together the 14,000 full-time equivalents in Customs and Excise and the 25,000 in Taxation into. The Customs and Excise department had consisted of 9,000 full-time equivalents in Customs and 5,000 in Excise.

In 1999, the Department of Revenue Canada became the Canada Customs and Revenue Agency (CCRA).

The overall objectives of administrative consolidation in 1994 and becoming an Agency in 1999 were to focus on the following areas: • Service improvements – one-stop shopping; single-window access to services; single business registration number • Operational efficiencies – integration of common corporate and program functions; savings reinvested in program enhancements and re-engineering initiatives • Streamlined operations – elimination of overlap and duplication; business process improvements; common, shared databases for client information • Enhanced compliance – improved targeting of non-compliance, based on the theory that the same people and companies would be non-compliant across customs, GST, and tax • Federal-provincial relations – the opportunities of a combined administration for income tax and commodity taxes presented a strategic advantage for federal-provincial consultations

From early 1992 to the time that we became the CCRA in 1999, it can be said that the integration of direct tax and indirect tax operations was complete.

In 2003, the CCRA spilt into two agencies: Canada Revenue Agency (CRA) and the Customs Border Services Agency, each reporting to different government Ministers. The administration of direct (Income tax) and indirect (Goods and Services Tax, also known as the GST) taxes is the responsibility of the Canada Revenue Agency (CRA). Customs joined Security Department Public Safety and Emergency Preparedness Canada, Canada’s lead department for public safety. The reason for splitting tax and customs in 2003 was to respond to the security demands posed by the escalated global terrorist threats.

Benefits from Administrative Consolidation

A 1996 Auditor General of Canada report concluded that: • Administrative consolidation has established a solid foundation for streamlined operations. Combining the two departments has eliminated major duplication of functions

1 Canada Revenue Agency Administrative Consolidation The Integration of Customs and Taxation 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. • 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. • The Business Number and Business Window are providing simplified and more accessible service to Revenue Canada's business clients.

The Public Accounts of Canada shows that tax collection cost (cost per one dollar in tax revenue collected) reduced from 2.06 cents in 1994 to approximately 1.6 cents in 1998. This cost increased in 2001 as the result of a one-time cost of transition from department to agency and has declined toward 2 cents in each year thereafter.

Today, we view administrative consolidation, with its prime features such as Business Number and Single Window, as fundamental enablers. On this foundation, we have added Standardized Accounting and Business Intelligence/Decision Support and many improvements to our tax programs that have had a net result in increased voluntary compliance and improved ability to detect fraud and tax evasion.

The Integration Process

The key steps • Establish a legal foundation to proceed • Ensuring a strong management and accountability framework • Managing the merging of 3 very different cultures – taxation, customs, and excise

The five top critical success factors: • Clear overall vision and principles to guide the process • Commitment and involvement of senior management • Good communication with stakeholders and employees at all levels • Establishment of committee made up of representatives of both direct tax and indirect tax to work together on specific projects • Good project management

Securing government and senior management commitment

The government started with the need to improve services to Canadians, which for customs and tax involved looking for ways to reduce the compliance burden for businesses and simplify their dealings with the government. In 1992, two years in advance of the eventual passage of the legislation creating the new consolidated organization, the government implemented a series of important changes: • February 1992, the budget announced the move to a single registration number for business (Business Number); • September 1992, the Minister announced a six-point plan for Customs; • October 1992, a single individual was appointed as Deputy Minister of both Customs and Excise, and Taxation; • November 1992, the Minister announced an eight-point plan for GST and Taxation

2 Canada Revenue Agency Administrative Consolidation The Integration of Customs and Taxation Early in the consolidation process, senior management articulated a unifying 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".

Change management strategies or initiatives

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 heads of all the Customs, Excise and Taxation regional offices. When the new 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.

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 the detailed work necessary to consolidate the Department.

Senior management demonstrated ownership and involvement through their regular attendance at employee briefings and through promotion of administrative consolidation in speeches, memoranda and articles in departmental newsletters. The Auditor General reported that CRA employees who they interviewed were convinced that their senior management was committed to a consolidated Revenue Canada.

Senior management made it a priority to keep staff informed. 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 through this channel as 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 to project teams as well.

External Consultations

Through extensive consultation, clients and stakeholder were informed about benefits of administrative consolidation.

Revenue Canada (CRA) operates on a philosophy of voluntary compliance and open communication with its clients. This philosophy was clearly reflected in documents developed for the consolidation of the Department. For example, communication with clients was one of Revenue Canada's guiding principles for consolidation, and formed a major part

3 Canada Revenue Agency Administrative Consolidation The Integration of Customs and Taxation of its communications and consultation strategy. The strategy defined its target audiences; specified that messages were to be tailored to the interests of the audience; and required 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. 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.

Our Information Management Strategy

The CRA has implemented an enterprise-wide system to enable: • All lines of business to share common architecture and be integrated as a corporate suite of applications and information databases in our common systems environment and running on our integrated delivery platforms. • The corporate view encompassing all internal and external partners’ interests; and • The integrated IT environment equally capable of processing transactions and communicating information both within and outside CRA. • Enterprise-wide view of all administrative information: financial, administrative and human resource management.

Our suites of business applications are based on a common Business Number (BN) and Standardized Accounting (SA) architectures. Currently, we are incrementally bringing each business application into fold. This will provide the client with a single (root) account number, containing each associated type of tax and deliver an integrated statement of accounts to clients. Also, this will provide CRA with the ability to do offsets across revenue lines within CRA.

Overcoming Difficulties

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 required extensive modification and took years to complete. This was a wise move, given the delays encountered. 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.

Revenue Canada was faced with a number of 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. While meeting the internal challenges, the department also had to maintain quality service for our clients and balance that with its commitment to fair enforcement of the law.

4 Canada Revenue Agency Administrative Consolidation The Integration of Customs and Taxation The “business as usual ”public face was essential in securing the confidence in the system and avoiding a fall in revenue during institutional changes.

The second constraint was the new reality of downsizing and Program Review in 1992. Revenue Canada, like other government departments, was subject to decreases in its ongoing operating budgets to support expenditure reduction. At the same time, the government gave the Department new measures to implement, which kept the overall budget relatively constant. Also, as a part of Program Review, departments had to look at their programs and decide which ones to continue. No Revenue Canada programs were dropped in that exercise. It was imperative for the Department to undergoing re-engineering of its major operations to help it meet the imposed reductions and incorporate the new measures. 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 had reduced its space by approximately 7 percent.

These first two constraining factors limited the human and financial resources that could be allocated to consolidation projects and resources that could be directed to staff training.

Staff had to be trained in performing duties associated with the integration of operations that previously had ‘separate’ objectives. Through this process, all staff was reminded that the underlying pillars of voluntary compliance balanced with responsible enforcement, and protecting the revenue remained constant in the newly consolidated administration.

The third constraining factor was that administrative consolidation required that 3 cultures be amalgamated – customs, tax and excise. Managing expectations and resistance generated by feelings by some groups of being ‘taken over’ were major challenges for management and employees alike. Integrating different cultures, identifying and selecting ‘best practices’ of each component required patience and effective communication skills.

These challenges were addressed through (as exemplified by the following examples of the business number and single window projects): • Good planning, project management of individual projects and coordination among projects; • Communication, careful attention to feedback and monitoring was enhanced in all activities of the organization. Communicating with unions was one of management's guiding principles for the consolidation process; • Internal Audit was an integral part of the planning and execution.

The Business Number project was adequately resourced and staffed. It 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.

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.

5 Canada Revenue Agency Administrative Consolidation The Integration of Customs and Taxation 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 joint committee meetings of project teams, chaired by senior management and 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.

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.

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.

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. 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. 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.

The business window provides businesses with one point of contact for dealing with CRA, either over the counter, by telephone or in writing. Initially, the business window included 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.

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. 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, who served in the single

6 Canada Revenue Agency Administrative Consolidation The Integration of Customs and Taxation window from the four business components, were co-located as a result of a lesson learned from the pilot stage.

Advice to others on integration • There should be a discernible vision, consistent with government priorities • Senior management should demonstrate its commitment to and involvement in process • Senior management should inform staff, including union representatives, and stakeholders – also involve them in design and implementation to extent practicable • Allay fears and impressions that one party is taking over the other party • Provide more opportunity for up-front communications sessions before integration process begins • Plans should be consistent with the vision, and should respect legal authorities throughout the process • Elimination of duplication should be key • Systems and practices should ensure there is a solid foundation for implementation of management overall vision and plans and for the efficient delivery of operations • Significant projects should be supported by cost-benefit analysis and split into manageable sub-projects; staffed with capable project teams; delivered according to plans, and monitored and evaluated • Process 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 • In managing human resources change processes, one must ensure to handle with some sensitivity the existing operational and cultural differences and the placement of people within the organization • Sufficient staff with required skills • Results attained should be measured and compared to results anticipated

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