National Defence Committee on June 1st, 2009

[Claude Bachand, Bloc, Saint-Jean, QC]

The person primarily responsible is Deputy Minister Fonberg, but there is also Admiral Rouleau, who is Vice-Chief of the Defence Staff , and the Assistant Deputy Minister of Finance and Corporate Services. Those are the three people who decide the distribution between the different sectors or environments, or whatever they are called.

[Sheila Fraser]

I am told that the Chief of the Defence Staff is the person primarily responsible for capital expense planning.

[Claude Bachand, Bloc, Saint-Jean, QC]

What is the relationship between the two deputy ministers? Does the Chief of the Defence Staff develop the original plan and send it to the other two for study? Is that how they do things?

[Sheila Fraser]

We did not specifically look at that. But we did look at the governance structure because a number of financial responsibilities fall under the mandate of the Vice-Chief of the Defence Staff. But government policies designate the deputy minister as the senior accounting officer. There was a little confusion, not to say incompatibility, in the two roles. We are told that this was subsequently changed.

[Claude Bachand, Bloc, Saint-Jean, QC]

That is my concern. I am not sure that the role of each of the people we have just listed is clearly defined.

Who does the defining? The department? The Treasury Board? Who has to say that each of those roles is not clearly enough defined?

[Sheila Fraser]

The policy on financial management is very clear: the deputy minister is the senior financial officer, the accounting officer. We noted in the report that changes were necessary because there was no senior financial officer. Quite honestly, there was perhaps a little too much military control over civilian matters.

We are told that was changed after the audit. You could ask the department what changes were made and what the subsequent results were.

[Claude Bachand, Bloc, Saint-Jean, QC]

Right.

Perhaps the subsequent result was that, in 2007-2008, they forgot $300 million that the Department of National Defence then lost.

[Sheila Fraser]

In my opinion, that is because the systems and the data were incomplete. But we have to recognize that they have a sizeable challenge: to manage their costs to within 1% of the budget. Other departments have a limit of 5%. That is why we say they need more sophisticated systems that would give them information more quickly and allow them to make decisions.

[Claude Bachand, Bloc, Saint-Jean, QC]

Who decided that the limit was 1% for the Department of National Defence, not 5%?

[Sheila Fraser]

The Treasury Board made that decision, but it has been that way for several years.

[The Chair, Conservative, Maxime Bernier]

Thank you very much, Mr. Bachand.

I will give the floor to Mr. Harris for seven minutes.

[Jack Harris, NDP, St. John's East, NL]

Thank you, Mr. Chairman.

Welcome to our committee. It's a pleasure to meet you.

I'm new to this committee and new to Parliament, at least this time around, so I'm going to ask a naive question.

In paragraph 5.74 of your report, you referred to past audits. In fact, you say that since the early 1990s you've identified financial management and controls as areas requiring attention. You refer to corporate-level planning being inadequate in regard to resource allocation, information not being available to decision-makers, a lack of identified results and performance data, and progress on data warehouses being slow. It goes back over a period of 15 years or more, and some of these problems seem to be related to the same kinds of problems you're raising in this report today.

In your view, is that unusual in government, that you can identify these things again and again and we're here 15 years later saying they need better management controls?

[Sheila Fraser]

I wish I could say it was unusual. Unfortunately, it happens more than we would like.

[Jack Harris, NDP, St. John's East, NL]

Do you have any confidence, Ms. Fraser, that this time we're really going to do it and get it right, that we're going to be good boys and girls in DND from here on in?

[Sheila Fraser]

I think auditors always remain cautiously optimistic.

[Jack Harris, NDP, St. John's East, NL]

It just seems to me that it has been a problem for a long time and it requires some significant changes, or at least some significant effort.

I'm looking again at the governance chart in exhibit 5.5. The senior management structure of the department, with the minister, of course, on top, seems rather unwieldy in the sense that the ADM of finance and corporate services is reporting to the deputy minister but all the bigwigs seem to be outside that circle. Does that management structure give you confidence in terms of being able to really take control over financial management?

[Sheila Fraser]

We note in here that there were some issues with the governance structure. In April 2009 the Treasury Board had issued a policy essentially on financial management, but it was known quite a bit before that.

There were two major things in that. One was that there should be a chief financial officer named. There was no one actually designated as such. As well, the deputy minister is the accounting officer, yet we found that much of the responsibility was with the vice-chief of the defence staff, and being part of the military, his reporting relationship, even though it shows that he's to report to both, would be more on the military side. It was to rebalance things, to be blunt, and to have more civilian oversight and responsibility on financial management.

[Jack Harris, NDP, St. John's East, NL]

Thank you.

A number of people seem to think the military role is well defined in DND, but financial management is not necessarily well done by the military people. Would you agree with that?

[Sheila Fraser]

I hesitate to make that judgment. We have to be very careful to ensure that the civilian part of this plays a really important role, because there are very clear responsibilities given to the deputy minister. So even to look at whether military people should fill some of these positions or not, I think there should be broader questioning of how financial management should occur. But we certainly found in this report that they did not conform with the Treasury Board policy at the time of the audit. Now I understand that has since been changed.

[Jack Harris, NDP, St. John's East, NL]

You spoke about the over-programming efforts by the department. I suppose to some extent you'd want contingency plans in case more money was available. Is that a function of the low tolerance--the 1% of budget? Would this department be better off and the public no worse off if the $200-million ceiling on being able to carry forward were removed and they were given the same 5% leeway as other departments in carrying forward?

[Sheila Fraser]

I can understand why the limit is much lower, because 5% would be $1 billion. It could significantly impact the fiscal framework, so I think there was a good reason for putting that lower limit in place.

I am concerned, though, because as the department goes into many more capital acquisitions on some of these very large purchases or projects, $200 million from one year to the next could happen very easily. So maybe the department and the government should look at how to carry forward for capital projects--perhaps not the operational ones.

But I think the department will have increasing challenges. It doesn't take much to move costs from one fiscal year to the next, and when you're into multi-billion-dollar long-term capital investments, that's an issue the committee might want to explore.

[Jack Harris, NDP, St. John's East, NL]

So that carry-forward applies to capital projects as well as this. That gets me to my next question, and I know others have raised it. The joint support ships was a big project. A tender was cancelled, despite the fact that many people believe the department knew all along that it couldn't be done for the amount suggested.

I'm very interested in when we might hear from you on the procurement audit. Is that a planned audit? Is it already scheduled?

[Sheila Fraser]

We have a number that are under way. We are currently doing an audit to report this fall on vehicles for use in Afghanistan.

The next one after that, in 2010, is the helicopters project. Then we are considering doing an audit in 2011 of cancelled bids, or bids that were not successful, to see what happened in some of those and why.

[The Chair, Conservative, Maxime Bernier]

Thank you, Ms. Fraser.

I will give the floor now to Mr. Hawn for seven minutes.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Thank you, Mr. Chair.

Thank you, Ms. Fraser, and your team for being here.

I have a couple of quick points. The JSS project was not cancelled; it was postponed due to lack of compliance. It's still part of the Canada First defence strategy.

The carry-forward is actually not 1% fixed; it's $200 million fixed. As the budget grows that percentage goes down, and that's where I think it's become a problem for the department at this point. Is that fair?

On the over-programming we've talked about, $500 million is a big figure but it's only 2.6% of the annual budget. Do you have any frame of reference with other departments for similar over-programming? Is 2.6% high, low, or normal?