Thank you, Mr. Chair.
Yes, National Defence has been a subject that we have been observing for a number of years, as I mentioned in my opening statement. Here, when we talk about the “compensating controls”, it's because the department actually has filed an action plan with the public accounts committee to indicate a number of initiatives they're going to undertake to improve inventory management.
But if we look at that particular action plan, we see that it's going to take us out to 2016. In the interim, they still hold significant inventory for the Government of Canada, hence the term “compensating controls”. In the interim, what are you going to do? What are some of the things that can be done to make sure that financial reporting is properly respected so that we can continue to earn and keep our clean opinion? That is important, right?
Hence, we identify a number of things. We've made a number of suggestions to the department in terms of things that perhaps they could consider doing. As you pointed out, on page 2.41 in English,
and on page 2.43 in French,
we identify several steps that perhaps the department can consider.
In terms of that first step, the physical inventory count, we did observe some progress, so the department is moving in the right direction. What they've been trying to do is improve their inventory count. They haven't quite got it to the point that we can derive sufficient assurance from it to rely on it for the existence and conditions of the inventory, but they're moving in that direction. That will be a long journey, because ultimately it may not be achievable to try to count everything that National Defence has on March 31 from coast to coast. There is that practicality that kicks in as well, but certainly we feel that there's more they could have done in that area.
With respect to some of the other suggestions, they're not as taxing in some ways. Sometimes what we observe on, for example, pricing differences, is a sort of a lack of awareness of how to capture some of the information. One of the differences that we saw on the extreme side, if you will, is the pricing for some washers. Instead of putting down the unit price, which is less than a dollar apiece, they put in the price from the box, which is $70,000. All of a sudden, you've inflated your inventory value significantly.
Those are some of the things. Maybe it's training. Maybe it's awareness.
The other thing is that there isn't necessarily a culture there to try to examine what is the cause of these problems. When we have a difference, what's causing it? It's about trying to see if that can be rectified as they move forward, or whether there are similar items that might be subject to this kind of error condition, because what we did was a sample, and a sample is really just pulling a number of items, of amounts, a mass of inventory items, that DND might have.
A lot of these suggestions are being shared with the department. There will be a more detailed management letter from the component audit team to help National Defence understand some of our points, to try to work with them, and to encourage them to make improvements. But certainly there is still a lot that needs to be done before we can claim success on this one.