In February 2002, the Government launched Canada's Innovation Strategy, to make Canada known throughout the world for its culture of excellence, learning, and innovation. The CCRA shares this commitment to innovation, as reflected in one of our two strategic outcomes—that the CCRA is seen as a leading-edge service provider.

We are allocating over 12% of our budget to our change agenda. This significant investment reflects our belief that innovation is essential to achieving the higher levels of performance needed to support our compliance mandate. We have now reached a point where we need to ensure that we are realizing the benefits from our investment. We will know if we have hit the mark if Canadians and our partners rely on us as a key service provider and our employees are meeting the service standards that we have established.

As shown in Exhibit 6 : Strategic Outcome Statement – Service Innovation, the CCRA has built a strong foundation for client-centred delivery. In addition, this year's Annual Report reflects our progress, midway through our first five years as an agency, against an ambitious change agenda outlined in our 2001-2002 to 2003-2004 Corporate Business Plan. This change agenda is defined by four objectives:

We are transforming our businesses in ways that keep pace with changes in technology, business and management practices, government priorities, and Canadians' expectations. Our corporate management agenda has a significant information technology focus that allows us to respond to Canadians' expectations for faster and better service. We are recognized as a leader in e-government, with a 39% rate of electronic filing of individual tax returns in 2001-2002, and are building the capability to process 75% of tax returns electronically in the next few years. Canada also holds an impressive second place worldwide in on-line service delivery in the revenue sector, which is considered the most sophisticated and mature on-line sector in government. These successes strengthen our resolve to demonstrate that we have the capacity to respond to increasingly complex information management and information technology requirements.

Two major undertakings guide the transformation of our core business: the Customs Action Plan (CAP) and Future Directions. On November 28, 2001, Bill S-23 came into force, enabling us to proceed with many key CAP projects. The events of September 11 proved that the principles behind the CAP are sound; in fact we are accelerating the implementation of key border initiatives to support the recent Manley-Ridge Smart Border Declaration. Building on experiences with CAP consultations, we have embarked on Future Directions, our most ambitious effort to review our relationships with key client groups and our delivery of services. The preliminary results confirm that we are on the right track, setting the foundation for continuous improvement.

Another key aspect of our business transformation is to encourage provinces and territories to rely on us as a key service provider—leveraging on the work we do and contributing to reducing the overall cost of government services for Canadians. While we have made solid progress to date, we recognize that we need to move beyond incremental change between now and our five-year parliamentary review.

We have strengthened our accountability to the provinces and territories for the programs we administer on their behalf. In particular, we took prompt measures to correct the T3 overpayments problem in a transparent manner with our provincial partners. On an ongoing basis, we produce annual reports to provinces and territories and hold annual meetings with provincial and territorial finance ministers regarding program administration.

As we move toward our five year parliamentary review, we will continue to pursue new partnerships using an integrated, client-centred focus. Among other things, we will work to administer more programs for our partners in the coming years, including expanding our administration of tax programs on behalf of the provinces. (More information on the work we do with our partners is available on-line at http://www.cra-arc.gc.ca/agency/annual/menu-e.html .)

This year we finished implementing the 7-Point Plan for Fairness, a guide listing concrete ways that the CCRA can be fairer in its dealings with Canadians. We also began to develop an integrated satisfaction survey for key client groups, to ensure that the CCRA meets Canadians' expectations for high-quality service across all our business lines (see Schedule C " Measuring Client Satisfaction " ). This survey will ensure more rigour and coverage, and will include a declaration of the benchmarks against which we will assess satisfaction. More specifically, we will undertake a study of other jurisdictions to develop appropriate performance benchmarks for the individual indicators. The 2002-2003 Annual Report will include the results of this new survey.

Effective human resources (HR) management is an important issue facing the entire Public Service of Canada. Given the critical role our employees play in achieving our business results, the CCRA recognized from the outset the need to make radical changes to our HR regime in order to make significant improvements in our organizational performance. For example, it was taking an average of five months for external staffing; our classification system was overly complex and cumbersome; we lacked incentives to appropriately reward good employee performance; and measures to effectively deal with under-performance and our lengthy recourse system, at times confrontational, negatively impacted on workplace productivity.

We have accomplished a great deal in the last two years, in large measure because we were prepared (for more details, refer to ). We had been planning and designing the transformation of our HR function since 1998, when our enabling legislation was tabled in Parliament. Our teams researched and analyzed the leading-edge theories and best practices. They recommended a tailor-made CCRA HR regime to provide the flexibility to deal effectively with challenges that the entire Public Service is currently facing. As a separate employer, our regime focuses on labour relations and compensation; resourcing; career and performance management; enhanced management capability; classification; and dispute management.

We have made solid progress and our Public Service colleagues are looking to us for innovative ideas and best practices. We have developed a business-focused HR system that puts more decision-making in the hands of our managers, and have announced a compensation policy for the CCRA that signifies our intention to be competitive in the marketplace. We have piloted the implementation of a competency-based HR management framework that includes pre-qualified processes. This is expected to make staffing faster and more flexible, while ensuring fairness. Full implementation of this new approach, which will unfold in the coming years, will make it unnecessary to reassess employees for common competencies and will provide the infrastructure for just-in-time staffing. Still, there is more work to be done to improve productivity at the front line.

As a learning organization, we recognize that our employees need the knowledge and skills to respond effectively to a constantly changing environment, while continuing to provide the highest-quality service. We have set an average of 10 days of training per manager, and have developed 25,000 individual learning plans to further develop employees' knowledge and skills. We have trained over 28,000 employees to date in our Alternative Dispute Resolution (ADR) process and we have established a network of 13 dispute resolution advisors. The number of harassment cases has decreased from a four-year average of about 90 complaints per year to 46 in 2001-2002. We believe this improvement is the result of our promotion of dialogue and our multi-faceted ADR programs. On the other hand the number of grievances has increased by 25%. We will report further next year on this situation. We have also implemented a performance management process that more clearly links performance expectations to corporate goals, discusses learning options and career development, and enables us to address, with due diligence, cases of employee under-performance.

No doubt our breakthrough accomplishment in the last year, as illustrated in Exhibit 7 , was the integration of 20 different supervisory and management functions into one management community, with the creation of the Management Group (MG). The CCRA now recognizes and compensates a key group of 3,200 MG employees (approximately 8% of our permanent workforce). This coherent management presence will drive the CCRA's program of change for HR reform and front-line service improvements.

We expect to realize many important benefits from this new structure that puts management of our employees first. These include a greater sense of belonging in our management community; clearer and more timely communication; and the ability to provide better support to managers through a more formal learning and coaching process. We have successfully negotiated collective agreements with the Public Service Alliance of Canada (PSAC) and with one bargaining unit of the Professional Institute of the Public Service of Canada (PIPSC). All negotiations with PIPSC were concluded as of July 2002. These agreements provide performance rewards for good people management for members of our MG group, a unique achievement in the Public Service. Our next step is to better empower our managers so that the benefits of this new structure reach our front-line employees, enabling strong advances in performance that will benefit Canadians.

While the number of CCRA permanent employees grew from 37,550 on April 1, 2001, to 40,618 on April 1, 2002, and our attrition rate has remained low at 3.5%, we are monitoring intra-CCRA mobility to better understand and plan for the impact of the displacement of experienced employees. We expect that this challenge will be even more pronounced over the next ten years as our baby boomers begin to retire. We will be looking to other organizations for best practices and to benchmark our performance in HR planning, including succession planning and knowledge transfer programs or activities.

Other areas requiring our attention are the impact of change fatigue and workload pressures, and the need to continue to build positive working relationships with our unions and central agency colleagues. We also need to improve opportunities for our employees to use the official language of their choice in the workplace, the overall reliability of our HR information and, especially, the timeliness of internal compensation services. We will address these issues and continue our progress in HR reform and renewal, recognizing that each of our business lines faces challenges that are unique to the programs they administer and the services they deliver.

We are guided by a results-oriented, strategic approach that gives priority to sound financial management and efficient administration. One of our main accomplishments in 2001-2002 was the stabilization of our budget, in order to address operational workload pressures. These resources are also a huge enabler for all four change objectives. We have implemented some initiatives that will streamline our administrative processes, policies, and systems to increase our productivity, generate savings, and reduce bureaucratic inefficiencies. As a start, we expect to realize administrative efficiencies that will result in savings of at least $50 million over the next four years. Our plan is to reinvest some of these savings in such areas as asset replacement, technology infrastructure, and our HR regime.

We are well underway, with an action plan that includes over 50 initiatives to address four key areas: cost reduction, improved service, modern comptrollership, and human resources. Phase I of the government Financial Information System has been implemented, a Policy and Accountability review has been completed, and a Sustainable Development Plan is in place for 2002-2003 and beyond. We have also established a methodology for and initiated a feasibility study of activity-based costing in the CCRA.

While we have made much progress in our efforts to reform our financial and administrative practices, the end-state lacks precision. We need to clarify our vision and put more emphasis on results. We also have to ensure that we "right size" our efforts to realize efficiencies, to avoid jeopardizing the improvements we have made in support to our business operations.

In order to demonstrate the integrity, performance, and value of our programs to Canadians, we are linking our planning and reporting regimes, and improving our risk and performance management. As illustrated in Exhibit 9 , we have developed a Simplified Management Model that includes a Corporate Business Plan that more clearly defines deliverables and an Annual Report that presents our performance story in an innovative, outcome-oriented, and results-based manner. This model integrates the Balanced Scorecard with our Corporate Business Plan and Annual Report, to ensure consistent and comprehensive performance information.

However, we are behind in implementing the Balanced Scorecard. We are learning that the implementation of such a large performance measurement system is complex and takes time. Nonetheless, we have moved quickly to take corrective measures that will enable us to provide performance information that our managers and employees need to deliver results.

Our commitment to transparency goes beyond simply meeting our statutory obligation to table an annual report before Parliament. Transparency is part of our culture; it is how we manage our business, as shown by our response to the T3 overpayment to six provinces. In the context of a learning organization, we identified the problem, brought in auditors and the Office of the Auditor General, and dealt with the issue swiftly and with due diligence.

We have revised the CCRA's Internal Audit and Program Evaluation (IA/PE) policy to establish a new governance structure for internal audit and program evaluation and to ensure that these activities remain consistent with current trends in the federal government. The IA/PE functions provide the Commissioner with independent advice and assurance regarding CCRA operations.

We have also developed two key plans to support effective resource management: an Investment Plan and an Asset Management Plan. The three-year rolling Investment Plan has a funding base set at $110 million per year. It identifies strategic investment activities required to achieve the CCRA's mandate and its four change objectives. The Asset Management Plan allocated over $130 million in 2001-2002 to the renewal and replacement of our assets, based on the concept of life cycle management. A strategy and policy have been implemented to ensure that resources for the Asset Management fund will continue to be used efficiently. For 2003-2004, we will enhance this annual innovation fund to accelerate e-government and other service innovations.

As Exhibit 10 illustrates, we are on track in implementing all but two of the key change initiatives that were outlined in the 2001-2002 to 2003-2004 Corporate Business Plan. In instances where we have not met our target, we have included these deliverables in the CCRA's 2002 Performance Improvement Plan, found on of this report.