Features | From Pivot Magazine You don’t want this guy’s job 2.28.2019 | Luc Rinaldi Canada’s biggest payroll system crashed and burned. Can CPA Marc Lemieux fix the billion-dollar Phoenix pay disaster? Facebook Twitter Linkedin Email Marc Lemieux (Photograph by Guillaume Simoneau) Every other Wednesday, Canada’s public servants play the Phoenix Lottery. Whether you’re a Mountie in Victoria or a federal judge in St. John’s, it’s the same drill. You wake up, cross your fingers and then check your bank account. If you’re lucky, you discover your employer, the federal government, has paid you correctly. If you’re not—and chances are, at least once in your career, you won’t be—something will be wrong. Perhaps you’ll have $100 less than you should, or $100,000 more. Maybe you didn’t get paid at all. Regardless, that’s how the headache begins. To get the money you’re owed—or pay back what you’re not—you talk to HR or submit a form online. Depending on which of Canada’s 101 federal departments and agencies you work for, you might call the pay centre, a 1,000-employee office in Miramichi, a riverside town in New Brunswick. Then you wait a week, a month, a year, hoping your issue gets resolved—and that no others pop up in the meantime. When tax season arrives, you pray that your T4 is accurate. Mostly, you just wish that someone would fix this mess. Whether you know it or not, that someone is Marc Lemieux. He’s a soft-spoken 52-year-old Québécois CPA with rectangular black glasses and salt-and-pepper hair. Within Public Services and Procurement Canada—a back-office department that handles internal government projects—he’s the assistant deputy minister of HR-to-pay stabilization. In other words, it’s his responsibility to make sure no one plays the Phoenix Lottery ever again. It’s a tall order. The federal government is Canada’s single largest employer: it doles out $22 billion to roughly 270,000 people every year. Since early 2016, when the Phoenix pay system was introduced, almost two-thirds of those workers have been paid incorrectly at least once per year, many of them much more frequently than that. As of March 2018, the government owed employees an estimated $369 million, and employees owed $246 million back. It’s tough enough to get a dozen beer-league hockey players to pitch in $300 for season registration, so imagine giving and taking $615 million to and from more than 100,000 different people. That’s what Lemieux and his team have to do, not taking into account the thousands of new cases that appear every pay cycle or the root problems that cause them. “When an auditor general uses words like ‘incomprehensible failure,’ that’s about as close to swearing as you can get.” Phoenix was meant to save Canada $70 million per year, eliminate tedious work and update an antiquated payroll system. By the Senate’s estimate, it will instead cost taxpayers $2.2 billion by 2023. “It’s an incomprehensible failure,” Canada’s auditor general, the late Michael Ferguson, FCPA, wrote bluntly in one of two audits his office performed on Phoenix. NDP MP David Christopherson put that into context in a public accounts committee meeting: “When Mr. Ferguson uses words like ‘an incomprehensible failure,’ in that world, that’s about as close to swearing as you can get.” The auditor general’s report identified a slew of reasons for the fiasco: flawed software, a lack of testing and employee training, an imperative to stay on budget and schedule, and a non-existent accountability structure. But Lemieux is more interested in the future than the past. “I don’t know how many times we can say we are sorry about this,” he says. So he doesn’t apologize. Instead, he praises public servants for continuing to show up at work every morning. “We feel for them. Some employees have very difficult pay issues,” he says. “I’d like to thank them for being patient with us. I know it’s stressful.” He also knows that, for those burned by Phoenix, the only satisfactory apology is a fix. There’s no other option. Though the government intends to replace Phoenix—it’s currently testing a number of alternatives—a new system will need to source essential employee data and pay history from the existing one. “Regardless of whether the government stays with Phoenix or moves to something else,” Ferguson said in a government operations committee meeting, “it needs to get Phoenix stabilized.” (CP Images) Pay in the public service has never been perfect. Before Phoenix, departments handled payroll themselves using an inefficient patchwork of finicky old systems. So the Harper Conservatives vowed a countrywide cleanup: every department would start using the same system, Phoenix, managed in large part by a new 550-employee office in Miramichi, which lost 200 jobs when the Conservatives scrapped the long-gun registry in 2012. (The pay centre’s original location, in the same building as a Money Mart, was unintentionally prescient.) The government put three senior Public Services bureaucrats in charge of the project and officially named it the Transformation of Pay Administration Initiative. Everyone called it Phoenix; it’s easier to fit on a placard. The project was incredibly complicated, like the HR equivalent of string theory. Because each of the federal departments and agencies had their own collective agreement, they all calculated pay for overtime, promotions, maternity leave and other types of work differently. Altogether, Phoenix needed to assimilate more than 80,000 different pay rules. In 2011, IBM won the contract to build the system and requested $274 million to do it. The three bureaucrats instead instructed them to proceed with the approved budget: $155 million. If that meant they had to leave out certain features, so be it. Human pay advisers would find manual workarounds, they reasoned. “Because they wanted to stay within schedule and within budget, they cut some of the functionality within the software,” says Jean Goulet, the principal who led the Phoenix reports for the office of the auditor general. “They cut on readiness at the department level, and that led to the disaster as we know it.” “There’s no simple solution. If you try to impose one, it’s only going to be more chaotic.” Phoenix was doomed upon delivery. According to the auditor general’s reports and an independent 2015 review by research firm Gartner, departments and agencies reported chronic errors during testing. The system couldn’t perform 100 necessary functions, like providing proper compensation for terminations, paid leave and acting pay (i.e., temporarily working a higher-paid position). Pay advisers in Miramichi, who were supposed to resolve those issues manually, didn’t fully understand the system, either. They kept encountering errors they couldn’t decipher. “No one could read the Gartner report and have any other conclusion than, ‘Oh my god, the Titanic is heading for an iceberg,’ ” Conservative MP Kelly McCauley said. Staff, departments and unions all recommended delaying Phoenix’s rollout, and suggested keeping the old pay system in place just in case the new one imploded. But the three ranking bureaucrats ignored the warnings. They cancelled independent audits of the system, reported near-perfect internal test results and then, in 2015, scrapped a plan to pilot Phoenix in a single department. “It was like somebody putting on a major play and saying, ‘Dress rehearsal, shmess rehearsal. We don’t need to worry about that,’ ” said Christopherson, the NDP MP. At the same time, the bureaucrats assured their bosses that everything was running smoothly. “The bad news stopped there,” says Goulet. “There was definitely a lack of oversight. Everything got channelled through the three Phoenix executives.” As a result, he adds, “There was no way for the deputy minister to have a clear view of exactly what this was.” Senior leadership was more concerned with the 2015 federal election anyway. Phoenix was a back-office project, says Goulet, the type of thing that wouldn’t typically attract attention from the higher-ups, “especially when they were being told that everything was fine.” It wasn’t fine. When Phoenix went live in February 2016 under the new Liberal government, it broke immediately. The system couldn’t properly process a staggering number of pay requests, so Miramichi staff began manually overriding the system on a case-by-case basis, both slowing down the pay process and introducing errors. When the backlog ballooned, management removed review and approval steps to save time, only making the problem worse. It didn’t help that Phoenix’s back-end software would, without warning, stop working for days at a time, forcing pay centre staff to work evenings and weekends to cram between blackouts. There were other problems, too: privacy breaches, incorrect data imported from the old systems, the fact that the platform was inaccessible to some public servants with disabilities. At one point, staff intercepted an errant $3.5-million cheque before it was mailed out. In the Phoenix Lottery, that’s the jackpot. (CP Images) Like most public servants, Lemieux had no idea Phoenix was going up in flames. In 2016, when the system was implemented, he was living in Montreal with his wife, a fellow public servant with whom he has three university-aged children. As he puts it, “I was not someone from Ottawa.” But that summer, Ottawa called. It was Marie Lemay, a former colleague who had been appointed the new deputy minister of Public Services and Procurement. She was overseeing Phoenix and asked if he’d help her fix it. He’d started hearing horror stories about the pay system and knew it would be an explosive file in the national spotlight, so he wondered, “Why me?” Part of it was Lemieux’s experience. He grew up in Quebec City and studied economics at Laval in the 1990s. He became an environmental manager at the province’s largest gas distribution company, and then joined the public service in 2003, working for Environment Canada as a senior economist focused on climate change. He added an MBA and a professional accounting designation to his resumé along the way. “When I did my MBA, I started to grow the ambition to lead an organization,” he says. “The accounting training was well aligned with that. It gave me the opportunity to learn more about the profession and create networks within the finance community.” Lemieux spent a decade climbing the rungs of the Atlantic Canada Opportunities Agency, an economic-growth organization run by the federal government in Halifax, where he was eventually appointed director general of administration and finance. In 2014, he returned to Quebec to lead corporate services at Economic Development Canada, a Crown corporation based in Montreal that helps Canadian companies find international business. “I was looking for a challenge,” he says of the move. There, he met Lemay, who later gave him his true challenge: Phoenix. Beyond Lemieux’s experience, Lemay hired him for his temperament. She saw him as a composed leader who would place an emphasis on collaboration, speak directly to employees and champion their needs, as he had in previous roles. “Marc is known to be a people person, putting his employees’ well-being and interest at the centre of his activities and accomplishments.” Whereas Phoenix inspires enraged hair-pulling, Lemieux disarms tension. “If my staff come to me in the middle of a crisis, I tend to calm them down instead of adding pressure,” he says. “That creates a space where we can find a solution.” “It’s impossible to get 100 per cent of it sorted out, because so often you get error upon error.” Lemieux started the job on Oct. 31, 2016, an appropriately ominous date. At the time, public servants weren’t yet panicking over Phoenix. “There was a big time delay,” says Martin Paradis, an Ottawa CPA whose clientele includes about 15 federal employees. At first, they assumed the pay errors were annoying mistakes, not a countrywide crisis. “For the first 12 or 18 months, people were in denial, thinking, ‘It’s going to get fixed. It’s going to get fixed…’ ” But clues of a larger problem began to surface. Elsewhere in New Brunswick, an executive-level public servant who oversees pay for about 2,000 employees—and who requested anonymity for fear of retribution—started noticing payroll anomalies. He got too much every paycheque; his boss had issues, too. A recent retiree was still receiving her salary, while one employee got paid $75,000 for no reason at all (the man shrugged it off and said, “I don’t pay attention to my bank account”). So the executive set up weekly calls with national headquarters to sort through the errors. “Nobody wants to touch their pay now,” he says. “It’s a nightmare.” Tax season is its own horror. If the government pays an employee an extra $40,000 and she receives a post-tax sum of $25,000, the government still asks for the full amount back. (In January, Finance Canada released draft legislative proposals to address this issue, and union leaders say they are confident the problem will be resolved soon.) Plus, a fictional five-figure bonus might disqualify someone for certain social benefits. “It’s impossible to get 100 per cent of it sorted out, because so often you get error upon error, and it’s just a big snowball,” says Paradis. “I guarantee a quarter of the cases are still uncovered, because people don’t even know. They don’t realize their T4 doesn’t make any sense.” Public servants began calling Paradis with Phoenix woes, asking, “Can you fix this for $200?”—the amount of an accounting credit the government provides public servants affected by Phoenix (additional credits are available in some cases). “I would have to spend 20 hours fixing it. I don’t think so.” It’s not worth it for him to take them on as clients, but he occasionally helps them fill in and review a spreadsheet of supposed and actual earnings, in order to pinpoint the issue. “There are three things you have to reconcile: what’s deposited in your bank account, what’s on your pay stub and what’s on your T4. Those are often three very different things.” And sometimes none of them is actually correct. By June 2017, Miramichi was overwhelmed by nearly 500,000 outstanding pay errors. Protests erupted across the country on a regular basis. Rather than wait for the pay centre to resolve their problems, some federal employees quit. Others deferred retirement, cashed in RRSPs or took out loans. The past year’s headlines haven’t helped. IBM secured an additional government contract last May, and in November unions took issue with a proposed federal worker wage increase that they say would not match inflation. Additionally, the three bureaucrats responsible for Phoenix were never fired—one was shuffled into another role within Public Services, and the other two are now retired. The deputy minister who oversaw Phoenix’s rollout also retired, and his replacement, Lemay, has since moved to the Privy Council Office. They’re just two of the five people who have held the job since Phoenix was announced. “The number of different people who served in the role as deputy minister makes it…difficult to identify somebody as accountable,” Ferguson said in a committee meeting. “Either by design or accident, it almost seems as though Phoenix was set up in such a way as not to have somebody who was specifically responsible.” In another committee meeting with Public Services leadership, McCauley, the Conservative MP, said, “I guess we should give you a DeLorean and Doc Brown to send you back to the future to answer some of the questions. Because we keep asking about stuff, and you weren’t there.” (CP Images) Lemieux wasn’t there, either. “He came on board after everything exploded, basically,” says Goulet, who adds that both of the auditor general’s reports focus primarily on the time before Lemieux’s arrival. And because the first of those reports was published about a year after he took the job, neither Lemieux nor his colleagues fully understood the scope of the problem. So, his first order of business was understanding what went wrong and why. He called IBM, consulted Public Services staff, met with department HR heads, sat in on meetings with ministers and their deputies, and took monthly trips to Miramichi. At the pay centre, morale was low—overworked staff couldn’t make a dent in the backlog, and they were tired of being yelled at over the phone by Phoenix victims. Lemieux witnessed a lot of anger and impatience, but saw an appetite for change, too. “At first, it was a challenge to make sure that people understood that there’s no simple solution. If you try to impose one, it’s only going to be more chaotic,” says Lemieux. So he stuck to the strategy that got him the gig. “We needed to truly listen to them, see what their limits were and address their needs. That’s how you build trust.” Eventually, Public Services began unleashing its master plan. (Lemieux oversees 455 employees and answers to associate deputy minister Les Linklater, whose time is also largely occupied by Phoenix.) The government provided additional training and support for its existing employees—a mental health ombudsperson saw 500 staff between February 2017 and June 2018. Public Services also hired 1,000 new permanent workers. Some of the new staff went to Miramichi, some worked out of new or reopened offices in cities including Winnipeg and Gatineau, and some landed in the departments serviced by Phoenix. “There’s no question that helped,” says David Hamilton, an acting project coordinator at the pay centre. “Working directly with an HR person at the department has improved things immensely. They’re eager and want to work with us, and our response time is much faster.” Depending on whom you ask, the new system could take as long as five years to arrive. Lemieux and co. also implemented “pay pods.” In Miramichi, employees typically specialize in one area—new hires or unpaid leaves, for example. “We had nobody who could deal with all of the cases that might come up for an employee,” he says. “So the staff suggested grouping people with different expertise. They wanted to work as a team.” Lemieux ran a pilot project, putting a pod of 25 disparate specialists in charge of pay for three government departments. Since January 2018, the trial has reduced the pay error queue in those departments by more than 46 per cent. Now, about half of the departments serviced by Miramichi have pay pods. “All of that was a proposal that came from the team on the ground,” says Lemieux. He’s hoping steps like these can curb the backlog. But for Phoenix’s underlying technological issues—software glitches, missing functions, bizarre errors—Lemieux realizes neither he nor his staff has all the solutions. So he’s looking elsewhere. “Basically, we’re telling the private sector, ‘We have these issues. What’s your solution?’” he says. “It could be an IT or an AI company. It could be a pay company that wants to sell us their expertise so that we can move forward faster.” Those companies’ ideas could help fix Phoenix—or replace it. Lemieux is focused on stabilizing the system and fixing public servants’ pay, but the federal government’s ultimate goal is to create a new platform altogether, which will import data from Phoenix. In November, the Treasury Board, the body that reviews and approves government spending, selected five bidders—including Toronto’s Ceridian, which handles pay for one-fifth of Canada’s private sector—to each create a prototype of a federal payroll system. The 2018 budget earmarked $16 million to begin the replacement process, but further details, including the value of the final contract, have not been announced. Depending on whom you ask, the new system could take as long as five years to arrive. (Darcey McLaughlin/Ottawa Citizen) From his corner office on the 21st floor of an Ottawa skyscraper, Lemieux can see the offices of thousands of public servants who would rather not wait five years. He can see the streets where they’ve marched and burnt Phoenix effigies in protest. He can see Parliament Hill, where Conservatives slam Liberals for fumbling Phoenix and Liberals slam Conservatives for starting it—and where politicians and bureaucrats routinely promise this will never happen again. Public Services leadership and the Treasury Board say they are implementing new policies and clearer lines of accountability to prevent another Phoenix. And everyone agrees that government payroll needs to be simplified, so that neither Phoenix nor a replacement system has to accommodate 80,000 pay rules. Public servants will find out if these changes make a difference if and when Canada implements a new pay system. Only its success—or failure—will prove whether the government learned any lessons from Phoenix. In the meantime, things are slowly improving. Public Services says additional staff and pay pods have further decreased the backlog; in December 2018, beyond its normal workload, Miramichi processed 6,000 more pay requests than it received. Still, Lemieux is hesitant to say when Phoenix will be fully stabilized. “It’s difficult to predict when it’s going to happen,” he says. “At one point, we predicted the backlog would be gone by such a date. Well, we missed that date—by a lot.” “People are doing long hours and showing leadership at all levels. That gives me energy.” But even Phoenix’s most vocal critics praise Lemieux. “It’s a little funny to say this,” says Goulet, who authored the auditor general’s damning reports. “The relationship with Marc, from my side, has been a good one. He’s been very co-operative.” Chris Aylward, the national president of the Public Service Alliance of Canada, a union of about 180,000 federal workers, was sympathetic for—but not envious of—Lemieux’s position. “Marc is doing the best he can with a broken system.” Lemieux remains optimistic. “We all need to pull in the same direction now,” he said softly at the end of an interview in his office. “I see employees doing very long hours and showing leadership at all levels. That’s something that gives me energy.” It was just before 5 p.m. on a November afternoon, and a Public Services communications staffer interjected to remind Lemieux that he needed to get on the road: he had another meeting scheduled—about Phoenix, of course. “He doesn’t finish at five,” she said with a smile, hinting at the untold hours that Lemieux spends hunting for a solution for hundreds of thousands of federal employees. He’s trying to find a solution for himself, too. Every payday, Lemieux gets charged a small, ever-changing amount for a parking spot he doesn’t use anymore. He brushes it off. “My problem is really minor,” he says. “It can wait.” Related Articles Features | From Pivot Magazine IKEA: coming to a downtown street corner near you 3.19.2019 | Matthew Hague The Swedish behemoth is opening smaller urban stores to fend off Amazon and Wayfair Features | From Pivot Magazine The CPA behind Vancouver’s foremost photography festival 3.19.2019 | Adrienne Tanner Kim Spencer-Nairn left EY’s entertainment practice to found Capture Photography Festival, which returns for a sixth edition this April Features | From Pivot Magazine Can a sleek, ultra-efficient panel redefine lighting? 3.15.2019 | Matthew Hague LED upstart Nanoleaf is facing off against the giants with lighting that changes colour and promises to last a lifetime About the Author Luc Rinaldi Luc Rinaldi is the Senior Editor of Pivot Magazine. Previously, he worked for Toronto Life, Maclean's and The Grid, and he has freelanced for The Walrus, Maisonneuve, Reader's Digest and several other magazines.