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Shared Services Canada overbills tax and border agencies by $13M — but won’t pay them back

Canada’s tax and border agencies say they’ve been ripped off — to the tune of $13 million — by the federal government’s IT provider, Shared Services Canada.

The Canada Revenue Agency (CRA) and the Canada Border Services Agency (CBSA) each say they were overcharged for having their data processed on central mainframe computers. Both agencies require occasional surges in data-processing services as large amounts of data arrive, such as newly filed tax returns each year.

Shared Services Canada (SSC), which operates those mainframe computers, admits it did overcharge by $13 million, but says the two agencies agreed to the pricing formula beforehand and it won’t pay them back.

CRA is demanding reimbursement of $6.8 million, and CBSA wants $6.1 million, both overpayments for their data processing in 2016-2017.

The testy, multimillion-dollar dispute over what SSC readily acknowledges was a “flawed” pricing formula is yet more evidence of sour relations between Ottawa’s troubled IT department and its unhappy clients across the federal government.

“SSC is not in a position to financially absorb the requested $13 million,” says an April 2018 briefing note obtained by CBC News under the Access to Information Act.

The document says CRA and CBSA appear sufficiently flush to absorb the large financial losses because they didn’t spend all of their 2016-2017 budgets, each of them carrying over unspent amounts to the following year.

The pricing formula has since been fixed: all sides agreed in December 2017 to a new formula that won’t result in overcharging in the future. But CRA and CBSA still want a combined $13-million credit applied to their future data processing in order to recoup their losses.

Shared Services Canada balked at the idea.

“SSC is of the view the $13 million surplus was not the result of an invoicing error, but was the result of the unintended consequences of applying the pricing formula developed and endorsed through a process involving consultation within the department, and between SSC and its customers,” says the briefing note to SSC president Ron Parker.

Immediate repayment “would pose undue financial risk to SSC, and should not be pursued.”

A spokesperson for SSC, Charles Anido, told CBC News that no other departments or agencies have raised similar pricing issues or demanded refunds for data-processing services.

Anido said CRA and CBSA were not charged at all for any mainframe services until April 1, 2015. A revised pricing formula was instituted on April 1, 2016, resulting in SSC “over-recovering cost,” as the department phrases it.

Anido confirmed SSC has not changed its position on reimbursement of the $13 million to the two agencies.

“The overpayment costs as a result of the previous formula have not been returned,” he said in an email.

Canada Revenue Agency spokesperson Dany Morin also confirmed to CBC News that “no, the amount has not been returned.” A spokesman for CBSA deferred questions about reimbursement to Shared Services Canada.

The fiscal friction is the latest chapter in deteriorating relations between Shared Services Canada and its client departments.

In March 2017, the RCMP pulled the plug on its business arrangement with SSC, citing frequently unreliable IT services in critical areas of law enforcement.

Both sides have since renegotiated a new deal for 2018-2019, but the Mounties claim they “over-contributed” $50 million to SSC when the agency was first established. That money has not been reimbursed.

Statistics Canada has struggled through several outages of its main servers that were blamed on problems at SSC, which operates the equipment. Some public releases of economic data were delayed.

Lights off

SSC’s issues with Correctional Service Canada came to a head in October 2017, when a vital data centre went down for almost 20 hours, cutting off email and more than 80 other key systems. The problem was only identified when a night security guard noticed all the lights were off in the data centre, and made a telephone call to alert technicians.

The head of Correctional Service Canada testily notified the agency it would be taking back some of the IT functions it had been compelled to delegate to SSC years earlier.

Natural Resources Canada has also had run-ins with the troubled IT agency over the operation of its network of earthquake-detecting stations.

An internal memo from March obtained by CBC News under access to information described the situation this way:

“NRCan continues to struggle to obtain appropriate levels of service from Shared Services Canada (SSC), in particular to repair and replace communications infrastructure for our mission-critical systems, to provide response outside working hours, and to define service standards for critical communications links to support tsunami warning.”

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