Public Accounts Committee on Nov. 24th, 2016

[Shaun Chen, Liberal, Scarborough North, ON]

Thank you, Mr. Chair.

We've talked about a lot of the costs involved—for example, the billion dollars that we need for the new IT system, the inventory system—but there's also a tremendous cost to doing nothing, and these costs are both financial and non-financial.

For example, when we look at the inventory itself, we need inventory to support inventory. You need to put these out-of-date materials in boxes or on shelves. You need capital cost warehouses and storage areas to house them.

There is also over-purchasing. If you don't know that you have an extra helicopter propeller somewhere in B.C., you might just order a new one and then buy it again for no particular reason other than not knowing what you have.

There's also an unmeasured cost, and that is where it really bothers me, because if that helicopter doesn't get that new propeller, then that helicopter stays on the ground, and then our people are not able to do the work that they're set out to do.

Mr. Christopherson talked about NATO and talked about how Canada is appreciated. I heard from the U.S. president when he came and spoke to our Parliament that we need more Canada in the world. To me, our Canadian Armed Forces are truly amazing. They're just brilliant, amazing people who have dedicated themselves.

Other than looking at the cost of implementing the changes that we need, I want to know if your department has actually articulated the costs that are involved in doing nothing? How much does it cost, for example, to house all this inventory, particularly inventory that we may not need?

[John Forster]

Thank you for the question. I would answer in two ways.

We—and the Auditor General agrees—have made a lot of progress and have a reasonably good handle on quantity, so it's not a question of a military operation overseas not being able to get parts. That is our first and primordial priority, and it has to be. What I would suggest we're looking at is that there's a cost of maintaining outdated, non-useful inventory. I have to heat it, I have to secure it, I have to store it. We're going through that every year to get rid of it and to accelerate that process.

However, let's be clear in terms of the materiel group. Their business is to forecast what the military needs are and to make sure the parts are there, and I think the AG has said we're doing pretty well on quantity. Where we are having trouble is the value to put on that information.

It's not a question of doing nothing. I don't think anybody is sitting here saying we've done nothing or are doing nothing. We're trying to do as much as we can as fast as we can, because we do think it's important. I don't want to be paying to heat and secure and store materiel that I don't need, because I could use that money somewhere else, so we're trying to get rid of it and go through it. When you have 600 million pieces of inventory, you need to do it as fast as you can, but in stages, and that's what we're trying to do.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Chen.

We'll go to Ms. Shanahan, please.

[Brenda Shanahan, Liberal, Châteauguay—Lacolle, QC]

Thank you, Chair.

I want to come back to some of the themes that we've been following with the Auditor General.

One thing that we have talked about here at the committee over a number of government departments and agencies is the problem of data management, the problem of adequately ensuring that data input is accurate and that it's managed properly and that we're able to get the kinds of reports and information that we need from collecting those data.

You mentioned in your remarks that you have the integrated system of record, the DRMIS. I'm sure you know the breakout better than I do. Please talk to us about how it is working now, to what percentage it has been implemented, and some of the checks and balances that you have in place to make sure that it is the system that's going to take us through the next 10, 15, 20, 50 years.

[RAdm Patrick Finn]

Thank you for the question.

The defence resource management information system is what you're talking about. When we describe the convergence of all of these systems we had, that's what we're talking about. A decade ago we even had two separate instances of SAP. We had a materiel acquisition support information system and a financial management system, both SAP-based, in different versions that talked to each other. We had another system for materiel and inventory, another system for people, and a plethora of systems underneath those, not at the enterprise level, with all of the suppliers.

Through our colleagues in information management, we've had an information management road map to pull this all into creating a true enterprise system, as they would call it in the commercial context, such that we have one system of records that now does all of this. That is the piece for which we underestimated the time to get to full amalgamation. We fully brought it all together in December of 2013 or in early 2014. Of course, in transferring all the data, we had a year to a year and a half of data cleanup to do.

We are now there. We are doing much more business analytics using it. Mr. Chen asked about some of the work we're doing around overbuys. We've created resource planning tools that actually track buys and overbuys and buys against dormant stocks, and a whole bunch of things that we can now do with this one system in place. We are using it much more for business analytics, as I mentioned, and decision-making. It is there.

It is our system of record financially as well. It is the system that I use in project management, in materiel, in inventory. It is coming together. We are probably the world leaders. We talk to SAP about how we're now using this from a military enterprise perspective. That is now there. We need to continue to grow it, and we recognize that, but the thing about the system that we brought together is that it is highly complex, and now, as we get into it and make changes.... For example, how do we use the fields around inventory? For aircraft, the manufacturing part number is so important, whereas for other equipment, a NATO stock number is the key piece. We wind up dealing with conflicts and issues and processes to make sure, as I said earlier on, that we are transforming.

However, DRMIS is an incredibly important enabler, and it is an operational system. Aircraft do not fly unless they're actually recorded as green in DRMIS, because that's the indication that all their maintenance has been done. It is an absolutely key enabler for us.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much.

I have a couple of questions, then I'm going to turn it over to Mr. Christopherson.

You've talked about one system of inventory. It's not one system for the army, one system for the navy, one system for the air force, but one overarching system. Are there other subsystems where the navy or the air force have their own inventory for quick access, or does it go back to this one humongous system?

[RAdm Patrick Finn]

The system I'm talking about, of course, is the information system. It is one system for our department. I think I mentioned early on that some of our allies will have different systems for army, navy, air force. We do not. We track that inventory, whatever it is. It brings a complexity.

Do the army, navy, and air force have access to inventory on bases and wings and at sea? Yes, they do, but the system under which it's tracked is our defence resource management information system.

[The Chair, Conservative, Kevin Sorenson]

It always sounds good, and in business it's good to have one system, but is that part of the problem? Would it be easier to have a silo system for the different arms of our Canadian Armed Forces?

[RAdm Patrick Finn]

I don't think so. We buy most of the inventory centrally. From an acquisition perspective, it is my organization that buys the vast majority of the spare parts for equipment. There is other, I would say, materiel that's bought locally in bases and wings, but when it comes to military operations, equipment, and spare parts, it's my organization that does all of that.

[The Chair, Conservative, Kevin Sorenson]

Is there a lot of information exchanged with our allies? I remember that when we were involved in the mission in Libya, one of the key things was that when our air force was there, and other air forces, we could be consistent. We can use their mechanics, and they can use.... Is there sharing of information in theatre or sharing of information with Australia or Britain in regard to accessing their inventory and their being able to access ours?

[RAdm Patrick Finn]

There is, absolutely. In fact, with our system, when we talk about stock codes, they are NATO stock numbers. Across all of NATO, for example, we use a common approach, common fields for stock. We have multinational and bilateral agreements. “Mutual logistic support arrangements” is what we call them.

Again, in my career at sea, we routinely would work with allies, mostly with the U.S., by virtue of the type of equipment. Many times at sea, through binational and international agreements for common equipment, I've accessed spare parts through our allies. We do that.

When I talk about the system, at this point I'm talking about the software or the enterprise system, but we have to be very careful about that as well in the context of data refresh and knowing where it is and what's going on. A lot of it is satellite-based. We'll have what we call a deployed instance of our defence resource management information system, but interestingly, we have to be careful that we don't put it on a ship that actually goes EMCON, silent, and turns off all the emissions, but the logistic system is actually saying, “Here I am”, or that we don't have an RFID system on weapons that others can detect.

We have an operational dynamic to it, but we absolutely co-operate internationally.

[The Chair, Conservative, Kevin Sorenson]

Good. I think that's important. Again, that's quantity, not the valuation of what that inventory is, and that's really what we have to focus in on.

We just pulled up the national audit office of Great Britain, and some of the committee will be going there in the next few weeks to speak with their public accounts committee. At their national audit office, they have a defence and armed forces page. It says the ministry of defence is buying more inventory than it uses and not consistently disposing of it if it's no longer needed, using money that could be spent elsewhere. The head of the NAO goes on to say:

In the current economic climate where the department is striving to make savings, it can ill-afford to use resources to buy and hold unnecessary levels of stock, and it clearly does so. The root cause of excess stock, which the Department is seeking to address, is that management and accountability structures currently fail to provide the incentives for cost-effective inventory management.

That becomes the problem. When we're trying to deal with taxpayers' dollars, the valuation of some of this inventory becomes a problem, not just for Canada, but for our allied countries and probably for most countries in the world.

It goes on and it lists some of the varied concerns that Mr. Chen, Mr. Godin, and Mr. McColeman brought forward, so we get it. It is a problem around the world.

You have come today and you've thrown out an offer, I guess, to be more accountable to this committee, because we're called upon to do our job as well. I'd be interested in hearing ways we can do that.

I'll turn it over to Mr. Christopherson for a few ideas. He's kind of our idea guy.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you, Chair. I appreciate your underscoring the importance of the issues.

I know this has not been a fun or comfortable meeting for you. It wasn't meant to be, but I also want you to know that it's not our goal to have these kinds of meetings. We are happiest when there are audit reports that show how everybody is complying with everything and that taxpayers' money is being spent exactly the way it should be. That's our goal.

Where things are not complying, our goal is to change behaviour so that the behaviour is in compliance and Canadians can know that their hard-earned tax dollars are being spent properly and being accounted for properly. That's our ultimate goal. It's not necessarily to bring in senior people and make their lives difficult, although as you can see, if you're not complying with the rules in the way you should, that's what's going to happen.

With a goal now to move forward—we've dealt with where we are and why we're here—let's look at going forward and getting things back on track and getting into a positive world.

With that, Chair, I'd like to suggest that we ask the department to provide the following pieces of information.

One is that the Department of National Defence will provide the committee with a report explaining how each of the milestones of the 2013 action plan were either met or not met. Two, the department will also provide the committee with detailed reasons for any of the—well, it's most of them—deadlines of the 2013 plan being extended into the future. Three, the department is to provide a clearer explanation of the terms used and is to make the two charts comparable for proper comparison.

Deputy, that's taking up directly on your offer, sir.

Four, the department will provide the committee with a further report regarding how well military inventory is managed in comparison to Canada by the following Canadian allies: one, the United States; two, the United Kingdom; and three, Australia.

I put that last one in, gentlemen, to be fair, because if we are facing challenges similar to those three allies, it will at least give us some tempering in knowing that this is not just screw-ups but a tough new way of accounting, and that everybody is in the same boat. By the same token, if they have some methods that are working better than ours, then we would hope that your report would reflect that and maybe make some suggestions about how we might better account for our spending.

This is really meant to put things in proper context, because I took you at your word when you said that everybody is struggling with this situation. Fair enough; show us. Show us that this is not unique to Canada, and that will provide you with a little more compassion, shall I say, for lack of a better word, from us as we go forward.

Chair, I think if you seek it from colleagues, you'll find that there is support for these four measures.

I want to emphasize again how much we appreciate your coming in. These are difficult matters, but when I spoke to you about the pride in your professionalism that I felt as a Canadian delegate to the NATO Parliamentary Assembly, that professionalism also includes not only what we do in theatre but how well we account for the taxpayer money that pays for those things. I appreciate that you understand that and I appreciate that you came here with an intent to answer our questions. I believe that ultimately, collectively, we will get this in hand; it's just going to take us a bit to get there.

The last thing I would say is that I really hope the report we receive is sufficient and that we don't need to have you come back in, because if that's the case, this meeting will probably look like the fun one. Again, on a positive note, I think you understand our concerns, and I will be shocked if that report doesn't address them. It will be very honest in its evaluation. Even if it has to be a little self-critical, now is the time to get back out in front. I have every faith that you'll provide us with the kind of report that allow all of us to feel good about moving forward and hitting the goals that our Auditor General has set for us all.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. Christopherson.

I want to watch what I say here, but I noticed that in your recommendations and in your action plan, you didn't include a date for them to get back to us. I think we want a fair date. We certainly don't want it extended—

[David Christopherson, NDP, Hamilton Centre, ON]

Don't change it.

[The Chair, Conservative, Kevin Sorenson]

Yes, right.

What is a fair timeline on some of these, Mr. Forster?

[David Christopherson, NDP, Hamilton Centre, ON]

We want one report for all four measures. Fair enough.

[The Chair, Conservative, Kevin Sorenson]

We aren't talking about a report that will solve and cure insomnia for weeks. We're talking about something that's going to be very succinct and will lay out.... I should be just whatever length—

[David Christopherson, NDP, Hamilton Centre, ON]

To be fair, Chair, if you look at our schedule and what's coming with the holidays and everything, we could give them until sometime early in the new year. This is a big job. I don't want a one-pager, quite frankly.

[The Chair, Conservative, Kevin Sorenson]

No, no—

[David Christopherson, NDP, Hamilton Centre, ON]

I want a good detailed explanation, and if there is some mea culpa in there, that takes time to wordsmith too. I'm looking more to know when, early in the new year, you think it would be fair to give us a comprehensive response on these four areas.

[The Chair, Conservative, Kevin Sorenson]

I wasn't suggesting a one-pager with a couple of sentences on each thing.

I also realize that the wheels of departments seem to churn very slowly and I want to be fair to them as well. I want to be fair to them.

[David Christopherson, NDP, Hamilton Centre, ON]

What would you suggest to us is a fair timeline for you to get back to us with a comprehensive report, as we have asked for?

[John Forster]

The House will adjourn, and you'll be back at...what, the end of January?

[The Chair, Conservative, Kevin Sorenson]

Yes.