Public Accounts Committee on Nov. 19th, 2020

[The Chair, Conservative, Kelly Block]

Good morning, everyone. I will call this meeting to order.

Welcome to meeting number seven of the Standing Committee on Public Accounts. The committee is meeting in public and is being televised today.

Pursuant to Standing Order 108(3)(g), the committee is meeting today to study “Report 3—Supplying the Canadian Armed Forces—National Defence”, of the 2020 spring reports of the Auditor General of Canada.

Today's meeting is taking place in a hybrid format pursuant to the House order of September 23, 2020. The proceedings will be made available via the House of Commons website. Just so you are aware, the webcast will show the person speaking rather than the entirety of the committee.

To ensure an orderly meeting, I would like to outline a few rules as follows. You may speak in the official language of your choice. Interpretation services are available for this meeting. You have the choice at the bottom of your screen of either floor, English or French. For those participating via Zoom, before speaking, click on the microphone icon to activate your own mike. When you are done speaking, please put your mike on mute to minimize any interference

Should members need to request the floor outside of the time it has been given to them by me, you should activate your mike and state that you have a point of order. If a member wishes to intervene on a point of order that has been raised by another member, you should use the “raise hand” function. This will signal to the chair your interest to speak, and we will create a speakers list. In order to do so, you should click on “Participants” at the bottom of the screen. When the list pops up, you will see next to your name that you can click “Raise Hand”. This function creates a list of speakers for us.

Unless there are exceptional circumstances, the use of headsets with a boom microphone provided by the House of Commons is mandatory for everyone participating remotely who needs to speak.

Of course, should any technical challenges arise, please advise me.

I'd now like to welcome our witnesses.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

On a point of order, Madam Chair, I'm going to take advantage of your invitation to raise issues of technical matters with you. I noticed that Mr. Green and I had difficulty logging on today due to the Zoom link.

I know that I've requested this before, but I'm going to ask, Madam Chair, if there is a possibility that when notices of meeting are sent out with the Zoom link, that can be immediately followed by the link with a pass code, so that we can easily find it in our emails. It just makes it a lot easier for us to put that information together in our own schedules so that we can arrive at the meeting on time.

[The Chair, Conservative, Kelly Block]

Thank you very much, Mr. Fergus. I do appreciate that intervention. I understand that the notice of meeting is probably more than likely circulated to more than the members who are attending and so—

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Perhaps we can resolve that by having two notices of meeting that go out: one for members and one for the rest.

[The Chair, Conservative, Kelly Block]

Okay. The clerk has just advised me that they do plan on changing how the information is sent out, and it will be as you have indicated, Mr. Fergus.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you, Madam Chair.

[The Chair, Conservative, Kelly Block]

You're welcome.

All right. I will now welcome our witnesses.

Joining us today from the office of the Auditor General are the Auditor General, Ms. Karen Hogan, and Mr. Nicholas Swales, principal. From the Department of National Defence, I would like to welcome Ms. Jody Thomas, deputy minister; Mr. Troy Crosby, assistant deputy minister, materiel group; and Major-General T.J. Cadieu, director of staff, strategic joint staff.

For those of you who are speaking, you will have five minutes to make your opening statements.

We'll begin with you, Ms. Hogan. You have the floor.

[Karen Hogan, Auditor General of Canada, Office of the Auditor General]

Madam Chair, thank you for this opportunity to discuss our audit report on supplying the Canadian Armed Forces.

Joining me is Nicholas Swales, who was the principal responsible for the audit.

The Canadian Armed Forces consist of 68,000 regular force members and 30,000 reserve force members. The government may call on them at any time to participate in Canadian military operations at home and abroad. To do so, the Canadian Armed Forces must be well equipped and trained. They must be supported by a supply chain that provides members with the materiel they need, when they need it.

Our audit examined whether National Defence delivered materiel items requested by Canadian Armed Forces members in a timely manner while avoiding needless transportation costs. We found that military units received materiel—such as spare parts, uniforms and rations—late 50% of the time. High-priority items needed to meet critical operational requirements were delivered late even more often, namely, 60% of the time. These delays affected National Defence's capacity to perform its duties and manage its resources efficiently.

We found that delays were often caused by poor stock management. Minimum stock levels were often not set, and when they were set, stocks were below that level half the time. The warehouses expected to supply military units often did not have the materiel requested in stock. One third of the time, supplies had to be found elsewhere and rerouted through the supply chain. These situations created bottlenecks and increased delivery times.

National Defence did not adequately forecast its needs for materiel to be able to position it close to where it would be needed, nor did National Defence have performance indicators to measure whether materiel was stocked in the right warehouses.

We also found problems in prioritizing requests for military supplies. National Defence could not demonstrate that 65% of its high-priority requests were actually high priority. Unjustified priority requests put an excessive burden on the supply chain and incur extra costs.

Moreover, we found that National Defence lacked the costing information necessary to make well-informed choices about transporting materiel within Canada. The costs of commercial shipments were available, but the costs of using military transport were not.

We made three recommendations. National Defence has agreed with all of them and has shared its action plan with us. The plan includes actions and timelines for our recommendations.

Madam Chair, this concludes my opening remarks.

We would be pleased to answer any questions the committee may have.

Thank you.

[The Chair, Conservative, Kelly Block]

Thank you very much.

We will now move to our next witness, Deputy Minister Jody Thomas.

[Jody Thomas, Deputy Minister, Department of National Defence]

Madam Chair, thank you. Good morning.

Thank you for inviting us to discuss the findings of the Auditor General's Report, “Supplying the Canadian Armed Forces”. I would like to thank the Auditor General for looking into the issue and for her three recommendations. As she noted, National Defence agrees with them all. Supplying our troops is a defence team effort today, as already noted by the chair.

I'm joined by Major-General Trevor Cadieu, director of staff for the strategic joint staff, and Mr. Troy Crosby, assistant deputy minister, materiel, for the Department of National Defence.

A fundamental part of our defence policy, “Strong, Secure, Engaged” is ensuring that our people in uniform have the right equipment to do the challenging work our country asks of them. A strong supply chain is critical to that. As COVID-19 has reinforced for all of us, a robust, effective supply chain is a strategic enabler for the Government of Canada and, in a national crisis, is therefore a lifeline, and the lack of one is a strategic risk.

More than that, a strong supply chain needs continuous oversight and evaluation, as does any critical capability across all military environments of land, sea, air and cyber. That is why, in 2019, the chief of the defence staff and I gave joint direction to establish a strategic supply chain governance committee within National Defence. It is overseen by Mr. Crosby and Major-General Cadieu, ensuring a collaborative and fully engaged approach. The committee also ensures that National Defence has oversight and accountability for the overarching direction of supply chain management.

It is important to understand that the updates I am giving today fit firmly within a much larger strategic approach to supply chain management, currently under way within the Department of National Defence and the Canadian Armed Forces.

As the committee is well aware, supply chain challenges have been a matter that National Defence has been wrestling with for many years, but there has been progress. In fact, since we tabled our inventory management action plan in 2016, the Auditor General has positively highlighted our progress in implementing the progress on time, every year, as part of the public accounts audit.

We have a lot more work to do. Meaningful change takes time, particularly when addressing deficiencies that have built up over decades. While the challenges identified are real, you can be confident that we always ensure that our Canadian Armed Forces members in active operations have what they need to do their jobs.

To the report itself, we agree that National Defence must have the right materiel in place at the right time and appropriate metrics in place to monitor whether stock levels are sufficient. We began two comprehensive reviews this summer to help address our materiel planning and forecasting challenges. One review will look at improving our inventory availability benchmarks. Doing so will give us a better indication of the health of our supply chain operating environment.

The second review is a more sizable project. At a high level, the end goal is to create standardized processes and leverage advanced tools in support of materiel planning and forecasting across the materiel group. Both reviews will be completed by June 2022 and will include implementation plans.

We're also in the process of ensuring that high-priority requests are only made when necessary and that these classifications are justified. First, we are reinforcing policy guidelines on how to properly classify requests with responsible personnel at our wings, bases and commands. Changing behaviour is as difficult as changing systems, and this is an area of specific focus.

At the same time we have begun a thorough assessment of how to reimagine the freight distribution system to improve efficiency and optimize costs. In February 2020, National Defence awarded a contract to PricewaterhouseCoopers Canada to identify potential options to modernize our supply chain network design. I note that a review of this scale has not been undertaken since early 2000. We are currently evaluating their initial recommendations. As we gain an understanding of how we can improve our systems, we will revise and clearly communicate guidance on costs and selecting shipping methods to our personnel. Our goal is that improvements to the distribution system will be complete by April 2024, paying particular attention to performance measurement and oversight.

This entire effort will be a multi-year process, but we are committed to getting it right so that our system is efficient and ready to support the Canadian Armed Forces. We are very open and willing to report back to this committee on our progress.

Thank you, and we would be very pleased to take your questions.

[The Chair, Conservative, Kelly Block]

Thank you very much, Ms. Thomas.

We will now go to Major-General Cadieu.

[Major-General T. J. Cadieu, Director of Staff, Strategic Joint Staff, Department of National Defence]

Madam Chair, I do not have any opening remarks. Deputy Minister Thomas is representing both the Department of National Defence and the Canadian Armed Forces. I'd be happy to answer any questions that you might have.

[The Chair, Conservative, Kelly Block]

Thank you very much for that.

We will move directly to our rounds of questioning. Our first round is for six minutes, and I would like to welcome Mr. James Bezan to the committee today.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

Thank you, Madam Chair. It is indeed a pleasure to be able to join everyone.

First, I want to thank the Auditor General and her office for this report. The great work that your office continues to do is definitely improving the functions of our military but also of the government across all spectrums as well. Thank you so much.

I want to thank our officials from the Department of National Defence for being here and for addressing the concerns that have been raised by the Auditor General.

I'm going to start off my first bit of questions, Madam Chair, with the Auditor General.

In your report, you say that, overall, supply chain management by National Defence is “poor”. If you were to grade it as a schoolteacher, would that be a D, a D- or an F? I'm just trying to get a handle on how poor you consider the supply chain management to be at this point in time.

[Karen Hogan]

There's a reason I became an auditor: so I didn't have to grade individuals.

It's hard to say. If you look at some of the areas where we identified some weaknesses, we saw late deliveries, poor stock management and inefficient processing, but we also saw, in one of the case studies that we put in the chapter in exhibit 3.3, that the department finds ways to find solutions.

What we noted is that it's a very inefficient way of running a supply chain. It depends on what you want to grade, I guess. It's an ineffective use of the supply network, but they find solutions.

It's a hard grade to give.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

Okay. I appreciate that, Ms. Hogan.

You said that there have been a lot of high-priority requests that weren't actually high priority. Can you give us an example of what that might entail? Was it, for instance, that somebody said, “okay, I need this right away”, but it wasn't actually required to be there right away?

[Karen Hogan]

The definition of high priority is one that was set by the department. I think it depends on the circumstances of the situation, obviously.

I might ask Mr. Swales, who is with me, if he has some specifics.

We simply looked at whether the high priorities arrived on time. What we saw is that in 60% of the cases they were late.

Nick, did you want to add to that?

[Nicholas Swales, Principal, Office of the Auditor General]

I guess I can add a little bit. We were asking for the information that justified the high-priority cases.

We would find instances where there was no explanation or, also, instances where, on reviewing the information that was provided to us, the units themselves said, yes, we don't understand why that was a high-priority item, because, on review, the circumstances in which it was being asked for didn't seem to justify that. Those were some of the kinds of scenarios that we were observing.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

In the report in paragraph 3.23, you talk about why late delivery “can impede the military's ability” and you specifically mentioned its ability to:

conduct training operations as scheduled be efficient in its missions and operations act quickly to respond to emerging [threats]

I know that Ms. Thomas said in her opening comments that they “ensure that our [CAF] members in active operations have what they need to do their jobs”. I want to make sure that we square the circle here.

Were you able to confirm that for those who are currently deployed on operations—such as Operation Impact in Kuwait, Iraq and Lebanon, or in Palestine, or on NATO Operation Reassurance and stationed in Latvia, or on Operation Unifier in Ukraine—there were no delays in getting materiel into the hands of our forces who are currently deployed?

[Karen Hogan]

Perhaps Ms. Thomas will want to add to this, but what our audit looked at was the actual mechanics of the supply chain from requests to delivery, not at the impacts it might have had operationally. I do believe that question would be best answered by someone at National Defence or in the Canadian Armed Forces.

[Jody Thomas]

Our belief is that of course it is critical that equipment get to those who are deployed at all times to ensure that they are never at risk during the deployment, and that's everything from spare parts to food to uniforms to their mail. It is an essential part of overseas operations.

General Cadieu can speak to operations, but we believe that we ensure that operations do receive the equipment they require. There are complexities in the system, and mistakes are made. There is absolutely no doubt about it, but it is a complex operation.

If you take a ship at sea as an example during Operation Reassurance, and the ship needs something, you're often sending it to the next port they're going to be into, or it is going out by helicopter. The difficulty and the complexity of ensuring that something gets to an operation is not as simple as sending out mail.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

I appreciate that, Ms. Thomas, because definitely for deployed troops especially our own.... We have our frigates in operations. It is very challenging. I get that.

I guess this is both for you and for the Auditor General's Office. When you look at the management of that supply chain, you've got a combination of procurement being done by National Defence as well as being done by military personnel. Is there kind of a breakdown in communications on getting those supplies?

[The Chair, Conservative, Kelly Block]

I'm sorry, Mr. Bezan, your time is more than up. Perhaps we can come back to that question.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

I'll address that in my next round. Thank you.

[The Chair, Conservative, Kelly Block]

Great. Thank you.

We will move onto Ms. Yip for six minutes.