National Defence Committee on June 1st, 2009

[Sheila Fraser]

I cannot say that it was improper, no.

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

Now I am going back to the $300 million. Usually, the department reacts to your recommendations.

What has the department done? You said earlier that the department had created an additional financial control position, correct?

[Sheila Fraser]

The department has created a finance committee. It has also put someone in charge of finances, I believe, a CFO, a chief financial officer. Having someone in charge of the finances is new.

Those are two of the announcements they have made.

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

In your opinion, will that really ensure that the problem is corrected?

[Sheila Fraser]

It should help, but you do not necessarily move ahead simply by creating a committee. If the committee plays the strategic role we expect, and if there is more integration of services and plans, that can go some way to correcting the problems we pointed out.

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

My last question deals with capital expenses, and operation and maintenance. As you know, when the department makes major procurements, often half of the contract is for the purchase and the other half is for maintenance, the support services.

In your opinion, after your investigations, is it realistic for 34% to go for operation and maintenance and 21% to go to the purchase? Is that a normal division?

[Sheila Fraser]

Those were the figures we received from the department, but we did not look into the details of the various projects.

[The Chair, Conservative, Maxime Bernier]

Thank you, Mr. Bachand.

Mr. Payne.

[LaVar Payne, Conservative, Medicine Hat, AB]

Thank you, Mr. Chairman.

Thank you, Madam Fraser, for coming and to your officials for being here today to discuss these very important issues that we have in terms of financial accountability in the forces. I do believe that managing a budget of $19 billion is a huge task in itself. I've managed much smaller budgets, and I've had difficulties myself in doing that.

I'm just wondering if you are aware of any particular system that might be in place already to help us override this difficult situation, into which all the different organizations within DND could feed to give you a very comprehensive view.

[Sheila Fraser]

I don't believe it's a question of one system. They do have an accounting system, so that would provide them with the information.

What's really difficult is the forecasting, getting people to tell you early enough if they think they're going to spend the funds they have available to them and getting them to not be too cautious in that so that they disclose any possible surpluses early enough in the year so that you can actually do something about them. I'm not sure that having the department find out in February or March that they had $300 million would serve them well.

So it's really about the rigour with which people do the forecasting and about how realistic they are with regard to whether they will actually spend that money. Again we come back to the question of this chief financial officer and more attention being paid by senior managers, and to looking at those systems and even perhaps at the training of some of the people who are doing this work.

[LaVar Payne, Conservative, Medicine Hat, AB]

On page 13, in paragraph 5.41 of your report, you say that there are a large number of independent systems and that many of them are certainly designed to support operational requirements and not necessarily financial management. I wonder if, in your view, those positions should be reversed. Should we be looking at financial management versus operational requirements as the one that has the highest priority?

[Sheila Fraser]

The accountants would probably tell you yes. I'm not sure that's the right answer, though. I know we have issues every year when we do the financial audit at National Defence around things like inventories and fixed assets. The systems are just not designed for that.

It would be nice to have systems that respond to operational requirements but also provide the accounting information that is needed. There would be, I suspect, a fairly significant price tag attached to all of that to change these systems. How they bring this into place is something I think the department should look at, again over a longer term.

I know, for example, that we used the inventory example. They've spent three or four years trying to get better information just into the inventory system. It is a big challenge, and it can be very expensive to change these systems.

[LaVar Payne, Conservative, Medicine Hat, AB]

I believe the operational one certainly has the priority, not to diminish financial, because we are responsible to the taxpayers as well. And I'm not sure how they'll find that right balance.

That takes care of the couple of questions I had right at the moment.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Ms. Fraser, you talked about the personnel in NDHQ and splitting up military tasks and civilian tasks. Maybe you could make a quick comment on the fact that NDHQ and the military--CF and DND--are a very highly integrated operation, military and civilian, and the difficulty or impracticality of trying to split and having civilian staff here and military staff there.

[Sheila Fraser]

We recognize that. I think we see that there is a lot of integration, I would say, of the military staff and the civilian staff. I think it just has to be recognized--and I'm maybe going too far--that when you have a military member, his or her first loyalty is to the military. So when you have a deputy minister who has the responsibility of financial management and is the accounting officer, I think that can create problems and issues for the deputy minister. And I think we said it needed to be realigned. People needed to be perhaps a little more aware of that and certainly aware of the new policy and adapt to that.

I would hope that a new chief financial officer and a finance committee would help to resolve some of those challenges.

[The Chair, Conservative, Maxime Bernier]

Thank you.

Mr. Bagnell.

[Larry Bagnell, Liberal, Yukon, YT]

Thank you.

Ms. Fraser, were you serious that it's bad to overspend? Don't they just come back with supplementaries? I remember earlier this year we had the Minister of Indian Affairs, and it turned out that every year they automatically planned to have supplementaries.

[Sheila Fraser]

You can't end the year overspending—that's what the issue is. It has happened very rarely, and when it's happened it has not been a good time for the department or agency that did it. If you can get supplementaries, that may be all right, but we live in a world where things can change quickly. In years in which there's talk of elections and things, you don't know if you'll be able to cut a supplementary. Moreover, if you start the year off planning to spend more than Parliament has actually voted to you, it doesn't sound like you're being very transparent with parliamentarians.

[Larry Bagnell, Liberal, Yukon, YT]

It might be interesting, if you don't already do it, to go through all the departments every year and check what they do supplementaries on. If you start to see patterns, you could ask whether they aren't just manipulating things so the budget looks different.

With respect to procurement, departments of defence throughout the world are often obliged to make lightning-quick decisions—whether they're saving their countries or helping other countries. Are the decisions made quickly enough? They have problems. First of all, there are huge expenditures. We get complicated by Canadian benefits. We want a secure producer making the equipment—not the Taliban or some such group. And the situation is always changing. The worry is not embarrassment produced by the Auditor General--if we fail in this, Canadians die. By the time we get these procurement things done, new technology has developed that could put us at a disadvantage and cost lives.

[Sheila Fraser]

I can't talk about the audits that are ongoing, but I'm sure we will look at that question. We looked at the CF-18s and found that actually the timeline was extremely long—14 years, I believe. We tried to see why, and there were a number of issues. One was funding throughout the process—the difficulty with the parliamentary process of voting funds year by year. You start into these projects, and you have no certainty that the funds will be available to you in succeeding years, so you have to go back constantly with funding proposals. Those questions, I know, have come up. We will see in these future audits if they come up again.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

Would it be fair to say that if the government gave DND more money to create a more sophisticated system of financial management we might not be having these issues surface so often? In other words, there has to be the political will to deal with this issue.

[Sheila Fraser]

That's true in part, but it's also a matter of whether the department has the expertise and capability to do these things well.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

In procurement, the whole bureaucracy is complicated in its ability to execute. It's been suggested by a number people that maybe there isn't the right personnel to get through that maze at DND.

[Sheila Fraser]

That's not something we've looked at. We have looked at project management, though, and we have seen problems there. That could certainly be an issue. Systems are important, but the critical factor is the people who use the data, operate the systems, and do the analyses.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

Often we hear about an announcement, and then the money isn't spent and it doesn't move forward. Maybe it's on purpose—I'm not sure sometimes. There seems to be a lapse between the announcement and the actual spending. As you've pointed out, sometimes the money isn't spent at all, but the announcement's been out there.