Public Accounts Committee on Sept. 28th, 2009

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Fine.

I recall that when you appeared before the committee at the beginning of summer, just before the end of the session, I asked you some questions about security. I wanted to know whether certain investments had been made, and if not, whether that exposed the department's deployment missions or national operations to risk.

[Sheila Fraser]

That is not a matter that we studied. Perhaps the department could provide information on this subject.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Have you any comment to make on the rating awarded to the department by Treasury Board Secretariat? The Department of National Defence was awarded a “satisfactory” rating for financial management and oversight, yet I would categorize your report as damning, given that $300 million were not spent.

What is your view on this?

[Sheila Fraser]

Our report states that the department manages to reflect the appropriations it is awarded. It has kept its spending within authorized funding limits. What we are suggesting here is that the department should adopt a more sophisticated system of financial management, given the complexity of its operations and the fairly sizable increase in its budget that we have witnessed over the past few years, a trend that is not likely to be reversed.

Choices therefore have to be made, and priorities established, with regard to resource allocation. We need more sophisticated systems. The secretariat's decision to award the department a satisfactory rating is not inconsistent with our report.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

I am trying to understand the effect that not spending this money will have on the various sectors of the department's portfolio. You know that, as parliamentarians, we have the opportunity to visit naval, air and land bases. We have met with people from all different sectors, and they have shared their views with us.

I imagine that, when operational plans are being drafted, there are competing priorities. Does the company only comprise senior managers, or do you receive input from the regions and the different tactical sectors, such as the land, air and maritime sectors, or indeed any others?

Do you have a more detailed operational plan giving a breakdown of how the $60 million per province are spent? Would you be able to submit it to the committee?

[Robert Fonberg]

Thank you for that question.

Mr. Chairman, if I could just seek clarification, is the committee the member's referring to the defence finance committee?

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Yes.

[Robert Fonberg]

The defence finance committee is just the four or five people I referred to. The secretary is the chief financial official in his organization. We don't plan by region per se. We plan from the top down, given the government's overall direction and priorities.

The decisions that come for final approval to the defence finance committee in the context of allocation decisions are based on a very comprehensive planning system within the organization that runs across all of the services--land, air, and maritime. It is rigorous. It is an ongoing process that takes place throughout the year, and it is done in a way that reflects the long-term strategic objectives of the organization but is clearly extremely mindful of the annual appropriations for the organization itself.

Vice-Admiral, you may want to add to that.

[VAdm Denis Rouleau]

Yes. In fact, the way it is designed is that we currently have our direction from government and set up our priorities. From there, we actually ask what we call the L1s, those at our assistant deputy minister level, including the chief of the army, the chief of the air force, the chief of the navy, and many others--23 in total--to come in with their plans to support those priorities. They come in and in fact have a chance, one-on-one with the deputy minister and his team, to explain how they intend to fulfill their portion of satisfying the government's direction and priorities. Based on that, the allocations are made.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Would you be able to provide the committee with a document explaining the regional impact of certain projects being granted priority status, and others not?

[VAdm Denis Rouleau]

As the DM said, we don't plan from a regional perspective. As you can imagine, right now our top priorities are to make sure we're successful in Afghanistan and successful in the support and preparation for a podium for the Olympics, and therefore all three services have a role to play in this. They develop their plans accordingly. The resources are allocated to allow them to do their respective portions of those tasks. It is not done by region.

[The Chair, Liberal, Shawn Murphy]

Mr. Christopherson, for seven minutes.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you very much, Chair.

Thank you all for coming today. It's good to see you again, Madam Fraser.

First off, I want to acknowledge what the deputy raised, because I think it is really important, given that this is one of the largest budgets—and as you point out, within one ministry, we have two sections, one military, one civilian. And then you're not only all across Canada, but you're also all across the world, and the largest mission also has the fog of war surrounding it. So I just want to preface my remarks by at least appreciating and showing you that I appreciate the complexity of the challenge that faces you, particularly at this time. It's not easy, and all things considered, while this is not a good report, it certainly is not as horrific as one could imagine, given all of these component pieces.

That's about as nice as I can get today.

[Some hon. members]

Oh, oh!

[David Christopherson, NDP, Hamilton Centre, ON]

I wanted to raise the fact that in her report, in paragraph 5.74 on page 21, the Auditor General comments that:

Since the early 1990s

—so we're talking of a decade and a half now—

we have identified financial management and controls as areas requiring attention at National Defence. Our previous audits found, for example, that corporate-level planning was not adequate to guide resource allocation

etc.

Then when I look over at page 2 under the heading, “What We Found”, one of the bullet points says:

National Defence invests a lot of time in business planning, but the result is a series of short-term operational plans for each division. There is no corporate business plan that links defence strategy to objectives and associated risks

etc.

Anybody who is paying any attention knows this stuff makes me crazy, as it has already been identified for almost a decade and a half. The words are almost the same, in that 15 years ago it was that you weren't doing enough corporate level planning, and now you're not doing a “corporate business plan”. It seems to be the same thing to me.

So number one, can you explain to me why, after 15 years, we're still finding the same problem?

My second question would be, what are you doing about it, and what assurance will we have that it's actually going to happen this time, as opposed to another 15 years passing and there being another report. I don't say this wildly; it happens.

Could you respond, please.

[Robert Fonberg]

Let me start, and then, given my two years in the organization, I will perhaps ask the vice-admiral to speak to a little bit about the history.

First of all, Mr. Chairman, I'd like to thank the member for his generous comments about our performance not being horrific in the report. I think that in many ways, given what this organization has been through over a fairly lengthy period of time, the focus was always and had to be on the short term. Budgets were uncertain—if you want to go back 15 years—through long periods of expenditure cuts associated with deficit reduction.

I think it has become absolutely clear, and I think the Auditor General's report absolutely crystallized this, that the bottom-up approach that has, arguably, not worked badly for us from year to year has resulted in missed strategic opportunities. What has changed is that there's full recognition going forward in a Canada first defence strategy context, or any other context, with 20 years of committed funding, that it's time to live by a strategic corporate plan and to use the annual allocations process to make sure that we spend properly in a longer-term context. That is what the L0 strategy is intended to do for us.

Vice Admiral, I don't know if you want to speak to the past.

[VAdm Denis Rouleau]

In the past, as the deputy minister mentioned, all the cuts that were imposed on the department played a role in this. That recognition has been there all along. The fact that up to three years ago, when we started with the CFDS, the Canada first defence strategy...indicates a need to have a long-term horizon. That was produced, and in fact, in the organization itself, when you think about all these assistant deputy minister levels producing their own business plans, there was a gap between the strategy, the CFDS, and what they wanted to do. This is exactly the reason we are going along....

In fact, last February at an ADM retreat, it was identified that there was a gap between the strategy itself, the CFDS, and the taskings that they had at the ADM level to produce our level one business plans. Therefore, the issue of whether we build an L0 strategy--i.e., a corporate strategy--was born. That document will have a horizon of five to ten years. We'll look at the first half of the CFDS and say, what are our goals? How will we achieve those goals?

That's one level. Below that we'll have a level zero plan, the corporate plan, that will take a shorter horizon of one to three years, but within which our 23 ADMs will be able to take their direction and basically allocate their resources accordingly for those one to three years.

So in fact we're covering the entire span now, from one to 20 years, within that corporate plan that is being designed right now.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you.

Madam Fraser, have they got it, finally?

[Sheila Fraser]

We've certainly seen the action plan that has been developed. We think it's a reasonable approach, as I mentioned. I mean, only time will actually tell. As we say, we are cautiously optimistic until we go back and review it again.

But certainly we can already see the actions that have been taken--naming a CFO, setting up this finance committee, which, to our knowledge, is probably the only one that exists in government.

So I think we can see already that there have been concrete steps and certainly much more attention being paid to finances within the department.

[David Christopherson, NDP, Hamilton Centre, ON]

Have you any thoughts on when you might be back to do that checkup?

[Sheila Fraser]

I think we'd have to do it depending upon their action plan. It would probably be three or four years out, maybe five years out, in order to make sure the actions did have time to be put in place.

[David Christopherson, NDP, Hamilton Centre, ON]

I'll turn now to....

I'm done, Mr. Chair? Okay. Thank you.

[The Chair, Liberal, Shawn Murphy]

Thank you, Mr. Christopherson.

Mr. Saxton, you have seven minutes.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you, Mr. Chair.

Thank you, Madam Fraser, for coming back again after the long break we've had.

I'll thank Mr. Fonberg as well, and the others, for coming today.

I first of all want to commend the department for their action plan in response to the Auditor General's report and for those steps that have already been implemented. I also want to commend the department for not spending the $300 million surplus willy-nilly.

I do want to also point out, in response to my colleague Ms. Crombie's earlier statement that our soldiers are underfunded, that since coming into government in 2006 we have introduced the Canada first defence strategy, and in fact $34.68 billion has been earmarked for military spending. That is on page 6 of the Auditor General's report, confirming that. So in fact it was under the previous Liberal government that the funds were being cut significantly to our military.

My first question is to Mr. Fonberg.

Based on your answer to Ms. Crombie's earlier question, do I take it, then, that the 1% carry-over is too low, in your opinion? And if it is too low, what would be reasonable, in your opinion?

[Robert Fonberg]

Mr. Chairman, if I were a CEO of an independent private sector corporation, I'd probably say that it was causing some inefficiencies in how the organization was being managed in financial terms. That said, we are certainly not that, nor do we seek to be that.

So in the context of the government's overall challenges, the Minister of Finance's challenges, if I didn't have to manage to 1%, I think we would probably be able to allocate some resources to managing on other things that were perhaps more important in a strategic context.

But that is not the situation we find ourselves in. It is not an easy number to manage to. It is tough to land this organization. The amount of time that we spend, starting in Q-four, and actually earlier, in the last quarter of the year, landing this organization to a $200 million carry-forward is not, I would guess, from any CEO's perspective, the most effective and efficient use of resources.

That said, we do it. We spend a lot of time, week after week after week, looking at the whole organization and trying to understand exactly where it is so that we don't miss those numbers.