Evaluation of CRA's Administration of the Softwood Lumber Products Export Charge Act, 2006

Final Report

Corporate Audit and Evaluation Branch
January 2011

Table of Contents

• Executive Summary
• 1. Purpose
• 2. Background
• 3. Evaluation Issues
• 4. Methodologies
• 5. Evaluation Findings and Recommendations
• 6. Conclusions
• Appendix A

Executive Summary

Introduction

The Treasury Board Submission for the Softwood Lumber Products Export Charge Act, 2006 (SLPECA, or the Act) committed the Canada Revenue Agency (CRA) to undertake a formative evaluation within the first three years of the initiative. The submission indicated that the evaluation would "highlight the level of success of implementation and provide action plans for the shortcomings or gaps determined in the administration of the Softwood Lumber Products Export Charge Act, 2006."

This evaluation pursued three issues:

• Is the CRA effectively administering its portion of the SLPECA?
• Have the CRA and its delivery partners worked in a collaborative and coordinated manner?
• Are there indications that the intended outcomes related to CRA's administration of the SLPECA are being achieved?

Background

Since the expiry of the 1996 Canada-United States Softwood Lumber Agreement on March 31, 2001, the Government of Canada sought a durable resolution to the softwood lumber dispute that would provide predictable and stable access to the United States market for Canadian softwood lumber producers. On April 27, 2006, the Prime Minister announced that Canada and the United States had reached a framework agreement that would provide the basis for resolving the softwood lumber dispute, and the Softwood Lumber Agreement, 2006 (Agreement) was signed by the Minister of International Trade and the United States Trade Representative on September 12, 2006. Canada and the United States implemented the Agreement on October 12, 2006. A major component of the Agreement is the imposition of export measures, including an export charge, to be levied by Canada. The SLPECA is the implementing legislation for the charge. CRA's administration of the SLPECA includes the processing of monthly returns and payments within Assessment and Benefits Services Branch (ABSB) and a requirement for development and implementation of an effective compliance and verification program within Legislative Policy and Regulatory Affairs Branch (LPRAB).

Evaluation Methodology

The methodologies used in conducting the evaluation study included document and file review, examination of data from the Rulings and Interpretations Tracking System (RITS), interviews with CRA managers and staff involved in administering the SLPECA, provincial representatives and representatives of the Foreign Affairs and International Trade Canada (FAITC). The evaluation also included an online survey of lumber company representatives.

Findings and Recommendations

Without the benefit of a comparison program or a long program history, it appears that the CRA's administration of the SLPECA has been effective, particularly in light of the modest turnaround time between the signing of the Agreement and its proclamation into law. On the questions of continuously striving for greater efficiency, horizontal management and the monitoring of performance, only minor changes have been suggested. The working relationship with FAITC, the main delivery partner, has matured and works well. An on-line survey of registrants, a review of available program (compliance) data, and the perspective of provincial clients also suggest that, with the exception of some minor concerns, CRA is effectively administering the SLPECA.

The evaluation makes three recommendations to strengthen CRA's administration of the SLPECA. LPRAB should:

• Develop a national quality assurance program to ensure consistency and accuracy of audits;
• Consult with duty officers with the intent of developing system change proposals for consideration by ABSB to improve the Other Levies Assessing System (OL) and, to a lesser extent, the Rulings and Interpretations Tracking System (RITS); and,
• Examine ways to better educate registrants so that the frequency of common, less technical errors is reduced, and that voluntary compliance is enhanced.

1. Purpose

The Treasury Board Submission for the Softwood Lumber Products Export Charge Act, 2006 (SLPECA, or the Act) committed the Canada Revenue Agency (CRA) to undertake a formative evaluation within the first three years of the initiative. The submission indicated that the evaluation would "highlight the level of success of implementation and provide action plans for the shortcomings or gaps determined in the administration of the Softwood Lumber Products Export Charge Act, 2006."

2. Background

2.1 An overview of the SLPECA

Since the expiry of the 1996 Canada-United States Softwood Lumber Agreement on March 31, 2001, exports of softwood lumber to United States from the Canadian forest products industry had been subject to punitive trade actions by the United States Department of Commerce. These actions resulted in the May 2002 imposition of United States anti-dumping and countervailing duties on most softwood lumber exports to the United States. Canada challenged the United States trade actions under the North American Free Trade Agreement, and before the World Trade Organization and the United States Court of International Trade.

The Government of Canada sought a durable resolution to the softwood lumber dispute that would provide predictable and stable access to the United States market for Canadian softwood lumber producers and end the cycle of litigation that had plagued the industry for over two decades. On April 27, 2006, the Prime Minister announced that Canada and the United States had reached a framework agreement that would provide the basis for resolving the softwood lumber dispute, and the Softwood Lumber Agreement, 2006 (Agreement) was signed by the Minister of International Trade and the United States Trade Representative on September 12, 2006. Canada and the United States implemented the Agreement on October 12, 2006, leaving only a few weeks for the CRA to develop the initial infrastructure to administer the Act.

Under the Agreement, the United States countervailing and antidumping duty orders on Canadian lumber have been fully revoked and almost US$4.535 billion has been returned to Canadian exporters. A major component of the Agreement is the imposition of export measures, including an export charge, to be levied by Canada, which in turn is returned to the provinces net of expenses. The SLPECA is the implementing legislation for the charge.

The Agreement excludes from the export measures softwood lumber products first produced in the Atlantic Provinces from logs originating in the Atlantic Provinces or Maine, those produced in the Territories, as well as those produced by 32 specific companies in Quebec and Ontario. The SLPECA provides exemptions from the export charge to the products excluded under the Agreement.

Under the Agreement, the regions affected choose between an export charge ("Option A") or a lower export charge rate plus a volume restraint ("Option B"). Each region has two opportunities throughout the term of the Agreement to change the Option it has selected: January 1, 2010 and January 1, 2013. The export charge rate is determined monthly, based on the most recent four week average of the weekly framing lumber composite prices.

Figure 1 provides a summary of the options chosen by Canadian provinces/regions:

Figure 1: Export Options

Export Option	Region
"A" Export Charge only	British Columbia Coast, British Columbia Interior, Alberta
"B" Export charge plus volume restraint	Saskatchewan, Manitoba, Ontario, Quebec
Excluded	Atlantic Provinces, Territories

Regarding Option A, the SLPECA contains a surge mechanism whereby if the volume of exports from a region operating under Option A exceeds its "trigger volume"[Footnote 1] by more than 1% in a month, Canada shall apply, retroactively to all exports to the United States from that region during that month, an additional export charge equal to 50% of the applicable export charge for that month.

With respect to Option B and the additional consideration of "volume restraint", each region receives a volume of export quota based on a regional share fixed in the Agreement, the price of lumber and the volume of United States lumber consumption. Regional quota allocations are distributed to exporters on a monthly basis, meaning that Foreign Affairs and International Trade Canada (or FAITC) sets the quotas and manages 108 quota periods over nine years. Quota allocation is based on methodologies that are determined in consultation with the provinces and that could be region-specific.

2.2 CRA's administration of the SLPECA

Softwood Lumber is relatively new to the CRA. The CRA did not have an existing program structure administering softwood lumber as it was not impacted by the 1996 Softwood Lumber Agreement between Canada and the United States. As a result, SLPECA introduced a requirement to provide new services to approximately 1500 exporters. From a resourcing perspective, this meant that the Agency required funds to develop new activities (first time start up) and to modify numerous functions and systems already existing to accommodate the implementation and maintenance of the softwood lumber program.

The implementation of the SLPECA involves four of CRA's Tax Services program activities. These services include the processing of monthly returns and payments, and a requirement for development and implementation of an effective compliance and verification program to meet the goals and objectives agreed to by Canada under the Agreement. Responsibilities of each of the pertinent areas include the following:

• Legislative Policy and Regulatory Affairs Branch (LPRAB) is the Office of Primary Interest and the main contact with other federal stakeholders under the SLPECA. LPRAB is responsible for preparing rulings and interpretations, developing/implementing policies, developing regulations, preparing remission orders, negotiating Memoranda of Understanding, participating on SLA committees, supporting litigation/defence, and recommending legislative changes. As well, LPRAB is in charge of verification activities (by conducting export permit data matching and risk assessments, as well as by selecting audits and compliance reviews).
• Assessment and Benefit Services (ABSB) is in charge of developing forms and the website, preparing materials and services for registrants' assistance, posting information for registrants and responding to registrants' enquiries. As well, ABSB is responsible for processing registration forms, issuing account numbers, sharing registration information with FAITC, annual recertification of independent re-manufacturers, and reviewing security for non-residents. In addition, the branch is responsible for processing returns on a monthly basis, processing returns for charge on duty deposits, issuing notices of assessment and reassessment, and processing refund applications. ABSB is responsible for processing remission orders and for administering late payment interest and monetary penalties.
• Appeals Branch resolves disputes with registrants and conducts reviews of CRA decisions, as well as assists the Department of Justice during litigation.
• Tax Services and Debt Management Branch (TSDMB) is responsible for the collection of assessed charges and outstanding returns.

To maintain fair access to the United States softwood lumber market it was anticipated that the CRA would expend approximately $11.7 million on an annual basis, starting in 2006-2007 and continuing over the seven years of the Act, to administer its portion of the SLPECA.

2.3 Softwood lumber partners and responsibilities

The complexity of the legislation requires that the administration of the export charge be supported by a robust and flexible regime. The export charge itself is unlike other taxes and charges being administered by the CRA. It requires highly flexible administrative processes and systems to allow for the application, removal or variance of the export charge on an ongoing basis throughout the fiscal year. This unique and changing environment adds significant complexity to the application of the export measure. Adding to this complexity, from the CRA's perspective, is that FAITC and Justice Canada are important partners in administering the SLPECA. Specifically:

• The aforementioned export charge, to be levied by Canada on exports of softwood lumber products to the United States, is collected and administered by the CRA with support from FAITC.
• FAITC's Export and Import Control is responsible for synthesizing, tracking and conveying the data necessary to be able to accurately set monthly regional access volumes and enabling the CRA to establish an accurate export charge.
• The Processing Unit at the Surrey Tax Centre (STC) in British Columbia maintains a verification process pertaining to data (approximately 500,000 export permits annually) received from FAITC and assists them with the reconciliation process. In support of these linkages, an existing data link for CRA to communicate with FAITC has been replicated and adjusted.

2.4 Cost recovery and transfers to provinces

It was estimated that revenue from permit fees would be $3 million in the first year of the Agreement, growing to approximately $4.5 million for each remaining year. These funds go to the Consolidated Revenue Fund (CRF), and in conjunction with revenue from the export charge, serve to offset implementation and administration costs. The Government distributes to the provinces the export charge, net of the cost to the CRF for implementation, administration, and costs associated with defending Canada's interests in legal challenges to the Agreement. Funds distributed to the provinces do not affect equalization payments.

3. Evaluation Issues

Based on consultations and research conducted in preparation of the Softwood Lumber Results Based Management and Accountability Framework, the Program Evaluation Division identified three evaluation issues. These issues and the associated research questions pursued during this study were as follows:

Issue 1: Is the CRA effectively administering its portion of the SLPECA?

• 1.1 Has the program been developed and administered in a cost-efficient manner?
• 1.2 Has the CRA effectively coordinated its efforts among all the branches involved?
• 1.3 Have managers appropriately monitored the delivery of the SLPECA?

Issue 2: Have the Canada Revenue Agency and its delivery partners worked in a collaborative and coordinated manner?

• 2.1 Have the external partners provided each other with the support and materials they require to carry out their roles and responsibilities in a timely manner?
• 2.2 Are the governance structures in place appropriate for facilitating collaboration and coordination amongst the external partners?

Issue 3: Are there indications that the intended outcomes related to CRA's administration of the SLPECA are being achieved?

• 3.1 Is CRA fostering trust with registrants and clients through its management of the SLPECA?
• 3.2 Are affected lumber companies complying with their obligations under the SLPECA?
• 3.3 What other challenges, if any, have hindered compliance or made it more challenging to comply with the Softwood Lumber Agreement?

4. Methodologies

The following methodologies were employed during the conduct of the evaluation study:

• Document and file review: Legislation, documents, processes, policies, files and procedures were reviewed as they pertain to the SLPECA to assess workload, outputs, achievement of expected results, impacts, relationships and linkages.
• Data analysis: Data from the Rulings and Interpretations Tracking System (RITS) and the verification unit were examined to report on compliance rates amongst registrants.
• Interviews (internal): Interviews were conducted with 48 CRA managers and staff involved in administering the SLPECA. A total of 16 interviews were conducted with HQ representatives from LPRAB, ABSB, ITB, and Finance and Administration Branch (F&A). A visit to the Processing Unit at STC permitted an on-site review and the completion of 10 in-person interviews with members of that team. In LPRAB, telephone interviews were conducted with eight current/former Technical Advisors and 14 LPRAB duty officers.
• Interviews (external): Five provincial representatives were interviewed by telephone regarding their perceptions of CRA's administration of the SLPECA. Six representatives from FAITC were also interviewed.
• Survey: An on-line survey was conducted with lumber company representatives (n=46).

5. Evaluation Findings and Recommendations

5.1 Is the CRA effectively administering its portion of the SLPECA?

Four aspects of administration were reviewed: budget management, information technology (IT) upgrades, coordination and monitoring. No substantive concerns were found in any of these four areas.

Our assessment of "budget management" is based on a review of the disbursement of allocated funds. The funds available to administer the Act have been adequate, as no branch has gone over-budget based on its original allocations.

A review of the breadth, frequency and impact of IT upgrades revealed that since administration of the Act began, the Processing Unit in STC has undergone a complete software overhaul with the transition from MS Access to Other Levies System (OLAS). These changes have largely occurred semi-annually, and they bundle numerous enhancements together. Although it was not possible to cost out previous and subsequent efficiency gains, all STC Processing Unit staff were able to point to numerous changes that have occurred that have made their jobs easier for them.

Compared to STC Processing Unit staff, LPRAB's duty officers have experienced one-tenth of the total OLAS enhancements that have been implemented during administration of the Act, and according to these users, those who could recall one of these changes felt that it had no meaningful impact on their productivity. However, when probed whether there were changes that possibly could enhance their productivity, the vast majority had at least one idea for OLAS. While LPRAB duty officers had numerous ideas about changes to the IT systems that could result in increased productivity, it is unclear whether these ideas reflect a lack of familiarity with the systems or not.

As well, it was found that while members of the STC Processing Unit are consulted semi-annually by the Excise and Other Levies Section (located in HQ) on their desired OLAS changes, duty officers have not been given the same opportunity by LPRAB.

We assessed coordination by examining training and support, governance and horizontality, and data sharing systems within the Agency. For the most part, the Agency has effectively coordinated its efforts among the branches and regions involved:

• Extensive training, nearly all of which originated in Headquarters, has been provided since the outset of the Act, and this continues in ABSB and LPRAB today. Those who participated in the training generally made positive assessments of it, based on its timing and the value-added it provided them in helping do their jobs. The one area where there may be an additional opportunity is in LPRAB providing its duty officers with systems training.
• On the question of governance, both ABSB and LPRAB have developed formal governance structures to facilitate communications within their respective Branches. Due to the fact that LPRAB duty officers are located in 11 Tax Services Offices (TSOs) (representing all regions) across the country, a governance structure called the Technical Advisor Conference Call (TACC) has been developed to facilitate communication between HQ and the duty officers. Each region has a designated Technical Advisor, who amongst other tasks, liaises between LPRAB HQ and their region's duty officers. Overall, LPRAB Technical Advisors' appraisals of TACC are generally very positive. The main concern raised by duty officers was that information was shared by their Technical Advisors on a "need-to-know" basis rather than to the group. In spite of this impression, duty officers are generally confident that their work is accurate. Meanwhile, the Processing Unit located in the STC reported regular, effective contact with HQ. A formal governance structure has also emerged here, with rotating chair, minutes and regularly scheduled meetings. It has leveraged its small size and centralized workforce by inviting all staff to regular video conferences and other meetings.
• There was no evidence of formal governance structures in place to facilitate communication across branches, but this seems to have had no impact on coordination of effort within the Agency. Coordinating reporting, which involves collaboration between F&A, LPRAB and FAITC, has worked well, as has communication between ABSB and LPRAB. There is regular contact between the parties driven by need and none of the individuals interviewed saw a need to implement a formal structure at this time.
• For all the data that are shared between ABSB and LPRAB, only a few areas of concern were identified during our interviews, suggesting that, for the most part, data sharing systems are working effectively.

Monitoring of accuracy and consistency are critical. We found evidence that the monitoring of records processing and the quality of audits is taking place:

• Since the outset of the Act, the STC Processing Unit has monitored to ensure accurate record processing. Meanwhile ABSB undertook a review of Surrey's processes, with the aim to improve efficiency and consistency of processing where possible.
• LPRAB has developed and distributed templates to facilitate a consistent audit approach, and completed audits are monitored for quality in TSOs. However, it is not known whether those who review completed audits do so in a way that is consistent with their colleagues in other offices. It should also be noted that the results of monitoring are not communicated back to HQ for it to validate whether a consistent approach is being applied by all duty officers in every office. This feedback takes on added significance, however, as with the high annual verification coverage rates required by the Act, duty officers are now carrying out follow-up visits on registrants.

Recommendations

LPRAB should consult with duty officers with the intent of developing system change proposals for consideration by ABSB to improve OL and, to a lesser extent, RITS.

Management Response:

Agreed. The Excise Duties and Taxes Division and the GST/HST Rulings Directorate in LPRAB will continue to increase the systems functional capacity of regional Softwood officers in order to ensure that they are fully aware of all aspects of the OL and RITS systems. As system expertise increases (early 2011), regional softwood officers, team leaders, technical experts and managers as well as HQ experts will be engaged in consultations in an effort to identify potential improvements to both the OL and RITS systems.

Potential Other Levies systems enhancements will be referred to representatives of the Assessment and Benefit Services Branch, who are responsible for reviewing such amendments and submitting them to the Information Technology Branch, as timing opportunities and when resource allotments are available.

Changes to the RITS system will also be considered and examined. Given that the systems responsibility for RITS resides within the GST/HST Rulings Directorate, changes to this system can be made in a timely manner (i.e., within a week or two after changes are requested).

LPRAB should develop a national quality assurance program to ensure consistency and accuracy of audits.

Management Response:

Agreed. The Excise Duties and Taxes Division will complete its ongoing program review exercise of all regional offices by the summer or fall of 2011. Information gathered during our regional review visits will be used to establish the national Softwood program and file standards. The Division will use these national standards as the first step in setting up a quality assurance program to ensure the consistency and accuracy of audits.

5.2 Have the Agency and its delivery partners worked in a collaborative and coordinated manner?

Unlike some other Federal jointly managed programs, there is no formal governance structure in place to facilitate collaboration and coordination between FAITC and CRA. In spite of this, the working relationship between the two parties appears to have matured considerably over the past three plus years. The major factors driving this maturation process have been:

• A series of successfully implemented IT upgrades which have facilitated data sharing: Specifically, management of the export permit process has improved considerably. In the three full years where data exist, the number of invalid Business Numbers has dropped significantly (64%) as has the number of inappropriately issued permits (84%) by FAITC. As well, there was no evidence of any problem associated with the exchange of costing information.
• An "educating" period where both parties learned how the other worked. FAITC officials were positive in describing their working relations with their CRA counterparts: When comparing their experiences with CRA to other inter-departmental programs that they have dealt with, FAITC representatives indicated two main points in their appraisals: there have been no "turf wars" with CRA, and CRA officials have consistently been flexible and responsive to their requests. Meanwhile, there was a general sense amongst CRA representatives that, in the past, FAITC had not always been consistent in its communications efforts and, certainly in the early days of the partnership, needed to better understand how the CRA works. Further, CRA representatives felt that information exchanges such as setting up meetings, responses to emails and phone calls, were a priority when initiated by FAITC, but were less so when originating from members of the CRA.
• The relatively small number of people involved in administration on both sides, which has allowed individuals to get to know one another and leverage their small numbers through direct contact: The network of informal communications established has been leveraged to manage unanticipated challenges, such as the Third Country Adjustment Refund[Footnote 2], as they have arisen.

5.3 Are there indications that the intended outcomes of the SLPECA are being achieved?

Although a review of outcome data is not typical of a formative evaluation, we chose to review the early results achieved in order to provide further insight into CRA's administration of the Act.

The relationship between the CRA's major activities and outputs, through to its various intended outcomes, is delineated in the Softwood Lumber Program Logic Model (Figure 2). CRA's intended SLPECA outcomes can be divided into various immediate, intermediate, end and strategic outcomes between its two clients, the softwood lumber companies (registrants) and their respective provincial governments.

The shaded boxes in the logic model (Figure 2) delineate the outputs and outcomes for which data were collected (Appendix A provides the rationale for the outputs and outcomes selected for review). The proceeding discussion on these outputs and outcomes is organized into three sections, as outlined below.

Section 5.3.1 focuses on lumber company perceptions of the outputs (read left to right in the logic model) delivered by the CRA. These include:

• Responses to registrant inquiries;
• Registrants issued account numbers;
• Registrants sent monthly statements and notices of assessment;
• Charges assessed;
• Refunds issued; and
• Audits and reviews conducted.

Section 5.3.2 provides available data related to the following immediate and intermediate outcomes (read from top to bottom):

• Registrants understand their obligations under the SLPECA;
• Registrant registers or deregisters appropriately;
• Registrant completes returns and remits fees;
• Registrant is informed of the new charge assessment (if any); and
• Registrant remits outstanding fees or is compliant.

Section 5.3.3 provides the perspectives on provincial representatives on the two outputs (furthest right in the model):

• Revenue reports for provinces; and
• Net charge distributed quarterly to the provinces.

In addition this section summarizes provincial views on the strategic outcome of "fostering trust".

5.3.1 Registrants' assessments of CRA outputs (products and services) are generally positive

In order to gauge the extent to which the CRA is seen to be supporting its Softwood Lumber client base, registrant satisfaction levels in four specific service areas ─ how enquiries have been handled, the registration process, the processing of returns/account maintenance and the performance of auditors ─ were sought.[Footnote 3]

Responses to registrant enquiries: Among those with experience making enquiries to the CRA, just over four-fifths of survey respondents said they had been provided clear information in a timely manner. Overall, when asked whether they had made any enquiries about the SLPECA to the Agency, nearly six in 10 (59%) indicated that they had done so. Of these representatives, 93% agree that the CRA had treated them respectfully and 82% agree that the CRA both responded to their inquiries in a timely fashion and had provided them with clear information.

Registrants issued account numbers: The registration process is widely viewed as easy. Nearly three-quarters (72%) of those completing the survey said that they were personally involved in the registration process for their company, and of this group, 85% described the process of registering for a business/account number for the Softwood Lumber program as either "very" or "somewhat" easy.

Figure 2: Logic Model (Outputs and Outcomes)

[View image of Logic Model (Outputs and Outcomes)]

[View text version of Logic Model (Outputs and Outcomes) image]

Registrants sent monthly statements and notices of assessment: Although reported discrepancies with account statements are not frequent, satisfaction with how these are dealt with is comparatively lower. While less than one in five (17% ) of those completing the survey said they had a discrepancy in their account statements from the CRA, 38% of those from this group (n=3) said they were satisfied with the level of service to address this situation. Only 4% (n=2) of the companies say that they sought a review of a CRA decision on a charge, and one of these two companies felt satisfied with the process and its results.

Of all the open-ended questions inviting participants to elaborate on their experiences, the one covering account statements generated the most feedback. One participant said that the Notices of Assessment statements are not informative, asking if the "Total Amounts" line refers to the total amount due, total amount paid, or total amount submitted on the export charge return. Another commented that it was difficult to talk to a CRA representative at the Surrey Office over discrepancies.

Some participants provided suggestions for improving the processing of forms. One representative, who reported faxing 50 pages per month to the CRA, suggested it would be much easier if his company could send their detailed remittance information electronically or through email. Another respondent felt that there was confusion on the issue of declared value versus the $500 cap. And another suggested that software should bring up the applicable exchange rate automatically. It was also noted that the objection to relatively minor issues should not require going through a formal Notice of Objection procedure, but this person did not specify what they had in mind with respect to "minor issues".

Refunds issued: According to results from the on-line survey with companies, nearly 40% (n=18) indicate that their company had been eligible for a refund at some point over the past 3 years. Respondents were asked about their level of satisfaction with the refund process both during and prior to 2009, and there was no change in their collective satisfaction level. Both prior to and post January 1 2009, 39% responded that they were "satisfied" with the refund process; none stated that they were "very satisfied", but equally noteworthy, none stated that they were "very dissatisfied" either. Two participants requested telephone interviews to supplement their responses to the online survey, and both raised concerns about the timeliness of their refunds.

Broadly speaking, there are two conditions within SLPECA where companies could be eligible for refunds: through the third country adjustment, or through regular account adjustments and/or an audit. The third country adjustment is more complex administratively, less frequently occurring (its conditions have been met just once), but it is also the refund that is more likely to have impacted more participating companies.[Footnote 4] Approximately 70% of companies that had a charge assessed for the periods covered by the third country adjustment actually claimed their refunds (there were 423 exporters during this period and 295 entitled companies sought refunds).[Footnote 5]

Those who did claim their refunds had to go through a specific process in order for their claims to be accepted. Although the Third Country Adjustment refund must cover six "periods" (i.e. period = month) for each of the two consecutive quarters when the unique market conditions were met, exporters were asked to file only one refund application along with a supplement (Form 278-1) to provide details for each period. In spite of this effort to simplify the process for the client, the Processing Unit still needed to process each period, or month, separately. This is why, as is presented in Figure 3 below, the number of periods is approximately six times the number of applications less periods where there was no charge (no exports by exporter).

Figure 3: Number and Percentage of Periods Processed Within Various Timeframes (in days)

Number of days	Totals Processed
	Periods[Footnote 6]	Percentage
Less than 30 days	1059	73%
30-45	199	14%
46-60	46	3%
61-90	66	4%
Over 90	77	5%
	1447	100%

As the results shown in Figure 3 suggest, the vast majority of refunds (about 95%) were processed within 90 days, and more precisely, nearly three-quarters (73%) were processed in less than 30.

Besides the third party adjustment, corrections due to miscalculations or overpayment of fees are more routine sources of refunds to exporters. Of the approximately 450 accounts that reported an export charge during the most recent two fiscal years, the number of refund claimants for 2008-2009 was 98 (about 22% of accounts) and for 2009-2010 it had declined to 67 (or about 15% of accounts). Given the total numbers of refunds delivered for each of these two years, claimants typically received about 5.7 refunds in 2008/2009 (567 total refunds/98 claimants) and seven in 2009-2010 (472 refunds/67 claimants).

Figure 4 summarizes the length of time (in days) between the received date and assessed date (date a company was credited) for refunds.

Figure 4: Refund Processing Times (in days) over 2008-2009 and 2009-2010

Number of Days	Fiscal Year 08/09 (n=98)		Fiscal year 09/10 (n=67)		Year over Year % Differences
	Refunds	Percentage	Refunds	Percentage
Less than 30	105	19%	61	13%	-6%
30-45	88	15%	40	9%	-6%
46-60	49	9%	56	12%	+3%
61-90	89	16%	181	38%	+22%
90 +	236	41%	134	28%	-13%
TOTALS	567	100%	472	100%

The refund processing results are somewhat mixed. On the one hand, the proportion of companies having to wait over 90 days for a refund declined year over year by 13%. In 2008-2009 just over four in 10 companies (41%) waited over 90 days, but this dropped to just over one quarter (28%) in the subsequent year. On the other hand, the percentage of companies waiting shorter periods of time for a refund also dropped. The proportions receiving their refunds in both the less than 30 days group (-6%) and the 30-45 days group (-6%) had declined year-over-year. The timeframe experiencing the greatest growth has been the 61-90 day period (+22%); in the 2009-2010 fiscal year, nearly four in 10 (38%) received their refund in this timeframe. Further information from ABSB revealed that just over half (95 of the 181, or 52%) of refund claims were filed by one client (BN9), which is also one of the larger exporters. As well, in 2009-2010, several refund claims were received from this exporter for the same periods (two or three per period). These claims require more review due to the number of transactions for each period.

Audits and reviews conducted: Half of the sample (50% or n=23) had been audited at some point since the SLPECA has come into effect and a large majority praised the performance of the auditors during the audit process. Nearly nine in 10 (87%, or n=20) indicated that they were either "very satisfied" or "satisfied" with the professionalism, integrity and respect demonstrated by their auditor during the process. Nearly eight in 10 (78%, or n=18) were satisfied with their level of competence. Duty officers, for their part, emphasized that their approach was one of helping clients comply, and in many instances this meant educating clients, which seemed appreciated, especially when they found errors in the registrants' favour. But most duty officers noted that they had had a couple of clients who simply blamed them for the existence of the SLPECA.

Overall: When asked about their overall satisfaction, a comfortable majority were satisfied with the Agency's administration of the Act while a small minority was not. Approximately three-fifths (61%) said they were either "very satisfied" or "satisfied" with CRA's administration of SLPECA, while just over one in 10 (13%) said they were either "dissatisfied" or "very dissatisfied". Approximately another one-fifth (22%) were "neutral".

5.3.2 Immediate and intermediate outcomes

This section reviews the immediate and intermediate outcome boxes identified as in-scope in the logic model. The available program data suggest that registrants are complying with their obligations under the Act, but some key data are not available.

Registrants understand their obligations under the SLPECA: Rather than asking registrants to self-assess their knowledge of the Act, we obtained program data in order to provide an overview of their filing, remitting and reporting accuracy. Compliance rates can be interpreted as a broad indication of registrants' understanding of their obligations.[Footnote 7]

Registrant registers or deregisters appropriately: This outcome was addressed in section 5.2 of this report, which examined CRA's relationship with FAITC. We found that the management of the export permit process has improved considerably in terms of the prevalence of invalid business numbers.

Registrant completes return and remits fees: Figure 5 presents statistics on the level of filing compliance.

Figure 5: Registrant Filing Compliance

Factor	Fiscal Year		% Change
	2008-2009	2009-2010
Registrant Population	931	909	-2.4%
% that filed	98.8%	96.8%	-2.0%
% that filed with greater than $0.00 due	45.4%	39.9%	-5.5%
% that filed a refund	8.6%	5.6%	-3.0%
Returns
Average $ value assessed per return with amount due	$23,884.79	$20,487.12	-14.2%
Total % Returns Filed that were Nil[Footnote 8]	71.9%	72.6%	+0.7%

Large majorities of registrants (98.8%, 96.8%) filed returns for the two fiscal years studied, and there was a small decline in the percentage who filed (2%) year over year.

Almost half of registrants filed at least one return with a balance owing, but the year over year data point to a decline from 45% in 2008-2009 to 40% in 2009-2010. Less than one in 10 per year filed a refund in either year (8.6% in 2008-2009, 5.6% in 2009-2010), with the percentage dropping.

Just over seven in 10 (71.9% and then 72.6%) of the total number of returns filed were nil returns, but it is not known how many registrants filed only nil returns for each of the entire fiscal years.

Reporting compliance is the next intended outcome, and the available registrant reporting compliance data are summarized in Figure 6 below.

Figure 6: Registrant Reporting Compliance

	Fiscal Year		% change
	2008-2009	2009-2010
Registrant Population	931	909	-2.4%
% of Registrants Audited*	30.9%	24.3%	-6.6%
% of Periods (Months) with no change	82.2%	86.3%	+4.1%
# of Periods (Months) with change	795	622	-21.8%
% debit change	56.7%	74.3%	+17.7%
% credit change	43.3%	25.7%	-17.7%

* CRA is expected to audit at least 25% of registrants annually. The 24.3% completed during 2009/2010 represents a work-in-progress and is not the final percentage of completed audits for that fiscal year.

With large samples (30.9% in 2008-2009 and 24.3% in 2009-2010) of the registrant population being audited annually, the 4.1% increase in the no-change rate is a positive sign that an increasing number of registrants understand their obligations under the SLPECA.

Given the year-over-year decline in the registrant population, the relative proportions of months where a change was detected dropped by over one in five (21.8%). In this timeframe the number of debit changes increased by 17.7%.

Based on duty officer perceptions, the most common reporting errors made by registrants appear to be on using the appropriate currency conversions or United States exchange rates, informing FAITC or CRA regarding missing or cancelled permit information and improper deduction of the yield loss (even though this was dealt with by moving its reporting position on the form, deducting it continues to be a commonly cited error).

Registrants remit outstanding fees or are compliant: TSDMB provided a summary of the current inventory and the amount collected during each fiscal year. The past make-up of the inventory was not available.

In order to assess the post-audit intermediate outcome "registrant remits outstanding fees or is compliant", TSDMB was asked for data on the proportion of registrants that were referred to collections, how many have paid, what the dollar value was and how long they took to pay, all for fiscal year 2006-2007, 2007-2008, and 2008-2009. The only historical data available were the dollars collected in each of the three first fiscal years of the Act. These are shown in Figure 7:

Figure 7: Collection of Outstanding Amounts Owed by Registrants

Amount collected ($)	Year
	2007	2008	2009
	6,091, 380	3,833, 714	4,032,329

While the other historical data were not available, TSDMB was able to provide a snapshot of the composition of the current inventory. As of September 2010 there were 78 accounts with a total value of $5,460,899. Of these, 23 (or 30% of) accounts amounting to $2,289,211 (or 42% of the total) are non-resident companies based in the United States where the SLPECA is unenforceable. The average age of the remaining 55 accounts is 404 days, but seven of these registrants have made an assignment into bankruptcy. As a result, the value of the inventory as of September 2010 was $1,590,778.

Recommendation

LPRAB should examine ways to better educate registrants so that the frequency of common, less technical errors is reduced, and that voluntary compliance is enhanced.

Management Response:

Agreed. LPRAB will communicate on a regular basis with officers of the Assessment and Benefit Services Branch to assist in identifying the source, extent or frequency of common, less technical errors. These efforts will assist ABSB with the objective of educating registrants in avoiding or reducing future errors. Directorate officials could explore with ABSB the use of various communications vehicles which would best suit the nature of the information identified and the client base that it is intended to reach.

5.3.3 Provincial perspectives

Because the Act is administered on a cost-recovery basis (funds received are net of the administration and legal costs required), it is essential that provincial representatives trust the CRA to provide them with their share (or credit their outstanding balances) in an accurate and timely manner.

Most provincial representatives trust the CRA to calculate the appropriate payments, and this belief has been corroborated by an independent review. Corporate Audit and Evaluation Branch examined whether the information and the processes used in calculating and remitting distributions to the provinces were appropriate in terms of their accuracy and completeness. The scope of the review was limited to the SLPECA distributions made to the provinces in March, June, and September 2009, and it was found that the administrative and legal charges were allocated correctly to each eligible province. (Softwood Lumber Advisory Engagement, 2010)

Concerns were raised about timeliness. Two of the provincial representatives indicated that adjustments to payments received came sufficiently late that the provincial representative was unable to update the figures in time for submission to their respective Auditors General. It was unclear if they understood the reasons for these time lags.

In spite of generally being satisfied in their dealings with Agency officials, there is an appetite for more information than that which is currently provided. It was suggested that more information than just the balance owed/paid by the province to the CRA (as a result of the third party adjustment) should be included. Representatives also noted that it would be helpful if more detailed information on how the federal government spends its funds in administering the Act be included. When it came to expressing their questions and concerns, however, all indicated that they were able to easily locate the appropriate person(s) to make their inquiry(ies) to and were treated professionally and respectfully. As well, results were generally positive when probed about whether they received a satisfactory response to their particular inquiries.

6. Conclusions

Without the benefit of a comparison program or a long program history, it appears that CRA's administration of the SLPECA has been effective, particularly in light of the modest turnaround time between the signing of the Agreement and its proclamation into law. On the questions of continuously striving for greater efficiency, horizontal management and the monitoring of performance, only minor changes have been suggested. The working relationship with FAITC, the main delivery partner, has matured and works well. An online survey of registrants, a review of available program (compliance) data, and the perspective of provincial clients also suggest that, with the exception of some minor concerns, CRA is effectively administering the SLPECA.

Appendix A

Methodology Note: Rationale for the Selection of Outputs and Outcomes Included within the Scope of the Evaluation

Not all outputs and outcomes were included in the scope of the evaluation.

The logic model contained in this report (Figure 2) depicts the outputs and outcomes related to the CRA's administration of the SLPECA. However, not all of the outcomes and outputs were reviewed during the evaluation. This appendix explains the rationale for the evaluation's scope.

One pattern that emerges from the logic model is that, of the two clients, the large majority of outputs and subsequent outcomes are intended for softwood lumber companies. Working from left to right in the model, seven of the eight major activities across the top row, ranging from taxpayer assistance through to legislative matters, are all intended for the industry, leaving only "Payments/Reports to the Provinces" for the provincial governments. For softwood lumber companies, an in-depth review of all the possible outputs and outcomes delivered to them would be comparable to undertaking a small-scale review of the entire Agency.

Steps were taken to reduce the response burden on softwood lumber companies

Rather than conduct such a comprehensive review, an industry survey was developed and administered with an eye to minimizing the time requirements placed on its representatives.

The outputs intended for softwood lumber companies were prioritized so that some would be included in the survey while others would be scoped out.[Footnote 9] Criteria were established to facilitate and justify these choices. For example, the breadth or frequency of industry exposure to each CRA output was deemed one relevant consideration. Were there any outputs that had significantly less up-take than the others? It turns out that the products and services provided by both Enforcement and Appeals could be scoped out because of the limited experience most companies had had with these services.[Footnote 10] At the time of writing, there were a total of 25 appeals and no enforcement actions since the outset of CRA's administration of the Act.

As well, there are several outputs related to the "Taxpayer Assistance" and "Legislative Matters" activities that are intended to facilitate the industry's understanding of its obligations under the Act, in fact too many to examine in a systematic fashion. We did not ask specifically about various CRA outreach efforts, specific web content, or the results of rulings and interpretations, policy papers, notices or changes to the legislation.[Footnote 11] However, program data suggested that most eligible companies had contacted the CRA with at least one inquiry, so it was possible to ask them about that experience as a proxy measure for their views on feeling supported by the CRA to comply with the Act.[Footnote 12]

The result of this prioritization exercise is visually depicted in the logic model. Not only are the contents in the gray shaded boxes included in the study's scope while those in white boxes are not, but to further highlight this distinction, the SLPECA outputs are divided into two rows in a similar in-scope and out of scope fashion. Working from left to right, the softwood lumber company outputs that are in-scope are: responses to registrant inquiries, issuing of account numbers, monthly statements, Notices of Assessment, charges assessed, refunds issued, audits and reviews conducted. But it is through all of these outputs ─ those listed here as well as those "not part of the analysis" ─ that the Agency expects to achieve its immediate, intermediate, end and strategic outcomes for which it is accountable.

Besides reducing the eligible content, further efforts were made to minimize the burden placed on participating softwood lumber companies by streamlining the survey's format and administration to the greatest extent possible. First, the survey was delivered electronically rather than by telephone, mail or in-person interview. As well, the vast majority of questions posed were closed-ended, thereby further facilitating the ease of completion. Moreover, survey items focused on industry satisfaction with CRA's outputs.

Why measure satisfaction?

Canadian softwood lumber companies, operating within a heavily regulated marketplace with substantial economic interests at stake, have regularly been registering, reporting, filing and remitting to the CRA, the primary service provider on all these matters since late 2006. Given all of these factors, if there was widespread satisfaction or dissatisfaction with a particular product or service, participating companies should be in position to articulate these views by now.

Footnotes

[Footnote 1]

Each province is allocated a share of exports based on its historic share of the United States market, which is called the trigger volume. A surge occurs in a month when the volume of softwood lumber products exported from an Option A region exceeds the region's trigger volume by more than 1%.

[Footnote 2]

See footnote 4 for details.

[Footnote 3]

The electronic survey was distributed to a non-random sample of 495 participating softwood lumber companies during April 2010, obtaining a standard 10% response rate for such methods, or 46 company respondents. As a result, although survey results are presented as percentages, these results should be interpreted with caution, as they cannot be extrapolated with confidence to the larger population.

[footnote 4]

According to the Act, the "third country adjustment" would occur when the following conditions were met:
United States consumption of non-Canadian exported softwood lumber is 20% greater than its consumption of Canadian softwood products, the Canadian market share of U.S. consumption of Canadian softwood has decreased and, America's market share of its consumption of its own lumber products has increased.

If these three conditions are met in two consecutive calendar quarters when compared to the data of the previous two same quarters, then companies that had paid the tax charge would be eligible to receive a refund. As it happens, these conditions were met during the last quarter of fiscal year 2007-2008, but were not discovered until late in the first quarter of 2008-2009 as such analysis invariably relies on the availability of past data. In the interim, not only had the appropriate fees been collected from the companies, but the CRA had already completed its calculations and transferred the funds to the provinces for their respective shares. Uncovering that the conditions were met for the third country adjustment meant that both Option "A" and "B" provinces should not have been transferred those funds and companies in those provinces were eligible for a refund.

While the books are now balanced with Export Option "A" provinces, at the time of writing Export Option "B" provinces continue to be in a debit position with the CRA. That is, eligible funds that would under "normal" circumstances be transferred to the four provinces in question are now retained by CRA until those funds distributed prior to invoking the third country adjustment are recouped. Given the way events have unfolded, how the CRA was perceived by provincial representatives was of specific interest.

[Footnote 5]

With the third country adjustment refund, it is the responsibility of the exporter to apply and file the necessary applications within two years of the day the exporter paid the export charge.

[Footnote 6]

Refers to the number of refunds

[Footnote 7]

Note that registration compliance is dealt with in the DFAIT section because that process is administered jointly between the partners.

[Footnote 8]

Includes B275 returns, amended B275 returns and B279 surge returns. Every person who is either registered or required to be registered to export softwood lumber products to the United States is required to file a monthly B275 Charge Return. When a surge is declared during a particular month, exporters who have shipped products from a region of origin in surge will be required to complete and file form B279

[Footnote 9]

Overall, the results of this prioritization can be seen throughout the logic model. Logic model contents in gray-shaded boxes are part of the study, those in white are not.

[Footnote 10]

In fact there was a survey item that asked about experience with the appeals process, but only two companies responded affirmatively to this.

[Footnote 11]

These were not included in the survey for several reasons: first, companies have already been operating at a level that implies this knowledge since late 2006. Plus, there would be no need to rely on company self-reported appraisals regarding such knowledge of the Act because Program data on intermediate outcomes (behavioural) would more than suffice. Moreover, there is reason to believe that probing on the companies' proactive seeking of information would be more memorable for them (reference).

[Footnote 12]

When clarification is sought, the information provided needs to be timely and accurate for the source to maintain legitimacy and trust.

Date modified:

2011-05-06