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[Recorded by Electronic Apparatus]

Wednesday, February 12, 1997



The Chairman: Order please! Good afternoon, everyone. The committee is continuing the hearings suspended yesterday dealing with consideration of chapter 23 of the November 1996 report of the Auditor General which dealt with material management.

We had adjourned our meeting after the presentations by the witnesses. Some of our colleagues had expressed the wish to speak yesterday and I'll give them the floor today. If either colleagues wish to intervene today, they are free to do so. We shouldn't need more than half an hour or 45 minutes at the most.


I recognize Mr. Hubbard, for five minutes.

Mr. Hubbard (Miramichi): Thank you, Mr. Chairman.

We're dealing today, as we did yesterday, mainly with DND. I have concerns about the way in which the whole of government operations look at inventory, look at equipment, look at supplies they have on hand. Even in our own offices we see some old dictaphone, purchased probably 20 years ago at a cost of $500, that's worth maybe $5 on today's market, but if it's on inventory, somebody thinks you have a very valuable piece of equipment somewhere in your stores.

In terms of looking at value - and maybe the Auditor General could think about this in terms of his next assessment - I think sometimes we keep things that are worth more in keeping than they are in getting rid of. I know there's a problem in terms of housing. Of course you have this 25% cost, but in real terms, that 25% is perhaps not as realistic as we might want to think in terms of being right on the table.

There seems to be a problem within departments. For example, we've had major cutbacks. In the last few years we've been anticipating a manpower reduction of about 45,000 across the civil service. At the same time a budget was announcing this, Public Works and Government Services was looking for a multimillion-dollar supply of office furniture. You question why.

For example, at DND, you're cutting back your numbers by nearly 30% or 40% in terms of personnel. Why do you continue purchasing some of this equipment that...? Is there a good system of looking across the various departments to see if this department has a surplus, and if so, do they run it through another department before it goes to Crown Assets for disposal?

I think the Auditor General also said there's a major concern in terms of disposals. Somehow, Crown Assets, a branch of PWGS, takes about 30% a hit on a department when they put this thing out for public disposal. Perhaps we're looking at a lot of figures but we have to get back in terms of depreciated costs and whether it's better to keep something that maybe cost a lot of money at one time in the past and that may be of some use in the future.


For example, in the military, a good quartermaster makes sure his soldiers have the things needed to do repairs, and provides equipment, looks after the needs of his company or battalion. Rather than sending it out and getting nothing for it in reality, it's probably better to store it somewhere, to have it in case it's needed in the future.

Finally, while we have DND people here, in terms of Canadian industries I am very much concerned with the fact that in terms of acquisition and buying a lot of equipment in the past and keeping it for the future, apparently a lot of these purchases made from German industry, for example, have conditions attached to them whereby Canadian sources, Canadian industries, cannot provide that type of equipment.

These long-standing contracts certainly are very much to the demise of Canadian industry, even my own constituency. I have a supplier who can supply for APCs, but because of various contracts signed in the 1970s that equipment cannot be obtained on a near-purchase system from a Canadian company.

Perhaps we could get some comments on those few observations, Mr. Chairman.


The Chairman: Ms Fréchette.


Ms Louise Fréchette (Deputy Minister, Department of National Defence): With respect to the incentive, or lack of incentive, to get rid of equipment or supplies that are more expensive to keep than to get rid of, I think part of it is the extent to which a department can receive the proceeds of the sale. I think there have been changes in recent years in terms of the disposal of goods where departments have at least part of the proceeds. So that's an incentive.

I would say there's also a very strong incentive nowadays - certainly in DND - where the choice is very evident. You either reduce your costs in terms of support services or you see one more piece of equipment that cannot be bought, or more exercises that can't take place. So there's a very strong incentive to actually have a better sense of what is the cost of keeping obsolete equipment, or equipment that you keep just in case, as opposed to different procedures to make sure you have the supplies required.

In that sense, I agree very much with the Auditor General that the better your cost information is, the more the incentive will be understood for proper management of your inventory. I think we're getting there. The kinds of investment we're making in upgrading our supply management systems should make it even more obvious to people what the cost is of keeping some of these things.

The policy now in DND, certainly, is to get rid of these things. As I said in my opening remarks, however, because of the nature of the equipment we buy - we have a need to buy lifetime spare parts, for instance, that we have to keep - to the extent possible nowadays we try to have contracts with industry where they will supply the spares as we need them. We save the cost of warehousing them. But that's not always possible.

You also made a remark about coordination, or lack thereof, within the government in terms of supplying basic needs. You mentioned the case of office furniture. I can tell you, in DND, for instance, we currently are in something like 28 buildings across town. Once we have completed the downsizing of the headquarters by 50%, we will be regrouping our personnel in basically four buildings. To accommodate people in four buildings, we have had to start a program of replacement of office furniture and layout, where we actually will put 20% to 30% more people per floor using up-to-date, ergonomic-type furniture.

So sometimes there is a very good, logical business case to be made for replacing furniture where in fact you can save a lot of space and provide a better working environment. In DND HQ we have some very old furniture. In our case I know it makes very good business sense, because we can therefore reduce the number of buildings in which we house our people and save significantly on rents and other costs.


I might ask Mr. Lagueux to say something about the arrangements we have with industries.

Mr. P.L. Lagueux (Assistant Deputy Minister (Materiel), Department of National Defence): Thank you.

With respect to what you were referring to with the German contractors and obtaining spare parts from them, what was cited in the example of the remarks made by the deputy minister at the beginning was that as we buy new, complex pieces of equipment we will often buy with those a lifetime stock of spares, because quite often the spares are not available once the equipment is out of manufacture. So those spares were bought because they are essentially manufactured by the manufacturer of the equipment.

As to the equipment we buy, quite often the spare parts are not similar to an automobile, for example, where you can buy spare parts or pieces from a Canadian Tire. They're just not commercially available, so one needs to go...

I know the example to which you're referring and the company in your riding. They're busy with respect to tracks for some of the equipment. Of course, what we have to ensure in a case like that is that if we replace some of the parts on those types of equipment - heavy military armoured tracked vehicles - we need to ensure that the equipment we replace them with meets the manufacturer's specifications and requirements, not only in terms of operational reasons but safety, so that we don't have any equipment going at high speed and losing a track, for example. So there is a rather lengthy process of ensuring that any new supplier can provide the spare parts to the specifications as specified by the original equipment manufacturer.

I'm happy to say we're doing that, and I think the company in your riding has been quite successful in meeting the requirements and providing us with replacement parts made in Canada.

The Chairman: Mr. Grose, you have five minutes.

Mr. Grose (Oshawa): Thank you, Mr. Chairman. My questions will be directed to Madame Fréchette.

It seems like a bit of a conspiracy. I tried to get on yesterday and we were cut off. Today it didn't look like we were going to get started, and it looked like I was never going to be able to say something nice.

Taken at face value, I find your report very satisfactory. I look forward to the results of the actions you're taking in the report, because I think you're on the right road and I'm glad to hear that you're a little bit ahead of other people in your inventory. Having been in business, I know inventory can kill you.

There is one point I would like to ask about. We have a depot consolidation here of Toronto and Moncton. I have a passing acquaintance with the equipment depots; I know they always had piles and piles of uniforms and could always find one that didn't fit me. But we're claiming a saving of$30 million per year. What bothers me when we're projecting a saving like that without the cost is what the saving cost us. How much did it cost us to consolidate these depots, including a possible loss on real estate?

If it were a figure of $100 million, you'll get it back in four or five years - fair enough. If it were $300 million, you'll never get it back. I think we would have been well served if we'd had that figure. I don't expect you to have it today. I would appreciate if you could get it for us, though.

Ms Fréchette: I certainly would be happy to provide this number for you. I think we may have it somewhere. My recollection is it's a payback time of less than three years in terms of the cost of the move and disposal cost of the depots, partly because it's... The depots in Montreal and Edmonton are far more efficient. You can fit a lot more items in a smaller space. So there was a very good business case to do that. In fact we did it a year ahead because it allowed us to start saving on the cost of depots a year ahead of time.

Mr. Grose: I know you had a huge depot in Toronto, and I was concerned about how much it cost, possibly, to move the equipment that was in there. I don't know how much equipment... It has been a long time since I was in there.

As long as you assure me that the payback was in three years, that's a reasonable business proposition. Sometimes we get stretched out to where the same conditions are not going to apply. Maybe five, six, or seven years from now Montreal wouldn't be an ideal site, or maybe there will be something better we could do. So I appreciate you being candid about the three years, and I'm satisfied with that. Thank you.


Ms Fréchette: I certainly can provide you with more precise numbers. As soon as we get back to the department we'll assemble the numbers.


The Chairman: Thank you. Mr. Rocheleau, you have the floor for five minutes.

Mr. Rocheleau (Trois-Rivières): To follow up on the question by my colleague, Mr. Grose, I would like to ask representatives of Treasury Board or of the Auditor General of Canada if, given the efforts that we are aware of and which are acknowledged, to attempt or try to have better inventory management within government, they have any idea of the order of magnitude of the savings that were achieved by the government in its efforts to rationalize and increase efficiency and inventory management, if indeed any savings were achieved.


Mr. Al Clayton (Executive Director, Bureau of Real Property and Materiel, Government Operations Sector, Secretariat of the Treasury Board of Canada): I do not have right now an amount I can give you. Certainly we could work on producing a broad number, but right now I certainly don't have a number that can be given.


Mr. Denis Desautels (Auditor General of Canada): We are not in a position to answerMr. Rocheleau's question at this time. However, at a later date, we do intend to follow up on this chapter and the measures that were taken in response to our recommendations.

The Chairman: As you always do, as a matter of fact. Are you referring to a follow-up in 24 months, in two years?

Mr. Desautels: In less than two years, yes.

Mr. Rocheleau: My second question is about the whole issue of disposal of government goods, which, in the final analysis, is the responsibility of the Department of Public Works and Government Services. The Departments of National Defence, Natural Resources and Agriculture cannot dispose of their own equipment themselves and must give them over to Public Works and Government Services.

In your opinion, is this an ex cathedra rule or should we consider whether in future, this responsibility shouldn't be delegated to each of the departments, and within each of them, to local officials, be they in Toronto, Newfoundland or Montreal? Shouldn't we give this responsibility to officials who see the inventory that is warehoused and unused, and not to a line manager in Ottawa, who does not see it and is not in a position to assess all the consequences and maintenance costs? In other words, to what point should we delegate this type of responsibility? I invite anyone who feels he is well placed to do so to answer.


Mr. Clayton: Maybe I'll spend a few minutes talking about that system, because it's come up in a couple of questions.

As noted, net revenues from disposal do go back to departments now. The agency of the government that does most of the disposals is Crown Assets Disposal Corporation, which is part of Public Works and Government Services Canada. I will note that they have offices across the country, not only in Ottawa, so they have offices everywhere to deal with these types of disposals. Except for a few exceptions, all departments now have to use that particular agency to do disposals.

Back in 1992 Parliament changed the Crown Assets Disposal Act so that the Treasury Board has the flexibility if it wishes to allow departments to do it themselves. To this date, the Treasury Board has provided certain exceptions to allow people to do it in certain cases but not generically.

A classic example is when all the local airport authorities that are being created involved massive transfers of assets to local authorities. Treasury Board gave the airport system the authority to do that directly, without having to go through Public Works and Government Services Canada.

I noted yesterday that there is a review now under way that should be finished very soon - within days - on what to do next. Within the Auditor General's report, it noted the three criteria that have been set up for that review.

The first criterion is that it will be done within a controlled framework. That means it will not be everybody for themselves but will be within some sort of controlled framework for disposal.

The second criterion is that departments will have a choice, so it won't be only one provider of the service but will be within a controlled framework. A classic example is you could have two or three private firms. You can take your choice, but those firms would be decided by government under certain rules.


Third, there will be a fair return to departments and no cross-subsidy. That relates to an earlier question about the 30% rule. Historically, there was a standard rate because we were cross-subsidizing. There are an awful lot of items the government sells where there's no value at all, so we were taking the ones where there was value and using the revenue from them to offset furniture, in particular, on which there was very low value. When departments didn't receive the money, it didn't matter.

When departments started to receive the money, departments like National Defence and the RCMP that had valuable items like cars asked why they were paying for other departments to get rid of their furniture. Essentially, there was a disincentive to do it. Under this new system, there will be a change in the rate structure so there will not be cross-subsidies.

One of the things to be worked out when you do get into that system is how to deal with the furniture and all of the minor items where it is not economical to sell them because of the costs. How do you deal with that in a pubic policy milieu where you want Canadians to have the right and the opportunity to bid and buy those items, when it is uneconomical to actually offer individual items for sale? So that's the type of thing we're trying to deal with, and it's part of this review.


The Chairman: Ms Fréchette, do you have anything to add to that?

Ms Fréchette: Just a comment, Mr. Chairman, to say that we have pilot projects within the Department of National Defence for disposal of goods through the private sector rather than by the Department of Public Works. Up until now, our experience has been quite favourable. We find that we get rapid service. We obtain adequate value and the commissions that are charged to us seem quite reasonable. There's always the question of having a framework and sufficient controls in this type of operation, and this is why we have undertaken an audit of this pilot project to draw the necessary lessons. Needless to say, for us, it would be advantageous to maintain this type of flexibility.


The Chairman: Mr. Pagtakhan.

Mr. Pagtakhan (Winnipeg North): Thank you, Mr. Chairman.

Yesterday in his testimony the Auditor General outlined four observations or concerns. I would like to ask the Auditor General - Mr. Clayton indicated, in a sense, his response - whether he is fully satisfied that those specific concerns on the accountability framework, the inadequacy of information, too much inventory being held, and the disposal mechanism are being specifically and adequately addressed. If they aren't, where else can they be pursued?

You made a diagnosis of the problems, I suppose. Mr. Clayton proposed his prescription, and I would like to know whether the prescription given satisfies you in solving the identified diagnosis.

Mr. Desautels: A number of initiatives were either announced at these hearings by the Treasury Board Secretariat or we were informed of them during our work, and they've been reflected in our report. We're certainly encouraged by some of the measures we've heard about, particularly some of the measures to improve the systems for managing materiel and providing better cost information on the handling of materiel inventories. We note, though, that this still requires a lot of effort and has a long way to go. It won't be done in six months. For instance, the movement to full-accrual accounting, which will recognize all the costs, will take two or three years at least to achieve across government.


You should be aware that although there are encouraging signs and seemingly good will, it will still take time and determination to achieve those objectives or plans. There will also be a big challenge in reducing inventories to lower levels. I think progress has already been made, but we don't know exactly where we're at on that yet. There's a lot of saving to be had in that aspect, so we have to keep a close eye on that.

The other area where I think we need a little more clarification - and we're having a healthy discussion on that - is in the accountability relationships and the monitoring role of Treasury Board Secretariat vis-à-vis individual departments. I don't think we've clarified that one sufficiently yet, but we're probably making some progress there too. If these hearings can shed light on that, they will have been worth while.

So on some items things have already started and we're looking forward to results, but effort has to be maintained. We still have to determine exactly how we will deal with the last item.

Mr. Pagtakhan: Is there any parliamentary role that you can see for the committee in making a recommendation to facilitate that reconciliation of approaches and ideas between the Auditor General's office and Mr. Clayton's office, particularly on the accountability framework, which we identified yesterday? Obviously there was a divergence of views. You can give a set of guidelines for how to monitor the performance of each department, but except for spot review there is no automatic mechanism for that particular appraisal to happen.

I recall one department in the past - not in Parliament - that would say ``I didn't realize it didn't happen''. So in a sense accountability requires a mechanism for it to be automatically monitored. Is this something, Mr. Auditor General, you still feel is critical, or is it something you can compromise? What exactly is your position?

Mr. Desautels: Let me try to answer Dr. Pagtakhan's question as clearly as I can.

First of all, I think it's obvious to everyone that the monitoring role of Treasury Board Secretariat would be a lot easier and simpler if there were proper information systems in place across government. Treasury Board Secretariat would then be able to see more clearly whether the policies were being implemented properly and performance was satisfactory across the system, without requiring special reports or even doing special reviews. The information would normally flow naturally. But this is not there now, and it won't be there for a little while yet. In the meantime, Treasury Board Secretariat has to take other means to play a proper monitoring role.

I can't tell Treasury Board exactly how to do that, but it could meet with departments to agree on the type of information it needs from departments to be able to monitor the system overall. What it asks departments should also be very similar to what departments need for their own management needs. But there's a vacuum there, of sorts, and Treasury Board Secretariat should have early discussions with departments on how to fill that vacuum and what can be temporarily supplied to fill the vacuum, at least in part.


You've asked whether this committee can do anything to help. I think Treasury Board itself is seeking to redefine its role in this era of new government and new government structures. I think it would be useful, not just to us, but to Treasury Board Secretariat itself, to get parliamentarians' view of Treasury Board Secretariat's role in this new approach to government.

I certainly am not advocating that Treasury Board should micro-manage departments. It shouldn't substitute in any way for departments assuming their own responsibility. Still, in different situations we hear Treasury Board Secretariat say that it interprets its role one way while members of Parliament seem to have different expectations. The more we can clarify the role and the expectations the better it will be, and not just for materiel management. It's the same issue over and over again in other areas.

Mr. Pagtakhan: My last question, Mr. Chair, is to Mr. Clayton.

The Chairman: Your time has expired.

Mr. Pagtakhan: Can I ask one last question, just to follow up?

The Chairman: Yes, okay. But I would appreciate having some comments from Mr. Clayton on -

Mr. Pagtakhan: My question is to Mr. Clayton.

Mr. Clayton, you heard the response of the Auditor General. Yesterday you alluded to pilot projects being implemented by departments. You indicated, I recall, that you will see them being implemented in the years ahead. Of course, when I say years ahead, I do not know whether they will be ongoing for the years ahead or whether they will start to be implemented many years from now. I would like you to clarify that.

Lastly, what exactly is your reservation were one to pursue the idea? While you allow department heads to monitor their own departments - and I agree with you on that - would there be any resistance from your point of view if these department heads were automatically reporting to you for accountability? May we know if there are any reservations? I would just congratulate... Of course you have made advances, but I would like to hear your view on that point.

Mr. Clayton: I'll deal with the last question first. In terms of what the Auditor General has said, surprisingly there's not a great deal of difference between us, but we can always interpret words differently and put a different emphasis on them.

I'll go back to my opening statement. The primary accountability and responsibility for monitoring is with the head of the institution, and it should remain that way. I will note that we've partly carried out that role by providing every department with a monitoring guide approved by Treasury Board Secretariat. It has been around for many years. It tells you how to monitor, audit, and assess your materiel management system. We do that in many areas. That is the way we deal with the expectations of the Treasury Board Secretariat related to what should be monitored within departments.

When monitoring, evaluations, assessments and reviews take place within departments, those reports are available to the Treasury Board Secretariat as information. As is noted in the Auditor General's report, we have found in recent years that for various reasons they are not always very useful with respect to some of the questions we're asking.

The departments in materiel management and in most other functional areas are not accountable to the Treasury Board. They have their own accountability to their ministers and to Parliament. They certainly can provide information to the Treasury Board, and they do so in these functional areas, but there is not an accountability relationship. We do not delegate our authority. We do not have authority that we delegate in areas such as materiel management.

To be technical and legal, the Financial Administration Act is permissive; that is, it says that in this area the Treasury Board may, if it wishes, create policies. It does not say that the Treasury Board is the materiel manager of the Government of Canada. And to some extent, the Treasury Board has decided to create policies in materiel management.

I'm not quite sure about your reference to pilot projects. There were some pilot projects in disposal, and there are many initiatives under way in many areas. They have specific timed dates and so forth, related to information systems updates and disposal, etc. So I'm not quite sure what you're referring to.


Mr. Pagtakhan: The reference is to the common systems initiative.

Mr. Clayton: That is well past the pilot project stage. Under the common systems initiative we now have... I'll talk about the upgraded integrated financial management in particular. Those things are now there. Departments are now in the business of making decisions about what systems they're going to adopt.

The Chairman: Mr. Silye, you have five minutes.

Mr. Silye (Calgary Centre): Thank you, Mr. Chairman.

Mr. Clayton, out of the estimated $50 billion that we have invested in a broad range of materiel items, how much would you say is necessary?

Mr. Clayton: I don't know the number. I really don't.

Mr. Silye: Would you know the number of -

Mr. Clayton: No. Frankly, I don't think that is the role in terms of what we're trying to do. I'll note as well -

Mr. Silye: Doesn't that lead to carrying excess inventory?

Mr. Clayton: Even in terms of how numbers get used, to get back to the report we commissioned that talked about the consumables, the $10 billion in warehouses, the finding of the commission was that up to 50% no longer needed to be in warehouses. That does not mean they are excess. That means there are different ways in which you could supply them. In other words, you don't necessarily have to warehouse them; you could have the provider -

Mr. Silye: Are you saying you disagree that $50 billion at any one time in any given year is invested in materiel?

Mr. Clayton: No. It's a rough guess that there is $50 billion in the system, of which about $10 billion is warehoused, and the other is tanks, airplanes, and other things that are in use out in -

Mr. Silye: Yes. They're in use out there or recycled or used up. And then that's what we replace. Your department's annual expenditure is $8 billion.

Mr. Clayton: Yes.

Mr. Silye: So that's what gets used up. Is that right?

Mr. Clayton: Yes. Part of the $8 billion is due to that replacement and so forth.

Mr. Silye: Mr. Minto, what happens if we go from a cost accounting system to an accrual accounting system? Why is that going to make things better?

Mr. Shahid Minto (Assistant Auditor General, Officer of the Auditor General of Canada): I guess there's nothing like awareness and visibility of what your costs are. Right now, if you've paid for the sum of your inventory out of last year's estimates, there is no cost to you, other than the minimum holding cost, because another department is paying for the warehousing cost and another department is paying for the financing cost. And your annual cost is probably the electricity and the manual costs that you're incurring with it.

Mr. Silye: I'm getting a little confused. I'm not an accountant. But no matter what system you use, if you continue to apply it year after year, you are comparing apples to apples, so with a transition period you may get this problem.

If in fact at year end people spend 30% to 40% of their budget to acquire items, that goes to last year's account. Fine, then, that's what was spent last year. Then this year, you either don't spend as much or you spend it... What is the difference?

Let's say that the sum total spent on materiel last year by the Department of Defence was$1 billion. Some of it's going to be replaced and some of it is going to be used up. Let's say that in this year, 1997, they're going to spend $1.5 billion, so they end up spending $500 million more. What is the difference between accounting on a cost basis versus an accrual basis for the materiel that's being purchased or replaced? What is the difference between cost accounting and accrual accounting?

Mr. Minto: Mr. Chairman, the difference would be that if you were doing a proper set of accounts, the inventory that you still have in your warehouses, for example, would not be treated as an expense until the time you consumed it, so you would continue to show the cost of that on your books as an asset. You would then think of it as an asset rather than a sunk cost.

Mr. Silye: So we get into the area of balance sheets then.

Mr. Minto: You get into the area of awareness. You think ``I have an asset that's sitting in my inventory and I have to'' -

Mr. Silye: I have things worth $50,000 each -

Mr. Minto: Or or equipment. And then you start thinking about it in those terms. Otherwise, what happens is without your holding costs, without the awareness of the holding costs, as you've said, you're only looking at what more you are going to spend this year.


So the incentive to look at your own inventory issue - it was raised by Mr. Hubbard earlier - is across departments, across different regions, to see if anybody else has it, because it's showing up on your records, your assets, and maybe you can use that before you buy something. It affects your decisions about whether or not to purchase more.

Mr. Silye: The last question is what needs to be done to implement more effective accountability. I guess what we're looking at here is if we want to look at a department's expenditures in a lot of ways, right here we're zeroing in on material items and spending there, who is accountable for the spending of the money, who is responsible if they go over budget or under budget. Yes, the department and department heads have to have the major responsibility, I understand that, but what is the role of Treasury Board and the Secretariat of Treasury Board vis-à-vis monitoring? Would it not be an advantage to have a monitoring agency or a monitoring function of Treasury Board?

It seems to me just by the question asked by the Auditor General that the Treasury Board doesn't want that responsibility. It would rather pass it along to the department heads, based on the presentation you, Mr. Clayton, made yesterday. Yet the Auditor General is trying to say what measures are needed for an effective accountability framework, which he claims does not exist at present. So how do we solve that problem?

Mr. Clayton: As I understand the Auditor General, I could talk about what I see as the four elements of the accountability framework which have to be put in place. The first one is a general Treasury Board or central government policy. I think what the Auditor General has said is that essentially what is there is all right. That's policy.

The second one is departmental policies and frameworks internal to departments. As the Auditor General noted, and we concur, over the last three or four years, as the government downsized, reorganized, and everything else, some of that became out of date. Very frankly, in terms of the priorities, redoing the materiel management manual was not the highest priority in most departments. He has noted there are very major initiatives in DND, RCMP, the Department of Fisheries and Oceans, and so forth in doing that right now. It seems to me that's the second element.

A note on how Treasury Board Secretariat, as I see it, will deal with that issue is that we do have coming questions related to increased allocation of procurement authority and so forth. Part of the conditions of those will be the update of the framework.

The third thing is departmental reporting systems. We have spent a lot of time on that in the last few days. I'll note, maybe on your last question to Mr. Minto, that part of having a good accrual accounting system and good information is that parliamentarians and Treasury Board Secretariat can ask the right questions.

We have a new term that is used - I hope we don't get this into accountability - called the role of the Treasury Board Secretariat is ``to have your nose in and your hands off''. That is, it's perfectly legitimate to ask questions, but hands off, we're not accountable. That has to be dealt with by the deputies within the many areas of how issues have to be dealt with. I do not want in any way to end up having accountability related to how the defence department delivers materials to its troops, but it's perfectly legitimate for the Treasury Board Secretariat to ask questions, and if the information is there it certainly makes it a lot easier to do that.

Mr. Silye: So why do we need you in the middle?

Mr. Clayton: The answer is that's why those questions get asked between -

Mr. Silye: But we have cabinet ministers who can ask the questions. We have a finance minister who sets out a budget. Why do we need you in the middle?

Mr. Clayton: That's a very good question, and that's part of the debate that goes on in Treasury Board. We haven't got into this, but in the materiel management area we have one and a half people in TBS. That's all we have. We have made those decisions. We have made those types of decisions.

The Chairman: Mrs. Brushett.

Mrs. Brushett (Cumberland - Colchester): Thank you, Mr. Chairman. I plead my naivety here. I'm sitting in for someone else today and I will ask some questions that perhaps have been already answered or explained in depth.


Mr. Silye: We will tell you if they have been.

Mrs. Brushett: I come back to a fundamental question on the same terms of reference. I find every time something doesn't work we have a new policy, but that policy doesn't have any auditing or financial assignments going with it such that you operate within this framework of financial dollars. So the policies just become more compounded. One policy leads to another, but again, never is there a cost analysis. When you talk about the disposal of crown assets, many times it's more expensive to relocate those items, advertise, inventory, all the costs associated with a grand sale, or anything else. It's far greater than what you will ever recover.

I guess my question comes down to this, since I have been in business most of my life. Who is doing the cost analysis along the way?

I've seen it in every department. I've seen it from contracting out. You will give a contract out, but you have no idea what the cost is of doing it in-house, so you have no idea whether you're making a saving or spending more money. It has been repeated...

I come back to this. There is always a new policy but a dollar value is never put on that policy. Someone has to be held accountable to stick to the dollar value and measure those results, that we got better value for that money or we got less value. In my three years here I have never seen that.

Mr. Clayton: What has been going on around Treasury Board Secretariat for the last three or four years, particularly in materiel management, is essentially getting rid of policies. If you looked at the materiel management policies of Treasury Board Secretariat or of Treasury Board seven years ago, you would have specific policies on furniture...and I could go down the whole list. None of them exist. Essentially we have a generic policy that says to departments ``use your head''.

This is one of the reasons, by the way, we get into this accountability question. As Treasury Board has gone in the other direction and has in effect not been prescriptive, it has become more difficult to deal with monitoring and accountability. So in the materiel management area and others, essentially it has gone exactly in the other direction, of getting rid of policies and getting out of prescriptive policies, which created totally dysfunctional actions. There are stories all over the place about what happened. That's one of the reasons we are changing the disposal, and are about to change it. What was out there created these dysfunctional types of decision-making.

There was another point. I've lost it.

Mrs. Brushett: Again, Mr. Silye has indicated perhaps there is not a role for Treasury Board any more if each department... Perhaps there's not a role for Public Works any more, for Government Services. We have issues that go on and on, and if a department doesn't want to run its materiel through Public Works, or run its buildings or leases through Public Works, maybe it wants to go directly to the private sector, or to tend to its own business affairs and managing finances. Are we addressing those questions, or is it appropriate to look for new structures at this time?

I found it very interesting in reading the report of the chief clerk of the Privy Council to the Prime Minister this week, wherein she said that new trainees, new young people being taken into the public service, were bored, they didn't find it challenging and interesting, because they felt some of it was totally irrelevant to modern workable programs in society. Here we have a new generation of young people telling us we don't seem to fit into the prototypes. What's the answer there?

Mr. Clayton: Maybe I'll try to go back and again talk about Treasury Board Secretariat and Public Works and Government Services in this area.

As I've noted, and I used the example of my own materiel management organization, under the types of scenarios you have talked about, we have been withdrawing. I note the last two days here. Other people have opinions that would in effect say we need more people, but we have been withdrawing and saying it's very much deputy heads and there's a very limited general Treasury Board role.

About Public Works and Government Services Canada, it's an organization that provides massive and different types of services. A vast majority of those services are, to use government terminology, ``optional''. That is, right now departments can go out and decide to do it themselves or not to do it themselves. That organization has dramatically reduced its size over the last two or three years, and I think that reflects part of that restructuring of government which you're talking about and what businesses or activities the government wishes to be in or should not be in.


Mrs. Brushett: As Treasury Board withdraws, are we asking for auditing of fiscal accountability, rather than just the creation of policy for the public good at all times, to be paralleled, so there is a measurement that...? For example, I can see we need more people on the front lines somewhere, who would recommend maybe more money should go here but it should be cut somewhere else, rather than a general cut. But at the backbench member of Parliament level we have very few tools to measure how effectively we're doing these things.

Mr. Clayton: You're now into an area that is quite beyond the materiel management subject of these hearings. I'll try to answer.

At the macro-level the government has been making decisions over the last two years which clearly were not across-the-board cuts. They were clearly cuts that were quite different in different departments. They were judgments related to public policy issues and the information they had on the effectiveness and efficiency of government organizations. So at that macro-level that has been made. In materiel management, then, we certainly don't want to go in beneath that and start to micro-manage sub-elements. We let the deputy heads make those decisions.

There is, then, within that, a whole program going out of my office of Treasury Board Secretariat, related to performance indicators, efficiency, effectiveness, and that whole area of accountability and measurement for what's left. The Auditor General, who is probably more involved in that than I am, could probably talk more about it. It includes not only getting on with those types of indicators but different ways of reporting to Parliament and so forth and it is all part of that reform of how the government presents information and creates information for the public on what it does.


The Chairman: Just before we adjourn, Ms Fréchette, last night, while preparing my Kraft Dinner in my apartment, I was thinking about you. It's not because you remind me of Kraft Dinner, but while the noodles were on my stove top, I was rereading the report of the Auditor General and wondering what approach I should take with you, recognizing that it is true that you and the Department of Defence are attacked from all sides.

I was wondering if I was going to be nasty to you since we do want you to appear before us again. Before Christmas, you said it was the first time you had the pleasure of being before the Standing Committee on Public Accounts and you've proven this by prolonging your pleasure by coming back. Mr. Harder had also told me that he was pleased to testify before us for the first time, but we didn't see him again. I decided that my powers of seduction probably didn't have the same effect on Mr. Harder.

I will start with an easy question. As a matter of fact, last night I did find the number of hats ordered by the RCMP, since you told us that you work hard in terms of equipment and the management of materiel inventory. The RCMP had ordered 3995 surplus hats. The Auditor General did not find the same thing in your department, and I hope there are no skeletons in your closets.

Ms Fréchette, you told us yesterday that your department had an action plan for its materiel management. This is my easy question. Could you send it to the committee as soon as possible?

Ms Fréchette: I think that the very detailed comments that I sent to the committee yesterday are essentially an action plan. If you wish to obtain more details, I will be pleased to send them to you.

The Chairman: Does it list specific dates for each step?

Ms Fréchette: Yes.

The Chairman: And for each of the actions listed in the notes that you gave us?

Ms Fréchette: They may not be listed in the notes, but they are listed in our action plans. If you want me to send you further details, I can do so.

The Chairman: That was more or less the point of my question.

Ms Fréchette: I'll be pleased to provide you with details.

The Chairman: Yes, that's right. That was more the point of my question.

Ms Fréchette: Fine.


The Chairman: For my second question, I would refer to chapter 23 of the Auditor General's Report. At item 23.6, Mr. Desautels and his team highlighted the following aberration:

It cost $30,000 to sail the ship in. Poor administrators in the Coast Guard did this.

In paragraph 27 of his presentation, Mr. Desautels states:

Let's take the example of the Preserver. You know the Preserver?

Voices: Yes.

The Chairman: When you have to repair the Preserver, is it the Department of Defence that looks after the exercise or is it the Department of Public Works and Government Services? Perhaps Mr. Desautels can shed light on this. In other words, is this new policy automatically in force at the Department of National Defence?

Ms Fréchette: It depends. Certain ship repairs are carried out in the National Defence shipyards. Therefore, that's done in-house. When we call upon the private sector, our contracts do of course go through the Department of Public Works and Government Services and are done under the regulations of that department.

The Chairman: If memory serves me, you gave a contract for repair of the Preserver to a shipyard in Halifax whose bid for this request was 25% lower than that of the Davie shipyard in Lauzon. We attempted to get both bids in vain. If there's a difference of 25%, it's because someone was not on the same planet. It's an aberration to have such a big difference. Could you make a commitment to providing us with both bids for the repair contract of the Preserver as presented in September or October of 1996?

Ms Fréchette: I will check out the situation and see what I can provide to the committee in this regard.

The Chairman: Mr. Clayton, in paragraph 23.27 of the French version of his report, the Auditor General stated:

We are quite perplexed by the answers you gave to the questions raised by Mr. Silye andMr. Pagtakhan. I don't know if you are trying to find a role for yourself. We will examine all of your testimony today, but what you have told us is enough to make our hair stand on end. We as Mps probably have a poor understanding of your role. During Mr. Harder's first visit, I told him that he was the terror of departments and he seemed to find this a good joke. But in reality, I'm starting to realize that I told a very good joke that time. He's not the terror of the departments at all. In any event, I will keep my comments for the day I see him again.


Mr. Clayton: That specific reference in the report - and the person that was quoted was me - was that in doing our horizontal policy reviews, which I noted we have done many of in terms of whether Treasury Board policies are working or not working in the materiel management area, we found that some of the existing information, such as departmental audit reports or information systems in departments, was now not sufficient, as we've talked about over the last few days. That is why we noted that instead of using those, we have tended to commission these horizontal reviews that go across the system to review subject areas such as inventory holdings, or information systems, or use of acquisition cards and so forth. It is through those types of reviews that we have identified the types of actions the Treasury Board Secretariat, the Treasury Board, and departments should take to improve the system.


So that was the reference in paragraph 23.7, I guess, in terms of the types of information tools we have available. As the Auditor General noted today, and I did, in an ideal world, particularly when we get our integrated materiel and financial systems together and implemented, we will have better information sitting there to base those types of assessments and evaluations on.


The Chairman: Since none of my colleagues seem to wish to ask any more questions, in accordance with the tradition of this committee, I will give the floor to Mr. Desautels for closing comments.

Mr. Desautels: Mr. Chairman, earlier, Mr. Pagtakhan asked me certain questions that allowed me to specify or summarize my thinking on the issues that were raised during these meetings. Perhaps the committee could refer to these comments.

On the one hand, it is quite urgent that the information in the accounting systems of various departments be changed in order to better control the significant investment made in materiel. It would be useful for the departments concerned to provide the committee with a sort of timetable that could allow us to have a tighter follow-up of the progress achieved in this direction. For our part, we anticipate reviewing this whole issue and reporting to the committee within two years, as is our custom, to describe progress achieved by the various departments.

The Chairman: Thank you, Mr. Desautels. Ladies and gentlemen, thank you very much for being available today and also for the quality of most of your statements. I would like to adjourn this meeting for three minutes, to allow our witnesses to leave. It's too bad our room empties and that the departments bring their delegation with them. We have an information session on the infrastructure program. We will therefore adjourn our hearing for two minutes.


Thank you.

[Proceedings continue in camera]

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