Canada's auditor general says the bill to fix the disastrous Phoenix payroll system will be much higher than the $540 million allocated by the federal government, pushing the overall cost of Phoenix closer to $1 billion.

In his fall report to parliament, Michael Ferguson said it will take significantly longer and cost significantly more to repair the problem-plagued system and clear the backlog of thousands of claims by public servants who have been underpaid, overpaid or not paid at all.

'A sustainable solution will take years and cost more than the $540 million the government expected to spend to resolve pay problems.'- Office of the Auditor General of Canada

"A sustainable solution will take years and cost more than the $540 million the government expected to spend to resolve pay problems," the audit concluded.

The Treasury Board Secretariat will provide a new cost estimate to fix the Phoenix payroll system by May 2018.

Ferguson set out to examine whether Public Services and Procurement Canada (PSPC) had worked with federal departments to resolve the pay issues, and found it had not.

Unresolved claims surpass $500M

The audit reveals the unresolved pay issues total more than $500 million.

As of June 30, 2017, the amount the government owed to federal workers was $228 million, while the amount of overpayments totalled $295 million.

Graph from Auditor General re Phoenix

The auditor general found more than half of the federal government workforce has been affected by the Phoenix pay fiasco. (OAG)

The audit looked at how PSPC had worked with 12 other agencies and departments to figure out pay issues. It found two-thirds of the workers in the sample had been paid incorrectly at least once in 2016-2017.

It took PSPC four months just to recognize that there were serious pay problems, the audit found. Then the department failed to give enough information to other agencies to help them understand and resolve all the issues.

The government now knows of more than 520,000 outstanding financial and administrative claims, with the average wait to have pay issues resolved sitting at more than three months.

The audit found more than half of public servants across all departments have been affected by Phoenix.

No long-term solution

The report found PSPC didn't fully address the underlying causes of the pay problems, or develop a long-term, sustainable solution.

The audit noted that in some cases, departments have found ways to work around Phoenix: Statistics Canada, for example, used its previous pay system to compensate temporary workers hired for the 2016 census.

The audit also looked at a similar pay fiasco at Queensland Health, a government department in the Australia.

The department's pay system, also designed and implemented by IBM, has so far taken eight years and cost $1.2 billion CDN to fix, but the auditor general found a contrast between how the Australian and Canadian governments approached the problem.

While the Australians put in place a comprehensive governance structure to resolve problems within four months of pay issues arising, in Canada "there was still no comprehensive government structure to resolve the underlying causes of the problems" 16 months after they arose, Ferguson found.

Worker at pay centre

The auditor general found fatigue and stress is affecting compensation advisers at the government pay centre in Miramichi, N.B. (CBC News)

Stress, fatigue

The audit also turned its attention to the wellness of pay advisers at the central pay centre in Miramichi, N.B.

"The pay [advisers] could not deliver a level of service of which they could be proud. This meant that they could not keep up with the problems and felt extensive fatigue, stress and low morale," the audit noted.

Tuesday's audit of the Phoenix pays system is the first of two planned reports.

The second Phoenix audit is expect in the spring of 2018 and will examine the events and decisions that led to the system's implementation.