Enough Satisfaction Surveys Already-For Any Real Change to Occur, CRA Should End its Executive Bonus Culture
November 21, 2019 aadolphAudits,CRA,Gross Negligence Penalty
Another year, another CRA public outreach survey, asking the business and the accounting community for its opinions about CRA and what CRA can do to improve.
I don’t bother completing their surveys anymore because I know that the problems with today’s CRA are rooted in an executive bonus culture that only cares about how much money the audits bring in.
I was a CRA auditor for 25 years, hired when I was just 24 years old to be one of the first auditors of the GST, which came into existence on New Years’ Day,1991.
In the beginning, my employer placed no expectations about how much money we were expected to bring in. The government needed acceptance of the new tax, so in the beginning there was a honeymoon period. As new auditors, we were taught that the tools we use are education and enforcement (penalties), but always try education first.
CRA Name Change
Around the turn of the millennium, Revenue Canada, a government department, became the Canada Revenue Agency, an Agency. At the time I didn’t realize what it all meant. But I do now.
It means that the small GST organization I began my career with got gobbled up by the much larger income tax department. Canada Customs, the other major money-making department, was also transformed into an Agency. The honeymoon was over, and we went from being a department that serves the public, to an Agency, run like a corporation.
With this came a new approach. Auditors were under much greater pressure to produce assessments. Heaven forbid coming back to the office with nothing. Getting assessments was surprisingly easy. I had no problems at all finding assessments and I never came back empty. At the same time, call me naïve, but I really felt that the things I was assessing were honest mistakes, and often misunderstandings and confusion with the tax code.
Now I am about 12 years into my career and I am being told by new management parachuted in from I-don’t-know-where saying that because so many of our audits result in assessments, the businesses we were auditing must be making mistakes on purpose. With that, we were told to use the gross negligence penalty more often.
What I am finding in a lot of audits is much more aggressive use of the gross negligence penalty, also known as the “knew or ought to have known” penalty. This nasty monetary penalty was originally designed to be used sparingly because it is the last step before a criminal case, which is very expensive and resource intensive.
More aggressive application of the gross negligence penalty is one way to increase the audit yield. Originally designed as a last-step, now it is applied by default.
If only there was a gross negligence penalty for CRA executives fudging their statistics in order to max out their bonuses.
Expanded Audit Periods
Also, I am finding expanded audit periods in excess of the “1 + 1” rule. This rule, which as far as I know is unchanged from its introduction in 1996, says that the audit period for a new income tax audit shall be the last year filed and the year before that. For GST, it is the last two years plus anything filed so far in the current year.
Increasing the audit period, contrary to policy, is another way to increase audit yield. But it also increases drag on the audit, weighing it down, which wasn’t good for the 1996 Revenue Canada who wanted faster audits and higher penetration rate.
Let the Sunshine In
Incentive programs can be good things, but they come with moral hazards. This is probably why auditors, themselves, at the bottom of the org chart, don’t get paid a bonus based on how much money they bring in. The public would not likely tolerate it.
If I am wrong about this, and managerial/executive bonuses in the CRA audit division are not based on the results of audits of business, then CRA should be able to prove it. Until then, customer service will continue to deteriorate, and more businesses will be caught up in lengthy appeals as they try to get excessive audit assessments and penalties reversed.
Andrew Adolph is a CPA and former CRA auditor with 25 Years of experience. He helps businesses to not par any more in sales taxs than the law says they must and acts as an advocate for you if you are being audited, so you can fous on your business.