National Defence Committee on March 1st, 2007

[Sheila Fraser]

If I could just add a couple of comments, Mr. Chair, the situation the honourable member refers to wasn't really inflation of an existing contract. There were mechanisms that had the government paying for services and computers it never received, but it was quite an elaborate process. It wasn't as if the prices were being inflated and the money was then being skimmed off. It was really a case of invoices going through the system without the goods being there. At that point, an internal audit at National Defence did a very good job of detecting and following through on that, which is why we never really became involved in it.

In this case, in defence procurement generally, and I think in any procurement generally, you want to make sure the process is as competitive as possible in order to make sure you're getting best value. The government could decide, for various reasons—and there are certain exemptions that allow them to go to sole-source contracting—that the business rationale behind sole-sourcing is clear. There are justifications for having gone to sole-source contracting, and the government must be able to demonstrate that they have taken every measure possible to get best value.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

My next concern is whether the deficiencies in the way the contracts were handled have been corrected. The concern today with some committee members is how the government is able to determine value for dollar with ACAN in the procurement process. Here was a case of fraud involving tens of millions of taxpayers' dollars, with no indication that the problems have been corrected.

I'm talking about the weaknesses in contracting practices and procedures, where accountability appears to have been non-existent at that time. The bogus invoicing scheme—which you referred to—behind this fraud was able to operate for almost a decade. Since the last time you were before this committee, when the issue was raised, has your office given any reconsideration to intervening in this case in order to protect the public interest?

[Sheila Fraser]

We have no intention to do any work on that particular case. The internal audit department of National Defence was responsible for conducting the audit. They were the ones who did quite extensive work to identify the issues. They made a number of recommendations and kept us fully briefed on what they were doing throughout, and we were satisfied with the work they were doing.

I'd ask Mr. McRoberts if he'd perhaps like to elaborate a little further.

[Hugh McRoberts, Assistant Auditor General, Office of the Auditor General of Canada]

Very quickly, Mr. Chair, I could simply add that throughout the process, and even ongoing, internal audit provides us with periodic briefings on its management of this file. So we are aware. We have had a briefing on the department's action plan for responding to the weaknesses that became apparent as a result of this unfortunate incident. We're comfortable at this point to let the department and internal audit carry on. If they implement that action plan, the controls should be strengthened.

Controls can never ultimately stop these things, though. That's the one caveat. They're not a panacea. If people don't exercise the controls, if you have management overrides, all the controls in the world won't stop them.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

So then your department is going to look for the actual $146 million that went missing. That's not your role.

In audits completed in 1984, 1987, 1992, 1994, 1998, and so on, the same problem kept recurring. The buying of major capital equipment procurement has been an ongoing Achilles heel for the defence department.

The Office of the Auditor General has reported over the years on the acquisition process. You've said today, as well, that it's unnecessarily complex, process-driven, costly, and generally inappropriate for the management of the defence capital program. With this in mind, will the ACAN acquisition process be significantly different, from the perspective of these criticisms? ?

[Sheila Fraser]

We can only hope, Mr. Chair, that the recommendations and the criticisms of the past will have improved the process going forward. We'll have to, obviously, do the audit before we can comment on the current process. But as I said earlier, I would just like to remind the committee that we have taken the position that ACANs are not competitive. So we would have to see under what circumstances they are being used and whether that justifies them.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

There was a situation in the 1990s when we did have a sole-source contract, and that was in the purchase of the Challenger jet for the Prime Minister to ride around in. It only took a matter of days to complete that procurement. This was a procurement project that had to be run through the defence department, through the same system we're examining today.

How was something like a Challenger jet justified as necessary for meeting the needs of the cabinet of the time and the leadership? How did it get approval so quickly? Why is it, in your opinion, that it takes so much longer, as long as 15 years, to get our troops the equipment, when they need that in order to defend our country?

[The Chair, Conservative, Rick Casson]

Madam Fraser, we're out of time on that round, but the question has been asked. If there's any comment you would want to put forward, I'll give you a second here.

[Sheila Fraser]

I'd just inform the committee that we did do an audit of the purchase of the two Challenger jets in November, I believe, of 2003, and we concluded that those purchases did not demonstrate due regard for economy and did bypass existing practice.

[The Chair, Conservative, Rick Casson]

Thank you.

Now I've been informed, and Mr. Coderre mentioned it in his comments, that he wanted to bring a motion forward, so I want to leave just a few minutes at the end to do that. We have to be out of here at eleven for the finance committee.

So, Mr. Cannis and Mr. Blaney, I'd like to give you both an opportunity, but if you could keep it brief, I'd appreciate it.

[John Cannis, Liberal, Scarborough Centre, ON]

I'll be very brief. I'll just ask the question, and then I'll defer my time to Mr. Coderre.

First of all, welcome, Ms. Fraser and colleagues.

My question's predicated on the question Ms. Gallant just put. You can hopefully send this information to the clerk, and it will be distributed.

She talked about ongoing purchases for military needs after 1994, which you audited. Would you be so kind, within your department, to send us a summary of what purchases were made? I know that the other day 12 frigates, built in 1995 or 1996, were mentioned. If you'd be so kind, could you give us a list of what was purchased at that time?

Mr. Chair, I'll leave it at that. Thank you very much.

[The Chair, Conservative, Rick Casson]

Okay, well, I'll give Mr. Blaney a few minutes, and then I'll make sure we have time to deal with this motion.

Go ahead, Mr. Blaney.

[Steven Blaney, Conservative, Lévis—Bellechasse, QC]

Thank you, Mr. Chair.

[Sheila Fraser]

Could I just ask for clarification? Would it be a list of what we have audited? We may not have all the information of what has been.... We could get it, perhaps, but it would be what we have audited, I presume.

[John Cannis, Liberal, Scarborough Centre, ON]

Yes, we'd like all the information you have or whatever else you can add within your guidelines.

[Sheila Fraser]

Okay.

[Steven Blaney, Conservative, Lévis—Bellechasse, QC]

Thank you, Mr. Chair.

Madam Auditor General, it is always a pleasure to welcome you. Your tremendous probity is a credit to this government, the public service and the Chaudière-Appalaches region in Quebec, where you worked.

Madam Auditor, there is one question that we have not really explored this morning. Recently, you shared your concerns regarding the state of the Coast Guard fleet. Furthermore, in your previous reports on defence, you often mentioned your concerns over cuts made in the past to the defence budget and their impact on the army, since it is also your responsibility to ensure that federal infrastructures are running smoothly. I would like to hear your comments on this.

You mentioned that you have some concerns with respect to aircraft, in particular. Do you believe the situation is improving? In your upcoming reports, will you concern yourself with getting the government to ensure that the Canadian Forces has the equipment it needs to fulfil its duties?

[Sheila Fraser]

Thank you, Mr. Chair.

Our concern in the past had to do with the gap between expectations and funding. There is no doubt that this was interpreted as the Auditor General calling for greater investment in defence, but that was not really the case. We also could have adjusted expectations, but there was a gap between what was being asked of the Canadian Forces and the funding that was allocated, and clearly, we saw a problem in that regard. I cannot really comment on the future, because we would have to see the proposed plan and structure in future audits.

[Steven Blaney, Conservative, Lévis—Bellechasse, QC]

You are referring to the gap between financial resources and the needs determined by government policies. Is that correct?

[Sheila Fraser]

Yes, in part, and how DND defines the policy.

[Steven Blaney, Conservative, Lévis—Bellechasse, QC]

Very well. Thus, it is important to strike a balance between the two.

[Sheila Fraser]

Yes, that's right.

[Steven Blaney, Conservative, Lévis—Bellechasse, QC]

Thank you.

[The Chair, Conservative, Rick Casson]

Thank you very much.

Thank you, Auditor General, for being here. We always appreciate your comments. In this realm we live in, in the political life, things are never black and white--they're always kind of grey--but not when you do an audit. We understand you work within very strict parameters and do a tremendous job for the citizens of Canada.

Thank you very much.

Mr. Coderre.

[Denis Coderre, Liberal, Bourassa, QC]

Thank you, Mr. Chair. I could have specified, for the benefit of my colleague, Ms. Gallant, that since the Challengers were purchased, the Prime Minister has been enjoying going to hockey games.

The motion reads as follows:

That the Committee recommend that the Auditor General investigate the current military equipment procurement process and audit in particular the contracts (and invitations to tender) and selection criteria process of the five projects announced by the government, to wit: the acquisition of strategic airlift transport, the replacement of tactical transport aircraft, the purchase of trucks, the replacement of helicopters and the replacement of fixed-wing search and rescue aircraft.