Your taxes in action: the Phoenix fiasco

The backstory

The Phoenix pay system, developed by IBM, has been short of staff and riddled with bugs since it launched in 2016—leaving tens of thousands of public servants overpaid, underpaid or with zero pay. Public servants have reported having to take out loans or cashing in RRSPs to pay mortgages and other bills for up to eight months, while others have complained they couldn’t access their family health benefits.

Glitches appear to arise when a change is made to an employee’s pay, such as changing a salary, claiming an allowance or expense, or even inputting a shift differential for shift workers. New hires have also had trouble getting paid.

“In hindsight, they made a poor decision to go live when they did,” says Steve Hindle, vice-president at the Professional Institute of the Public Service of Canada, a union. “At the same time that they were trying to modernize the pay system with Phoenix, they were also trying to consolidate compensation advice and services for employees in Miramichi [N.B.].”

One employee, after returning to work from sick leave, couldn’t pay her bills because her pay had stopped, CBC reported. For federal employees, the headaches have worsened at tax time—this year, they received incorrect tax slips.

Pay issues have affected people at all levels, from summer students to senior officials like assistant deputy ministers and director generals. “The problems are more than a year old for some individuals,” Hindle says. “There is still a substantial backlog.”

Creating Phoenix: $307 million

Launched in 2016 and developed by IBM, Phoenix was part of a government initiative called the Transformation of Pay Administration, costing $307.3 million. The program replaced the pay system, consolidated pay services and renewed business processes, says the Department of Public Services and Procurement.

Fixing Phoenix: $402 million, so far

$210 MILLION in unrealized savings + $50 MILLION for satellite offices + $142 MILLION for hiring and training = $402 MILLION

Ballooning costs

How much has the pay system fiasco cost in tax dollars? More than the program’s original costs.

The Phoenix program originally cost $307.3 million. So far, it’s cost the government $402 million in expenses and unrealized savings.

First, Phoenix was supposed to save the government $70 million annually, but those savings are not being collected for the past two years and the coming fiscal year. Over three years, that’s $210 million.

Second, the government has allocated $50 million this year to set up and maintain satellite compensation offices, put more resources toward its complaint centre, offer training and provide additional support for IBM.

Third, the government announced spending of $142 million in 2017–2018 to expand the program’s capacity, maintain compensation offices and to “implement a new case management tool and better support employees,” the government says.

On the bright side, efforts to clean up the embarrassment are creating jobs. The $142 million over two years is being used to hire 200 temporary staff to deal with Phoenix errors. That’s on top of 300 employees previously hired to address system problems.

The spending measures allow the department to move toward what it calls “steady state”—running the program as it was intended. That said, the government says it recognizes “much more work is still required.”

More costs?

The government is offering to cover individual costs related to the pay problems, such as credit card interest or bank fees for insufficient funds. It’s also providing emergency payments, or advances, to employees where possible.

Public servants have since complained, however, that submitted expenses aren’t being covered—and Hindle sees these expenses rising. “We expect the costs will be higher than have been made public,” he says. “We’re not sure where it’s going to end.”

Lawsuits against the government aren’t in the cards because public service unions have a grievance process to deal with labour issues, Hindle says. Grievance processes are moving along, with the unions considering hardship cases. Those could lead to additional costs for government.

Hindle concludes: “It’s taking this Phoenix a long time to rise from the ashes.”

by Simon Doyle, an Ottawa-based financial writer.