Public Accounts Committee on June 17th, 2008

[The Chair, Liberal, Shawn Murphy]

I want to welcome everyone here.

This meeting, colleagues, is called pursuant to the Standing Orders. The committee today is dealing with chapter 2, “Support for Overseas Deployments—National Defence” of the May 2008 report of the Auditor General of Canada.

We're very pleased to have with us, from the Office of the Auditor General, Mr. Hugh McRoberts, Assistant Auditor General, and Wendy Loschiuk, Assistant Auditor General. From the Department of National Defence, we have the accounting officer and deputy minister, Mr. Robert Fonberg; the present Vice-Chief of the Defence Staff, Walter J. Natynczyk—soon to be elevated, and congratulations again; Dan Ross, assistant deputy minister, materiel; Major General Timothy Grant, Deputy Commander, Canadian Expeditionary Force Command; and Major General Daniel Benjamin, Commander, Canadian Operational Support Command.

On behalf of all members of the committee, I want to extend to everyone a very warm welcome.

Mr. Sweet.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

Could I just ask if this meeting is televised? Is this video for DND purposes, or it is fully televised?

[The Chair, Liberal, Shawn Murphy]

The meeting is televised.

I'll ask the clerk to explain.

[The Clerk of the Committee, Mr. Justin Vaive]

A request came in yesterday evening from the press gallery to have a CTV camera in the room to video-record the proceedings per the guidelines that were set out by the procedure and House affairs committee several years ago. It's actually a fairly routine thing.

The main reason is that we're not in a televise-equipped room, and sometimes the media would still like to cover a meeting, so they make a request through the press gallery to video-record footage of the meeting. They do have to cover the meeting gavel to gavel, and the camera must be focused in on the member of the committee who is recognized to speak by the chair. So there is no panning. They cannot move around the room, in that respect. It's obviously for their news footage for later in the day or week.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

That clarifies it fully. Thank you, Mr. Chairman.

[The Chair, Liberal, Shawn Murphy]

Thank you, Mr. Sweet.

We're now going to hear the opening statement from Mr. McRoberts.

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

Thank you, Mr. Chairman.

Mr. Chair, thank you for the opportunity to discuss chapter 2 of our May 2008 report, “Support for Overseas Deployments—National Defence”. I am pleased to speak to you today about this important topic, as operational support is the foundation on which military missions rely.

With me is Wendy Loschiuk, Assistant Auditor General, who was the principal responsible for our defence audits at the time this audit was under way.

Our objective for this audit was to examine the logistical support provided to the Canadian Forces mission in Afghanistan. We focused on whether the supply chain is moving needed equipment and supplies into theatre in a timely way and whether it can keep track of stocks in theatre.

In doing this, we wanted to ensure we fully understood the demands of support personnel in Canada and in Afghanistan and that we had the right perspective and appreciation for the challenges they face. To do this, we followed the supply chain from Canada into Kandahar airfield, where we saw first-hand the hard work and dedication of our Canadian Forces members.

We found that it is this hard work and dedication that is keeping the supply chain going. National Defence has been able to deliver to its troops the equipment and supplies they need to do the job, and personnel are finding ways to maintain the equipment and weapons. However, the operation has been challenging for them. The Canadian Forces has had to adapt and adjust as the Afghanistan mission has changed and demands on logistical support have increased. This mission has tested the ability of the Canadian Forces to support a major operation.

National Defence has adjusted to the mission demands in several ways: by chartering civilian airlift to help move about 85 tonnes of equipment and supplies each week; by borrowing or stealing spare parts from one piece of equipment to make timely repairs to another; by sending technical assistance teams to visit Kandahar airfield to help when backlogs build up; by hiring civilian personnel to provide support, especially in the maintenance functions and for the hospital; and by making do with what they have to accomplish objectives according to circumstances.

Some weaknesses in the supply chain are understandable, considering the changes in the mission since 2003. Audits by our colleagues in the U.K. and the U.S. have reported problems in their deployments similar to those we have found in ours. Their findings suggest to us that given the lengthy experience of both these countries in conducting overseas deployments, some of the problems we found are inevitable where there are long supply chains supporting thousands of personnel. Nonetheless, we believe it is important to be aware of these problems and to be addressing them.

We found that there is some cause for concern as supplies are arriving late and significant amounts of supplies cannot be accounted for. Most items requested from the supply system by Kandahar airfield do not arrive on time, including spare parts needed to keep equipment and weapons working. Shortages in spare parts make it harder to maintain some equipment and weapons in an environment that has already put considerable wear and tear on fleets. For the most part, combat fleets are meeting operational expectations, but reserve stock for some combat equipment has been declining. Some support vehicle fleets, such as land mine detection systems or trucks for transporting supplies, had very low rates of serviceability.

Commanders have expressed their concerns about shortcomings in the supply chain and the difficulties these have added to conducting the mission. Nevertheless, we found no reports that, according to the commanders, supply chain problems had caused a significant impact on operations.

Tracking supplies was also a problem in Kandahar. While we appreciate that the camp is large and shared by several countries, we nevertheless expected that most supplies once received would be readily retrievable. Supply technicians at Kandahar airfield manually record that items have arrived and in which container they have been stored. Given the volume of goods arriving on any one flight, this could be quite a challenge and has added to the difficulty of keeping track of items.

We are pleased to note that National Defence takes this matter very seriously, and at the end of each rotation does an inventory count. However, these counts have shown that several million dollars' worth of items either could not be located or were there but had not been entered into the records.

National Defence has agreed with all the recommendations in our chapter. The department has also prepared an action plan that we believe represents a reasonable approach to addressing the concerns we have raised. We are happy to see that their plan includes objectives and target completion dates.

Mr. Chair, this concludes my opening remarks. We would be pleased to answer any questions.

Thank you.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. McRoberts.

We're now going to hear from the Deputy Minister of National Defence, Mr. Robert Fonberg.

Before you start, Mr. Fonberg, we usually ask witnesses to keep opening statements in the vicinity of five minutes. I notice yours is 15 pages long. I don't know how you plan to deal with it. Perhaps I'll let you go for a while and see how you do, but we would like to keep it to five to seven minutes if that's possible.

[Robert Fonberg, Deputy Minister, Department of National Defence]

Thank you, Mr. Chairman. I will speak quickly.

[John Williams, Conservative, Edmonton—St. Albert, AB]

We can get that entered into the record, Mr. Chair, and perhaps he can give us a synopsis of it.

[The Chair, Liberal, Shawn Murphy]

It will definitely be entered into the record, in any event, Mr. Fonberg.

[Robert Fonberg]

I'm sorry, I didn't hear the question.

[The Chair, Liberal, Shawn Murphy]

Mr. Williams' point is that your document will be entered into the record and will be part of the record.

You can go ahead, sir.

[Robert Fonberg]

Thank you.

Mr. Chairman, members of the committee, thank you for the opportunity to speak with you today.

You have already introduced my team. I don't need to do that again.

I would obviously like to thank the Auditor General and her staff for her report and for their presence here today.

Mr. Chairman, I would like to spend just a few minutes outlining for the committee some of the complexities involved in the supply chain that supports the Canadian Forces.

Every day, Canada's men and women in uniform depend on a supply chain for resources, food, medicine and equipment—often required on an urgent basis—which will allow them to do their job effectively. The military supply chain is a highly complex process with many components. Personnel located in Canada must acquire the supplies, transport them to users and manage inventory for the most demanding of operational environments.

This currently involves shipments by air, as the Auditor General has said, two to three times a week to transport approximately 85 tonnes of equipment and supplies to a destination 12,000 kilometres away. At Kandahar airfield, the Canadian Forces receives supplies and equipment from all over the world, including direct shipments from places like France and South Africa. A sea shipment may originate at the port of Montreal, transit in a place such as Pakistan, and then be driven overland into theatre. Once in Afghanistan, materiel and spare parts are moved from the base at Kandahar airfield to five different forward operating bases, as well as several remote sites, on a daily basis.

As the threat environment evolves, there is a need to deploy different or additional capabilities, spare parts, and other supplies on a regular basis. Adapting and adjusting to challenges in the supply chain helps ensure that the Canadian Forces continues to get the right equipment and resources to the right place at the right time.

The Department of National Defence welcomes the recommendations made by the Auditor General in her May 2008 report. The committee has asked about a $7.1 million deficiency found during an inventory review in Kandahar. Additionally, while the committee did not request information on the $6.6 million in surplus items highlighted by the Auditor General, I would like to speak to these briefly as well. Together these are a measure of overall supply chain efficiency.

An explanation of the discrepancies is included in a report requested by the committee, which I understand has been tabled with the committee.

The time period under which the Auditor General conducted her review includes the most active window of combat operations for the Canadian Forces since the Korean War. Undoubtedly, this intense period of combat has had an impact on the accuracy of supply record keeping, and this has been a real challenge for us.

We take our responsibilities and accountabilities for the effective and efficient management of our materiel holdings extremely seriously. We strive to maintain the highest standards in that respect. This is why we are one of the few nations that does stock-taking in theatre every time we do a troop rotation. Our major allies only do this type of accounting at the end of the mission. In fact, Canada is a leader among the armed forces of the world for inventory stock-taking.

Having the strict security parameters within which the Canadian Forces operate in Afghanistan gives us considerable confidence that the vast majority of the unaccounted-for items on the $7.1 million list are in fact stored somewhere within our secure compounds, or were actually used for equipment repairs or upgrades. However, due to the exigencies of a manual supply chain operating in a combat theatre, supplies and equipment may be unaccounted for. At present every effort is being taken to account for these variances. Over 5,000 investigations have been conducted into the $7.1 million deficiency and the $6.6 million surplus, including a number that are still ongoing.

To date the findings have consistently demonstrated that these discrepancies are the result of accounting variances, which are a combination of variances that result from manual entries into the CF information systems in theatre; misidentification of goods and spare parts by supply technicians who are unfamiliar with new equipment and parts arriving in theatre, some directly from manufacturers; and shortages in personnel caused by operational tempo.

These variances were compounded by the need to transfer assets to forward operating bases and a lack of connectivity to CF support systems. For example, supply technicians in these austere locations had no automated tracking system for items.

The urgent need for certain equipment in Afghanistan also increased the pressure to deliver assets quickly. As a result, some were introduced without proper identification for tracking purposes. In addition, we cannot dismiss the difficulty in accounting for items destroyed or abandoned due to engagement by the Canadian Forces with enemy insurgents.

I am pleased to note that in spite of these challenges, the Auditor General does confirm that National Defence has been able to deliver to troops the equipment and supplies they need.

While we take extremely seriously our accountability for managing every taxpayer dollar voted to us by Parliament, the fact that there is a $7.1-million deficiency is in some ways nothing short of remarkable. This deficiency, along with the $6.6-million surplus, represented only 1.28% of the $1.072 billion of equipment and inventory held in Afghanistan. We also anticipate that a very significant proportion of these surpluses and deficiencies will be resolved when we do complete a full reconciliation of accounts at mission close-out and that very little of the materiel will in fact be assessed as lost.

That said, we have learned from this experience and the recommendations made by the Auditor General. I would like to address what measures we have taken to resolve the issues you identified, including those relating to the monitoring, tracking, and management of the supply chain.

Mr. Chairman, Canadian Forces and the Department of National Defence have reinforced specific efforts aimed at enhancing compliance and oversight. We regularly send in assistance teams to review stock levels and address problems with the supply chain in theatre. Specialized teams will have received the transfer of spare parts from the manufacturer's factory to Canadian Forces operations in Afghanistan. These teams will ensure that new parts are entered into the inventory system immediately upon receipt. We've also increased the number of supply technicians available to provide dedicated stock-taking and investigation capabilities.

Further, we have developed an action plan to address the problems identified by the Auditor General, which I understand was also tabled with the committee.

Please allow me to outline for you some of these measures.

In addition to the current consignment tracking system in theatre, a phased asset visibility project is currently under way to ensure timely and accurate tracking of inventory. An interim radio frequency identification has been established to track assets moving to and from Afghanistan. We expect a final solution based on a Canadian approach by the end of this year.

In addition, the department is currently introducing a hand-held bar code reading capability in Canada, which we hope to evaluate in Kandahar this summer. This will help deal with the manual entry issue in theatre.

Mr. Chairman, while the Auditor General found no reports of supply chain problems that had significantly affected operations, we recognize that this is due in significant measure to the dedication, hard work, and ingenuity of the troops on the ground. While we currently have a supply system accuracy rate of nearly 99%, we will continue our best efforts to help the Canadian Forces respond to the demands of Canada's mission in Afghanistan. Again, we take our accountability for managing taxpayers' dollars extremely seriously.

I wish to thank the committee for the opportunity to address this issue today and would welcome any questions you may have.

Thank you.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Fonberg.

I want to raise a couple of matters before we go to the first question.

The first item, colleagues, is that I just want to take this opportunity to introduce our colleague, Jim Maloway, who is the vice-president of the Manitoba public accounts committee. He has business today. Jim, would you stand up and be recognized? Welcome to the meeting.

The second item is that I just want to caution members that today this meeting is called to deal with all the issues raised in the Auditor General's report, chapter 2, “Support for Overseas Deployments—National Defence”; in other words, the supply chain. Some of the other related issues are controversial—they've been in the news lately—but the chair will certainly be looking for relevancy in the questions.

Mr. Wrzesnewskyj, you have seven minutes.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Thank you, Chair.

Welcome, Mr. Natynczyk. We certainly look forward to meeting with you more often as you take us through probably the most difficult period of our Afghan mission, through to December of 2011.

Mr. Natynczyk, in the last little while we've had a backdrop for this particular chapter. We've read reports of difficulties the government is having with procurement. What's of special concern is difficulties in procurement of equipment that's necessary for the ongoing mission in Afghanistan. We know we have a system that's supposed to meet requirements within 10 or 20 days. We see that the system is not functioning, not meeting its particular objectives. Some of those objectives perhaps are being met just strictly because of personnel deciding to step in and take things into their own hands.

How long do you figure it will take before we could revamp the system so that it actually meets its objectives of 10 to 20 days?

[Lieutenant General Walter Natynczyk, Vice-Chief of the Defence Staff, Department of National Defence]

Sir, I don't have the detailed information with regard to revamping the process to meet your requirement of 10 to 20 days. I do want to say, though, that in terms of the major equipment that our soldiers and sailors and airmen and women use on operations, and now specifically in Afghanistan, we've had a pretty good track record over the past few years. Going from identifying a requirement, especially when we see either tactics change or the environment in which we're working change, to such time as we're actually able to field something on the ground, we're very, very quick.

I'll just use the example of tanks in theatre with regard to Operation Medusa, going back to August and September of 2006. The requirement for the tanks going into theatre was identified on about September 6. Through a massive effort led by Dan Ross, who can probably address some of these things, working with Public Works, working with Industry, in terms of getting the spare parts and so on, supporting that piece of equipment, we got that piece of equipment into theatre within a month, in fact less than a calendar month. On October 3, 2006, I believe the first tank rolled off the aircraft in Kandahar.

Indeed, the parts flow had a different expenditure rate from what we had expected before. The tanks were not intended at that point in time to be used in theatre. So buying engines, buying transmissions, buying all kinds of spare parts, we changed the flow. We got great support from Public Works and so on.

I can use other anecdotes with regard to artillery, with regard to some of the armoured trucks. Again, we found that some of our armoured trucks were not sufficient for the new techniques and procedures that the Taliban were using. In very short order, as a result of an immediate operational requirement, our materiel people, working with Public Works, working with Industry, reacted to that, and we had vehicles on the ground.

I would defer to Dan Ross and General Benjamin to go further on this issue, sir, if you wish.

[Dan Ross, Assistant Deputy Minister (Materiel), Department of National Defence]

Perhaps I could elaborate in more detail.

Some of the challenges that were evident at the place in time when the Auditor General did her review were representative of the early introduction of equipment, without perhaps the normal time and space to deliver the integrated logistics support with normal spare parts.

Normally when you would embark on a major project--for instance, to buy the armoured trucks--you would have about two years before your armoured trucks would be delivered. In the intervening time, you'd build up your logistics stocks, your spare parts, your procedures, and you'd be ready for the armoured trucks.

In this case, we got armoured trucks delivered directly from the factory to the field, directly to combat. So you have a lag to get those spare parts and processes in place. It did take extraordinary efforts to do that. The entire supply chain, General Benjamin's command, and the troops in the field reacted to get the job done, but I have to comment that in those instances of tanks, Nyalas, Mercedes trucks and so on, we are catching up to that supply chain lag. We are building up those stock levels. We are finding fewer instances where there are urgent demands required.

As time goes on, I think we'll see with future stock-level reviews that the spike of variances will come down significantly.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Thank you, Mr. Ross and Mr. Natyczyk.

What I find a little disturbing is that the personnel actually have to, in your own words, make extraordinary efforts, or they have had to in the past. Perhaps at a later point we could take a look again at the system design and what's being done to make sure that we don't put this additional burden on the personnel of having to make extraordinary efforts every time it appears that we're missing equipment.

Is there an actual list? You say things are much better now. I understand that on Kandahar base there's a so-called graveyard of equipment. Some of it's been taken out by IEDs, and some other equipment has had to be cannibalized for parts. Is there an inventory of what's in that particular graveyard or of what's being cannibalized? Or is it just kind of ad hoc?

I'm just wondering if there's a list that you can provide this committee of equipment--especially when it comes to ground transport--that is needed, that we don't have in place for spare parts, that you're critically short of in Kandahar at this time. The worry there is not only the inability to meet field mission objectives; it's also, for our soldiers, the worry of jeopardizing life and limb.

So do you have a list that you can provide to this committee of what we're short of right now? And if you don't have that type of list, why not?

As well, what's in this “reserve” inventory, I guess, that you have in the graveyard in Kandahar?

[Major General Daniel Benjamin, Commander, Canadian Operational Support Command, Department of National Defence]

Mr. Chairman, basically procurement is through Mr. Ross's organization, and they bring most of the assets into our depot. I take care of the national depot here in Canada and I project this equipment into the theatre through the distribution process, which is worldwide and very complex, and we do the retrogrades, meaning bringing back all of that equipment. Once in theatre, it then goes to the theatre commander. General Grant in this instance is representing people taking responsibility of the kit there.

Part of my task is to make sure that we understand the full supply chain from the manufacturer to the theatre, understand the level of stocks, and understand whether in time and space we can bring it into that theatre at the right time and at the right place to make sure we don't compromise operations. We call it total asset visibility.

This is something my command is looking at. We're looking at all the assets there and trying to determine in fact what those choke points are. What we're seeing now, Mr. Chairman, as we procure many of the items, is that many of those items are procured worldwide off the shelf. I thought our supply chain would come from Canada to the theatre, but in fact we needed to have those critical pieces of equipment go directly into that theatre, so our supply chain in fact very often starts from the manufacturer and goes into the theatre of operation.

It's the first time that many of those capabilities are being exposed to this climate. It's 50-plus degrees, with very fine dust that gets into the mechanics and so on, so it's extremely difficult to forecast what is going to break. It's almost an art to understand what will break in three months and six months.

I monitor this very closely back through the supply chain to see if we have the repair parts in our depot in Afghanistan or in our depot here in Canada. If not, we see what the manufacturers have in their stocks, and how in time and space we can we bring it into that theatre. Just the right amount at the right time is something that I'm looking at, and I have this for every capability in that theatre.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

To continue on a point of order, I had requested whether we could have a schedule tabled of the actual equipment that is missing in the field, and the spare parts--

[The Chair, Liberal, Shawn Murphy]

It seems to me, Mr. Wrzesnewskyj, that although I'm going to get them to respond, we may be getting into situations that for security reasons may cause the leadership of our defence not to want to get that specific in their answers.

I will invite the vice-chief to respond.

[LGen Walter Natynczyk]

The number of vehicles in that yard that have been damaged in theatre is constantly changing because we are actually bringing vehicles home when we have the ways and means. When aircraft are coming back or when lowbeds are going out of theatre and out to ships, we bring these vehicles home, because many of them actually can be repaired, so the number of vehicles in that compound changes on a regular basis.

General Benjamin may want to comment about the repairs to some of these vehicles.

[MGen Daniel Benjamin]

Right now, Mr. Chairman, we have four of those vehicles that are set to be brought back. As soon as I have aircraft coming back, we'll bring them in. The flow is back and forth all the time.

[The Chair, Liberal, Shawn Murphy]

Mr. Laforest, you have the floor for seven minutes.