National Defence Committee on June 1st, 2009

[Sheila Fraser]

No. The department should be able to give a rationale as to the level and whether it is an appropriate level or not.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Is it fair to say that one of the difficulties in which they found themselves in that budget a couple of years ago was they weren't sure whether the transfer, midway through the year, of a significant amount of money to the department was coming or not? That exacerbated their ability to get it all accounted for by the end of the year.

[Sheila Fraser]

Probably. We note in the report that they were always able to stay within their carry-forward limit over the last four years. So they had the systems in place, and some of this was probably over-programming to be able to spend the moneys on projects they needed to do.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Speaking historically, the department had been able to manage the carry-over.

[Sheila Fraser]

The carry-forward, yes.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

I have a point on capital. There's a chart here that shows capital is now 21% of the DND budget. For many years capital was only 15% or 16% of the budget, which was causing very significant problems for the Canadian Forces in terms of modernizing fleets. They were falling further and further into rust-out because of that. Now they're up to 21%, and 20% is kind of the cut-off, in my experience. Above that, you can sort of maintain your capital position.

One of the things that happened in those years as well was, for a variety of reasons, the department lost a lot of its project planning capacity through attrition, downsizing the forces, and so on, for whatever the reason. Do you think that reduction in project planning capabilities back in the 1990s is having some impact now on their ability to manage some of their much larger programs?

[Sheila Fraser]

I would say we've seen that issue come up when we've done specific projects. One of the major issues that came up on the C4ISR was the turnover in project managers. A lot of the people didn't have a lot of experience and we saw problems arise from that, such as delays and overruns. I would suspect that's probably not atypical of some of the projects they have. That is one of the areas where they needed to rebuild their capacity in addition to some of the more technical trade areas.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Notwithstanding the fact that you've raised some excellent points in your audit and there are things obviously the department is currently seized with, these are the kinds of things that might take a number of years. You can't get ten years of experience in less than ten years.

[Sheila Fraser]

I would point out too that, as we say, they do have many elements of good financial management. They don't exceed their vote and for many years they have stayed within their limit. I think we've tried to recognize that this is a very complex department to run, but with increasing funding going in I think what the audit is trying to say is that they really need to step up their financial management, do much better overall corporate management, risk management, and have senior managers more engaged in the financial management process.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

With respect to Mr. Bachand's point about a seeming imbalance to air assets, the CFDS is a 20-year program. This may be a little outside your lane, but obviously in the years when we're buying airplanes, it's going to be heavy airplanes, and in the years when we're buying ships, it's going to be heavy ships. Is it fair to say that what's important is the 20-year plan and how everything gets balanced and flowed through that entire program?

[Sheila Fraser]

That's right; it's the long-term plan going forward, how that matches with capabilities and needs, and how that is going to be met over the longer term.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

You talked about this and Mr. Harris addressed it as well: some of these shortcomings have existed for quite a long time. Do you have any sort of view on how far back in history, or is this sort of a continuous thing that is continually commented on and continually refined?

[Sheila Fraser]

I would say, probably in just about all the audits we've done on National Defence that have touched financial management, we have noted problems. Many of them, as I mentioned in the opening statement, result from systems that were put in for operational requirements and not for financial management. We even raise this when we do the audit of the Public Accounts. The inventory systems were never designed to value inventory on financial statements. There are real challenges in converting some of those operational systems into systems that can also provide financial information. I think the requirements and the sophistication of financial management have changed quite significantly over the years. The systems and the expertise of the people also need to follow suit. I think we're seeing many of those issues coming up in our audit.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

It's fair to say that this kind of thing has been a challenge not just for the Department of National Defence, but for other large departments for decades.

[Sheila Fraser]

I would say yes, for most of them, but there are very few that are as big and complex as this one.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Yes, this obviously is a big one.

In the report, DND has agreed with all the recommendations. You said you really can't assess how they're doing with those because they haven't done them yet, but are you generally satisfied with DND's response? Do you think the things they've said they're going to do will address the recommendations you've raised? Are there things they didn't suggest they might do that you think they should?

[Sheila Fraser]

I think we've seen that they agree with the recommendations. Certainly the deputy minister has indicated that he is in full agreement and is working to do this. The fact that we have seen some announcements fairly recently, right after the audit was released, is a good sign. My only hesitation is that many of these issues will take a long time to do, and I wonder if there will be that sustained attention to addressing those issues over the longer term.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

This is probably a question you can't answer, because it will vary depending on the recommendation, but do you have any sense of when we should ask the department for feedback on how they're doing?

[Sheila Fraser]

We often suggest to committees that they ask for detailed action plans. The public accounts committee does this as a matter of course. The action plans set out quite concretely what the department is doing to address its problems. In the action plan, they can set their own timelines for carrying out the recommendations. Other committees sometimes ask for regular updates on where they are in the action plan, and whether things are proceeding as they expected.

[The Chair, Conservative, Maxime Bernier]

Thank you very much.

I now give the floor to Mr. Coderre.

[Denis Coderre, Liberal, Bourassa, QC]

Thank you, Mr. Chair.

The devil is in the details. For sure, when we are talking about billions of dollars, people do not necessarily understand. When you say that there is a problem with financial management, I sometimes have the feeling that the left hand does not know what the right hand is doing, that it seems like an “open bar”, that there is no control at all. You would certainly not be satisfied with a pat, vague answer like: yes, we agree with you and we are going to take care of it.

Earlier, you mentioned personnel specifically. When 44% of the budget goes to personnel, it is important to check whether or not there are abuses and to compare what was done two or three years ago with what is done today.

It seems that a common practice is for a number of the regular forces to take early retirement as soon as they are eligible. So they retire one day and then, the next day, they are doing the same job but as reservists, in the “full-time” category. According to my information, between 3,000 and 4,000 military personnel could have done this, with ranks from corporal to colonel. The result is a cost to taxpayers of almost one and a half times a regular military salary.

Are you able to tell me about this practice?

[Sheila Fraser]

Unfortunately not. We did not look into that.

[Denis Coderre, Liberal, Bourassa, QC]

Given that we are talking about 44% of the budget, what personnel matters did you look at? Just that there are not enough people to keep track?

Earlier, you talked at length about the imbalance between civilian and military. Maybe it fell between the cracks, as they say, and went unnoticed. You did not look at it at all?

[Sheila Fraser]

We did not look at that issue. When we did audits in human resources matters, it was more about the long-term planning, the need to fill key positions, training, and shortages in critical areas. To answer your question, we did not do detailed audits.

And when I mentioned civilian responsibility vis-à-vis military responsibility, I was referring to responsibility for financial management.

[Denis Coderre, Liberal, Bourassa, QC]

When you mention the $300 million that they had to give back, this was not from the capital budget, this was money for operations. How do you explain the needs in services? That is operations money.