:
I'd like at this point in time to call the meeting to order and welcome everyone, including the witnesses and members.
This is our first meeting since June. I trust that everyone had an enjoyable and relaxing summer and that everyone is glad to be back on Parliament Hill.
This meeting, colleagues, has been called pursuant to the Standing Orders to deal with chapter 5, “Financial Management and Control--National Defence”, of the spring 2009 Report of the Auditor General of Canada.
The committee is very pleased to have before us today a number of witnesses.
First of all, representing the Office of the Auditor General is of course Sheila Fraser, the Auditor General. She is accompanied by Jerome Berthelette, Assistant Auditor General; and Dale MacMillan, Principal.
From the Department of National Defence, we have Robert Fonberg, Deputy Minister and accounting officer; William F. Pentney, Associate Deputy Minister; Kevin Lindsey, Assistant Deputy Minister, Finance and Corporate Services; and Vice-Admiral Denis Rouleau, Vice-Chief of the Defence Staff.
Welcome to each and every one of you.
Before we actually commence the meeting, I want to point out that the committee will be very pleased and honoured to welcome some very special guests later on. We will be joined by some guests from the country of Mali. I understand they are held up in security.
We do have here the counterpart to our Auditor General, the Auditor General of Mali, Mr. Sidi Sosso Diarra.
Mr. Diarra, please stand up and be recognized. Welcome to the committee.
Some hon. members: Hear, hear!
The Chair: Having made those opening remarks, I will now ask for opening comments.
We will hear from you first, Ms. Fraser.
We thank you for this opportunity to present the results of chapter 5 of our spring 2009 report, entitled “Financial Management and Control--National Defence”.
I am accompanied today by Jerome Berthelette. Mr. Berthelette was recently promoted to Assistant Auditor General responsible for our audits of National Defence.
As well, I am accompanied by Dale MacMillan, principal, who worked on this chapter.
At the time of our audit, National Defence had an annual budget of almost $19 billion. It managed assets of more than $33 billion in equipment, inventory, and real estate. It is one of the largest government departments in terms of expenditures, personnel, and assets. In recent years, the department has experienced real growth in funding, and this trend is expected to continue. The department needs sophisticated financial management to allocate and monitor its resources to meet its objectives and priorities.
In this audit, we looked at how National Defence's financial management practices support financial decision-making, resource management, planning, and risk management. We focused on the activities of senior management, who are responsible for deciding how the department's funding will be allocated and what major investments the department will make.
[Translation]
We found that National Defence has some elements of good financial control. The department complies with the legislative and government requirements for financial reporting and has kept its annual spending within authorized funding limits. We found however that National Defence's two key senior management committees responsible for providing strategic and operational oversight and advice for financial management were not sufficiently focused on this role. In addition, the roles, responsibilities and accountabilities for financial matters between the three senior managers—the Deputy Minister, the Vice-Chief of the Defence Staff and the Assistant Deputy Minister, Finance and Corporate Services, were not consistent with the new Treasury Board policy on financial management governance.
We expected that National Defence would have a corporate business plan that links defence strategy, corporate priorities, objectives, and risks with short-, medium- and long-term planning. We found that the department does a lot of planning, but has no overall corporate business plan. The result is a series of operational plans for each service that are not well integrated, from a strategic perspective.
Furthermore, these short-term operational plans do not take into account the long-term capital plan that is currently being developed, under the Treasury Board of Canada Secretariat's investment plan pilot. A key element of good financial management is the ability to produce accurate and reliable data for reporting. We found that the senior managers in the department do not have timely and accurate information for decision-making. Furthermore, financial information is often derived from the operational systems that are designed to support operational requirements, not from financial management systems. As such, senior management does not have the good quality information that it needs to support the kinds of corporate decisions that must be made in this complex, decentralized department.
[English]
As an example, we found that in 2007-08 the department did not know until too late in the fiscal year that it had a surplus of about $500 million. While most government departments can carry up to 5% of unused funds into the next fiscal year, National Defence has a much lower fixed limit on how much it can carry forward. It must manage its expenditures within a defined $200 million ceiling, or roughly 1% of its annual operating budget. Since only $200 million could be carried forward into the next fiscal year, the department was unable to spend $300 million of the resources that it had been allocated.
Finally, Mr. Chair, while integrated risk management has been introduced in the department, it has not been applied consistently in financial and resource management activities. We found inconsistent risk ranking systems and risk ratings. Furthermore, we could not find evidence of senior decision-makers' being routinely briefed on the status of risks across the organization. Therefore, this critical information was not available when plans were being made and when resources were being allocated across the organization.
Mr. Chairman, National Defence has agreed with our recommendations and has recently identified measures in an action plan to strengthen financial management in the department. We believe this plan represents a reasonable approach to addressing the concerns raised, and we are pleased to see the target dates for completing the main objectives have been included in the plan. The committee may wish to have the department report on its progress and the anticipated results.
This concludes my opening statement, Mr. Chair. We would be pleased to answer any questions the committee members may have. Thank you.
:
Thank you, Mr. Chairman and members of the committee, Ms. Fraser. Thank you, Mr. Chairman, for the invitation to be with you today to discuss the 2009 report of the Auditor General.
I'd like to begin by saying that the Department of National Defence welcomes all the recommendations identified in chapter 5. The report and its findings come at a time when we have been working hard to improve our financial management, governance, business planning processes, and overall government structure. The findings and recommendations of the report helped us crystallize some specific issues we need to address and they encouraged us to expand and accelerate our efforts in this regard.
[Translation]
The Auditor General's report notes that National Defence meets the basic elements of financial management and control. But its recommendations also underscore how we must be vigilant in reviewing our financial management practices and continuously seek to improve.
[English]
Effective financial and resource management practices are crucial for National Defence to ensure that resources are aligned to enable the Canadian Forces to do what the government and Canadians expect of them and to be prudent stewards of public funds at all times, especially in the current economic and fiscal context and the ongoing imperative for clear and effective accountability.
l'm pleased to advise the committee that we have developed an action plan detailing how we are addressing each of the five recommendations in chapter V of the report. Copies of the plan have been distributed to you.
[Translation]
We have four broad objectives. Firstly, to strengthen our governance structure and improve our capacity to ensure sound financial management on a continuing basis; secondly, to establish a simplified process to clearly identify corporate priorities; thirdly to make corporate planning across Defence more rigorous; and, fourthly, to better incorporate risk and performance management into defence planning and governance.
[English]
We have already begun to implement measures to help us achieve these objectives. Adjustments to our governance structure will allow for a more focused decision-making process and improved financial oversight of all Defence activities. This will clearly allow for resource allocation decisions to be aligned with accountabilities.
In May 2009 we officially designated the assistant deputy minister of finance and corporate services as our chief financial officer. We formed a new Defence finance committee, which now meets on a monthly basis, to make all allocation decisions and review strategic financial information to ensure that the organization is on track. These changes have ensured that Defence is compliant with Treasury Board policy on financial management governance and support accountabilities established under the Financial Administration Act.
We also created a new Defence strategic executive committee that will set strategic direction for Defence and ensure alignment with government priorities. This small committee, which includes me, the Chief of the Defence Staff, the associate deputy minister, and the Vice-Chief of the Defence Staff, has met twice already.
A new corporate strategy, issued at the L0 level by the Chief of the Defence Staff and me, will address a gap identified by the Auditor General and help establish clearer links between day-to-day activities of the L1s and overall government direction, as established in the Canada first defence strategy. A new L0 plan with a shorter time horizon than the L0 strategy will further establish this link by setting shorter-term priorities and performance targets and measures and will provide direction to manage risk.
We have worked closely with Treasury Board officials to develop an improved program activity architecture that better reflects how National Defence aligns its resources with priorities.
The PAA will be integrated with a performance measurement framework and a risk management framework to systematically link activities, risks, and performance. It will also help National Defence improve communication of results to Canadians and reporting to Parliament.
[Translation]
We are a very busy and mission-focused organization; the department is currently very occupied with the operations in Afghanistan, supporting RCMP-led security operations for the 2010 Vancouver Games and the upcoming G8 and now G20 meetings, as well as implementation of the Canada First Defence Strategy.
That said, effective financial management is always particularly important, and we are always working to improve.
We realize that fully implementing the action plan will require persistence, determination and time.
[English]
But I have confidence that we have the right plan, the right focus, and the right commitment from the team, and we will work continuously to get better.
I know that senior management at National Defence are seized with the challenge of continuing to improve. The clearest demonstration of this is the time and effort we've put into implementing new financial management governance and our L0 strategy and plan.
Let me conclude by assuring you that sound planning and management and a strategically focused governance structure are critical priorities for us.
We welcome the Auditor General's report and agree with its recommendations. They not only reinforce our ongoing efforts to improve how we manage the Defence program, but they have also helped us articulate and address gaps in our thinking around our financial management architecture and practices. We are doing this to ensure that public funds are being managed in an efficient and effective way, and we will always ensure that the Defence team is ready when called upon to protect Canada, Canadians, and their values and interests.
Merci beaucoup. I look forward to your questions.
:
Thank you very much, Mr. Fonberg, and thank you for your appearance today.
Before we start the first round, I'm going to take this opportunity to introduce the committee to the remaining members of our Mali delegation who have now arrived. First of all, we will introduce Mr. Sidi Sosso Diarra, Auditor General of Mali, the counterpart to our Auditor General. He is accompanied by four individuals: Mr. Amadou Dao, an auditor with the department; Mr. Ismaila Konaté, auditor; Mr. Amadou Diop, financial administrative officer; and Mr. Modibo Cissé, who is currently undertaking a fellowship at the office of the auditor general in the province of Quebec.
Gentlemen, please stand up and be recognized. Welcome to the committee. We certainly hope you enjoy the rest of your Canadian trip.
We will now go to the first round, for seven minutes, Mrs. Crombie.
:
Welcome to our guests, especially Deputy Minister Fonberg.
I must say that I was very troubled when I read the audit, and I applaud you for having created the action plan. Yet we have to go back and analyze what and why it was.
The Department of National Defence has a $19 billion budget and manages $33 billion in assets. Past audits have revealed and identified that financial management and controls were a serious issue, yet we saw in this audit once again that there was a serious lack of financial management, lack of timely and accurate information, no integrated corporate business plan, and a focus on over-planning, leading into that lapse of $300 million. Senior management seem to have been entirely disconnected from the strategic oversight of the financial management and controls, especially in the medium and long term, and you were acting without a finance committee or a CFO.
I have seven questions, so please let me know when I'm about halfway through my time, if you could, Mr. Chairman.
First, why didn't senior management have sufficient information to anticipate a half-billion-dollar surplus?
Go ahead and respond, and I will budget them as I see the time progressing.
:
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!
Mr. David Christopherson: I wanted to raise the fact that in her report, in paragraph 5.74 on page 21, the Auditor General comments that:
—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.
:
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.
:
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.
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?
:
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.
:
Our management committee consists of 23 or 25 people. It is not, as a result, a decision-making body that can truly have effect. It is an organization that actually needs to own the corporate priorities for the organization and manage the corporate risks associated with those priorities.
The strategic executive committee—I myself, the associate, the Vice-Chief of the Defence Staff, and the Chief of the Defence Staff—will be responsible for shaping the corporate priorities and objectives for the organization overall and for identifying and managing corporate risks associated with those priorities.
Last, because of the way we managed, we have typically taken a view and an approach to risk that has been very bottom up, which meant that risk was not being managed strategically. The long-term objectives and priority setting were not risk informed, and we, the departmental strategic executive committee, will ensure that at that level and then at the departmental management committee level, the 23- or 25-member table will own the corporate risks for the organization.
:
The Auditor General is absolutely right. Risk management is a challenge.
Again, because we have typically managed from the bottom up, assistant deputy minister level, or L1 level by L1 level, we have taken on the aggregation of risks identified by those L1s and tried to manage those at the corporate level. But clearly, with resource allocation should go an obligation to manage the risk as much as possible with the allocations to the L1 level.
Over the last year, first of all, we have established a risk management framework for the organization, which we are now populating. It will be evident in the context of the L0 strategy, which will not be just about our priorities and objectives but about a risk-informed set of priorities and objectives, and then we will make sure that we, as essentially a board of directors at the L0 or the L1 table, manage those on behalf of the organization.
But integrated risk management is as much a science and the development of a framework as it is about culture change. The entire organization needs to go through a process where they understand what risks we are collectively managing, because they're beyond any individual L1. It will take time to adjust the culture of the organization.
This is an organization that understands risk. When soldiers are putting their lives at risk, they understand risk. It doesn't mean, though, that collectively at the corporate level we have a handle on it. So it will take time. The science part of it we're getting our arms around; the culture part of it will take time.
:
Thank you. That concludes the first round.
There are a couple of points I want to clarify, Mr. Fonberg. Are there one or two accounting officers in Defence? You're the accounting officer, but the Chief of the Defence Staff is not the accounting officer? So you're responsible under the Accountability Act for the proper management of resources, internal audit, and signing off on the accounts.
On the second issue, Mr. Fonberg, perhaps I'm going to get a response from the Auditor General. It seems to be that a lot of the concern at this meeting deals with the lack of carry-forward or the lapsing of $300 million. I agree with your answer that it's better not to spend it than to spend it unwisely. We've all seen over the last number of years money wasted during the time period between March 20 and 31 in computers and office equipment and the like. I certainly appreciate your answer, and I appreciate the difficulty you have in landing this $20 billion project within $200 million, because there are a lot of things going on out there that you don't have total control of.
But in my understanding of the system, you're appropriated $19 billion from Parliament--let's use that figure--and if you go over that, it is a big issue, as you're in trouble in Parliament and the finance department would certainly not appreciate that. It would be a major problem. I can see that, but I don't see the major difficulty in your being allowed to carry over more than the 1%.
Let's say it was 5% you were carrying over, $1 billion, which gives you more flexibility and better management tools. I guess the worst that could happen is that the surplus is $1 billion more than the original projections, but it gives you a lot better ability to manage this very large and complex department.
Could I perhaps get a response from both of you from a public policy point of view? Do you see a major problem with that?
Perhaps I'll start with you first, Ms. Fraser, because I don't see a problem.
:
There are just two things, very quickly, Mr. Chairman.
First of all, I probably don't have to say it, but given the choice between an unhappy Parliament and an unhappy finance department, I know what side of that equation I'd like to be on.
Voices: Oh, oh!
Mr. Robert Fonberg: The other thing is that we do two things. One is that we actually do work with the Department of Finance on strategic re-profiling. If we know that we are funded in a particular year for a capital acquisition and we're not going to make that capital acquisition for some particular reason, the Department of Finance will help us re-profile those funds forward. That's different from the carry-forward itself. The carry-forward is a little bit more of a surprise issue. If you're over that $200 million, the Department of Finance on the lapse typically will not have a lot of sympathy in terms of re-profiling that.
We do work with the Department of Finance and the Treasury Board and they have re-profiled significant amounts of money for us in a strategic way where we have gone to them and said that we need this re-profiled because we can't buy this or that platform this year, but we will be able to buy it in future years. Other than that, I'm in agreement with the Auditor General on the challenges associated with managing to 1%.
I want to commend you again on the action plan that you've proposed. It's very commendable.
To the Auditor General first, you've noted that since the nineties you've identified financial management controls as issues that are requiring attention. Had you expected the Department of National Defence to have a more robust financial framework to plan, manage, monitor, and account for its resources up until now?
To Mr. Fonberg, why has it taken so long to create a financial framework to support management of resources, corporate planning, and decision-making and to create that strategic corporate plan?
I'll hear first from the Auditor General.
If we could hypothesize for a minute, I do want to go back to the lapse of the $300 million. I realize that the 1% may seem restrictive, but as Mr. Saxton pointed out, given the government's inability to manage and control its deficits, the 1% may seem satisfactory after all.
I just had to get back at him; we're just having good fun.
So perhaps we could hypothesize for a minute about that $300 million lapse, because of course we're all supportive of the great women and men in uniform, particularly in Afghanistan. What could $300 million have purchased? What could we have done with that money?
:
Thank you, Mr. Chairman.
Thank you, Madam Fraser, for being here, and also to our guests.
I would like to follow up. This $33 billion in assets, $19 billion or $20 billion in budgets, if you had...?
Ms. Fraser, in your report, you talked about this being one of the largest government departments. What is bigger?
:
Okay. We seem to be stuck on 1% or 5% and I'm looking actually.... We don't have to have 1% or 5%, but if we're looking for some direction, there are all the variables in between that, and this might be something we want to discuss.
In terms of the amount of dollars that are being spent now, the amount of procurement that is going out now, recognizing I think some of the issues that come out--and maybe you can speak to that--as you have dollars that are going to go out for proposals, you have procurements that you actually think are going to happen in 2008, but we know how procurements sometimes happen, and to meet the requirements of the contracts they don't actually happen that year.... So I don't know how that fits into it.
But it would seem to me that in the military, if you go first to Defence and that almost $35 billion, it's a lot of money going out. And it doesn't take much of a change in a contract or a procurement or for the timing to go off, if I'm right, to be out a few million dollars. Is that part of the issue also, because there is a fast track of replacement of some of the assets, and trying to deal with those within a compressed time of one year?
:
Firstly, as we said, we do not draft separate plans for each service.
When developing the department's acquisition or evaluation plans, we begin by determining what needs to be done to ensure compliance with government standards. Once that is established, we draft potential scenarios where the Canadian Forces could be required. Based on these scenarios, we define the capacity that we require. We establish whether we already have the capacity, or whether we need to develop it. It sometimes happens that we have the necessary equipment, but it needs to be replaced because of its age.
Our system allows us to identify the relevant capacity and the relevant services. It is not about giving more to the air force, the army or the navy; our job is to maintain our capacity in light of the age of our equipment. It is not a matter of favouring one service over another.
:
Thank you for your report and for being here.
It seems so normal for us, as Canadians, to see the Auditor General seated next to the Deputy Minister of Defence.
Here we have our guests from Mali. Having visited the Congo in Africa just a year ago where the military is in different pockets of the country, very much in control, let me ask this question. What specifically about the defence ministry makes it more difficult to audit, and what should we as Canadians perhaps be concerned about in days to come?
You have been given access to all this confidential information and we as Canadians are given comfort that our freedoms are protected, that the military will never get beyond a certain level of influence, but do you have any comments on that? Was it harder to do this audit of the defence department than other departments, or could it become so?
I have just one follow-up question, and it stems from page 8, paragraphs 5.21 and 5.22, on capability-based planning. I am quoting:
Capability-based planning is the process that National Defence has identified for determining future Canadian Forces' capability requirements. It involves the analysis of scenarios, based on government defence policy and the department’s assessment of the current and future security environments.
The last sentence reads: “It is an important process that provides strategic direction for resource planning.”
So first, can you explain that to me in language I can understand? I didn't get what that means.
I'm going to ask two questions and leave them with you, and you can answer at your leisure.
On paragraph 5.22, it says:
Although the department has identified the need for capability-based planning for many years, we found that this process was still being developed. At the time of our audit, the department advised us that it had completed the analysis of eight of the 18 scenarios that are to be used to identify the required capabilities. National Defence officials told us that these eight scenarios define the majority of the Canadian Forces' required capabilities.
I didn't understand all but a word of that, in terms of what we mean by “scenarios” and everything.
If you would comment on those two, I would appreciate it, thanks.
:
Mr. Chairman, I thank you for that question, and then I'll turn back to the vice-admiral.
When I started in this job two years ago, I actually struggled with the notion of capability-based planning, and it came down a little bit to this, as we tried to explain to our minister and to cabinet why the notion of the Canada first defence strategy and a long-term commitment to funding was actually important.
The example that came to mind at that time was planning for a response to a SARS event, or some pandemic, for example, and it was not the kind of thing that when the pandemic actually hit you would go down the street and knock on the door of the 7-Eleven and buy the response you needed. You need a level 4 lab. You need a network of public health officers, federal on down. You need to understand people's responsibilities at airports. You need to understand the regulatory frameworks. Altogether that is a capability, a capability that allows you to respond to a pandemic, a capability that allows the military to respond to one of the six missions that are laid out in the Canada first defence strategy and that requires aviation assets to come to bear; army assets to come to bear, including the training; naval assets to come to bear. When you look, for example, at planning for the Olympics, had we not had all of those assets and known how to combine them, we would never have been able to plan the security piece or actually effect the security piece for the Olympics.
It comes back a little bit to the question earlier on planning by sector. We plan to a capability need based on our expectation of what the country will actually require in terms of defence and security going forward.
That's my short-winded explanation, Mr. Chairman, and I'll ask the vice-admiral to add some detail.
:
In fact, we call it the capability development life cycle. We start by first of all defining what we call the FSE, the future security environment, as to what the world will look like between now and the next 20 years. That gives us the environment within which we're going to be asked to operate. From that environment, we come up with scenarios. Those scenarios are simply events for which the armed forces would be called upon to play a certain role.
A scenario could be what we're involved with in Afghanistan right now. One of the scenarios could be something domestic, something here. It could be something like a podium or the security during the Olympics. We started with 18 of them that were defined there. They were identified. We found that after developing the first eight, we were in fact covering just about all possible areas and events where the armed forces could be called to operate. That's the reason we have eight that are fully defined and fully developed right now, as opposed to 18.
From those scenarios, in order to basically satisfy the government's direction and the level of ambition that it wants, and what it expects from the armed forces, we draw up a capability. In order to do what they're asking us to do, we need a certain capability, whether it's a naval task group that you send overseas, whether it's a full brigade or a contingent of land forces you need, or whether it's a package of CF-18s or a package of transport aircraft that you need to do a specific mission. It defines the capability.
Once you have that capability, then we look at what we have. We look at what we have and also, very importantly, the life expectancy of what we have. We know that at some point in time each one of those will have to be replaced, as we do for the warships and any aircraft we have and for any equipment for the army. Once we have that, it defines when we have to start working on the replacement for those capabilities.
The tool we use is called the strategic capability roadmap and it defines very precisely, by time, when we need to start working to replace the frigates, the CF-18s, and each part of our equipment that we have for our capability. This basically defines it. What we have now on top of that is an investment plan. In fact, the investment plan is the fiscal envelope within which that capability development has to fit. We have no choice. We have to stay within that appropriation. Therefore, we tie in the capability with the fiscal room that we have and we sequence it and phase it so that we maintain the capability while remaining within our fiscal envelope.
:
Thank you, Mr. Chairman.
I welcome everyone to our committee today.
Mr. Fonberg, I wanted to ask you a question. I was very interested in your report. You said in your report, “We are a very busy and mission-focused organization” and you're occupied with “operations in Afghanistan...RCMP-led security operations for the 2010 Vancouver Games and the upcoming G8 and now G20 meetings, as well as implementation of the Canada First Defence Strategy”. As we know, the Canada first defence strategy includes new critical sovereignty initiatives in Canada's Arctic.
So my question would be this: is it safe to assume this is the busiest time related to foreign and domestic missions since World War II?
A voice: Korea.
Mr. Terence Young: Since Korea?
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Thank you, Mr. Chair and Ms. Crombie.
This is actually a quick question for the Auditor General. It doesn't relate specifically to defence, so my apologies, gentlemen.
It was something that you had said a little while ago. I may have misheard it, but maybe you can just explain.
It was a comment about departments not knowing the full amount of what they will have allocated until well into the year and that therefore they have difficulty knowing what they will be able to spend. That strikes me as something that would be very difficult for all departments just in overall government spending and when we know that, in any budget cycle, near the end of the fiscal year you tend to see spending even on things that wouldn't necessarily be necessary in order to keep that budget. We know that happens in the private sector everywhere. Can you elaborate on that?
That raised a real concern for me, that there might be a whole lot of money that gets allocated to departments well into the fiscal year and they then are saying, “Oh, we didn't really plan on this; we didn't know we were going to have it, but we better spend it.”
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I think the easiest way to understand this is if you actually take the budget and compare the budget to the main estimates. You will see that the main estimates are significantly less than the budget just because of the time for preparation of those main estimates, so departments will come in for supplementary estimates two or three times during the year.
There will often be pretty standard things going into supplementary estimates, pay increases or things, but there are other just basic funding requirements that are known at the time of the budget but have not been processed in order to get them into the main estimates, and so they will come quite late in the year. There have been supplementary estimates passed in March, which should not occur because departments are never supposed to spend any money that hasn't been appropriated by Parliament. So how can you be getting an appropriation on March, at the end of the year? Logically it makes no sense, but that's the way things have been working.
We did an audit on the expenditure management system and we see that the government is trying to move it forward. But one of the best examples this current year is vote 35, where there was simply not time to get all of those initiatives into the main estimates, and if they had waited for the normal supplementary estimates process the money would not have become available to them until the end of the year.
So it's a problem for departments when you're not sure if you're going to receive those funds. If you are cautious, you don't start a program without the certainty of knowing it. So then you get your money in, say, December; you have three months left for the program and yet you get your full amount given to you.
So there is an issue of how funds are allocated and when government departments get confirmation. And I would say, and I don't think it's any surprise to anyone, especially in a time when there's uncertainty about whether there's going to be an election, you may not actually get those supplementary estimates through if it's for new programs. So I think departments are probably even more cautious now in not doing what we call cash-managing and relying on that. So there is an issue about how departments receive the funds through the year.
Basically, in any fiscal year, in order to give us the flexibility that we want to have during the year, and knowing that some projects or acquisitions or operations will not advance as fast as we expect them to go throughout the year, we actually over-program to an amount that goes between $400 million and $500 million. And what it allows us to do is in fact, as we progress throughout the year, at Q1, at Q2, at Q3, to reduce those amounts, and the plan is to land at the end of the year within that 1%.
This is based on historical figures on how the slippage has taken place. We do it for vote 1, and we do it for vote 5 as well; and other than in that year 2007-08, the previous years, and again this past year, we have proven that the amounts were pretty close to where we want them to be. And the execution during the year by the review at each one of the four quarterly reviews allowed us to bring the level to within the amounts that we had to have for the year, within our appropriation and within the carry forward.
Then my last comment is just that I very much appreciate, as I think all of us do, the work you do, the work for our men and women, and quite honestly, for our defence, sir, and for what you do for this great country of ours.
I know that we've had an audit, and actually I'm just very glad to see that things are moving ahead. All audits seem to come in with some deficiencies, and quite honestly, that's how we learn. The main thing is that we learn and move ahead. I think what I would take from this, not to be on any partisan side of it, is that actually you're just moving ahead and taking logical steps in terms of your fiduciary responsibility. I think all of us should appreciate that. Thank you very much.
Some hon. members: Hear, hear!
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I would like to thank the chair. Many of you know that I worked on the famous audio cassettes that we did not receive until recently. I am pleased to hear the Department of Public Works and Government Services admit that there were errors in the documents that were provided to you. So I hope that you enjoyed reading these recordings and that you were able to take advantage of the work done.
However, the two motions that I am tabling today seek to dig a little bit deeper into the research done on the changes being made currently to procurement in general. The response we received from the department is not dated. I don't know whether the clerk obtained the exact date of this document, but the one accompanying the audio cassettes implied that there were advantages in going forward with the new modus operandi of Public Works and Government Services Canada.
That piqued my curiosity so much that I consulted the draft contract on MERX to look at the call for tenders that they are referring to here. I have a number of concerns. For now, I would just ask that the department provide justifications. It also promised the committee that it would provide a business case, which we have not yet received. Can the chair request once again that this document be sent to us?
During my research and follow-up on other committee files, I remembered that I had collaborated on studies on large computer projects. The department promised to provide us with business cases on March 10, 2009. I am referring to a letter dated March 3. May of us were absent at that time. I'm sorry that Mr. Kramp is not here today, because he could confirm this request.
In this letter dated March 3, the department pledged to provide us with a business case on the Shared Services Initiative by March 2009. Given that this concerns the same thing, the notice of motion seeks simply to emphasize the importance of obtaining more information on this new approach. This concerns my first motion.
Do you want to deal with both motions, given that they are fairly similar?
I see the two motions as being very similar. They relate to the issue we discussed before. My concern is with any matters relating to agreements made in the civil service with private sector companies or individuals who are willing to share their knowledge, ideas, inventions, and methods with government in all the ministries. If we do anything in this committee or any other to undermine those relationships whereby Canadians generously share their knowledge and abilities with the federal government to help the government do better...they want the government to succeed, do better, and be better.
Let's say we make an agreement and say, “Please come in and tell us everything you know about this. We promise to keep it private; we won't give out your commercial secrets.” If this committee then does something to undermine those agreements and betrays a trust with those individuals, it could have huge ramifications for government in the big picture over the long period. And this is in every ministry. If Canadians--individuals and corporations--won't come in to share that knowledge and it's not available to us, that's a huge backward step.
So I share that concern with the committee. I'm on record as expressing this concern before. I want to go on the record as expressing it again today with regard to this motion.
I think that in general, we tend to support a proposal that is very important for a colleague and that does not have too many adverse effects for the government or other committee members. However, I do not fully understand the relevance of these two motions. In addition, I would like to know whether we are able to cooperate with the other committee, that is, the Standing Committee on Government Operations and Estimates. If it is true that these questions are more within the other committee's purview, I think that we should cooperate with it and stop debating these questions here.
Mr. Chair, if these issues do indeed raise legal problems, I think it would be better to ensure that we clearly understand them before going to a vote.
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Perhaps I can make a few comments, if I may. I thought of these two motions, and it has always been my position as chair that the job of this committee--and I've said this before--is to deal with the issues related to the expenditure of public funds. Relevancy always comes into issue in a lot of questions and a lot of motions. My position has generally been to allow members to pursue their own line of questioning and, if there's a doubt, to give the benefit of the doubt to the particular member.
On these two motions, or one of them at least....
The first reads:
That the House of Commons Standing Committee on Public Accounts call upon PWGSC to provide it with all departmental policies relating to service procurement and an analysis of the pros and cons of Government Enterprise Network Services (GENS).
It's my view as chair that I'll give the benefit of the doubt to , as it relates to chapter 3, “Contracting for Professional Services”.
The second one, Madam Faille, is:
That the House of Commons Standing Committee on Public Accounts ask PWGSC to provide it with all industry briefs and presentations regarding the Request for Statement of Interest and Qualifications EN869-09126/K posted in July 2009 concerning the Government Enterprise Network Services initiative.
That is only two months. I really think this goes beyond the relevancy of the chapter that we're doing. The public accounts committee generally follows the performance reports of the Auditor General. We're in no way precluded from embarking on our own studies and our own work; however, the problem in that regard is that we don't have an investigative staff and it works better when we follow the work of the Office of the Auditor General.
On the second issue, regarding the posting of a statement of interest and qualifications, I just don't think that's relevant, and I'm going to rule it out of order. You have a number of options available to you. You can put a question on the order paper. You can, which has been suggested, refer the matter to the House of Commons Standing Committee on Government Operations and Estimates. You could present a motion to this committee that we study the Government Enterprise Network Services, the GENS, and then we would maybe look at that issue if the committee, as a body, decided to study it. Of course, another option available to you is that you could write individually or ask the committee to write to the Auditor General asking that her office embark upon a study on the expenditure and management of the Government Enterprise Network Services initiative.
By and large, I just feel it's irrelevant. Unless I'm overruled by this committee, I'm prepared to rule the second motion out of order because it's beyond what we're dealing with in this committee.
Having said that, are there any other interventions on the first motion?
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Concerning the second motion, I used what happened with the Royal LePage contract as an example. The Standing Committee on Public Accounts had asked to receive more information on how that contract was awarded.
The GENS contract process has not yet begun, to respond to the concerns of Mr. Young, who feared that we would be stepping in at a time when promises were being made to an individual or a company. Currently, they are no more than proposals and drafts. We asked industry representatives for comments. Thus, we are not interfering in a contract-awarding process. I think that we can intervene before this occurs, and I used what the committee did in the Royal LePage case as an example. We reached certain conclusions because we could see that there were things that had happened that were out of line.
When I saw the contract posted on MERX, I read all of the sections. In terms of the organization of professional services, equipment purchase services and project management, there are weaknesses.
Unless my motion is amended so as to be sent back to the Auditor General so that she can make recommendations to us, I do not see how, as the Standing Committee on Public Accounts, we can ignore something as significant as $15 billion. This is a 15-year contract, that is, 8 years plus a 7-year renewal. We cannot ignore such a substantial sum, especially when we have no information on the ability of Public Works and Government Services Canada to properly manage this contract.
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My ruling stands. Thank you very much.
I'm prepared to vote on the first motion. All in favour of the motion as read, please raise your hand? And contrary minded?
The vote is tied, so I will cast a vote in favour of that motion.
(Motion agreed to)
The Chair: To conclude, Mrs. Faille, you do have a number of options available to you in other committees and other venues in Parliament on that issue, which I know you have put a lot of work into and spent a lot of time on. It is an important issue, I agree with you; but for the reasons I explained, I don't see it being relevant to the issue.
I have another announcement to make and then I'm going to turn it over to Mrs. Faille.
In September of each year, the committees purge their memberships and have to elect or re-elect their chairs. It's somewhat arcane in my view, but because of that the committee is functus as of a certain time this evening. As a result, there will not be a steering committee meeting tomorrow at 12 o'clock, and there will not be a meeting on Wednesday on 3:30.
The next scheduled meeting will be Monday at 3:30. Is that right, Madam Clerk?
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I just wanted to mention that this is not Meili Faille's project. We are studying the department's procurement methods. It is true that I read the whole thing because I had some doubts on the new procedures.
I would just like to draw the committee's attention to one aspect, Mr. Chair. I requested these documents because there was something that concerned me when I consulted the MERX site this summer. In a Request for Statement of Interest and Qualifications, the following sentence appears:
Since this notice relates solely to a Request for Information rather than to a RSIQ, the documentation is provided in English only.
What concerns me is that only the final contract will be available in both languages.
The government is using this approach even though it is in contact with industry representatives. If certain French-speaking suppliers had wanted to submit comments in French, would they have been able to do so?
To date, Public Works and Government Services Canada has made my life somewhat difficult: a request for comments in English only, audio cassettes that were half..., commitments that were not honoured. At this stage, we can't let Public Works and Government Services Canada behave so dismissively with us, the members of the committee. I'm continuing this debate because the fact that the department is showing this much resistance to a new procurement procedure while singing its praises in terms of savings, among other things, appears to me to hide a problem.
I mentioned to the clerk that we were awaiting follow-up to this correspondence. She told me that we had received some documents from certain departments. I was wondering whether it would be possible to forward to us at least the information that is currently available.