Collection of Outstanding Corporate Taxes
Why we did this audit
The Department of Treasury Board and Finance has chosen to administer Alberta’s corporate taxes through its Tax and Revenue Administration (TRA) division, as opposed to the Canada Revenue Agency, which administers corporate taxes for other provinces except Quebec. CRA pays other provinces the amount of provincial taxes assessed, irrespective of whether it ultimately collects these amounts from corporations. Thus, CRA bears the credit risk if corporations do not pay their taxes. In return, CRA keeps any interest earned and penalties on provincial income taxes that corporations owe. In contrast, the department retains the interest and penalties on Alberta’s corporate taxes, but it also bears the credit risk.
As a result, we assessed whether the department has effective and efficient systems to collect outstanding corporate taxes in a timely manner, because it becomes more difficult and expensive to collect accounts the longer they remain outstanding. TRA focuses its resources on collecting high-risk and high-value receivables, but must also collect smaller amounts so as to enforce compliance consistently. Thus, any improvement in its ability to collect outstanding taxes efficiently within a reasonable time affects the province’s cash flows.
What we found
The department has adequate systems to collect corporate taxes, but these systems need improvement to deal with the increasing number of outstanding taxes. TRA recently updated its information system to improve the way compliance officers manage files. It also added compliance officers to deal with increased caseloads.
However, we identified the following matters that the department should resolve:
- Several key policies and procedures are outdated, not comprehensive enough or do not exist to ensure compliance officers take consistent collection actions. TRA management also identified this issue but has not made its resolution a priority. We identified other gaps; for example, the lack of policies and procedures for assessing a taxpayer’s ability to pay may allow compliance officers to treat taxpayers differently.
- New staff are trained when they start and work closely with a senior compliance officer for three months. Much of the training focuses on how to use the computer systems and to perform certain collection actions. Staff also consult with each other continuously about how to deal with collection files. However, the department does not have a comprehensive and ongoing training program after the three-month period for collection staff. Training materials are also not comprehensive and current.
- TRA expects each compliance officer to close a targeted number of files per month and collectively aims to collect a targeted amount annually. However, it does not have adequate internal and external performance measures and targets to assess the timeliness and effectiveness of collections. Management also does not analyze the collection results to assess whether various collection activities are working or not. Nor does it publicly report the effectiveness of its collections program.
- TRA management reviews monthly reports about the total number of outstanding files, their value, how long they have been overdue as well as the number of files in objection, assigned to compliance officers and unassigned and new files expected. The reports do not summarize key information such as the risk levels assigned to files, status of collection actions (for example, legal or payment arrangements) or the grouping of values (for example, accounts under or over $1,000, $10,000) in collection. Different collection strategies are required for different types of files. Without this information, management may not be using or developing appropriate collection strategies to deal with the increasing workload.
What should be done
The department should:
- update and maintain its tax collection policies and procedures
- improve its program for training staff in using its policies and procedures
- develop adequate performance measures to assess the timeliness and effectiveness of collections, and publicly report on its collection activities
- update its management information and periodically analyze the files to identify emerging issues and develop strategies to deal with backlog of files submitted for write-off and low value accounts
Why this is important to Albertans
Corporate taxes are a large source of government revenue. While most corporations pay what they owe promptly when they file a return, some do not. In such cases, the department must collect outstanding amounts effectively and efficiently, while also treating corporations consistently. To reassure Albertans that all corporations are paying the taxes they owe, the department must also evaluate and report on whether its tax collection program is working