'Room for improvement' in CRA efforts to catch tax evaders

The Canada Revenue Agency doesn't do a bad job of finding those who fail to register or file returns, according to the auditor general. But he finds there's "room for improvement."

The country's top auditor, Michael Ferguson,investigated what the CRA does to track down people or businesses that don't file the returns they're required to under the Income Tax Act and the Excise Tax Act.That can include chasing after never-filed income tax returns as well as identifying businesses that were required to register for the GST or HST but didn't.

The auditor general's findings part of the spring report to Parliament released Tuesday provide a revealing look inside the CRA's methods of ensuring tax compliance.

It turns out that the CRA program that finds "non-filers" and "non-registrants" isn't terribly large just 700 of the CRA's 39,000 employees work on it. The program's budget is $39 million less than one per cent of the CRA's overall $4.5-billion budget.

Yet their results are impressive.

Billions in extra taxes found

In the two fiscal years the auditor general examined, the sleuthing of those 700 employees uncovered $2.8 billion in additional taxes, interest and penalties each year exceeding the CRA's own target of $2.4 billion. That's an average of $4 million in newly-found tax revenue per employee per year.

While the auditor general said the program generally works, the audit outlined several places where the tax agency came up short.

For instance, the CRA has developed a risk-scoring model to give it a better idea of which non-filers to pursue. But the audit found that the CRA hasn't tested its screening model to determine if the files it chooses not to pursue should, in fact, be pursued. "In other words, the agency does not know if its risk-scoring process is as effective as it could be."

In the case of business non-registrants, the auditor general found a couple of areas of concern. For one thing, the CRA cannot deal with the volume of potential non-registrants its screening turns up around 185,000. The auditor general found that the agency is able to review only half of these files.

Because of the volume of files, it's important the CRA pursue those with the greatest likelihood of producing big tax revenues. Yet the audit says the CRA hasn't adequately determined if its current file selection method is effective at finding the "big money."

Recommendations accepted

Among other things, the audit recommends that the CRA should implement a risk assessment system to prioritize its selection of cases worth pursuing.

"The agency uses a risk-scoring model and data-mining research to choose files to pursue through an automated process, but it has no way of knowing whether it excludes the right files," the audit says.

The auditor general also says the CRA should determine the effectiveness of how it selects and rejects files from the huge group of potential non-filers and non-registrants.

The CRA has accepted all the auditor general's recommendations and outlined ways it plans toimprove its processes.

The auditor general's report provided no estimate of how much extra revenue the CRA might find if the shortcomings are addressed.

"Overall, the [non-filer, non-registrant] program works, but there is room for improvement," the audit report concluded.