CRA confidential

Illustrations: Seth

Your favourite pundit of the profession, Mr. Snafu, returns to shed light on that organization that sets knees a-trembling and hearts a-fluttering

Dear Mr. Snafu,
That effing Canada Revenue Agency (CRA). Why does that organization exist? I can't believe it is auditing five of my clients. Five! What did I do to deserve this? Now all my clients are looking at me askance; they are wondering if I still have it, if I am still able to get them those fat, juicy tax return cheques — useful for trips to the Caribbean and purchases of big-screen TVs — without attracting the attention of the audit beast. These agency guys are ruining my practice.

I have noted that you have been big on them in the past, singing their praises indiscriminately, touting them as the champions of order; how can you do that while their terrible tentacles tear apart the useful work we do for our clients? Mr. Snafu, this unpaid promotion of the CRA has got to stop. These guys are no friends of chartered accountants. I cannot believe that CAs actually work there. This experience has made me curious. What type of CA works at the CRA? Don't they know they are working for the enemy? Give me names. What do they do? Why the #$%! do they work there? What happens if they decide that a client's tax return is "funny"? Can you send your super-efficient researchers to find out? I want to know as much as I can about that mysterious organization whose code of omerta makes certain "family businesses" look more like news-disseminating organizations.

Vexed in Vancouver

Dear Vexed,
Mr. Snafu sympathizes with your plight, though I am sure you are well aware the auditing of your clients is likely an accident of computer fate. Yes, Mr. Snafu has been big on the CRA in the past because he thinks it is a wonderful organization that performs a necessary — if thankless — task. But Mr. Snafu heeded your request and sent out a crack platoon of his famous research staff to conduct a commando research raid on the organization. I must inform you that your statements about a code of silence turned out to be prophetically true. The agency's operatives proved to be more tight-lipped than MI-5 and Mossad put together, crack organizations that Mr. Snafu has dealt with in the past (I have also dealt with the CIA, but that organization is sadly populated with agents infected with the North American blabbermouth disease). But a few agreed to talk on the condition that certain areas of their work were a no-go. So I hope you appreciate the constraints Mr. Snafu and his staff worked under to satisfy your request.

For those readers not involved with tax work, and who may not be aware of how the CRA selects audit targets from firms and the population at large, our research revealed that audits are mostly computer generated. (That said, Vexed, you may want to go easy on generating those juicy tax returns that your clients use for bacchanalian trips to the Caribbean. For the record, Mr. Snafu sniffs disapprovingly at such uses of tax return cheques.) Snafu's researchers confirmed this with the CAs who work there. One of them, Sudbury, Ont.-based Tiina Wainman, who is regional international tax adviser for the agency, used to work as an international auditor for the CRA. This involved dealing with Canadian-based individuals and firms that had operations outside the country. When she was working in that capacity, she had to visit company premises to audit them. Of that experience, she says, "You do feel some hostility. It is not overt, but it is there. It's an adversarial position. People think you are there because you know about something, but you don't necessarily. There's a lot of stereotyping written into it. I try to explain to whomever I am auditing that being audited is part of doing business. You are in business, you file returns, you may be audited. You have that unfortunate aspect to it." Wainman adds that CAs are generally the most understanding when she visits.

So do not take it personally, Vexed, when those CRA auditors come a-callin'. I am confident you will not become obnoxious, as some folk have been known to be.

So what happens next? What if they find there is something not quite right about the taxes an individual or firm has declared? After they finish an audit, the CRA CAs have to determine whether the hearty laughter the tax return has caused is a result of tax avoidance or tax evasion. According to François Bernier, CA, an investigator in the Canada Revenue agency's tax services office in Montreal, both involve a declaration that may significantly depart from reality in one way or another; the difference is in criminal intent.

If the audit department determines there is no criminal intent, it handles the issue itself and argues with the taxpayer over this or that business expense — in what way was the purchase of authentic 1967 Toronto Maple Leaf hockey memorabilia an expense for your electrical contracting firm? Why have you included a receipt for this diamond-studded dog collar among your expenses? And once again, regular stress-relieving visits to a massage parlor in downtown Toronto do not count as a business expense. If, on the other hand, the audit department determines there is something more willfully fraudulent going on — such as unreported income or fictitious expenses — it passes the file over to the investigations division. That's where investigators such as Bernier come in. 

Most cases are handled by one investigator. But if investigators have to conduct interviews, they go in pairs; because the purpose of the interview is to obtain testimonial evidence, a witness is required. Investigators do not interview the accused in an investigation because they cannot force him or her to testify in court (however, they do inform the person that he or she is under investigation). They interview people around him or her, they depend on third party information, especially third parties involved in a business transaction with the accused. This raises the obvious question: how do they get people to spill their guts? Is everyone so terrified of the CRA that all begin to sing most loud and long the minute the agent identifies him or herself? Not quite. They use the sense of relief as a huge lever to pry the information free from the hidden corners of the interviewee's mind. "When we go to meet them, we explain to them that we are not investigating their file, but the file of Mr. A," explains Robert Després, assistant director of investigation at the Sherbrooke, Que., tax office. "They then feel more comfortable about giving us more information." Ah! It's like being suddenly confronted with a red, cloven-hoofed man with horns on his head: your heart stops beating, your limbs turn to water, until he smiles sardonically at you and tells you he is not looking to take you down there just yet, but do you know where John is, and what he has been doing today? The relief that wells up in your throat cannot pump out the information fast enough. Glory, hallelujah! It's not me he wants. Better tell him all I can about John before he changes his mind and selects me as a substitute victim.

It is not always easy, though. "If we go to a small town where everybody knows everybody else, where the witnesses are still doing business with the firm, they don't feel comfortable giving us information," continues Després. "But most of the time they are cooperative."

Sometimes investigators also have to collect material evidence, and part of the time, the audit department does this. Other times, the investigators have to ask a judge for a search warrant under the criminal code to search a location. The judge, of course, does not grant them the warrant the minute they ask — despite popular belief. The judge demands the investigators show reasonable grounds for such a warrant to be issued.

When they get the warrant they execute it in a group that sometimes includes a police officer. The group first clandestinely scopes out the premises, taking extra care not to be seen; they work out the angles and analyze various avenues of approach. When they are sure the conditions are right, they procure a battering ram, draw their weapons, form an assault line and smash into the premises, screaming at the top of their lungs, "FREEZE! ASSUME THE POSITION! CRA!" 

Of course, the reality is far more prosaic, but Mr. Snafu is sure there is a blockbuster movie or television series in the above scenario. Maybe call it CRA-CSI. Imagine the boost it would give to the profession's reputation if North America's peddlers of fantasy were to take an interest in it. Mr. Snafu sincerely hopes those creative CAs in the film business are taking copious notes.

Anyhow, the investigators do go with a police officer who is merely there to ensure there is no violence — not to execute the warrant. Investigators mostly gather material information and examine it at their leisure. "We try to match expense with income," says Bernier. "We suspect a fictitious expense, for instance, when the company the expense is made to is not recorded anywhere, or is not registered in the same way you would need to be registered in say, construction, or transportation where you need a special permit."

There are numerous ways in which unscrupulous people and companies can defraud the government, and thus the rest of Canadians — such as through fraudulent expenses, in which they reduce their personal income, pay people with cash and thus have no deduction at source which lowers their costs, and puts them in a better competitive position. Such scams are becoming more difficult to uncover, says Bernier. "They are more and more sophisticated. Some actually have fraudulent companies that are registered for the Quebec sales tax, for the GST, for the permit for transportation and construction, and they even try to have legitimate operations to try to fool the government. There are also false charity receipts. In one such case, the people involved used high-quality print to create charity receipts for 100 charitable organizations throughout Canada. With today's technology, anybody can do it at home."

The CRA has investigated various tax scams, such as the one involving Pierre Thibault, the Quebec business tycoon whose Shawinigan, Que., hotel, Auberge des Gouverneurs, was awarded $2 million in federal loans and grants, scandalously assisted by the former prime minister, Jean Chrétien. Apparently Mr. Chrétien pressured the former president of the Business Development Bank of Canada to grant loans to the auberge. Readers of Mr. Snafu passim will remember that the former PM was a good friend and fan of Mr. Snafu until Mr. Snafu found out about his "Shawinigans" with the hotel grants.

According to news reports, Thibault secretly transferred some $152,000-plus to a numbered account in the Bahamas, income that was undeclared in his tax returns. The agency's auditors discovered that something smelly was going on when they found that during the construction of the hotel expenses were being recorded twice. Further investigation revealed that the carpet installer had been paid by the hotel and the construction company. The installer later wrote a clandestine cheque to Thibault, which he deposited in his private account. But the CRA always gets its man. After the CRA amassed evidence, it confronted him and he later pled guilty in a Montreal court.

Now Vexed in Vancouver, what about your accusation that CAs who work for the CRA are working for "the enemy"? Our investigation suggests that a few CAs do not quite see it this way. Wainman says initially, she did feel like she was working on the other side: "I came from a totally different background [in public practice], servicing clients who are generally happy to see you, and who pay to see you. So when I started working for the CRA, it was different. But at the end of the day, the answer is still the same given the set of facts. I found initially that I felt like offering advice, but that's not really the role since it is not a tax consulting service."

Kerri Hanley, a senior programs officer in Ottawa with the audit programs operations division, offers another view. "I like to believe that I am working to protect the tax base, to make sure other taxpayers don't pay more than their fair share and that most people do pay their fair share. I think the job is just being fair to all Canadians."

Our investigation reveals that many CAs working with the CRA were looking for an accounting job that allows them a better quality of life. Many worked in public practice and industry before the agency. Hanley, for instance, started out in Thunder Bay, Ont., articling at BDO Dunwoody in 1990, and obtained her designation in 1993. In 1996, she left BDO Dunwoody and joined what was then called Revenue Canada. "Revenue Canada was a good fit," she says. "The right opportunity came up at the right time. I've always had an interest in taxation, and with the work-life balance it was a good fit. Basically by this I mean the lack of overtime. I wanted to spend more time with my family and do more things for myself. I was very happy with what I found at the CRA. There is a lot of opportunity to grow."

Others echo this sentiment. "I have been with the CRA since 1987," says Després. "Before that I worked as a controller for a private company. The main reason I left was to have a better quality of life. Today I work 40 hours a week. Another controller in a private company [may have] perhaps a higher salary, but [has] more hours to put in. I think my hours are excellent, and it gives me time to be with my family. I have something to do other than work."

So you see, Vexed, these CAs who work at the CRA are not out to destroy the work of every tax accountant. The CRA is your friend. Of course, one does wonder about these constant name changes. From Revenue Canada to CCRA, to CRA, what's happening here? Too many enemies perhaps? Is this an effort to create a new identity for some organizational witness protection program? Who knows? Anyhow, just remember the CRA is your friend.