Public Accounts Committee on Nov. 24th, 2016

[John Forster]

As they do the project definition work, they will look at the likely technological solutions we would use, and that will be part of the project, whether it's radio chip technology or whether we do bar codes. Don't forget that some of our inventory isn't sitting in a nice Canadian Tire warehouse all in one location. Some of it is on a ship halfway round the world.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

I know. I get it. I do understand that.

[John Forster]

We need technology that accommodates that.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

I do understand that you also have equipment, such as planes and ships or whatever. That is not exactly easy to count or to put a chip on and monitor, so that is part of the equation.

However, it's the budgeting for this implementation and this huge change in the whole department that I'm asking about. How is this being budgeted? Is it one year to the next, and let's see how...?

I'd like a little more clarification on that.

[John Forster]

Sure.

Every major capital project, as I said, comes to our resource management committee, which I chair. The chief financial officer is there and the chief of the defence staff is there. We will review and approve projects that go into our investment plan. When we do our budgeting, we include the cost to develop and engineer the project, whether it's infrastructure or a truck or, in this case, an IT system. We look at the operating costs of what it's going to take to run it and how we sustain that, so we do a life-cycle budget. We do budgeting for 50 years.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

It's for 50 years.

[John Forster]

Absolutely.

When I buy a ship, I need to know how much it's going to cost me to design it, to buy it, and to run it for the next 50 years. Our financial budgeting is unlike anything else in the federal government, because we're taking a 50-year view of what we do. With the decision we're making today, we have to pay for it 50 years from now.

In this case, when an IT system comes forward, it will come to that resource committee that I chair. We will look at the costs, both to design it and develop it and acquire it and operate it, and that will go into our budget.

In this case, the first cut at it was over $1 billion. I think it was a reasonable thing for us to say, “Okay, can we send you back to do some more thinking? Is there a way we can phase this? Are there cheaper alternative options?”

We only have one capital budget. It's the same budget that we use to buy trucks for the army that we're using to do this system, so we have to manage those priorities too.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

Thank you very much. Do we have any time left?

[The Chair, Conservative, Kevin Sorenson]

Your time is up, Ms. Mendès, but we can come back.

We'll now move to Monsieur Godin for five minutes.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

Thank you, Mr. Chair.

I have a fairly specific question about inventories. We talked earlier about future, present and past inventories. I think the problem is mainly with the past inventories, which are difficult to track. That is what I understood, but correct me if I am wrong.

Can you tell the committee when you will be finished taking the stock of items acquired in the past, when there was no management system or adequate system as there is now?

[RAdm Patrick Finn]

We are talking about finishing recording the inventory, especially the value of the inventory.

When we are verifying our inventory, we see how many spare parts we have and items that are no longer useful. They have to be eliminated and disposed of, which is quite a complicated process.

As I said earlier, in some cases, these items were purchased through the American process. We are constantly looking at what we have on hand, at a rate of about $1 billion per year; so we still have a few years to go.

With regard to past stock, consider the Sea King helicopters, which have been in service on vessels for over 50 years now.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

I will stop you there, Mr. Finn, because I am running out of time.

For the past inventory, can you tell us now that it will not be possible to record and justify some items? You will not be able to do it in 10, 20 or 30 years either. The process started in 2003 and will end in 2026. It has to last 23 years. When will you be able to draw a line and stop talking about the past and start looking to the future? Can you tell me when your plan will be finished?

[RAdm Patrick Finn]

Our plan is to complete most of the stocktaking by 2020. I cannot guarantee that, one day, there will not be a single error left in our record of past inventories, even though that is our goal.

We want to reduce the backlog, especially as regards value. We have to remembered as well that the inventory that accounts for the majority of the value is relatively small. At some point, the recording our our very low-value stock may not be completely resolved and there will probably still be a few errors. Our intention, our plan, is to have completed everything in three or four years.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

Do you think it will be three or four years? I tend to think it will be four years, based on National Defence's track record.

I have information that you are already disposing of items that are no longer useful. You have eliminated 487,000 items from the inventory, which is 29% of the 1.6 million or so items you have. You are making gradual progress. You have taken stock of 1.6 million items, but you are saying there is a lot more.

The most important thing to me is not the value. We have to know what we have. At some point, you will make an accounting decision and say that you are not able to evaluate it. Then the past will be written off, a new inventory management system will be established, and you will go forward from there. Is that what you have in mind?

[RAdm Patrick Finn]

Yes, indeed, but one of the reasons we are discussing this with you is the high value in relation to government accounts.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

If you don't know what you have, you cannot evaluate it. The basic problem is that you do not know what you have.

[RAdm Patrick Finn]

I will talk about what we have and then give the floor to my colleague.

As to our holdings, the Auditor General said that we had made a lot of progress.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

Yes, but I am not satisfied with progress; I want perfection. I think Canada has sufficient intellectual capability to be up to date and manage its stock at some point. I think we should be an example.

[RAdm Patrick Finn]

Okay.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

Thank you.

[The Chair, Conservative, Kevin Sorenson]

Do you have something to add to that, then?

[Col Claude Rochette]

We have a plan. In our response, we talk about taking stock of our past inventory. We have a plan to complete stocktaking in 2019. Our plan is to complete the review of our munitions stocks this year and then to work on the remaining stocks over the next two years.

You are right. We will never have a price for everything. We are working with our colleagues, however, the auditors, to determine what kind of contingency we will use for the items for which we cannot determine a specific value.

Thank you.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much. You're out of time.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

Just one more comment: thank you, there is hope.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. Rochette.

We'll come back to Mr. Chen and to Ms. Shanahan.