Public Accounts Committee on April 5th, 2012

[Michael Ferguson]

First of all, I need to be clear that National Defence did in fact accept our recommendation. They disagreed with the conclusion that we made. That's one thing.

In this audit, we didn't specifically go back and do a follow-up on the recommendations that we made to National Defence in a previous report. I think it's clear in this chapter, though, that we found significant problems along the way in this decision-making process: problems in the areas of documents being out of sequence, problems with analyses that weren't always complete, problems with their risk mitigation strategy, and problems with the financial information that was prepared.

I can't specifically go back and make the direct comparison. That wasn't part of the audit, but I think this audit stands on its own when it speaks to the weaknesses that we identified in this audit.

[Malcolm Allen, NDP, Welland, ON]

I appreciate that you didn't look back at chapter 6, but again, let me look at what Public Works' involvement was in 2010.

The recommendation was that: Public Works and Government Services Canada should review and apply the lessons learned with these helicopter acquisitions to ensure that, for future major capital equipment acquisitions, the degree of modifications...

They said they would make sure to do that. The department said they agreed. Public Works said that they would learn from the lessons. They would ensure that going forward, things were done properly. They would do the assessment of risk and make sure that “procurement strategies and contracts [would] be tailored to the complexity of the equipment being acquired”.

Mr. Saxton said it was complex. They said that they would tailor the processes they put in place to the complexities. They knew this was a complex project, I would think. I think we all agree on that.

Before I actually ask the question, the final conclusion in Madam Fraser's report talked about management. It read:Regarding project management, National Defence did not fully comply with the key provisions of the Treasury Board Project Management Policy, Project Approval Policy, and Policy on the Management of Major Crown Projects or with the Department's Project Approval Guide in managing the acquisition of the two types of military helicopters selected for our audit. Specifically, we identified several gaps in the completeness of information presented to decision makers as well as approvals and oversight by senior boards at key decision points.

That was in chapter 6 of the fall report.

I believe you also said in your report, sir, that decision-makers were not informed on this particular aspect of this particular procurement and that there were gaps in project approval. There were gaps in documentation and processes weren't followed.

I know that you haven't studied the other report and didn't compare them, but let me just say that the similarities are striking to the point that they look like twins. If indeed the minister read this, and I would assume that he did.... I would ask you to answer that question. I would assume that the minister in this department reads your reports. I know that my friends across the way do, so I would expect that the government actually knew about this report.

This is a question I'm sure you won't answer for me, but that's okay. I'll leave the question out there. If the minister knew about this report and knew he'd not been told all of the things in this particular project a number of years ago, why would he not have then said, “Hang on, folks. What are you not telling me about this one, the F-35, like you didn't tell me about the helicopters? Let's stop and make sure all the i's are dotted and t's are crossed”?

Is it fair to say that this question should have been asked?

[The Chair, NDP, David Christopherson]

Go ahead, Mr. Ferguson.

[Michael Ferguson]

Thank you, Mr. Chair.

I really can't speak for what the minister may have or may not have done. I can't speak to that.

[The Chair, NDP, David Christopherson]

Okay. Thank you.

I'm sorry, but your time has expired.

Mr. Kramp, you have the floor, sir.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you, Chair. Welcome to our guests again.

I have a number of questions on the F-35 as well. Obviously, I expect we'll be seeing you again as we delve deeply into that topic down the road, so I'll switch to another couple of areas right now to try to do a little bit of justice.

Millions of people fly every year. They really need assurance that when they go in the air, they feel safe. Is it possible for you to just give us a general statement? Should Canadians be encouraged to believe that they are flying safely?

[Michael Ferguson]

In that particular audit, we wanted to find out whether Transport Canada was providing sufficient oversight of the safety practices of the civil aviation companies in Canada, remembering, of course, that Canada has an excellent track record of civil aviation safety and remembering that the responsibility for air safety lies with those aviation companies. Transport Canada's role is as a regulatory overseer.

We found that they do, in fact, have an appropriate regulatory framework in place and an appropriate methodology in place, but there were weaknesses in many aspects of their actual inspection and surveillance activities.

Again, the responsibility for aviation safety rests with the industry, but Transport Canada has an important regulatory oversight role. They need to make sure that they are fulfilling that role so that people have confidence that the regulator is doing what the regulator should be doing.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you very much.

Obviously you've identified a couple of the weaknesses and a number of strengths that we can talk about in a bit, but in terms of identifying the weaknesses, which you so capably did, I'm concerned how Transport Canada will react, not to the publication but to your recommendation to address these weaknesses. Has Transport Canada given you a response you're comfortable with?

[Michael Ferguson]

Yes, Transport Canada agreed with all our recommendations. They understand the importance of dealing with the weaknesses we identified.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you.

It's important that we do what we do well, and we can build on those successes as well. Are there particular elements of your evaluation of air transport that identify strengths and aspects we need to be able to focus on and expand—best practices, etc.? In other words, what do we do well?

[Michael Ferguson]

We identified a framework in place that is consistent with international requirements and norms. We identified that Transport Canada does go through a process of comparing Canada's regulatory framework to those international recommendations and that their surveillance methodology has the aspects we would expect to see in a good surveillance methodology, but again we found areas, particularly in the implementation of that methodology, that need to be improved.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Fine. Thank you.

When it comes to paying taxes, no one likes to pay taxes, but of course when people don't even file, we have some concerns, obviously. As well, when we get a request for funds from Revenue Canada, there's generally a huge difference between the assessed tax and the penalty and interest.

In the figures you have for non-filers, did you break down the difference between the tax itself and the penalty and the interest? Sometimes, of course, the penalty and interest can be exorbitant, as we know.

[Michael Ferguson]

In Canada Revenue Agency's program for identifying non-filers and non-registrants, we identified that they assessed $2.8 billion a year in each of two years, I believe, in terms of taxes, interest, and penalty. I don't have the exact breakdown at the front of my mind.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Would that be available to us?

[Michael Ferguson]

I will check to see if we have those exact numbers, and if so, we'll report back.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you very much.

[The Chair, NDP, David Christopherson]

Thank you, sir.

We'll move on to Monsieur Dubé. You have the floor, sir.

[Matthew Dubé, NDP, Chambly—Borduas, QC]

Thank you, Mr. Chair.

There has been a lot of talk about recommendations being accepted. But the report says, word for word, that National Defence and Public Works and Government Services do not agree with the conclusions in paragraphs 2.80 and 2.81. You say quite clearly there that Parliament has not been sufficiently informed. In paragraph 2.80, you say: “Some costs were not fully provided to parliamentarians.”

I assume that, in the House of Commons, ministers answer questions on this matter and are required to provide the information.

Do you agree that the minister did not fulfill his responsibility in informing parliamentarians of the cost of the project?

[Michael Ferguson]

We identified that after the Parliamentary Budget Office presented its estimate of costs, that was the opportunity National Defence should have taken to bring forward the full costing information to Parliament. They should have identified that. The way to respond to what the Parliamentary Budget Office came out with was their full estimate of the cost over the full life cycle of those replacement jets.

[Matthew Dubé, NDP, Chambly—Borduas, QC]

Thank you.

You mentioned the Parliamentary Budget Officer. We have been told that the government screamed and yelled that the information that person had provided was not accurate. After all that, here you are providing the same figures, and the government still insists on saying that it does not accept your conclusions, even though it claims to accept your recommendation.

As an auditor, do you feel that it is normal for someone to say that they accept your recommendations but that they do not accept the key part of your conclusions? Can one be done without the other?

[Michael Ferguson]

We made one very specific recommendation about preparing and presenting the full costing information, and they accepted that. On our assessment of whether due diligence was applied, we felt that National Defence did not apply sufficient due diligence and that Public Works should have provided more oversight. Those were the conclusions they disagreed with.

We put the statement in the report that the departments disagreed with our conclusions because it was out of the ordinary to have that type of response from departments. We felt it was important to make it clear to people that we looked at the evidence, came up with our conclusions, published our conclusions, and the departments disagreed with the conclusions.

[Matthew Dubé, NDP, Chambly—Borduas, QC]

Thank you; I am going to rely on your knowledge and your expertise in this area.

There is one thing that I have a really hard time understanding. If I am not mistaken, your recommendations are probably entirely based on your conclusions. Is that correct?

[Michael Ferguson]

Thank you, Mr. Chair.

In this particular instance, the only recommendation we made in the chapter itself was around the costing information and providing that full information. The department agreed with that.

In this particular instance, because our recommendation was so focused, the position they took was not totally inconsistent. However, we feel very strongly that our conclusions are right, based on the objective and criteria we set and the evidence we looked at.

[The Chair, NDP, David Christopherson]

I'm sorry; your time has expired.

[Matthew Dubé, NDP, Chambly—Borduas, QC]

Thank you.