NDVA Committee Meeting

STANDING COMMITTEE ON NATIONAL DEFENCE AND VETERANS AFFAIRS

COMITÉ PERMANENT DE LA DÉFENSE NATIONALE ET DES ANCIENS COMBATTANTS

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, April 5, 2001

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[English]

The Chair (Mr. David Pratt (Nepean—Carleton, Lib.)): I'd like to call the Standing Committee on National Defence and Veterans Affairs to order.

We have before us today, in connection with our state of readiness of the Canadian Forces inquiry, Mr. David Rattray, who is the Assistant Auditor General, as well as Mr. Peter Kasurak, Principal, Audit Operations Branch for the Auditor General of Canada.

Gentlemen, I'd like to welcome both of you here today. All of us are certainly very much looking forward to your presentation. As I mentioned to some of the committee members before the meeting last night, we're expecting a fairly long presentation today. We had better get into it fairly quickly so that we have time for questions.

Mr. Kasurak, I want to let you know that I read your article a little while back on whether the glass is half empty or half full. I'd be interested in any further comments you might have on that issue as far as defence is concerned.

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Gentlemen, you have the floor.

Mr. David Rattray (Assistant Auditor General, Office of the Auditor General of Canada): Mr. Chairman, thank you for the invitation to appear before the committee today on the subject of operational readiness of the Canadian Forces.

As noted, with me today is Dr. Peter Kasurak, the principal who is directly responsible for the office's audit activity of the Department of National Defence.

Both of us have spent a considerable number of years conducting value-for-money audits in the Department of National Defence. In my own case, I've either been the principal or Assistant Auditor General for this portfolio since its first audit reported back in 1982.

When asked to discuss operational readiness from the perspective of the office and its work, we believed it could be helpful to the committee members if we attempted to organize our thoughts in some order of presentation. We also had a reasonable amount to present to the committee but did not feel a prolonged opening statement would permit the dialogue that committee members would no doubt wish to have.

With the chair's concurrence, we have prepared a presentation using material from the chapters that our office has published more recently. We are pleased to take any questions as we proceed with the presentation, and depending on the number and complexity of the questions, we should have sufficient time to answer any additional questions at the conclusion of the presentation.

I now turn to Dr. Peter Kasurak to begin the presentation.

Mr. Peter Kasurak (Principal, Audit Operations Branch, Office of the Auditor General of Canada): Thank you, Mr. Chairman, and thank you, David.

This is a very complex subject, and I'd like to congratulate the committee for taking it on as a major project. It certainly is important, but it is probably one of the more complex subjects that one can deal with in military affairs.

Our presentation will look at five basic items. I'd like to tell you a bit about how our office has looked at military readiness over the last decade and talk about what we see as the components of military capability that need to be considered together. I want to talk about some of our work on the defence budget and readiness. I would then go on to talk about our findings that relate to readiness management and the Canadian Forces; then proceed with readiness management in foreign forces; and finally, end with the readiness deficiencies that our audits have pointed to over the past five or six years.

Turning to components of military capability, the problem with readiness is that it is very complex. One of the models we've used to try to shed light on the analysis is an approach that the American Department of Defense has developed. They call it the four pillars of defence, but the U.S. Army has added a pillar, so now there are five.

The five pillars that the U.S. Army sees are infrastructure and overhead, which is the fixed bases, the facilities, and the headquarters; the force structure, which is the standing combat units; something they call modernization and investment, which is their capital program and their R and D program; sustainability, which is their stocks of consumable spare parts and replacements; and finally, readiness.

I'll speak a little bit more about readiness, but together, all five of these pillars consume resources, and they need to be managed as a package because they all end up supporting the sharp end. There are lots of trade-offs to be made amongst them, and part of the challenge for defence managers is trying to keep the balance appropriate.

Readiness—and here I would like to reiterate the model that Doug Bland gave when he appeared before you—is really composed of four basic things: people, the military people in place and their qualifications; the equipment, whether it's on hand and whether it's serviceable; training, which is individual, collective, and joint, that is, more than one service involved; and finally, enablers such as command-and-control and intelligence systems. Together, that package forms what we understand to be readiness.

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If anybody would like to raise questions, please feel free and I'll respond, or we can back up later.

As I said, managing readiness involves trade-offs among the size and composition of forces, the rate that you modernize or spend money on capital investment, and on your current readiness.

There are also trade-offs within readiness. If you become ready too early, you can't sustain that for a long period of time, and you will then have wasted part of your expenditure. There are many trade-offs that have to be made.

In addition, there is an element that doesn't appear on this slide, which is that an armed force has to be able to answer the question, Ready for what? I know this was something that Dr. Bland also raised, and I think this is a very important question. To be able to make these trade-offs, you do need to have defined that question.

So that's the basic model we've used: five main pieces to defence capability, and then four main pieces to readiness, all which need to be traded off in terms of both expenditure and time.

The next subject I'd like to turn to is the defence budget and readiness. This has been a subject that our audits have gone into fairly extensively over the last three or four years.

Our major finding overall has been that there is a significant budget overstretch. In our 1998 audit report on the capital program, we reported that National Defence estimated it needed, at that point in time, $11 billion in capital funding over five years, but forecast it would only have about $6.5 billion available.

We also found in the course of that audit that operations and maintenance, or O and M, costs were likely to escalate as more sophisticated equipment was added to the inventory. The prime example of this was the Coyote reconnaissance vehicle, which replaced the much simpler old vehicle and cost about 275% more to maintain in the field. So by buying new equipment, you don't necessarily solve your budget problem; you may in fact make it worse.

The other thing was that personnel costs were also likely to rise. Of course, as conditions in service and pay are remediated, with the forces playing catch-up, they indeed have risen.

We followed up this audit in 2000. What we found was that force structure had been cut significantly. At that point, the department had gone to ministers and said that it was out of manoeuvring room, that it really couldn't, as is often said, shave the ice cube any more to make economies or trade-offs, that they were under severe pressure.

At that point they estimated they were still short $1 billion a year. Budget increments since then have addressed that, but in response to the chairman's comment, the glass is filled up a bit, but it's still not completely filled, according to the force structure that the forces are trying to maintain currently.

One possible other way of solving the budget problem would be to become more efficient. Indeed the department has put a great deal of effort into this. We've conducted an audit and a follow-up on it. Primarily, this is called the alternative service delivery program.

The department estimated that it was saving $60 million a year in support costs, which is not to be ignored. However, their target was $200 million in the year that we audited, and $300 million the following year. Progress is slower than the department had anticipated. Indeed we found that the department is doing as well as our British, American, and Australian counterparts. The savings from alternative service delivery are real, but they're more modest than originally forecast. So the dollar savings that are being generated are not coming on at the speed at which they originally progressed.

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In conclusion, on this section, our belief is that force structure, modernization, and current readiness are still not being balanced. There still is a discrepancy across the various pillars and hard choices still need to be made regarding them. One has to make a reduction someplace or add more funds to balance out the current set of objectives.

The next topic I'd like to address is the current state of readiness management in the Canadian Forces. Over the years our office has developed expectations or audit criteria for looking at readiness management systems. Our expectations are based in part on what we see being achieved elsewhere and also on what we see as the shortfalls of existing Canadian Forces systems.

Just to go through these quickly.... We think readiness management needs to be comprehensive. In other words, all the field units, all the combat units, need to be included. We do think it's important that it be done by military unit rather than by some other conceptual basis, such as a capability element. That makes things very complex and it's very difficult to manage the reporting system. We believe reporting systems should be positive. By that we mean that reports should not be just on a negative-exception basis. Many reporting systems have been set up this way, where a field unit is assumed to be okay unless the commander says it's not. Unfortunately, one can then not track any trends. One can only find out when things are unsatisfactory that it's already happened. So we aren't in favour of that sort of reporting system.

We look for objective measures for personnel, equipment, and training, but we recognize that any subject as complex as readiness is going to have to include a subjective commander's assessment. That's almost a given. I don't know of one anywhere that doesn't include a subjective assessment.

We would like them to be auditable. In other words, they are based on data that we can go and test and inspect afterwards. We think that's for the good of the system. Systems that have failed in the past have not been auditable or audited, and consequently very often they were prone to subjectivity and pressures of the time.

We also think—and this is very important—any reporting system or management system needs to be validated on a continuing basis. By validated we mean that if a unit is declared to be ready, that unit should be periodically sent out on a field exercise and a rating validated. In other words, if you send a unit, for instance, in the United States to the national training centre, which has been declared ready by your reporting system and then it's found not to be, you know you have a problem. This has happened. So without a validation process that tests reality, any complex reporting system is probably going to have more than a few skeptics around it.

Throughout the 1990s, Canadian Forces' systems really didn't meet these audit criteria. In 1994, we found there was a top-level system, but it was subjective and it was based on major defence tasks, such as defending Canadian interests in the Atlantic, that were very hard to come to grips with. Individual service systems weren't in place to support the departmental system, or were only partly in place. Our subsequent audits have not found a lot of improvement. At the moment, the department has something it calls the operational status display. That covers only the vanguard units or about some 7% of the manpower of the Canadian Forces. Our audits have continued to find that needed data doesn't exist and that some data are unreliable, and we continue to find that many post-exercise reports, which are another way of measuring readiness, aren't filed or analysed by the individual services.

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So in essence we've had a decade where there have been various attempts to put readiness management systems in place, but they have not been successful, and the exercise reporting system hasn't been really well managed either; the post-exercise reports really just aren't there.

Foreign forces. I would like to emphasize that the Canadian Forces are not the only ones having difficulty managing readiness. This is very much a transnational problem. No armed service has a system that works perfectly. Indeed, our counterparts in the General Accounting Office in the States regularly find problems with their system.

However, I would like to bring to the committee's attention two systems, first of all because at a very basic level they would meet our design criteria, and secondly, because they exist, and they have existed for a long period of time—two decades or more in the case of the American system and at least a decade for the New Zealand system. They are the U.S. SORTS, which stands for status of resources and training system, and the New Zealand performance reporting system, which its defence force uses.

What both these systems have in common is they are relatively simple, they're based on individual units, they report on the things you can see and touch—the people, the equipment, and the training that's taken—and they all have an element of commander's judgment involved to overlay those objective elements. They are also involved with other systems that assess or set the “so what”. In the United States they have a process that was started by Les Aspin, when he was secretary, as the bottom-up review, but since then it's become the so-called quadrennial defence review, or QDR, which is based on a scenario whereupon the U.S. forces are supposed to prepare for what they call two major regional conflicts. This then gives a yardstick to compare the working of the system, the force structure and its readiness, against those tasks. You can gauge roughly where you are.

New Zealand does somewhat of the same thing through a purchase agreement between the chief of defence force and the minister. Although it's not public, they do have a benchmark that the defence force can be held against. The “what” is known, at least in some general terms, in both cases.

I think both of these systems produce valuable information for ministers, for legislators, and for citizens. In spite of all the shortcomings, I think the fact that they have persisted for several decades indicates that people do see value in them.

The final thing I'd like to bring before the committee is a summary of the results of some of our audits on readiness deficiencies.

I would like to stress that the office does not have at this time a current picture of the state of readiness of the Canadian Forces. We haven't reported an audit for a few years, since our follow-up of the peacekeeping audit in 1998, that gets to the core of operations.

I would add though that we are working on two audits that should contribute to an understanding of the current readiness of the Canadian Forces. One is on equipment. We're calling it in-service equipment and we're targeting it for this December. The other is on military personnel, and we're targeting it for the spring of 2002. So we've got current work ongoing that we haven't reported to Parliament yet. But the picture I'm going to present is a little bit dated.

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Our previous audits, though, have shown some significant readiness shortfalls. Our 1992 audit of the reserves showed weaknesses in training and manning, particularly in the militia, but also in the naval reserve.

In our 1996 peacekeeping audit, we found that individual units had been deployed even though they weren't fully trained or consistently trained. The army at that point in time had stated internally that it was experiencing a collective training crisis. Its 1995 brigade exercise was reduced in size, and its army evaluators reported that the brigade, which was actually being trained for a possible relief of forces in Bosnia, had not reached its target, given the most optimistic interpretation of readiness.

In 1999 we followed up, and we found that the army had taken significant action on training deficiencies but still wasn't training at the brigade level, which continues to this day, and also that it had deployed for operational assurance in Central Africa troops who had not been declared operationally ready.

So this problem of maintaining readiness in the army has been a continuing one that's figured into a number of our audits.

Now, in terms of reporting to Parliament, one of our common findings and recommendations is that more can and should be done to report on the readiness of the armed forces to Parliament. The Department of National Defence's current performance report says that in many ways the Canadian Forces are more combat-capable today than they were ten years ago but doesn't provide the backup information that would allow Parliament to judge what that assessment rests on.

As I think foreign examples indicate, better information can be provided. We certainly think it should be provided, and we would like to encourage the committee to think about not only the current state of readiness for the Canadian Forces but also the management and reporting aspects for the future in your deliberations.

That concludes my statement, Mr. Chairman. I'd be happy to respond to questions.

The Chair: Well, gentlemen, thank you very much for the presentation.

Mr. Goldring, seven minutes.

Mr. Peter Goldring (Edmonton Centre-East, Canadian Alliance): Thank you very much, Mr. Chairman.

And thank you very much for an interesting presentation, gentlemen. You mentioned that there's a potential shortfall in budgeting for equipment. I have a note here from the February 1999 Auditor General's report to the House of Commons, which mentioned at that time that there would be a shortfall in the equipment budget as high as $30 billion by 2012. The numbers you mentioned were just projected for the next five years, I believe.

Could you relate this shortfall to how it has affected...? Has that materially changed this original projection of $30 billion by 2012, or is that still roughly the estimate?

Mr. Peter Kasurak: The $30 billion was, I think, taken out to the end of National Defence's long-term capital plan, which is a 15-year plan. So it's roughly $2 billion a year that they were saying they had fallen short.

Since then, in our follow-up the department had conducted a scrub-down of its requirements and of its spending and had reduced that. We reported in 2000 that the overall shortfall in the budget was then estimated to be something around $1 billion a year. However, National Defence also said at the same time that the shortfall was based on the assumption that it would be able to make certain reductions, and that some of these had been made, and some of them hadn't. So we're a little bit at sea as to what the real shortfall is.

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We haven't gone back and conducted a full audit of that. So as of 2000, the situation had improved somewhat, but it wasn't completely solved.

Mr. Peter Goldring: So perhaps the shortfall budget estimates, if they were more relative to consistent periods of time and terminology, might be a little clearer for us to understand too, or if they were updated and related to the same of terminology used when reports were made to Parliament. I'm just mentioning this one specifically in 1999, giving estimates up to 2012. If we kept some consistency we could more easily follow it along to see whether it's relative to that or not.

Mr. Peter Kasurak: I take your point. Yes, Mr. Chairman, that would be a good idea for future work.

Mr. Peter Goldring: During the war in Kosovo, our forces expended a total of 361 precision-guided munitions, or smart bombs. It seems to me there were reports of shortages on them, too. Has the Auditor General's office examined the issue of the munitions stockpiles and whether our supplies were adequate or are adequate, and what has been done to address this for upcoming budgetary estimates?

Mr. Peter Kasurak: No, we haven't looked at munitions, Mr. Chairman. Our current audit of in-service equipment is looking at spares that relate to major weapon platforms. We've excluded munitions from it. We decided that we should look at the major weapons platforms first, so that's what our future audit will be based on.

Mr. Peter Goldring: I have a question on another matter.

Recently there was the issue of trust accounts in the courts today, and it's a considerable amount. Have there been any contingency allowances? I understand that is a court decision, but have there been any attempts to address this in your budgetary estimates, or in your future estimates of what is going to be required, considering that they are talking possibly of $1.3 billion on this?

Mr. David Rattray: Mr. Chairman, I should try to distinguish the team structure. Mr. Kasurak leads the defence team. There is another, quite separate, team that looks at veterans affairs, and they have participated. We have been asked as an office to give preliminary comments of an exploratory nature, I believe, for the item that's before the courts. But the defence team here today is not looking at this, nor has it been brought up to date.

Mr. Peter Goldring: All right.

Mr. David Rattray: It's another organizational unit within the office, though.

Mr. Peter Goldring: All right.

Now I'd like to look at quite another issue, and I think that it's related to planning and readiness. It's in your supply chain. Initiatives have begun to entertain what I would call global contractors, for want of a better expression, to look at tendering and bidding on massive supply management in the major installations. Given that you're doing it obviously under a different system now, are there expected to be large savings in going to this? I would imagine there would be, but is there any indication that there may be start-up problems or slow-downs in source of supply, or turnover, or integration problems, and are contingencies allowed for that?

Mr. Peter Kasurak: Yes, Mr. Chairman, the supply chain project is an issue that we've been following relatively closely.

When we did our alternative service delivery report in 1998, the supply chain was one of the projects that the department had actually removed from its then-normal way of doing projects to put a very high level of senior management attention on it. We found that the department had done a much better business case for this. It's proceeding quite, I think, slowly and cautiously with this project. I believe it's now reached the stage where it's examining tenders, and its plan is to bring in a contractor to work with it to help it resolve some of these risk areas before they let a full contract.

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Now there are, of course, risks in taking a project and doing it incrementally this way. However, at this stage we think that the department has met the audit standards that we set out so far. When they go past a major decision point in the future, we'll be there to take another look. So far the department is aware of a range of pitfalls, some of which you've stated. I think the additional element that concerns the department is how to maintain an expansion base, a mobilization base, and respite postings for its service people if the armed services are no longer staffing the supply chain themselves, if that now is outside the department.

While we haven't reviewed their plans on this, I know that they've once again given that issue a lot of attention. So they seem to have so far identified many of the significant risks and appear to be managing them. So we won't have a final opinion until we go back and do that project again in full sometime in the future.

The Chair: Thank you, Mr. Goldring.

Mr. Bachand.

[Translation]

Mr. Claude Bachand (Saint-Jean, BQ): Thank you, Mr. Chairman.

Yesterday, or the day before, we considered the issue of readiness. We attempted to agree upon a definition of military readiness. You have your own definition, but I think ours is much more precise than yours. What do we mean when we say that the army is in a state of readiness? To our way of thinking, it means personnel, including recruitment issues, equipment and its ability to counter a threat, training, infrastructure and budget. We had a five part definition which I find much more precise than yours.

I must say, frankly, that I am rather disappointed by your presentation since you flatly state, very openly, that there is no work currently being done on the army's present state of readiness. We are referred to studies going back to 1992, 1997, 1999. I know it is hard to get a true picture of the present state of readiness. I know how difficult it is, but you also proceed by categorization and that does take time. I see that, by 2001, you will have in hand a report on military equipment and that in 2002 we'll have a report on military personnel. I would have liked to learn from the Office of the Auditor general, the government watchdog, what is the current state of readiness of our troops. Unless I am mistaken, you are not in a position to tell us that today.

You were saying a while ago that no work is presently being done on the current state of readiness. That is why you referred us to past studies. What I would like to know is whether it would be possible to have a report concerning the year 2000, or 1999, and covering the various categories I mentioned earlier on, so that we might know how we are doing and what recommendations were drawn up for the minister in order that our forces might attain the highest possible state of readiness.

I don't know whether I misunderstood what I read or whether—and I don't know if there is an English equivalent for this—je me suis levé du pied gauche ce matin.

[English]

Can you say in English, “I got out of bed on the left foot”, or what?

The Chair: The wrong side of the bed.

Mr. Claude Bachand: The wrong side of the bed. Okay, so I'll leave it to you now.

Mr. Peter Kasurak: Thank you, Mr. Chairman.

On the basis of the model, one always wonders how much detail one should get into in a short presentation.

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Certainly a model that's based on the so-called five pillars, and then within that readiness we see readiness being based on basically four additional factors, which I believe the member just mentioned—personnel, equipment, training, and sparing.... Those then break down as well. We certainly have used the systems we have found in place in both the Canadian Forces and foreign forces, and they all use more or less those factors.

As I tried to point out, readiness becomes a difficult thing to measure once you go beyond the things you can see and touch. When one wants a full view, one pretty much has to rely either on judgment or testing, such as at a national training centre.

In short, I would say that the model we use is pretty much the same one that major armed forces use, not only our own but others, and that is pretty much the state of the art today. It's not perfect, but this is as good as the field has gotten so far.

As to where we are today, Mr. Chairman, I'm not sure we can satisfy you by giving you a comprehensive view today. I think the observation that we have bits and pieces scattered over time is absolutely correct. That's what we have. That's what our knowledge base consists of today.

I would like to say, though, that our office has a very complex series of problems to deal with in the Defence portfolio. Unfortunately, as I was remarking to an individual yesterday, problems never seem to happen one at a time. They come in groups. We end up with the resources to deal with them pretty much only one at a time.

We have tried over the last few years to look at budgeting and capital. Now we're turning to personnel and in-service equipment. We have been trying to maintain a view for Parliament over a broad front. All of these contribute to readiness a bit, but you're quite right, they're not a snapshot in time of readiness at any one point in time.

I would like to add that getting the information is extremely costly and difficult. Because the systems that exist are not very good, trying to put together a current picture at an audit level is a very costly business, and our work takes time, unfortunately. I would hope that members would be patient with us in that regard.

Mr. David Rattray: Mr. Chairman, I would add that given the resources we have as an office and those that are allocated to Defence, once a year on average we've been trying to prepare a report for tabling on a specific subject. We have covered, as Peter said, quite a wide range of subjects, and hopefully they contribute to a much larger picture. With reporting three times per year, we've been able to table a little more timely a report on some of the subjects we have dealt with.

I would just conclude by saying that, as the members know, National Defence is very large, and it could consume the entire audit budget of the office and that still would not be sufficient to give a comprehensive picture at any particular point in time.

The capstone report that the Auditor General just tabled as he completed his term does reflect on National Defence and does try to summarize not only the work we've done more recently but also some of the challenges that lie ahead, and one is reporting to Parliament on the state of National Defence.

With the resources we have, sir, we do try to cover as broad a field as we can.

The Chair: Mr. Price.

I am going to have to relinquish the chair. Mr. Goldring, would you please take over the chair?

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Mr. David Price (Compton—Stanstead, Lib.): Thank you, Mr. Chair.

Looking at the last slide you had out, under DND's current performance report there's a nice little comment that says “In many ways the Canadian Forces are more combat-capable today than they were ten years ago”. As you said, you'd like to see some way of actually being able to see that and to prove it somehow in an auditor's view, but also in our view. Of course, you would be looking at it through our eyes. Could you give us an example of what you'd expect to see that would satisfy you and that we could understand when the report came to us?

Mr. Peter Kasurak: Sure. I think that at a very basic level, the first thing a report should do is specify the what. The white paper now does this in part. It says we have a deployment goal that's based on a force structure of a certain size and it has to be ready to embark in a certain time period. Those are two very important pieces. If the government added to that the expected combat intensity that the force was expected to encounter and cope with, we'd have a fuller picture. So, first of all, Parliament should see the what.

I think Parliament then needs to see an assessment of the combat units. Once again, if you look at the American system, they have the so-called C-system, whereby C-1 readiness units are ready now, the C-2s lack a few things but could be ready in a few weeks, the C-3s could be ready in a few months, and the C-4s and C-5s would take some time. If there were a simple system like that, which aggregated much of the detail and could give an overall picture of the state of the combat units, I would think that the basic requirement for Parliament would have been met. You have a scenario, you now know how many of the units are ready to be deployed against that scenario if necessary, and you could gauge the overall reasonably well.

An enhanced system would give you some information about how long that force could be sustained and the state of the logistic and support elements in Canada that would have to exist to support it. That would go beyond what I would consider to be the bare minimum. That would be an improved system. But if you had those blocks, Mr. Chairman, I think you'd have most of the pieces you need in order to judge where the forces are at any point in time.

Mr. David Price: Ready for what?

Mr. Peter Kasurak: The “for what” is an extremely important piece of the description.

Mr. David Price: It is basically our job, in a way, to put it in so that you have something with which to gauge it.

Mr. Peter Kasurak: I think the what gets defined in a dialogue between Parliament and the government. Parliament certainly has ideas about what the Canadian Forces should be there for. Through the work of this committee and the estimates process, I think that could be elaborated on and finally put into departmental documents, such as the estimates, saying we're basing this on being ready for this. Individuals may disagree with that, but at least they know what the yardstick is. That's one of the virtues I see in the American quadrennial defence review, which has tons of faults. It allows Parliament, citizens, and the government to have an intelligent discussion about the state of the armed forces, because they have that basic scenario in front of them.

Mr. David Price: Would you say that report should come to SCONDVA to be reviewed? If it goes to Parliament itself, how many parliamentarians will actually look at it?

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Mr. Peter Kasurak: My vision is that it would be part of the estimates process and therefore should come before this committee.

Mr. David Rattray: The other element to that would be the costs associated and the estimates process, and then one would look at scenarios of cost versus readiness and trade-offs.

Mr. David Price: But in actual fact, with preparation that has to be done right now, we're not talking about looking at the other side, the high cost of actually doing this.

Mr. Peter Kasurak: I believe the cost of providing more information would be relatively low. The main costs are already being expended.

Part of it is disclosure to Parliament, and part of it is improving existing management systems in the department so they can support this better. But the bulk of the cost is already being spent. It's not like there are no systems. There are systems now, but they need to be fixed up and rationalized.

Mr. David Price: If I look at our militia, I see the militia is still problematic. I look at the number of training days the militia has, which has decreased over time. I think that's one of the big problems we have, because we're looking at military readiness and a decrease in training time and days.

Part of the other problem is that our militia has to spend, I figure, about six days a year, as it is, for ceremonial duties. That comes out, because it's not the same type of training.

Actually, I talked to the Minister of Veterans Affairs the other day about the ceremonial training maybe being taken out of the budget of Veterans Affairs. What kind of comment would you have on that?

Mr. Peter Kasurak: That's for Parliament to decide, but I must say that the comment that the militia has a hard time reaching its training goals with the training days available is supported by our audit.

The Vice-Chair (Mr. Peter Goldring): Thank you very much, Mr. Price.

Mr. Stoffer.

Mr. Peter Stoffer (Sackville—Musquodoboit Valley—Eastern Shore, NDP): Mr. Chair, thank you.

I'd like to take a moment out on a discussion I talked about yesterday before the full committee. I wish to apologize to Mr. O'Reilly, a member of our committee and a good member of the House of Commons, for comments I made outside this committee room a few weeks ago. What I said was completely unacceptable, and I offer my apology unequivocally to him.

I also wrote him a letter to let him know that if there are any people outside in Canada who made comments upon his reputation based on what I said, I'd be more than honoured to speak to them directly to offer the true scenario of what happened. His actions that day were very prudent and the right plan action. In an emotional moment, I wasn't thinking straight, and I can assure this committee and Mr. O'Reilly that I will never do that again to any member of this House. So I do apologize, and I'm sorry for what I said.

I would just let you know as well that my mother tore a major strip off me for that, and I said that I would do this. So again, I'm sorry for what I said.

Thank you.

The Vice-Chair (Mr. Peter Goldring): Thank you.

Mr. Peter Stoffer: Thank you, gentlemen, for your participation today.

On the alternate service delivery regarding the supply chain, you had indicated that the defence department is working with a contractor. Is it correct that they're doing up their business plan with the help of private interests?

Mr. Peter Kasurak: No, that wasn't what I was trying to express. I believe the department did use consultants in preparing some technical parts of its business plan, but other than that, its business plan has been developed independently.

What it is trying to do now is to go for a contract that will bring a contractor in for a first phase, and during that first phase of implementation the department and the contractor will jointly work on operational goals and objectives for the contractor to achieve.

In other words, they aren't saying here's a service standard, now give us a quote on what it would cost to achieve it. They're entering into this in an incremental way. That was what I was attempting to express.

Mr. Peter Stoffer: Has that practice been done in any other department that you're aware of?

Mr. Peter Kasurak: I'm not aware of the approach having been done in this way before.

Mr. Peter Stoffer: Mr. Rattray?

• 1620

Mr. David Rattray: I believe it is used, or being used more so, but at the moment I cannot give you an example of another contract. I know there is more of a staging of contracting that is being considered for that.

Mr. Peter Kasurak: It's similar. I think it's an outgrowth of the approach that's been used in information technology projects, but I don't think it's ever been used in a services project in this way.

Mr. Peter Stoffer: The reason I ask that question, Mr. Chairman, is because UNDE, the Union of National Defence Employees, have put forth business plans or objectives as to the cost of it, saying that in many cases they can do the job more cheaply than a private contractor. But if the Department of National Defence is using outside sources either to try to make the bid lower or to make it more efficient, they feel that they're behind the eight ball and won't have an opportunity to properly compete to protect their workers, who are now attached to DND in that regard.

Mr. Peter Kasurak: That's not a question that we've examined directly in our audit to this point.

Mr. Peter Stoffer: Okay. You had mentioned, sir, in your pamphlet that through ASD the Department of National Defence had saved over $60 million, but they had anticipated saving a lot more. Is that correct?

Mr. Peter Kasurak: Yes, that's correct.

Mr. Peter Stoffer: When you say they had saved this money, was that short-term?

Mr. Peter Kasurak: No, that was on a continuing basis. That's a permanent reduction to the cost of those operations. So that's like a reduction in operating costs of $60 million a year.

Mr. Peter Stoffer: Through alternate service delivery?

Mr. Peter Kasurak: Yes.

Mr. Peter Stoffer: Through normal practices? Right now they're not obviously ready for war. I'm thinking of 1990, when they were getting the three ships ready for the Gulf War. All those people there were part of the military. Now, if it was all alternate service delivery, all of those people would be private contractors. The costs would be phenomenal for that type of achievement in that regard, wouldn't they? I would assume.

Mr. Peter Kasurak: Well, without seeing how the contract would unfold, one can't say, but one could imagine that you could have a situation like that.

Mr. Peter Stoffer: See, the reason I asked that, Mr. Chair, is that, to me, operational readiness is having people who are loyal, who are dependent upon their employment, who take pride in it. Contractors, of course, come and go all the time, and they put bids in. If we were in a crisis like we were in during the Gulf War, where we had to get three ships ready.... The men and women who were there, who were part of the DND in a civilian sense, through UNDE, worked 16 or 18 hours a day without batting an eye, and the cost of the overtime was minimal compared to what it would be if it was a private contractor.

So that's my concern about alternate service delivery. It may look good in the short term, but in the long term or in an unexpected situation, it could have costs that are fairly overreaching.

Lastly, sir, have you good folks had an opportunity to look at the Sea King contract—sorry, the maritime helicopter replacement program? I had to throw that in.

Mr. Peter Kasurak: We took a very, very limited look at the background studies that support that project, and we reported that in our follow-up in 2000 on capital projects. In general, we found the supporting studies to have been well done and as a matter of fact much better than the ones we had seen in 1998 in the original audit, but we haven't pursued that project any further.

Mr. Peter Stoffer: Is the department planning to do that in the future?

Mr. David Rattray: We do normally look at capital projects, and when we look at that I'm sure we'll give it very strong consideration among other capital project items.

Mr. Peter Stoffer: Thank you, Mr. Chair.

The Vice-Chair (Mr. Peter Goldring): Thank you, Mr. Stoffer.

I think, Mr. Price, you wanted to ask a question.

Mr. David Price: Thank you, Mr. Chair.

We're talking about new equipment and about how we were getting a lot of more sophisticated equipment, and therefore the repairs and maintenance costs were going up.

Mr. Peter Kasurak: Yes.

Mr. David Price: I'm looking at the new equipment such as simulators that we're getting to, let's say, save the life of our aircraft. Instead of the aircraft being up, people are being trained in simulators. Have you looked into that at all? In that case, does it save money?

Mr. Peter Kasurak: Well, why we haven't looked at simulators for an awfully long time—I think it goes back to 1990.... There's very little doubt that if you can replace actual platform operation time with simulator time, there's almost always a savings, and it's usually substantial. The problem is always judging how much simulator time you can substitute for platform time. Of course, the operator's concern is that the cost savings are too attractive, and too much time gets taken away from their ability to use platforms.

• 1625

I don't think that anybody anyplace in the sector would challenge the assertion that simulators will save money, but it's only up to a point. At some point, the operator needs to use the real thing.

Mr. David Price: Yes, okay. But in that case they probably would be among the few items, I guess, that are high-tech, high-cost, yet—

Mr. Peter Kasurak: And cost-lowering, yes.

Mr. David Price: One of the things we've heard of recently as part of the problems in DND is that when they spec something out that they want.... They tend to see a piece of equipment in some other country, and they spec something out so tightly that it really doesn't give Canadian companies a chance to get in on it. Have you looked into that at all?

Mr. Peter Kasurak: When we looked at capital projects in 1998, we didn't observe that this was a problem. The problems that we observed were that the specifications tended to wander away from the original military requirement. So equipment was being purchased that fell rather markedly short of what the original statement of requirement was. So, if anything, we found maybe the reverse, Mr. Chairman—that the specifications were too flexible given the requirement.

Mr. David Price: Well, that's interesting, since we heard the other side.

Just to follow up on Peter's ASD question, if I remember the ASD in Goose Bay right, DND actually paid for the employees to put together a package so that they could bid on it. They did end up losing the bid. Do you find that this was a good way to go in order to help out the employees, and are they still doing that? I can't remember. Are they doing it for other possible bids?

Mr. Peter Kasurak: We commented on the Goose Bay project in our audit, Mr. Chairman, but I can no longer remember the details of that. I'd have to go back and consult the chapter again. However, certainly with regard to the process that allowed departmental officials to form a consortium and make a bid, there was nothing inherently wrong in that process. It seemed to work well in some circumstances. One of the biggest problems was that employees very often would not have the expertise to put together a formal proposal like DND was looking for.

On the other hand, the private sector would complain that they had all the insider knowledge, and they had an unfair advantage in that respect. It's difficult to know how these things balance out. In the United States, what they found was that the inside bids win about half the time. So one assumes that one can get a system like this to work reasonably well.

In terms of where the department is today, they have changed their strategy since then, and they've now decided to concentrate on a very small number of alternative service delivery projects, of which the supply chain is one, base support is another, and I quite honestly forget what the third major one is. They have slowed the process and decided to concentrate on fewer projects, once again because, in the whole of the department, analytical expertise is at a premium. They can't support 15 or 20 projects all going at once.

Mr. David Price: That's fine for now, Mr. Chair.

The Vice-Chair (Mr. Peter Goldring): Thank you, Mr. Price.

Mr. Bachand, my apologies for not putting you in the correct order.

[Translation]

Mr. Claude Bachand: All right. Thank you, Mr. Chairman.

Yesterday, or the day before, a colonel told the committee that Parliament is rather badly informed about the whole area of National Defence, and you yourself said the same thing several times in your paper. I have been the National Defence critic only a short time, but I get the feeling that there is, at National Defence, a sort of tradition or culture of secrecy. I wonder whether you could either confirm or refute what I am saying in that regard.

• 1630

I say this because I have found it difficult to obtain information. The Office of the Auditor General has, several times, investigated other departments. It looks into what it is happening and it criticizes things and recommends certain changes. Do you often find yourself having to invoke the Freedom of Information Act to overcome this type of resistance which, I believe, is quite particular to the Department of National Defence. As long as the Department remains impenetrable and secretive, and clings to a tradition that requires you to reveal as little as possible, you will, I believe, continue to come up against this type of obstacles, and so will we.

You have a way of seeing into the functioning of the other departments. Would it be inaccurate to say that there seems to be a specific problem with National Defence?

[English]

Mr. Peter Kasurak: Mr. Chairman, I think that Denis Desautels addressed this problem fairly extensively in his recent capstone report, in which he talked about the general problem of reporting across government.

The Department of National Defence is probably not one of the better reporters. But as Mr. Desautels said, we have an entire government culture in which poor reporting is safe reporting. This is a cultural problem that involves all players in the process.

In terms of our own office, I would like to say that over the years National Defence has found that resistance is futile. On occasion, a misinformed official has temporarily refused us access to something. But we always get access. We have our own act; we don't have to use the Access to Information Act.

Over the years the department has been quite forthcoming in providing us with information. Indeed, sometimes it costs them a lot of money to provide us with the information we need to do our audits, but our act allows us to ask them for assistance, and they universally provide it.

In terms of what is reported to Parliament, I guess our office is unhappy—we think it could be better. But in terms of the department providing us with the information we ask for, we're reasonably well satisfied.

[Translation]

Mr. Claude Bachand: I would just like to add what you have just said. You operate under your own act, the Auditor General Act, but you say you are nonetheless able to get the information you need without necessarily having to invoke the Freedom of Information Act. There should also be an act concerning members of Parliament. That might help us get the information we need more quickly.

Would you tell us, for my personal information, whether that act enables you to obtain disciplinary measures against people who, for example, refuse to reveal information that you have asked for? Does the Act enable you to go that far in the various departments that you deal with? How much does the Act allow you to do?

We ourselves have to go through the Freedom of Information Act, but you seem to be saying that the Auditor General Act enables you to go about things more speedily, and to have access to information. Is there, then, a sort of sword hanging over those who refuse to reveal this information?

[English]

Mr. Peter Kasurak: Do you want to respond?

Mr. David Rattray: Yes.

Our Auditor General Act does grant us certain privileges to access information. It's quite broad-sweeping. We can also take information under oath.

If a situation arose in which a department—in this case, National Defence—indicated that they did not wish to give us information we thought critical to our audit, our primary response at that point would be to alert the Treasury Board, alert the minister.

We have the provision under section 8 of the act to bring matters to the attention of the House. Although we have not had to do that, if we are denied access there is a stage provision for the matter to come directly to the House. That would be in a special report to be tabled to the House immediately by the Auditor General, indicating that there is a problem in allowing him or her to complete the mandate.

• 1635

The Vice-Chair (Mr. Peter Goldring): Thank you very much, Mr. Rattray.

Mr. Stoffer.

Mr. Peter Stoffer: Thank you, Mr. Chair.

In the conclusions you put down in one of the boxes here, hard choices still have to be made. Is that based on their current budget?

Mr. Peter Kasurak: Yes, Mr. Chairman.

When we did the follow-up for the capital budget last summer, our analysis indicated that although the government had increased the defence budget, structural changes were still needed in order for those increases to cover the entire requirement. Some of those structural changes have already become visible. The air force, in particular, has reduced the number of aircraft it operates. But the department has other choices before it that we don't think it has actually made yet.

Mr. David Rattray: Mr. Chair, I would also add that just over two years ago we produced a report that laid out three scenarios of various stages—from the status quo with very incremental change in option one, to more significant change in option two, to a much more radical change scenario in option three.

I would say the Department of National Defence and the armed forces are probably operating at the stage of option two right now.

Mr. Peter Stoffer: Just for the record, can you briefly indicate what options two and three might be?

Mr. David Rattray: Number two would look at various forms of alternative service delivery, looking at different operating scenarios.

Stage three would be significant downsizing, a re-examination of the current major tasks of the Canadian Armed Forces. You can see the order of magnitude.

I would say that at the moment they're quite centred on option two. They're trying to improve their efficiency, their budgets, and their balancing act.

Mr. Peter Stoffer: As you know, Mr. Chair, the policy of DND is to have 60,000 regular troops. We're below that now—down to around 57,000, I think. That's not what they wanted. The policy says 60,000, and they're down to 57,000.

You indicated that for DND's current plans they would require at least an additional $1 billion to achieve those goals. Is that correct?

Mr. Peter Kasurak: That estimate was based on their own estimates. We reviewed it, and given the planning assumptions they made around that estimate, yes, we felt it was reasonable.

Mr. Peter Stoffer: So would it be fair to say that it would be difficult for them to achieve that figure of 60,000 without additional increases in funding?

Mr. Peter Kasurak: Well, you've got to remember that you get the trade-off among all the pillars.

Mr. Peter Stoffer: I know.

Mr. Peter Kasurak: You could have 60,000, but they might not be ready, or they might not be very well equipped.

So in order to have the 60,000, at about the deployability level they were targeting, with a reasonable set of equipment—yes, that's when you get the shortage. Right now the shortage is being accommodated by moving it around from one element to another. They short the capital program for a while, and when it starts running too low—well, then you put more money in there, and short readiness for a while. But with the current budget level, you can't balance the whole thing. You can't make all those healthy at the same time.

Mr. Peter Stoffer: You indicated, sir, that you had looked at New Zealand and the United States. New Zealand has, I think, about four million people, and the States have, what, approximately 300 million?

Mr. Peter Kasurak: Yes.

Mr. Peter Stoffer: Did you have a chance at all to study the concerns of say France—a country more in line with our own population—and compare it to what we have?

Mr. Peter Kasurak: Yes. Actually, we haven't looked at French systems for about seven or eight years.

• 1640

We've kept reasonably current with the Australian system, and to a lesser extent with the U.K. system. I bring forward the U.S. and the New Zealand approaches to readiness management not because their armed forces are in any way similar to ours, or on the scale or magnitude, but because they have fundamentally good management systems. As a matter of fact, the New Zealand system was stolen in part from a Canadian Forces system and then fully implemented and improved over a period of time. So I guess my working hypothesis is that you can have good management whether you're big, little, or someplace in between, like we are.

No, we haven't gone out comprehensively and looked at everything that's out there. We've really tended to confine ourselves to the so-called ABCA countries because a lot of the force compositions and parliamentary relationships are similar to ours. So when we looked at models, we tended to go there.

The Vice-Chair (Mr. Peter Goldring): Thank you very much, Mr. Stoffer.

Mr. Wilfert.

Mr. Bryon Wilfert (Oak Ridges, Lib.): Thank you, Mr. Chairman.

Sitting over here, you get a whole new perspective on life, I've noticed.

Some hon. members: Oh, oh.

Mr. Bryon Wilfert: I think I'd rather sit over there and not have to look at these guys. It would probably be easier. Except of course for Mrs. Longfield, it's not good over here.

Mr. Chairman, through you to Mr. Kasurak, I'd like to ask a clarification—maybe I just wasn't tuned in—and the other is a question.

On the alternate service delivery, you talk about $60 million being saved. I realize this is a moment in time when this was captured. Then you talk about how DND targeted for $200 million. Why did they not reach that $200 million? What elements go into measuring progress when you look at these? What elements do you look at?

This isn't really the place, Mr. Chairman, to.... Boy, it is a different perspective here; we've got a new chairman in the middle of the question...whether or not... I have questions about alternative service delivery, and I probably share some of the concerns that my colleague has.

Secondly, you talked about readiness management and about foreign examples there. Are there similar foreign examples that can be used in terms of alternate service delivery? If so, which ones have you particularly looked at that you think may be useful and that maybe the committee could examine later on?

That's for you, Mr. Chairman.

Mr. Peter Kasurak: The first element to this question was that $60 million a year was attained versus the target of about $200 million, and what led to the shortfall? Our audit indicated that the shortfall occurred because, first of all, a lot of the original estimates were based on armed forces that had been slow to modernize in the post-Cold War period. They had very old, very bureaucratic systems, and when they started to clean house, they made 30% to 40% savings by re-engineering and by outsourcing. So these were extrapolated forward. The Canadian Forces, unfortunately, had already taken a lot of these savings, even during the 1970s. Even though a lot of people will criticize our centrally managed, integrated systems, these prove to be a fair bit more efficient than those of some of the foreign armed services that they were drawing examples from.

The other problem was that they based these projections on unaudited claims of savings by foreign services. When they were actually audited by their own legislative auditors, they found that they were exaggerated, so nobody got these big savings except in the early stages when there was “low-hanging fruit”. So it was basically reliance on over-optimistic projections there.

• 1645

On the second part of your question, elements to measure when you look at progress, well, there are two big ones: one is level of service standard and the other is cost. These are two areas that are extremely problematic.

We've just done a productivity audit that we reported to Parliament a few months ago, and we found that still there are very few level of service standards out there in the department of defence. This is a problem that continues to plague alternative service delivery projects. You have to know what it is you're producing in order to contract for it. You say I need so many of these done and I need it done this often. If you can't say how many, how often, you will have a problem. Similarly with cost; if you don't know your current operating cost structure, you will be unable to contract appropriately.

Nearly all the problems we saw that were what I would call systemic problems related to a lack of prior knowledge of level of service standards and costs.

Occasionally, then, you'd have the third element, which was contracting. You have to be able to do contracting at a more sophisticated level than the government has been used to. A service contract is more difficult than going and buying a thing, even though that's hard enough.

On occasion we found that what the department was doing was selecting a low-cost contractor, but then they would be locked in for services and no-cut contracts. Sometimes they didn't need the services—the Meaford training centre being one of the cases that we presented in our audit report.

Those are the three elements, Mr. Chairman, that I would suggest need to be taken care of when you look at progress.

The Vice-Chair (Mr. David Price): Thank you, Mr. Kasurak.

Mr. Peter Kasurak: Sorry, I used all the member's time.

The Vice-Chair (Mr. David Price): No problem.

Mr. Goldring.

Mr. Peter Goldring: Thank you very much, Mr. Chairman.

Recently I attended the opening of an armoury in Edmonton. I had concerns over how it was financed and how it was built. Apparently this armoury had been leased on a long-term basis. Coming from a construction background, to me it really didn't make too much sense. If you have a building you're going to be utilizing, such as an armoury, for 20 years or more, it's more practical to purchase and do it yourself than to lease it.

This brings up the other interesting part of the question. Maybe it was intended to be temporary. How long term is the programming on the reserve status? This obviously is for our military reserves too. It's a double-barrelled question, I guess. If the building was intended to be long term, and with the feeling that our reserves are to be a very important and integral part of our overall armed forces and to be supported with new equipment, new buildings, and new facilities, why would it have been leased? Is there a central common lens that we project cost analyses on, or is there a varying opinion on whether we should be looking at other alternatives? Is there a general direction that maybe we'll be doing more of this leasing in the future? What is it, or is it an isolated incident?

Mr. David Rattray: Mr. Chairman, I'd like to tackle this more generally, and then perhaps Peter can add to the specifics of the case.

With respect to leasing versus purchasing of capital property, we found the government has tended to do leasing in many cases as a convenient way to spread or amortize the cost over a period of time, for simple budgetary purposes. Given the current accounting rules the Government of Canada follows, if you were to purchase or construct a building in one year of say $25 million, that $25 million would be expensed in that one year and go immediately to the bottom line. So the convenience has been to use the leasing to spread it over say 50 or 25 years, and it smoothes the charge to the immediate hit on the bottom line.

• 1650

With the implementation of accrual accounting that the government is now introducing under FIS, we hope this type of abnormal behaviour will probably be mitigated to allow items to be capitalized if you decide to go the construction route and amortize the building, as you would in the private sector, over a certain period of time, or depreciate it.

So leasing has been more commonly used in a cash basis or modified cash basis accounting the government follows, simply because of its hit on the bottom line. That's to explain the more general government penchant towards leasing as opposed to construction.

On the particular case in Edmonton, I don't know. I'm not certain if that is more in keeping with the broad concept of lease and expense the item over many years versus take the hit in one year. I couldn't say if it has anything to do with the militia in the long term.

Mr. Peter Goldring: The concern is that while it's understandable to lease aircraft, transport, short term, or maybe even certain military vehicles you're using, to lease a building, which is a long-term issue, it would seem to me to not have the economics in it. If you were to do anything, you might want to finance that over a period of time, to use an ordinary expression, but leasing has.... It isn't a lease to purchase; it's a lease that goes on, theoretically, for a hundred years, analysed in 25 years and updated to the current rates. It would seem to me that what we're doing is offloading our initial capital costs onto future generations. It's not a good trend to encourage.

Mr. David Rattray: Mr. Chairman, I would say again that it's back to smoothing the cost under the current modified cash basis of accounting the government follows. With full accrual accounting being adopted very soon, it will reflect more the commercial private sector practice, and I think it would get perhaps decisions that you would like to see.

The Vice-Chair (Mr. David Price): Mrs. Longfield.

Mrs. Judi Longfield (Whitby—Ajax, Lib.): I have a very short question. It has to do with the audit findings, and it was the last slide in section 3. You said there had been a little improvement and that some needed data didn't exist and the other data was unreliable. Can you give me some examples of what kind of data you were looking for that wasn't there?

Mr. Peter Kasurak: The kind of data we've been looking for is.... For instance, we have occasionally gone in and asked the army and the air force whether they could tell us what the readiness status of units was. This data wasn't available.

In terms of reliability, we found that nearly every time we've looked at component elements of readiness reporting, things like vehicle status, for instance.... In our last audit we looked at vehicle management systems. We found the data in these systems simply wasn't complete. Units weren't inputting the data into their information systems.

In our current audit on in-service equipment, we have spent an awful lot of time checking with officials and cleaning up data from management systems that are being used to manage major platforms.

So at least in those cases—but those are like the underpinnings of a readiness management system—we have found that either it's not there, or very often it's there but it's not really reliable. It needs a lot of effort to be used in an audit.

Mrs. Judi Longfield: What kind of a response have you had from the department when you pointed this out? Have you seen any efforts that they're trying to improve?

Mr. Peter Kasurak: At the top level, the department has put in a lot of effort. Unfortunately, some of these attempts have fallen down. We have gone through at least three major departmental readiness management systems in the last five or six years. The department has worked long and hard on each of them and has gotten them to a certain point of development and then said it's not working, so we're going to abandon it and try something else. So we've seen that pattern at the very top-level system.

• 1655

In terms of some of the supporting systems, the department has made efforts. I think that one of the biggest contributory causes to shortcomings has been underfunding. The department will get a system and get it mostly rolled out, but then can't quite complete it, or the orderly rooms are understaffed, and they can't input the data at the local base level. So it's dealing with these shortages that seems to be impinging upon their efforts. I don't think it's a lack of effort. It's a lack of success and follow-through that's been the big problem.

Mrs. Judi Longfield: Thank you. That was helpful.

The Vice-Chair (Mr. David Price): Thank you, Judi.

Mr. Goldring.

Mr. Peter Goldring: You mentioned a little earlier that your auditing capabilities are limited by your budget and also by the poor reporting and analysis techniques of DND. I suppose I have some concerns and am wondering why we'd be getting poor reporting from DND. On one hand, you would think that there should be pride in accomplishment, so the reporting could be positive, and on the other hand, there would be very deep concerns if the reporting wasn't favourable.

So what would you say has to be done to improve the quality of the reporting and allow you to improve the quality of your auditing? Is this a budgetary issue? And if it is budgetary, what percentage?

Mr. Peter Kasurak: I don't know if I can speak to percentages. It certainly is a budgetary problem. The department, in terms of its database, if we can start there, has got a series of legacy systems which it's now replacing with more modern systems. This conversion has been very difficult. A lot of data has been lost by the wayside; that's still not online. The department maybe could do more, and more quickly.

But I think the problem may be at a point now where we simply have to live through a difficult period, where the data systems are only going to be restored at a certain rate of time because, even if you throw more resources in, you might not get much more speed. I think that would be an interesting question to put to departmental officials. But certainly this conversion from their old systems to their newer ones has been quite traumatic.

The other problem is that a lot of these old data systems weren't very good to begin with. So there's been just a data problem—a data existence problem—that will be costly to overcome.

Now, at a high level, there's also another set of problems there. Those tend to be cultural and government-wide. It gets back to why do government departments not provide a fuller picture to Parliament of their operations? I think that's a government-wide cultural problem, and I'm not too sure that ministers always see the benefit in full reporting. I'm not too sure that sometimes they aren't made to pay a price by opposition members when they do. There's a dynamic there that works to prevent it.

Mr. Peter Goldring: I take it that you feel then.... The comment here that in many ways the Canadian Armed Forces are more combat-ready today than they were ten years ago, but no guidelines, no yardstick used, no sense of measuring given on it... I take it from your comments that you firmly believe that it is possible to give this kind of reporting. I guess the real question is, other than some departmental hesitancy, can you see other reasons why this is not...? I would think this would be of measurable help.

Mr. Peter Kasurak: No, I don't believe there are.... Even though all reporting systems are applied to a certain extent, there aren't any real technical barriers. This can be done, and is done elsewhere—maybe not done as well as legislative auditors would like to see, but it is done. So I would conclude we have managerial and cultural problems, not essentially technical ones.

• 1700

Mr. Peter Goldring: When you say elsewhere, where...?

Mr. Peter Kasurak: The two examples I presented were the United States and New Zealand, but I'm sure one can easily find other countries as well.

Mr. Peter Goldring: Thank you.

The Vice-Chair (Mr. David Price): Thank you, Mr. Goldring.

Mr. Regan.

Mr. Geoff Regan (Halifax West, Lib.): I'd like to ask you about procurement.

It seems from your study that you haven't had a recent look at the question of long-range procurement planning, but I do see you are obviously looking at modernization and infrastructure and so forth. A comment we heard recently—I think at committee—comes to mind. It expressed concerns regarding the department's difficulty in long-range planning for procurement for equipment needed, or for the replacement of equipment over the long term.

What concerns do you have on this, and what advice do you have?

Mr. Peter Kasurak: We raised a number of concerns in 1998.

We were concerned that the objective you were planning against wasn't firmly set, that “so what” wasn't really there. This meant plans were being made on different bases by different services. We found there wasn't a good priority-setting mechanism; indeed, senior officials at the time described a sort of senior management arm wrestle as how one set priorities. The final question was of budget over-stretch—with more being put in, and not rationalized, than the budget could sustain.

We followed this up in 2000. We found significant improvements. The arm wrestling has been replaced by a much more rational capability planning process. Provided the department sticks with it and keeps using it, it will work really well.

Budget over-stretch is still the biggest problem. Until the force structure, readiness goals, and the budget are brought into sync, there are going to be continuing problems. Some element will always be going short. That is the biggest problem still needing to be addressed.

The department responded quite well to our 1998 audit in terms of management systems. The management systems are all there now to allow a rationalization to take place, but it hasn't been fully completed yet.

Mr. Geoff Regan: Tell me more about this. I take it you are now satisfied with the kinds of priority-setting mechanisms they have put in place. How does it work?

Mr. Peter Kasurak: Basically, they have come up with something called the Canadian Forces joint task list. They have taken the armed forces and broken them down into little atomistic elements of capability. Then they've looked at their white paper and their planning scenarios and said, “Now, what capability do we need to have out of this matrix of capabilities, and at what level”—some really high, some really low. They have gone through systematically and plotted all of this out. Then they have identified holes—places where they're much higher or lower, though usually it's much lower, than they want to be.

Of course, one of them is logistics, support. They have said these are orphan capabilities—driving a supply ship or flying a transport aircraft isn't very sexy, and these have become orphans. They have gone from the bottom in priority to really close to the top now.

The whole process now is logical. They can explain where their priorities come from. It's defensible in terms of the output they want to create. The remaining problems are not in terms of capability planning, but trying to figure out how much things are going to cost—which is still a bit of a problem, although they've gotten much better there as well—and in actually choosing. When they get down to saying “We've only got so much money, what are we going to buy with it and what do we need to axe to buy something else?”, a lot of those decisions are still pending.

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That's where the main focus has to be now. The management system problem we saw three years ago has been, to a significant extent, corrected.

The Canadian Forces and the department will need continued encouragement to keep on with this, because the cap-badge trade unions, the people who are not going to benefit from this, will always try to get the system to respond to their particular wants and requirements, rather than the plan. There's always budget politics, and that's another danger lurking out there. They need to be encouraged to watch out for it.

The Vice-Chair (Mr. David Price): Thank you very much. Your time is up.

Mr. Goldring.

Mr. Peter Goldring: Thank you very much, Mr. Chairman.

When I was talking about the reserve units—and the reserves are mentioned in here for their significant training and manning deficiencies—we know that only two years ago there was contemplation of disbanding a number of reserve units. In Alberta, I believe all of their reserve units were considered for disbandment, and then one year later we're building new armouries. It seems there is a little bit of inconsistency in a lot of long-term planning.

In keeping with this line of questioning—and I'm not sure how this fits in—I understand the rangers of the Northwest Territories and the northern regions of the country are part of the military component. Can you explain to me how they are, what's their future, and how they're seen as fitting into the overall picture? Are they related to the reserve units? I understand they're much like a reserve unit. In other words, what is being planned for the rangers unit? They seem to be on an expansion right now, adding to it.

Mr. Peter Kasurak: I'm afraid we've never audited the rangers and I can't really respond to your question.

The Vice-Chair (Mr. David Price): No, I agree. It's a very good question, Peter, but I don't think it's directed at the right people.

Mr. Peter Goldring: Really? Because at defence headquarters it was to be part of the military component.

The Vice-Chair (Mr. David Price): It is.

Mr. Peter Goldring: That's rather interesting.

Mr. David Rattray: Mr. Chairman, at this point it hasn't been the subject of a recent audit. That's why we're unable to respond.

Mr. Peter Goldring: Is there a plan to audit and provide the results of an audit on this? When might that be expected?

Mr. David Rattray: It's not within our near-term planning cycle at this time.

We're certainly looking at human resources. We will be doing some future work on environmental aspects of DND operations, probably resorting then back to some capital audit work. With the resources we have, I don't foresee the rangers being a specific item of a larger piece of work for the next three years, anyway.

Mr. Peter Goldring: Given that there are five to six thousand personnel, I would think it would be fairly significant.

Mr. David Rattray: I agree, but in the overall planning scenario we have several billions of dollars being spent on capital. That will come.

We have an office commitment to examine environmental aspects of government operations. It's been a while since we've done environmentally focused work at defence. I can take it under advisement. At this point we'd have to look at when to fit it in as best we can.

Mr. Peter Goldring: I'm concerned that they be considered as replacements for the northern presence. We're cutting back the patrols of the northern aircraft. Is the ground ranger representation considered to be any type of an operational replacement?

The Vice-Chair (Mr. David Price): There again, Mr. Goldring, you have excellent questions, but I think they're being directed at the wrong people.

Mr. Peter Goldring: Then I'll ask one question.

Although it's related to a recent issue about a request for war veteran status, it is also is very, very appropriate to the regular forces, because many in the regular forces have served in the gulf region, and more recent regions too.

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With the request and seemingly wish for common recognition—other armed forces around the world do have this form of recognition, where they give the war veterans status, particularly Gulf War veterans—how does this impact on budget estimates, costs? Has there been any consideration for this, given the increased interest in having this form of recognition? Or does it have little or no impact?

Mr. David Rattray: Mr. Chairman, again, unfortunately, we're probably the wrong audience to answer. First, I think it's a policy question. Second, as to the impact from a budget point of view, I think perhaps either Veterans Affairs or National Defence should be asked about their current intentions. As we are an audit office, it's not for us—

The Vice-Chair (Mr. David Price): As you said too, Mr. Rattray, there is a sector that handles the Department of Veterans Affairs.

Mr. David Rattray: We do have another organizational team based in our Halifax regional office that does in fact look after the audit of Veterans Affairs.

Still, with respect to the member's question as to whether there will be government recognition, that is a policy issue. Then what is the impact, the cost impact again—

The Vice-Chair (Mr. David Price): Since you didn't know it was coming, it's hard for you to do an audit on it.

Mr. David Rattray: Yes, at this point.

Mr. Peter Goldring: Thank you.

The Vice-Chair (Mr. David Price): Mr. Regan.

Mr. Geoff Regan: I'm pleased to hear that you're planning to do an environmental audit, because my question concerns, more recently in relation to the type of defence, what you've learned from that audit, what concerns were raised, if you've done one in the last few years. What kinds of things do you plan to look at in the audit?

Mr. Peter Kasurak: We've done two environmental audits to date. One was part of a facilities audit, where we looked at clean-up of contaminated sites, the progress that was being made, and the liability to the department of contaminated sites. More recently we've done an audit of the handling and management of hazardous materials within the department. They have major industrial facilities and handle a lot of paint solvents and other chemicals that are potentially hazardous. So we've looked at that and we're following up this summer.

In the future, we plan to examine the environmental management of training and test ranges. That, at least at the planning phase, will start looking at all three environments, but we may find we'll have to limit the actual audit work to either land tests and training sites or air tests and training sites. It may be too ambitious to try to do all three environments. That's going to be scheduled, we hope, in our next cycle of audits. We think that one will be of some interest to Parliament.

Mr. David Rattray: Mr. Chairman, the initial planning is going to start this fall, and it will, I expect, be the latter part of 2002 before we can report it to Parliament.

Mr. Geoff Regan: You don't plan to look at areas like ships? You haven't mentioned that as one of the topics. You're talking about the waste systems on ships, what they're doing with fuel when they're in harbour, and things like that.

Mr. Peter Kasurak: No, we haven't looked at that specifically. We'll likely get into that to a certain extent when we look at training in test areas, because the equipment goes into test areas and, of course, we'll have to look for spillages and containment systems at that point. We've only looked so far at effluent from smokestacks, incinerators, and sewage systems. We haven't looked at pollution caused by vehicles to date.

Mr. Geoff Regan: Thank you.

The Vice-Chair (Mr. David Price): Thank you very much.

We're going to call it quits there. We're going to take a five-minute break.

Mr. Rattray, Mr. Kasurak, we're very pleased to have had you here. I'm sure we'll have you back in the not too distant future as we get a little further into this study.

Mr. David Rattray: Thank you, Mr. Chairman.

The Vice-Chair (Mr. David Price): We'll take a five-minute break, and then we'll come back in camera for a very short meeting.

[Proceedings continue in camera]