Internal Audit – Application of the Taxpayer Relief Provisions

Final Report

Audit, Evaluation, and Risk Branch

March 2018

Executive summary

Canadians expect that the Canada Revenue Agency (CRA), in meeting its responsibilities and ensuring that taxpayers meet their compliance obligations, is well managed, information is safeguarded, and resources are used effectively and efficiently. In keeping with Canadians’ expectation of integrity and fairness, and meeting its responsibility of facilitating redress^{Footnote 1} and relief, the CRA provides a process for taxpayers to resolve disputes and request relief resulting from the impacts of its decisions in certain circumstances.

The objective of this audit was to provide assurance that internal controls exist, and are working as intended, to support the effective administration of the taxpayer relief provisions throughout the CRA. The audit was an assessment of the application of the taxpayer relief provisions across the CRA and the role of the Taxpayer Relief Policy and Program Division within the Appeals Branch in providing functional leadership, policy development and program direction.

The scope of this engagement did not include an evaluation of the decisions made by officers in the application of the laws related to taxpayer relief.

However, recognizing that the nature of the workloads within the taxpayer relief provisions varies greatly, the outcome of each workload relies on the element of discretion in reaching values-based and risk-based conclusions.

The examination phase of the audit took place from February 2017 to October 2017.

The audit found that the Relief, Redress, and Branch Services Directorate had implemented elements of good governance, however, the program areas administering taxpayer relief provisions have not fully adhered to the taxpayer relief protocol agreement which defines and details the roles and responsibilities of the branches.

Consequently, there is a risk of inconsistent application and administration of the taxpayer relief provisions and a possibility of inconsistent treatment of taxpayers. There are limited documented policies, procedures, and guidelines in place to support the consistent recording, monitoring, or reporting of the resources used in the completion of taxpayer relief activities.

The audit also found that certain controls require strengthening to accurately measure the fiscal impact of granting relief through the application of the taxpayer relief provisions.

Finally, a lack of clearly defined branch roles and responsibilities related to the administration of taxpayer relief provisions is reflected in the limited controls in place to support the complete and accurate reporting of taxpayer relief activities by the CRA.

Summary of recommendations

The Taxpayer Relief Policy and Program Division of the Appeals Branch should work in conjunction with the Appeals Objection and Litigation Program Management Directorate, Finance and Administration Branch, Domestic Compliance Programs Branch, Assessment, Benefit and Service Branch, International, Large Business and Investigations Branch and Collections and Verification Branch to develop, implement, and strengthen controls to support:

• the consistent application and administration of the taxpayer relief provisions;
• the comprehensive monitoring and accurate reporting of the resources required for the completion of taxpayer relief activities;
• the publishing and attainment of taxpayer-centric service standards that reflect the horizontal administration of the taxpayer relief provisions across the CRA; and
• the maintenance of the data integrity necessary for complete and accurate reporting of the fiscal and resource impacts of the application and administration of the taxpayer relief provisions.

Management response

Program Management

Where the need to strengthen controls were identified to support the consistent application and administration of the taxpayer relief provisions, Taxpayer Relief Policy and Program Division, in collaboration with Domestic Compliance Programs Branch, Assessment, Benefit and Service Branch, International, Large Business and Investigations Branch, Collections and Verification Branch, Appeals Objections, and Appeals Litigation will:

• review the governance of the administration of all taxpayer relief provisions
• ensure the harmonization of policies, procedures, guidelines, and training materials
• develop and maintain a central repository of all information including protocols, procedures, policies, and training
• coordinate the development and implementation of an Agency-wide monitoring framework

1. Introduction

The Canada Revenue Agency’s (CRA) broad range of responsibilities can be categorized as serving taxpayers, promoting and enforcing tax compliance, collecting revenue on behalf of the federal government and provincial partners, facilitating relief and redress, as well as administering benefits. Canadians expect that in meeting its responsibilities and ensuring that taxpayers meet their compliance obligations, the CRA is well managed, information is safeguarded, and resources are used effectively and efficiently. Canadians also expect integrity and fairness in CRA processes, which promote the consistent treatment of all taxpayers.

In keeping with Canadians’ expectation of integrity and fairness, and meeting its responsibility of facilitating redress and relief, the CRA provides a process for taxpayers to resolve disputes and request relief resulting from its decisions. The CRA applies taxpayer relief provisions either proactively without a taxpayer filing a formal request, or as a result of taxpayer initiated requests where the taxpayer files a formal request.

The taxpayer relief provisions within the laws administered by the CRA allow for an approach in dealing with taxpayers who could not comply with statutory requirements. The taxpayer relief provisions provide the Minister of National Revenue the discretion to:

• cancel or waive penalties or interest;
• accept certain late, amended, or revoked elections (income tax); and
• authorize a refund or reduction in the amount payable beyond the normal three-year reassessment period for individuals and graduated rate estates only.

The legislative provisions for taxpayer relief are outlined in Appendix B.

The CRA designated certain taxpayer relief activities under the functional leadership of the Relief, Redress, and Branch Services Directorate within the Appeals Branch in 2009. A key document to the formation of the Taxpayer Relief Program and the administration of the taxpayer relief provisions was the protocol agreement which defines and details the roles and responsibilities of the Relief, Redress, and Branch Services Directorate of the Appeals Branch and other branches, directorates and regions in the CRA. The agreement has signatories representing the Assessment, Benefit, and Service Branch, the Domestic Compliance Programs Branch, the International, Large Business, and Investigations Branch, Collections and Verifications Branch (the other branches), and the five regions.

On April 1, 2011, during phase I, the taxpayer-requested relief related to penalty and interest was transferred from the Collections and Verification Branch and the Assessment, Benefit and Service Branch to the Relief, Redress, and Branch Services Directorate in the Appeals Branch. On April 1, 2012 during phase II, the taxpayer-requested relief related to penalty and interest was transferred from Domestic Compliance Programs Branch to this directorate. However, the application and administration of the remaining taxpayer relief provisions, and their associated workloads, remain primarily within the other branches.

Taxpayer-initiated relief requests that relate to relief from interest and penalties are completed in the Taxpayer Relief Program’s Centres of Expertise, which are located in the Pacific, Prairie, Quebec and Atlantic regions. The taxpayer relief workloads that are not the responsibility of the Centres of Expertise, listed in Appendix C, are completed in various Tax Service Offices, Tax Centres, and the Ottawa Technology Centre. The taxpayer relief activities are completed by five branches, and are carried out in all Tax Services Offices, and in all Tax Centres (see Appendix D for branch responsibilities and location of taxpayer relief requests received).

Proactive taxpayer relief is primarily completed at Tax Service Offices by the Domestic Compliance Programs Branch, the International Large Business and Investigations Branch, and the Appeals Branch.

There is no right of objection or appeal for a taxpayer to dispute a decision made under the taxpayer relief provisions. If taxpayers are not satisfied with the initial decision, they can request a second administrative review. If taxpayers remain unsatisfied with the results, they can apply to the Federal Court for a judicial review, which may result in a subsequent review by the CRA.

The results of the taxpayer relief activities are provided in Table 1 below as detailed in CRA’s 2016 to 2017 Departmental Results Report. The report only includes the information from the provision on the cancellations and waivers of interest and penalties, and excludes the results of the other taxpayer relief provisions that the CRA administers, such as the provision to authorize a refund or reduction in the amount payable beyond the normal three-year reassessment period, as well as late, amended or revoked elections.

2. Focus of the audit

This internal audit is included in the approved Risk-Based Audit and Evaluation Plan 2016-2019. The Assignment Planning Memorandum detailing the program management, monitoring, and reporting lines of enquiry was approved by the Management Audit and Evaluation Committee on February 28, 2017 (see Appendix A for audit criteria and methodology).

2.1. Objective

The objective of the audit was to provide assurance that internal controls exist, and are working as intended, to support the effective administration of the taxpayer relief provisions throughout the CRA. Though the taxpayer relief provisions are administered through various program areas, the mandate of the Relief, Redress, and Branch Services Directorate includes providing functional and expert advice in all matters pertaining to taxpayer relief. The Relief, Redress, and Branch Services Directorate within the Appeals Branch is the office of primary interest for this audit.

2.2. Scope

The audit was an assessment of the application of the taxpayer relief provisions across the Agency and the role of the Taxpayer Relief Policy and Program Division within the Appeals Branch in providing functional leadership, policy development and program direction. The taxpayer relief program’s objectives are to improve consistency, reporting, and accountability for the taxpayer relief workload and the directorate’s key activities include:

• providing technical advice and functional guidance to the Headquarters and field offices with respect to taxpayer relief provisions;
• conducting monitoring and quality assurance programs to assess and improve the quality and consistency of decisions issued;
• developing operational policies, guidelines and manuals; and
• reporting program results for use in Headquarters, the field and for inclusion in the Public Accounts of Canada.

The Taxpayer Relief Policy and Program Division is responsible for managing Relief, Redress, and Branch Services Directorate’s key activities related to the taxpayer relief provisions and was the primary point of contact for this audit. Appendix C reflects the taxpayer relief activities performed outside of the Taxpayer Relief Program.

This audit covers the time period from the signing of the protocol agreement in 2009 to October 2017, by examining the development and implementation of the controls detailed in the agreement.

The scope of this engagement did not include an evaluation of the decisions made by officers in the application of the laws related to taxpayer relief.

2.3. Audit criteria and methodology

The examination phase included reviewing taxpayer relief documentation, analysis of available taxpayer relief results, and interviews in Headquarters and all regions. Interviews were conducted in various branches including the Appeals Branch, the Assessment, Benefit, and Service Branch, the Domestic Compliance Programs Branch, and the Finance and Administration Branch as well as the regions.

The audit team reviewed a statistically valid random sample of 267 taxpayer relief files received by the Taxpayer Relief Program Intake Centres and the Centres of Expertise. We used the File Net and Case Appeals systems to follow the workflow of the file from receipt at the intake centre to the final decision letter sent from the centre of expertise.

In addition, the Internal Audit team and the Data Analysis section received and validated data obtained from three Tax Services Offices: Vancouver, Toronto Center and Ottawa, using both Corporate Administrative System data and data extracted from the Taxpayer Relief Registry data warehouse. This data was used to estimate the resource utilization within the other branches for the administration of the taxpayer relief provisions.

Additional details about the audit criteria and methodology can be found in Appendix A.

The examination phase of the audit took place from February 2017 to October 2017.

The audit was conducted in accordance with the International Standards for the Professional Practice of Internal Auditing.

3. Findings, recommendations, and action plans

The protocol agreement which defines and details the roles and responsibilities of the Relief, Redress, and Branch Services Directorate in the Appeals Branch and the other branches, directorates and regions in the CRA, also facilitates the creation of partnerships intended to enhance the delivery and effectiveness of the taxpayer relief provisions. A current example of these partnerships is the Taxpayer Relief Operations Committee which is chaired by the Director of the Taxpayer Relief Policy and Program Division and has member representatives from the branches.

The protocol agreement outlines the responsibilities of the Relief, Redress, and Branch Services Directorate and the other branches in areas such as:

• consistency of the application of the taxpayer relief provisions
• communication
• national policies, procedures and guidelines
• monitoring
• training
• reporting and performance management

The objective of designating the administration of the certain taxpayer relief provisions as a separate program and centralizing its functional leadership within the Appeals Branch was to improve accountability, consistency, and reporting for the taxpayer relief workload. The goals of the Taxpayer Relief Program align with the lines of enquiry of this audit. Accountability is an important element of program management and the goal of consistency is largely impacted by an effective monitoring regime. Accurate, timely, consistent and complete internal and external reporting is essential for decision making within the CRA and the public reporting of the program results.

3.1. Program Management

An important characteristic of effective program management is the accountability of the various levels and areas of management for the successes and challenges within a specific program. Internal audit reviewed the controls in place that contribute to the effective management of the administration of taxpayer relief provisions. The findings are outlined below.

3.1.1. There is a risk of inconsistent application and administration of the taxpayer relief provisions in the Appeals, Domestic Compliance Program, International Large Business and Investigations, Collections and Verification, and Assessment Benefit and Service branches.

Consistency is defined by the taxpayer relief protocol agreement as “equal treatment of taxpayers when the same facts are considered”. An effective program has policies designed to promote consistency in the application of the taxpayer relief provisions throughout the CRA. These policies should be supported by, and aligned with, controls designed and implemented by the branches and regions involved in the completion of taxpayer relief activities. The number of program areas and regions involved in taxpayer relief activities and the various points of access available to taxpayers makes establishing and maintaining consistency a significant challenge. Across all the regions, staff in multiple program areas within several branches may consider different criteria in arriving at a decision regarding a taxpayer relief request based on taxpayers with similar circumstances.

However, the taxpayer relief protocol agreement outlines the Relief, Redress, and Branch Service Directorate’s and branches’ responsibilities in addressing the consistent application of the taxpayer relief provisions. The Relief, Redress, and Branch Service Directorate’s responsibilities include streamlining policies and guidelines in the Taxpayer Relief Procedures Manual, partnering with branches and regions on training initiatives, monitoring, and posting common questions and answers received from the taxpayer relief general enquiries mailbox on the CRA’s internal taxpayer relief intranet site.

The branches’ commitment to improve consistency of the application of the taxpayer relief provisions included reviewing program specific policies and procedures, and undertaking workload management initiatives.

The internal audit concluded that there is a risk of inconsistent application and administration of the taxpayer relief provisions in the other branches. A key aspect to addressing the internal audit findings regarding consistency is ensuring the necessary communication processes are in place, monitored and updated as required.      

3.1.1.1. The Taxpayer Relief Operations Committee and the taxpayer relief general enquiries mailbox are not supported by processes that validate the receipt and actions taken to address identified issues or suggestions as part of the feedback loop.

The nature of the administration of the taxpayer relief provisions requires communication channels between the program areas, the Taxpayer Relief Policy and Program Division, Taxpayer Relief Operations Committee members, and senior management. These channels should allow for a feedback loop that provides information on the status of the implementation of procedural changes and aid in assessing their impact on the administration of taxpayer relief provisions.

Regardless of which branch receives the request, a feedback loop would also aid in assessing whether there is equal treatment of taxpayers. The internal audit also found that the committee and the taxpayer relief general enquiries mailbox are not supported by processes that validate the receipt and actions needed to address identified issues. An appropriate feedback process is an integral part of any monitoring program.              

3.1.1.2. There is limited monitoring by the branches of the application and administration of the taxpayer relief provisions outside of the intake centres and the centres of expertise.

Monitoring processes should support the improvement of program management in the application and administration of the taxpayer relief activities in the program areas. Due to the multiple program areas administering relief, monitoring for the consistency of the application and administration of taxpayer relief provisions in all regions represents a significant challenge. As outlined in the taxpayer relief protocol agreement, the Relief, Redress, and Branch Service Directorate is committed to expanding the monitoring of taxpayer relief activities to all programs that are involved with administering relief under the taxpayer relief provisions.

The Relief, Redress, and Branch Service Directorate envisioned the establishment of working partnerships for the administration and implementation of a framework for taxpayer relief monitoring. As per the protocol agreement, the other branches are responsible for communicating their monitoring plans for their taxpayer relief activities, as well as considering input from the Taxpayer Relief Policy and Program Division.

The Taxpayer Relief Program, which includes intake centres and the centres of expertise, have developed appropriate governance controls for their workload management, review and approval, and monitoring processes. Their quality assurance process is in development to further strengthen the monitoring for consistency.

The internal audit found that there is limited or no monitoring of the application and administration of the taxpayer relief provisions outside of the intake centres and the centres of expertise. Comprehensive monitoring of the application and administration of the taxpayer relief provisions would strengthen the CRA’s ability to ensure that taxpayer requests for relief are being treated consistently across the CRA.

Recommendation 1

The Taxpayer Relief Policy and Program Division should work in conjunction with the Appeals Objection and Litigation Program Management Directorate, Domestic Compliance Programs Branch, Assessment, Benefit and Service Branch, International, Large Business and Investigations Branch, and Collections and Verification Branch to develop, implement, and strengthen policies and procedures that would support the monitoring of the consistent application and administration of the taxpayer relief provisions.

Action plans

Action for 3.1.1.

The Taxpayer Relief Policy and Program Division, in collaboration with the Domestic Compliance Programs Branch, Assessment, Benefit and Service Branch, International, Large Business and Investigations Branch, Collections and Verification Branch, Appeals Objections, Appeals Litigation and Finance and Administration Branch, will review the governance for the administration of all taxpayer relief provisions. Any new governance agreements will be signed by all parties and outline the roles and responsibilities of all stakeholders with respect to communication, policies, delegations, procedures, training, monitoring, quality assurance, systems, reporting, workloads, and other key elements. The Taxpayer Relief Policy and Program Division will ensure that all branches review the agreements annually to make any revisions and to confirm adherence. The target completion date for this action plan is April 2019.

The Taxpayer Relief Policy and Program Division, in collaboration with the Domestic Compliance Programs Branch, Assessment, Benefit and Service Branch, International, Large Business and Investigations Branch, Collections and Verification Branch, Appeals Objections, and Appeals Litigation, will ensure the harmonization of policies, procedures, guidelines, and training materials to enable the consistent application and administration of the taxpayer relief provisions. The target completion date for this action plan is April 2020.

The Taxpayer Relief Policy and Program Division, in collaboration with the Domestic Compliance Programs Branch, Assessment, Benefit and Service Branch, International, Large Business and Investigations Branch, Collections and Verification Branch, Appeals Objections, and Appeals Litigation, will develop and maintain a central repository of all information including protocols, procedures, policies, and training related to the application and administration of the taxpayer relief provisions and the dissemination of that information to all stakeholders as required. The target completion date for this action plan is April 2020.

The Taxpayer Relief Policy and Program Division, in collaboration with the Domestic Compliance Programs Branch, Assessment, Benefit and Service Branch, International, Large Business and Investigations Branch, Collections and Verification Branch, Appeals Objections, and Appeals Litigation will create, where necessary, memoranda of understanding between each program or branch to clearly outline workload responsibilities, including best fit and alignment of resources, for all matters related to the administration of the taxpayer relief provisions. The target completion date for this action plan is April 2019. 

Action for 3.1.1.1.

The Taxpayer Relief Policy and Program Division will review and improve feedback mechanisms, including the Taxpayer Relief Operations Committee and taxpayer relief general enquiries mailbox, in order to develop an effective approach to capture and address stakeholder feedback. The target completion date for this action plan is April 2019. 

Action for 3.1.1.2.

The Taxpayer Relief Policy and Program Division, in collaboration with the Domestic Compliance Programs Branch, Assessment, Benefit and Service Branch, International, Large Business and Investigations Branch, Collections and Verification Branch, Appeals Objections, and Appeals Litigation, will coordinate the development and implementation of an Agency-wide monitoring framework to support the application and administration of the taxpayer relief provisions including the use of delegation of authority. This element will be completed by April 2019.

Each program’s monitoring results will be shared with the Taxpayer Relief Policy and Program Division to be integrated into a national monitoring report. The target completion date for this part of the action plan is April 2020. 

3.1.2. There are limited policy instruments in place to support the consistent recording, monitoring, and reporting of the resources used in the completion of the taxpayer relief activities outside of the Taxpayer Relief Program.

A key aspect of effective program management is management of the resources used for program delivery and meeting the program’s objective and goals.

The branches’ responsibility for the administration of the taxpayer relief provisions includes recording, tracking, and reporting the time and resources used in the completion of the taxpayer relief activities. However, the internal audit was unable to confirm the number of full-time equivalents used in the completion of taxpayer relief activities or reconcile the number of full-time equivalents reported as part of the 2016 Departmental Results Report. The internal audit found that there are insufficient controls in place to consistently identify, record, and report the time and resources used in the completion of taxpayer relief activities outside the Taxpayer Relief Program. This limitation prevents the branches from determining the full-time equivalents needed to deliver their taxpayer relief activities. Without a reasonable estimate of the resources required to complete the taxpayer relief activities, it is difficult to make informed program decisions at the program or agency level.

The reported full-time equivalents may be materially misstated due to limited controls in the branches to identify and monitor the number of taxpayer relief files, and the time taken to complete taxpayer relief activities. Improved reporting would assist the branches in achieving key workload management objectives such as selecting and assigning files with the highest risk, and identifying and prioritizing specific workloads.

Recommendation 2

The Appeals Branch, Domestic Compliance Programs Branch, Assessment, Benefit and Service Branch, International Large Business and Investigations Branch and Collections and Verification Branch should develop and implement policies and procedures to consistently record, monitor and report all resources used in the administration of taxpayer relief activities.

Action plans

Action for 3.1.2.

The Taxpayer Relief Policy and Program Division, in collaboration with the Domestic Compliance Programs Branch, Assessment, Benefit and Service Branch, International, Large Business and Investigations Branch, Collections and Verification Branch, Appeals Objections, and Appeals Litigation, will implement the use of common internal order numbers for each provision for the purposes of recording time spent on taxpayer relief activities. The target completion date for this action plan is April 2018. 

Under 220(3.1), officers are required to offer proactive relief, where applicable. As the Domestic Compliance Programs Branch and International, Large Business and Investigations Branch already record their case number under the internal order field in Corporate Administrative System, they will be unable to record a different value in that field. The Domestic Compliance Programs Branch and International, Large Business and Investigations Branch will determine an alternative mechanism for recording time spent on proactive taxpayer relief activities. The target completion date for this action plan is April 2019. 

Where the value of tracking resources used in the administration of relief activities is determined to be material, the Taxpayer Relief Policy and Program Division, in collaboration with the Domestic Compliance Programs Branch, Assessment, Benefit and Service Branch, International, Large Business and Investigations Branch, Collections and Verification Branch, Appeals Objections, and Appeals Litigation, will determine the most efficient method of recording time spent on taxpayer relief activities (i.e. continue using internal order numbers or other methods). The target completion date for this action plan is April 2019. 

As the CRA must respond to many pressures regarding its services and programs, there is a thorough process to allocate funding to programs across a wide range of activities and new funding may be requested via the Federal Budget.

On an annual basis, the Appeals Branch, Domestic Compliance Programs Branch, Assessment, Benefit and Service Branch, International, Large Business and Investigations Branch, and Collections and Verification Branch will analyze the data to determine whether adequate funding and resources are in place for taxpayer relief activities across the CRA. The target completion date for this action plan is April 2020.

3.2. Monitoring

3.2.1. The existing service standard for the taxpayer relief requests does not reflect a taxpayer centric view of the CRA’s administration of the taxpayer relief provisions and as a result, does not show the full service wait time experienced by the taxpayer.

Performance management is a priority for the CRA and key support to the commitment of service to Canadians. The complex, horizontal structure of the administration of the taxpayer relief provisions presents a significant performance measurement and management challenge. Measuring results from the taxpayer’s viewpoint aids in determining how well the expectations of taxpayers are being met, as well as determining the ability of the CRA to comply with its commitments.

Taxpayers’ expectations are based on their overall interactions with the CRA, not the activities of individual branches or program areas that are involved in the service delivery. The internal audit found that the existing service standard of 180 calendar days as reported in the Departmental Results Report for the taxpayer relief requests to cancel penalties and interest does not reflect the CRA’s horizontal administration of the taxpayer relief provisions. As a result, the CRA is not reporting on the entire service wait time experienced by the taxpayer for the completion of the taxpayer relief process.

Service standards incorporating elements that address taxpayer priorities, and that relate to aspects of service that address taxpayer needs and expectations would provide valuable insight to inform program management decisions. However, recognizing that the nature of the workloads within the taxpayer relief provisions varies greatly, the outcome of each workload relies on the element of discretion in reaching values-based and risk-based conclusions.

Recommendation 3

The Taxpayer Relief Policy and Program Division should work in conjunction with all the program areas responsible for the administration of the taxpayer relief provisions to develop common service standards that reflect the horizontal administration of the taxpayer relief provisions from a taxpayer point of view.

Action plans

Action for 3.2.1.

The existing service standard, and the development of any new standards, will be clearly communicated to the taxpayers as per the following:

• The Taxpayer Relief Policy and Program Division, in collaboration with the Domestic Compliance Programs Branch, Assessment, Benefit and Service Branch, International, Large Business and Investigations Branch, Collections and Verification Branch, Appeals Objections, and Appeals Litigation, will review the Taxpayer Relief Policy and Program Division’s current service standard of 180 calendar days to ensure a consistent service standard for provision 220(3.1), waive or cancel penalty or interest, and determine a reasonable implementation date for the other programs. The service standard will be communicated to taxpayers for the processing time of the decision. Where a financial transaction is required, the expected time for the transaction will be communicated through the decision letter. The target completion date for this action plan is April 2019. 
• The Assessment, Benefit and Service Branch, Domestic Compliance Programs Branch and International, Large Business and Investigations Branch will look into the reasonability of providing a service standard for provisions 220(3.2), late, amended or revoked elections, 152(4.2), individual or graduated rate estate beyond 3 year normal assessment period and 164(1.5)(a), refund of tax or graduated rate estate beyond 3 year normal assessment period, and determine a reasonable implementation date. The target completion date for this action plan is April 2019. 

The Taxpayer Relief Policy and Program Division, in collaboration with its regional offices, will revise the existing quality assurance activities by developing, documenting, and implementing an improved comprehensive national quality assurance program for its Intake Centres and Centres of Expertise. The target completion date for this action plan is April 2019.

3.3. Reporting

3.3.1. There are limited controls in place to record or report the fiscal impact of the application of taxpayer relief provisions.

3.3.2. Control weaknesses were identified with regard to supporting the accuracy and completeness of the reported results of taxpayer relief activities.

Service standards are an essential component of effective performance management and are dependent on the completeness and accuracy of the program results. The breadth of the administration of the taxpayer relief provisions make it a challenge to report complete and accurate results. The internal audit found that controls need to be strengthened to support the accuracy and completeness of the results of taxpayer relief activities. Incomplete results may lead to insufficient and delayed attention on the management of taxpayer relief activities.

The current process of collecting and reporting the taxpayer relief results has not been documented, reviewed or risk-assessed to determine the sufficiency of the reporting controls by either the Taxpayer Relief Policy and Program Division or the Finance and Administration Branch. Although the internal audit team was provided with documentation related to the information reported in the Departmental Results Report, the number of completed taxpayer relief requests could not be independently confirmed nor could they be reconciled to the number of completed requests stated in the Taxpayer Relief Registry. This is primarily due to the reliance on estimated results from various program areas in the reporting process and the absence of verifiable data based in the source systems.

Additionally, there are insufficient controls in place to record or report the fiscal impact^{Footnote 4} of the application of the minister’s authority to grant taxpayer relief in relation to the taxpayer relief provisions. Sufficient controls supporting the collecting, recording, and reporting of taxpayer relief results would provide reasonable assurance as to the accuracy and completeness of the amounts reported through the public accounts.

Currently an internal audit is being conducted, Internal Audit – Tax and Benefits Operations Results Information, with the preliminary objective to provide assurance that tax and benefits operations results information used in the Agency and reported to external partners is accurate, reliable and consistent. The internal audit will further address, at the Agency level, the governance and monitoring related issues within this finding as they relate to the CRA as a whole.

Recommendation 4

The Taxpayer Relief Policy and Program Division, in conjunction with the Domestic Compliance Programs Branch, Assessment, Benefit and Service Branch, International Large Business and Investigations Branch and Collections and Verification Branch should ensure that there are controls in place to support the recording, and collecting of the data required to determine the fiscal and resource impacts of completing taxpayer relief activities for all the taxpayer relief provisions.

The Taxpayer Relief Policy and Program Division and the Finance and Administration Branch should work with the Domestic Compliance Programs Branch, Assessment, Benefit and Service Branch, International Large Business and Investigations Branch and Collections and Verification Branch to ensure that there are controls in place to support the complete and accurate internal and external reporting of the taxpayer relief results including the fiscal impact of the application of the minister’s authority to grant relief.

Action plans

Action for 3.3.1.

The Taxpayer Relief Policy and Program Division and stakeholder branches will strengthen policies and procedures for determining and reporting the fiscal impact of the application of taxpayer relief provisions where a legislative requirement exists. The policies and procedures will include the establishment of an audit trail so that results and legislated requirements are properly supported. The target completion date for this action plan is April 2019. 

The Taxpayer Relief Policy and Program Division, Domestic Compliance Programs Branch, Assessment, Benefit and Service Branch, International, Large Business and Investigations Branch, Collections and Verification Branch, Appeals Objections, and Appeals Litigation, will mandate the use of the Taxpayer Relief Registry in order to capture the fiscal impact of the application of all taxpayer relief provisions. The Domestic Compliance Programs Branch, Assessment, Benefit and Service Branch, International, Large Business and Investigations Branch, Collections and Verification Branch, Appeals Objections, and Appeals Litigation will update their procedures accordingly. The target completion date for this action plan is April 2020.  

Action for 3.3.2.

The Taxpayer Relief Policy and Program Division, in collaboration with stakeholder branches, will strengthen internal controls to support the accuracy and completeness of the taxpayer relief activity results. The target completion date for this action plan is April 2019. 

The Taxpayer Relief Policy and Program Division will expand the mandate and scope of the Taxpayer Relief Reporting Working Group, which was established to implement controls on data collection and reporting, to review the inclusion of all taxpayer relief provisions and include representatives from all stakeholder branches, including the Finance and Administration Branch. The target completion date for this action plan is April 2019. 

4. Conclusion

The focus of this audit was to provide assurance that internal controls exist, and are working as intended, to support the effective administration of the taxpayer relief provisions throughout the CRA. The taxpayer relief protocol agreement which defines and details the roles and responsibilities of the Relief, Redress, and Branch Services Directorate and the other branches and program areas has not been fully adhered to by either the branches, the program areas, or the Relief, Redress, and Branch Services Directorate.

Consequently, there is a risk of inconsistent application and administration of the taxpayer relief provisions and a possibility of inconsistent treatment of taxpayers. There are limited documented policies, procedures, or guidelines in place to support the consistent recording, monitoring, or reporting of the resources used in the completion of taxpayer relief activities outside of the taxpayer relief program. Also, the branches’ roles and responsibilities are supported by controls that require strengthening to accurately measure the fiscal impact of the granting of relief through the application of the taxpayer relief provisions. Finally, a lack of clearly defined branch roles and responsibilities around administration of the taxpayer relief provisions is reflected in the limited controls in place to support the complete and accurate reporting of taxpayer relief results in the CRA.

5. Acknowledgement

In closing, we would like to acknowledge, recognize and thank the Taxpayer Relief Policy and Program Division for the time dedicated and the information provided during the course of this engagement. Additionally, we would like to thank the Appeals Branch, the Domestic Compliance Programs Branch, the International, Large Business and Investigations Branch, and the Assessment, Benefit, and Service Branch, Finance and Administration Branch, Collections and Verification Branch and the regions for their assistance and cooperation in facilitating the successful completion of this internal audit.

6. Appendices

Appendix A: Audit criteria and methodology

Based on the risk assessment, the following lines of enquiry, criteria, and methodology were identified in the Assignment Planning Memorandum and approved by the Management Audit and Evaluation Committee:

Methodology

• Review and analyze existing policies, procedures, and guidelines
• Review and analyze taxpayer relief process controls
• Review and analyze taxpayer relief reporting process
• Review of taxpayer relief registry
• Review of taxpayer relief files
• Analyze program statistics and resource utilization data
• Undertake interviews in Headquarters, the Atlantic Region, the Ontario Region, the Prairie Region, and the Pacific Region

Appendix B: Legislative provisions for taxpayer relief

Appendix C: Taxpayer relief requests processed outside the Centre of Expertise

• Elections covered under subsection 220(3.2) of the Income Tax Act
• Statute barred requests
• Refunds or reduction in amounts payable beyond the normal three-year period (T1 and graduated-rate estates)
• T3 trust (other than financial hardship)
• Relief request with unresolved appeal/objection
• Penalty and interest relief requests associated with voluntary disclosures; Voluntary Disclosures Program Section within Domestic Compliance Programs Branch retained responsibility
• Penalty and interest relief requests for Part XIII non-resident accounts; the International Tax Services Office retained responsibility
• Registered charities (RR) (section 188.1 of the Income Tax Act)
• Proactive relief (e.g. relief of penalty and / or interest granted without a formal request by a taxpayer)^{Footnote 5}
• Requests related to Import accounts
• Flow through shares
• Gross Negligence Penalty (other than financial hardship)
• GST/HST Quebec accounts
• GST/HST wash transactions
• Mandatory electronic filing penalty (request for waiver, or waiving and cancelling)
• Non-residents
• Other levies (Softwood Lumber/Air Travelers Security Charge)
• Tax Free Savings Account for individuals
• Penalties charged on certain information returns
• T1 overpayment of RRSP and RESP
• List of properties by an emigrant of Canada
• T244 Registered Pension Plan Annual Information Return
• T2054 Election for a Capital Dividend

Appendix D: Branch responsibility and location of taxpayer relief requests processed

Appendix E: Glossary