Public Accounts Committee on Sept. 28th, 2009

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you, Mr. Chair and Ms. Crombie.

This is actually a quick question for the Auditor General. It doesn't relate specifically to defence, so my apologies, gentlemen.

It was something that you had said a little while ago. I may have misheard it, but maybe you can just explain.

It was a comment about departments not knowing the full amount of what they will have allocated until well into the year and that therefore they have difficulty knowing what they will be able to spend. That strikes me as something that would be very difficult for all departments just in overall government spending and when we know that, in any budget cycle, near the end of the fiscal year you tend to see spending even on things that wouldn't necessarily be necessary in order to keep that budget. We know that happens in the private sector everywhere. Can you elaborate on that?

That raised a real concern for me, that there might be a whole lot of money that gets allocated to departments well into the fiscal year and they then are saying, “Oh, we didn't really plan on this; we didn't know we were going to have it, but we better spend it.”

[Sheila Fraser]

I think the easiest way to understand this is if you actually take the budget and compare the budget to the main estimates. You will see that the main estimates are significantly less than the budget just because of the time for preparation of those main estimates, so departments will come in for supplementary estimates two or three times during the year.

There will often be pretty standard things going into supplementary estimates, pay increases or things, but there are other just basic funding requirements that are known at the time of the budget but have not been processed in order to get them into the main estimates, and so they will come quite late in the year. There have been supplementary estimates passed in March, which should not occur because departments are never supposed to spend any money that hasn't been appropriated by Parliament. So how can you be getting an appropriation on March, at the end of the year? Logically it makes no sense, but that's the way things have been working.

We did an audit on the expenditure management system and we see that the government is trying to move it forward. But one of the best examples this current year is vote 35, where there was simply not time to get all of those initiatives into the main estimates, and if they had waited for the normal supplementary estimates process the money would not have become available to them until the end of the year.

So it's a problem for departments when you're not sure if you're going to receive those funds. If you are cautious, you don't start a program without the certainty of knowing it. So then you get your money in, say, December; you have three months left for the program and yet you get your full amount given to you.

So there is an issue of how funds are allocated and when government departments get confirmation. And I would say, and I don't think it's any surprise to anyone, especially in a time when there's uncertainty about whether there's going to be an election, you may not actually get those supplementary estimates through if it's for new programs. So I think departments are probably even more cautious now in not doing what we call cash-managing and relying on that. So there is an issue about how departments receive the funds through the year.

[The Chair, Liberal, Shawn Murphy]

Two minutes, Bonnie.

[Bonnie Crombie, Liberal, Mississauga—Streetsville, ON]

I have a couple of quick questions, then.

My question was going to be on over-programming, and I wanted to understand that better. Is that like Air Canada, Mr. Fonberg, overselling seats? How many planned activities are currently susceptible to the over-planning, and how much could that possibly amount to in the budget?

[Robert Fonberg]

I'll the ask the CFO or the vice to speak to the kind of corporate over-planning targets, but it clearly is an important in-year strategic tool for us in terms of how we manage.

But Vice, or CFO, Kevin, one of the two of you, would you like to speak to the over-programming allocation on that?

[VAdm Denis Rouleau]

Yes.

Basically, in any fiscal year, in order to give us the flexibility that we want to have during the year, and knowing that some projects or acquisitions or operations will not advance as fast as we expect them to go throughout the year, we actually over-program to an amount that goes between $400 million and $500 million. And what it allows us to do is in fact, as we progress throughout the year, at Q1, at Q2, at Q3, to reduce those amounts, and the plan is to land at the end of the year within that 1%.

This is based on historical figures on how the slippage has taken place. We do it for vote 1, and we do it for vote 5 as well; and other than in that year 2007-08, the previous years, and again this past year, we have proven that the amounts were pretty close to where we want them to be. And the execution during the year by the review at each one of the four quarterly reviews allowed us to bring the level to within the amounts that we had to have for the year, within our appropriation and within the carry forward.

[Bonnie Crombie, Liberal, Mississauga—Streetsville, ON]

How much flexibility in the budget exists? Are there resources set aside for a crisis? And if so, how much?

[Robert Fonberg]

I'm not totally certainly I understand what you mean by “crisis”. The government's commitment to the department is that in addition to the funding envelope of the Canada first defence strategy, they will fund deployed operations incremental to the actual budget line that's in the Canada first defence strategy.

In the case of Afghanistan, for example, the government funds separately the incremental costs associated with that. So in the case of a crisis, if it's an ice storm kind of a crisis where the resource requirement would be bigger than what we could handle normally inside the organization from the limited flexibility we have, we would expect, and I think the government would understand, that we would be coming back for incremental funding to manage a crisis in that context.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Ms. Crombie.

With the final question, Mr. Saxton, for five minutes.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you, Mr. Chair.

I may split my time with Mr. Shipley should there be time remaining.

My first question is for Vice-Admiral Rouleau.

It's regarding my colleague Ms. Crombie, who keeps bringing up the issue of the surplus $300 million that wasn't spent. I just want to set the record straight. As a result of not spending this money, did any member of the Canadian Forces go without equipment that they might have needed?

[VAdm Denis Rouleau]

The answer is no.

[Andrew Saxton, Conservative, North Vancouver, BC]

Did any project or program get shelved as a result of not spending this money?

[VAdm Denis Rouleau]

The answer to that is no as well. Some projects could have been advanced if we had had time to actually execute the programming, but no.

[Andrew Saxton, Conservative, North Vancouver, BC]

Merci beaucoup.

My next question is for Mr. Fonberg.

On the Auditor General's recommendation 5.55, in your action plan you state that a “new risk management framework was endorsed” in July 2009. Can you specify some interim milestones? Are you confident that you will be reaching these milestones?

[Robert Fonberg]

The interim milestones that are actually laid out in our action plan have approval of our corporate risk profile and defence priorities by February 2010, and level one business plan decisions risk-informed in March 2010, and then we move forward from there. Integrated risk management, as I said earlier, is extremely complex. I believe we have a path forward. Again, the science will come into place. The framework will get populated in the context of our level zero strategy. Execution will be everything, and that is a culture issue.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

I'll now pass the microphone over to my colleague Mr. Shipley.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

I have just a couple of quick things, if I might, Mr. Chair.

Earlier, Mr. Fonberg, you mentioned something about taxes. It had some implication for the amount of money. I didn't quite pick up whether it was a credit or you were charged taxes that wouldn't....

[Robert Fonberg]

It's probably not exactly the perfect term to have used. I can't remember exactly which budget it was, budget 2006 or budget 2005, in which the government announced that it was going to seek procurement savings from the procurement process as a result of different behaviours by Public Works, on the order of $1 billion, ramping up to about $1 billion per year. They were going to seek to reduce departments' A-bases by that amount proportionately, based on their actual procurement activity over a period of years. In that year, we expected to lose that amount from our A-base, but there was actually a later decision that year not to take that money away.

So tax is not quite the right term, but all departments that procure were expected to realize efficiency gains associated with that amount. It was returned to us, and that was the surprise.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Okay. I'll go to my next one.

In part of your action plan, in 5.31, you talk about the final completion date. This is just as a confirmation, if I could, for the committee.

It states, “Full integration of the corporate planning process should be in place for the Fiscal Year 2012/2013 planning cycle by November 2010”. I'm assuming that means you'll have that cycle in place. It then states, “Due to the complexities inherent...a phased roll-out is planned”. Are you on track still with that?

[Robert Fonberg]

Yes, absolutely.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Okay.

Then my last comment is just that I very much appreciate, as I think all of us do, the work you do, the work for our men and women, and quite honestly, for our defence, sir, and for what you do for this great country of ours.

I know that we've had an audit, and actually I'm just very glad to see that things are moving ahead. All audits seem to come in with some deficiencies, and quite honestly, that's how we learn. The main thing is that we learn and move ahead. I think what I would take from this, not to be on any partisan side of it, is that actually you're just moving ahead and taking logical steps in terms of your fiduciary responsibility. I think all of us should appreciate that. Thank you very much.

[Some hon. members]

Hear, hear!

[The Chair, Liberal, Shawn Murphy]

Colleagues, that concludes both rounds. What I'm going to do now is ask the Auditor General and Deputy Minister Fonberg if they have any concluding remarks. We do have a couple of motions that I'll deal with after we have the concluding remarks.

Ms. Fraser.

[Sheila Fraser]

Thank you, Chair.

I would just like to thank the committee for its interest in our report. I would add that we are pleased with the department's response and the action plan that it has produced. We look forward to future hearings with the committee.

[The Chair, Liberal, Shawn Murphy]

Thank you, Ms. Fraser.

Mr. Fonberg, do you have any closing remarks?