A payroll screw-up at Justice Canada credited several thousand government lawyers with as much as $50 million worth of time off that they didn't deserve, a CBC investigation shows.

The botched accounting — carefully kept out of public financial statements — has tied the department in knots, threatening negotiations for a new labour contract, prompting union grievances and forcing a massive payroll cleanup that has taken more than two years.

Payroll screw-up brewing since 2007 at Justice Canada worth up to $50M in lawyers' favour 2:16

An insider tells CBC News that senior officials tried to sweep the issue under the rug, though union and management play down the problem, saying most of the payroll discrepancies are small potatoes or mere misunderstandings.

So far, no government lawyer has been required to reimburse money, though some have had their leave-time adjusted, and hundreds of lawyers who left the department are being contacted to explain the discrepancies.

This terse entry in a 2013-2014 annex to a financial statement is the only public reporting of a massive Justice Department payroll glitch that improperly benefited department lawyers by up to $50 million. (CBC News)

The Curious Case of the Padded Payroll began in spring 2013, when officials at the Public Prosecution Service of Canada noticed that time-off recorded in a scheduling system known as iCase was not always properly recorded in a parallel payroll system, known as PeopleSoft. Lawyers themselves were supposed to update both systems, but for various reasons did not.

Lawyers took time off work — vacation, for example — but the payroll system remained blind and credited them with paid time-owed that they didn't deserve.

Triggers review

The initial alarm bells triggered a meticulous data comparison of the two systems, for both the Public Prosecution Service and for the Department of Justice, going back to 2007.

The results were shocking. Auditors found 3,747 employees had taken leaves without properly recording the fact in the payroll system, according to an internal Justice Department document obtained by CBC News.

Not counting 651 employees who had already left their jobs, a July 2013 report found 3,096 current employees who owed the department an average of more than four weeks each. The accounting gap was estimated to be worth $25 million to $50 million in the lawyers' favour.

The department launched a massive reconciliation exercise, with lawyers required to account for discrepancies, in many cases signing a document declaring they did not owe the department any money.

The lawyers' union had just negotiated a 12 per cent salary increase for 2014, to bring them in line with rates paid to provincial Crowns, even as other public servants were told to tighten their belts. Management wanted to keep the error quiet, said one person close to the controversy, partly to avoid poisoning new contract negotiations ­— and partly to protect political masters already feeling the heat for allowing the huge pay increase.

"It just scared them a lot," said the source, referring to the fear a $50-million discrepancy would have to be reported to the House of Commons, causing headaches for then-justice minister Peter MacKay.

"They quickly tried to manage the amounts so that it would be less of an issue." The source requested anonymity to protect against retaliation.

It was just things that were missed. - Len MacKay, Association of Justice Counsel

Len MacKay, a Halifax-based Crown prosecutor, says his own file showed 12 minor discrepancies. "I had a bunch of these little anomalies, so all I did was remove them from my calendar. I just took it out of iCase."

MacKay, who is also president of the Association of Justice Counsel union, says no members were scamming the system. "There were probably some larger examples out there, when people maybe took some vacation and forgot to put it through. … It was just things that were missed."

The union blamed managers for failing to monitor whether leave time was properly recorded, and it filed a grievance. MacKay says most government lawyers regularly work more than their required 37.5 hours each week, without compensation, so minor time-recording glitches can pale next to the free labour.

Never recorded liability

The Justice Department's public financial statements have never recorded a dollar liability for the padded-payroll problem. An obscure annex to 2013-2014 statements says only that "new key controls were implemented for leave."

One internal document from 2013 pegs the payroll liability at a heavily revised $2.5 million — small enough that it was deemed unnecessary to report it publicly.

A Justice spokesman said the problem was largely clerical, and that new training and procedures have since eliminated the discrepancies.

Len MacKay, the Halifax-based president of the federal lawyers union, the Association of Justice Counsel, blames management for the massive payroll glitch. MacKay also says his members were not scamming the system, and that the problems were largely minor and clerical. (Association of Justice Counsel) "In a vast majority of cases, employees have been able to reconcile the information in both systems," Andrew Gowing said in an email.

"Where it was shown that leave was owed, employees retroactively submitted leave requests and their balances were reduced accordingly. In many other instances, what was originally flagged as a 'discrepancy' turned out not to be one after all."

Gowing added that the Office of the Comptroller General was alerted to the reconciliation exercise "early in the process."

The most experienced federal lawyers make about $220,000 in base salary, with most also given lump-sum bonuses each year.

The federal government sets its own standards for "materiality" when deciding whether to report unexpected liabilities, while publicly traded private-sector companies are compelled by strict regulations to disclose multimillion-dollar accounting errors.

But a Treasury Board policy document says: "With very few exceptions, the concept of materiality does not apply in recording and reporting on appropriations usage; all amounts are important."

Former Justice Minister Rob Nicholson is asked by the CBC's Julie Van Dusen about the vacation issue which partially occurred during his time as Minister 0:53

Follow @DeanBeeby on Twitter