PACP Committee Report

GOVERNMENT RESPONSE TO THE 14^TH REPORT OF THE
STANDING COMMITTEE ON Public Accounts
PUBLIC ACCOUNTS OF CANADA 2012

Recommendation:

That by September 30, 2013 the Department of National Defence provide the Standing Committee on Public Accounts with a plan, including specific initiatives and timelines, of how it intends to improve the proper recording and valuation of its inventory and asset-pooled items.

The Government of Canada appreciates the work of the Standing Committee on Public Accounts and the Office of the Auditor General to address the issue of inventory management at National Defence. The Government of Canada supports the recommendation of the Committee and remains committed to continually improve upon the way it does business to achieve efficiencies, ensure transparency and accountability, and ensure the effective stewardship of public resources in line with Canadians’ expectations.

National Defence is aware of the importance of improving its inventory management practices and is committed to addressing the challenges identified by the Standing Committee on Public Accounts to more accurately account for the large volume of inventory and asset-pooled items it controls. That is why National Defence has adopted a deliberate, integrated and systematic approach to improve its inventory management practices.

Key components and timelines associated with this plan include:

1.      Materiel Acquisition and Support Transformation Campaign Plan

The Materiel Acquisition and Support Transformation Campaign Plan will allow National Defence to develop an accurate picture of its inventory holdings and maintain accurate records going forward through:

• New Resource Management System: The rollout, scheduled for completion in 2013, will consolidate all information regarding inventory and asset-pooled items into a single information management system. This will enable the automated matching of purchase orders, goods receipts and invoice payments to ensure that departmental records reflect actual inventory holdings and assign them an accurate value. Planning has also commenced for the next phase of work to continue to enhance the resource management system beyond 2013 (e.g., further materiel acquisition and support capabilities including further supply chain integration, ammunition management, transportation management and extended warehouse management). 
• Stocktaking: Implemented in July 2011, the new stocktaking policy requires units, bases and wings to regularly count inventory and produce annual stocktaking performance reports. To facilitate its effective implementation, a five year contract, launched in May 2012, will bring in outside experts to conduct site visits across Canada and provide expertise and resources to assist custodians of inventory in completing actual physical counts of inventory. Stocktaking activities will continue on an ongoing basis as they are critical to ensuring that recorded quantities and values reflect actual holdings.
• Policies, procedures, training and evaluation activities: The Inventory Management Modernization and Rationalization project supports all of these efforts and includes an end-to-end mapping of inventory management processes. This will help to identify requirements for new policies, procedures and training that may be necessary to ensure that any implementation issues are identified and addresses on an ongoing basis.

2.      Interim Compensating Controls

As it will take some time before the full impact of the Materiel Acquisition and Support Transformation Campaign Plan takes effect, National Defence places a high priority on the continued implementation of interim compensating controls over the course of 2013/14, in line with the advice of the Auditor General. To ensure that quantities recorded for inventory and asset-pooled items reflect the actual quantities in stock, that accurate pricing is updated on a timely basis and that processes and procedures are in place to maintain the integrity of price data, National Defence will:

• increase the performance of physical counts at year-end focusing on high dollar value and/or high risk items;
• strengthen the processes and procedures to maintain the integrity of price data across inventory accounts and asset-pooled items;
• increase analyses to determine causes of specific quantity and pricing differences identified during counts; and investigate other similar account errors; and
• ensure that write downs and write offs of obsolete assets take place on a timely basis, so appropriate values are recorded for inventory and asset-pooled items.

3.      Financial Control Frameworks

National Defence is developing financial control frameworks for inventory and capital assets (including asset-pooled items) as part of its work to implement the Treasury Board policy on internal control. Once completed, financial control frameworks will ensure that National Defence’s reporting in the Public Accounts of Canada is verified by a rigorous system of checks and balances monitored by departmental management and reviewed by auditors, to ensure the integrity and reliability of reporting. This project is targeting completion in 2016/17.

4.      Enhanced Senior Management Oversight

            Initiatives to improve inventory management are integral to ongoing defence renewal activities. National Defence’s senior leaders will continue to oversee the implementation of these renewal efforts.  For instance, the Deputy Minister and Chief of the Defence Staff co-chair the Defence Renewal Executive Committee which will oversee implementation of efforts to improve inventory management.  The Deputy Minister also oversees this work in his capacity as the chair of the department’s Investment and Resource Management Committee, supported by a dedicated Assistant Deputy Minister-level committee which reviews progress of the overall implementation of the Materiel Acquisition and Support Transformation Campaign Plan.

Conclusion

When taken together, the full implementation of National Defence’s Materiel Acquisition and Support Transformation Campaign Plan, interim compensating controls and financial control frameworks, combined with enhanced senior management oversight, will help to ensure that inventory and asset-pooled items are accurately quantified, priced and accounted for in a timely manner. This will ensure the proper stewardship of public resources, as well as provide the senior leadership at National Defence with timely and accurate information to support effective and efficient operational decision making.