Auditor General Michael Ferguson has now written four reports on the way the federal government pays employees: two on the troubled Phoenix pay system and two on payroll expenses.

And he’s left wondering how much worse things can get when his latest audit shows nearly all public servants have some kind of botched pay.

His most recent audit for Public Accounts of Canada found “no improvement” in Phoenix over the fiscal year, and evidence that matters actually worsened as the number of errors and people affected mushroomed.

In the audit, Ferguson found that, by June 2018, more than 90 per cent of 200,000 public servants paid by the pay centre in Miramichi, N.B., had pay problems of some kind. The backlog of unresolved cases stood at 567,300. These affect 187,000 employees. For those with errors last year, the number of mistakes ranged from one to 19. Phoenix pays another 100,000 workers, but they aren’t processed through the pay centre.

“At some point, that number can’t get much worse, because they are getting pretty close to most of them having an outstanding pay action request,” said Ferguson in an interview with iPolitics.

Two years ago, Public Services and Procurement Canada (PSPC) missed its first deadline to clear a backlog of 82,000 problem cases. Many of these were old files that existed when the Phoenix system started to operate in the spring of 2016. The government has since steered clear of setting targets and the backlog has grown exponentially.

Ferguson now believes that first setback should be a lesson for the government as it races to build a new system to replace Phoenix. He said the backlog must be “manageable” or the new system risks failure, too.

He told iPolitics that no matter how good the new system is, “it won’t have a fighting chance” if a big backlog of files is moved to the new system.

The government is slowly reducing that backlog from the peak it reached in January 2018. But what really worries Ferguson is the number of errors Phoenix is still making. More than half of employees he sampled had pay mistakes for most of the pay periods last year. About 58 per cent had errors in the year’s final biweekly pay period, a number that was worse than the year before.

“To give any replacement a fighting chance, you can’t expect it to start out with a backlog of 576,000 individual pay action requests,” said Ferguson.

”I mean, it would be starting so far behind the start line that it wouldn’t have a chance of being any better — even if the (new) system were a better one. So, they have to get those numbers to a manageable level, one way or another. There is just no choice about that.”

How to do that is the big question.

“I don’t know what the answer is, but until they figure out how they are going to do those calculations quickly and correctly, they will continue to have the same problems,” said Ferguson.

What he is sure of, however, is that fixing Phoenix will take years and “cost a lot of money to get this to the point where the system can reasonably pay people the right amount in a reasonable time.”

A report by the office of the comptroller-general estimated Phoenix could cost as much as $3.5 billion if it took five years to fix. The government quickly dismissed suggestions it could take five years, but today, some question it would be done that quickly.

“I think five years is reasonable — assuming they are at least a year into these five years,” said Ferguson. “But I think they are going to have their hands full getting this under control within another three or four years.”

One senior bureaucrat said he was surprised at the number of errors still cropping up.

He said public servants are inured to Phoenix foul-ups. The stories of personal hardship have fallen off the media radar, and PSPC’s monthly reports have lulled everyone into believing that somehow Phoenix will be fixed — though no one knows when.

“People have moved into a level of tolerance for pay problems; it’s become the new normal. We are like boiled frogs and we don’t even know it,” said the senior bureaucrat.

“No one’s talking about it, it has become so ingrained. The impact of human-interest stories has worn off and the backlog has become a numeric exercise. … It’s time to look closer and ask questions. “

The backlog has been reduced by 90,000 since its peak last January, which Les Linklater, PSPC’s associate deputy minister directing the Phoenix system, feels is an accomplishment, considering the crushing workload dumped on the error-prone system over the past year and a half.

“I am quite pleased with the fact that we were able to do that,” he said. “But I also recognize that we still have a hell of a lot of work in front of us (in) accelerating the reduction of the queue.”

Ferguson says the mushrooming problems should have come as no surprise.

Phoenix went live nearly three years ago, unable to perform many of the functions needed to manage the government’s complex pay regime, with its 80,000 rules and dozens of collective agreements.

The management team decided, in the race to deliver Phoenix on time and on budget, to scrap or defer about 100 of the pay-processing functions that were planned, such as calculating retroactive pay, acting pay, and shift premiums.

The curve ball came when Phoenix was swamped with new collective agreements, which created hundreds of thousands of transactions, including $1.5 billion in retroactive pay.

That’s a challenge for a system that was implemented without the ability to automatically calculate retroactive pay — particularly for a workforce built on filing transactions after the work is done.

The Phoenix management team figured the functions it removed would eventually be added back, once Phoenix was rolled out. These changes, however, dramatically affected how the system operated, and they’re still being felt today.

In the pay files tested, Ferguson found 34 per cent of the errors were for acting pay, retroactive pay and shift premiums.

“When you look at the system when it was put in place, it was not designed to deal with all that complexity, and it is still not designed to deal with that complexity,” said Ferguson.

“And then, on top of that, you throw in hundreds of thousands of retroactive payments that had to be to be processed because of signed collective agreements, and I think it’s not surprising that they have not been able to turn the corner on it yet. In fact, if anything, things got worse.”

Ferguson wrapped up his most recent audit at the end of March, just as the PSPC was testing a new project, which it’s confident will reduce errors and clear the backlog faster.

The department has created teams of compensation advisers who work on the pay of specific departments. They get to know the rules unique to those departments and tackle all the pay transactions in a file at once.

These “pods” were conceived by employees at the Miramichi pay centre, and began as a pilot project in three departments in December 2017: Veterans Affairs; Innovation, Science and Economic Development; and the Federal Economic Development Agency for Southern Ontario.

Linklater said the results are so promising — having reduced files in the queue at the three departments by 40 per cent — that the PSPC is rolling out pods to all the 46 departments using the pay centre by May 2019.

“I would say that, given the incremental progress we have seen over the course of the last eight to 10 months, that we have hit upon a much better model with the pods,” Linklater said. “It is what the employees have told us we should be doing; what the unions told us we should be doing. We are doing it and it is showing improvement for the departments on the pod.”

At the same time, Linklater said the department is working to accelerate processing and to reduce the queue.

It’s still hiring new staff, and the new client centre in Gatineau, Que., which now has access to Phoenix, is taking on some simple transactions to take the pressure off the pay centre.

The department also reports to an integrated pay committee that looks at the problems and considers how best to improve outcomes for public servants and to reduce the crushing queue.

That committee includes all the major players, including IBM, the tech giant that built Phoenix and Oracle. IBM’s off-the-shelf software, PeopleSoft IBM, was used to build Phoenix.

“Given what we have seen with the pod, and what we know is coming with additional system changes, as well as RFIs (requests for information) on the street for innovation … I think they all could provide the extra push to reduce that queue as we continue to roll out the pod model,” said Linklater.

MPs on the public accounts committee are now writing a report on Ferguson’s spring report, in which he called Phoenix an “incomprehensible failure” of project management, and raised concerns about a “broken” public service.