What we examined (see Focus of the audit)

In 2009, the Government of Canada started an initiative to replace the 40-year-old system it used to pay 290,000 employees in 101 departments and agencies. This Transformation of Pay Administration Initiative would also centralize pay services for nearly half of the departments and agencies, which had previously processed pay for their own employees. The initiative’s goal was to decrease the costs of and improve the efficiency of processing the government’s payroll, which is about $22 billion a year.

This audit focused on whether Public Services and Procurement Canada effectively and efficiently managed and oversaw the implementation of the new Phoenix pay system. The audit focused on the Department as the lead organization for building and implementing the system and for operating centralized pay operations for 46 departments and agencies in the Public Service Pay Centre in Miramichi, New Brunswick. The system is a critical part of the Transformation of Pay Administration Initiative.

Why we did this audit

This audit is important because the Phoenix pay system is less efficient and less cost-effective than the old system, and thousands of employees have not been accurately paid or paid on time. In our fall 2017 audit of Phoenix pay problems, we found that the problems were having serious financial impacts on the federal government and its employees. In that audit, we estimated that it will take many millions of dollars and years to fix the Phoenix pay problems. It is important that the government learn from the mistakes made in the Phoenix project in order to properly manage future large information technology projects.

What we concluded

We concluded that the Phoenix project was an incomprehensible failure of project management and oversight. Phoenix executives prioritized certain aspects, such as schedule and budget, over other critical ones, such as functionality and security. Phoenix executives did not understand the importance of warnings that the Miramichi Pay Centre, departments and agencies, and the new system were not ready. They did not provide complete and accurate information to deputy ministers and associate deputy ministers of departments and agencies, including the Deputy Minister of Public Services and Procurement, when briefing them on Phoenix readiness for implementation. In our opinion, the decision by Phoenix executives to implement Phoenix was unreasonable according to the information available at the time. As a result, Phoenix has not met user needs, has cost the federal government hundreds of millions of dollars, and has financially affected tens of thousands of its employees.

What we found about…

Managing the development of Phoenix

Overall, we found that Public Services and Procurement Canada failed to properly manage the Phoenix project. Because of the Department’s poor management, Phoenix was implemented

• without critical pay processing functions;
• without having been fully tested to see whether it would operate as expected;
• with significant security weaknesses, which meant that the system did not protect public servants’ private information;
• without an adequate contingency plan in case the system had serious and systemic problems after it was implemented; and
• without any plans to upgrade the underlying software application after it was no longer supported.

Furthermore, we found that Public Services and Procurement Canada did not fully consult and involve other departments and agencies during the development of Phoenix to determine what they needed Phoenix to do or to adequately help them move to the new system. The Department did not completely and properly test Phoenix before its implementation, which is contrary to recognized practices for developing a system. Phoenix executives cancelled a pilot project with one department that would have assessed whether Phoenix was ready to be used government-wide.

These findings matter because the Phoenix pay system failed to meet the needs of users and improve the efficiency and effectiveness of the government’s pay processes. The project mismanagement resulted in

• the system’s failing to correctly pay tens of thousands of federal employees on time,
• government departments and agencies spending a significant amount of time and money trying to resolve Phoenix pay problems, and
• a system that so far has been less efficient and more costly than the 40-year-old system it replaced.

The building and implementation of Phoenix was an incomprehensible failure of project management and oversight.

• Public Services and Procurement Canada failed to properly manage the Phoenix project

  Recommendation. For government-wide information technology projects under its responsibility, Public Services and Procurement Canada should ensure the following:

  • Its project managers understand and communicate to concerned stakeholders the impacts of any changes to functionality, including any impacts of the cumulative effect of all changes.
  • The project complies with relevant legislative and policy requirements.
  • The project includes plans for keeping the software current.
  • The project includes a complete contingency plan.

• Public Services and Procurement Canada did not fully engage departments and agencies in building Phoenix and in preparing them to use it

  Recommendation. For government-wide projects under its responsibility, Public Services and Procurement Canada should

  • ensure that requirements to move to a new system are defined and implemented with the active participation of all concerned departments and agencies, and
  • ensure that all concerned departments and agencies are consulted and actively participate in the project’s design and testing.

Deciding to implement Phoenix

Overall, we found that there was no oversight of the Phoenix project, which allowed Phoenix executives to implement the system even though they knew it had significant problems. There were no oversight bodies independent of the project management structure to provide independent advice to the Deputy Minister of Public Services and Procurement on the project status. This meant that the Deputy Minister did not receive independent information showing that Phoenix was not ready to be implemented or that the Miramichi Pay Centre and departments and agencies were not ready for Phoenix. Phoenix executives were more focused on meeting the project budget and timeline than on what the system needed to do.

• Phoenix executives did not understand the importance of warnings that the Miramichi Pay Centre, users, and the new system were not ready

  Recommendation. For all government-wide information technology projects, the Treasury Board of Canada Secretariat should

  • carry out mandatory independent reviews of the project’s key decisions to proceed or not, and
  • inform the project’s responsible Deputy Minister and senior executives of the reviews’ conclusions.

• There was no oversight of the decision to implement Phoenix

  Recommendation. For all government-wide information technology projects under its responsibility, Public Services and Procurement Canada should ensure that an effective oversight mechanism is in place, is documented, and is maintained. The mechanism should first be approved by the Treasury Board of Canada Secretariat and should include the heads of concerned departments and agencies.

  Recommendation. For all government-wide information technology projects under its responsibility, Public Services and Procurement Canada should ensure that its internal audit function provides the Deputy Minister with assurances regarding the projects’ governance, oversight, and management.

Entities’ Responses to Recommendations

The entities agree with our recommendation(s) and has responded (see List of Recommendations).

Related Information

Report of the	Auditor General of Canada
Type of product	Performance audit
Topics	Financial Management and Government Spending Information Management Science and Technology
Entities	Canadian Security Intelligence Service Correctional Service Canada Employment and Social Development Canada National Defence Natural Resources Canada Public Services and Procurement Canada Royal Canadian Mounted Police Statistics Canada Treasury Board of Canada Secretariat
Completion date	9 March 2018
Tabling date	29 May 2018
Related audits	Report 1—Phoenix Pay Problems, 2017 Fall Reports of the Auditor General of Canada

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