PACC Committee Report

Pursuant to Standing Order 108(3)(e), the Standing Committee on Public Accounts has the honour to present its

TWENTY-SECOND REPORT

The Standing Committee on Public Accounts has considered Chapter 31 of the December 2000 Report of the Auditor General of Canada (Fisheries and Oceans — Fleet Management) and has agreed to report the following:

INTRODUCTION

The Department of Fisheries and Oceans’ marine fleet was created in 1995 out of the merger of the Canadian Coast Guard fleet and the Department’s science and fisheries enforcement fleet. The merged fleet is known as the Canadian Coast Guard and is part of the Department of Fisheries and Oceans. As of 31 March 2000, the fleet consisted of 144 vessels, making it Canada’s largest civilian fleet. These vessels provide important services: aids to navigation; icebreaking; the marine component of search and rescue; and, marine pollution prevention and response. The fleet also supports the Department of Fisheries and Oceans (the Department) in the conduct of fisheries science and enforcement, hydrography, oceanography, and other marine services.

Operating and maintaining the fleet and providing for its capital replacement are expensive. In 1999-2000, for example, the Department spent approximately $229 million on those aspects of the fleet. It also spent an estimated $52 million on on-shore base support.

Due to the cost of maintaining and operating the fleet, and the importance of its functions, the Committee decided to examine the results of an audit of the fleet’s management. Accordingly, the Committee met on 23 October 2001 to review Chapter 31 of the December 2001 Report of the Auditor General of Canada (Fisheries and Oceans: Fleet Management). Mr. Michael McLaughlin (Deputy Auditor General, Corporate Services), Mr. John O’Brien (Principal, Audit Operations Branch), and Mr. Kevin Potter (Director, Audit Operations Branch) appeared on behalf of the Office of the Auditor General of Canada. Mr. John Adams (Commissioner of the Canadian Coast Guard), Mr. Charles Gadula (Director General, Fleet) and Mr. Bill Doering (Executive Director, Fleet Management Renewal Initiative) represented the Department of Fisheries and Oceans.

OBSERVATIONS AND RECOMMENDATIONS

The central conclusion arising from this audit is that the Department of Fisheries and Oceans is not managing its fleet in a cost-effective way. The evidence supporting this conclusion was drawn from all three areas in which the audit was focused: organization and accountability; vessel life-cycle management; and, human resource management.

Almost all of the elements that would discourage good management and functional accountability in any organization are to be found in the Canadian Coast Guard. The operations of the fleet, for example, are decentralized into five regions, each of which operates on the basis of its own management procedures and preferences. The results of this division show up repeatedly throughout the audit in the form of inconsistent practices and planning.

Reporting relations and accountability between the regions and national headquarters are both complex and obscure. Management of the fleet from a national perspective, including the ability to maximize the use of resources between regions, is difficult at best. The current one-year planning and funding horizons are too short and although the Department is considering moving to a three-year horizon, the Auditor General contended that a five-year horizon would be preferable. The Department’s processes for funding fleet operations are “flawed” and the current method used to allocate costs “discourages vessel usage.” Program performance expectations for the fleet were, in the words of the former Auditor General “short-term, unclear, or unrealistic.” Poorly articulated performance expectations were matched by information that was inadequate for monitoring and accounting for fleet performance.  Full implementation of the Financial Information Strategy (FIS) that could help solve some of these problems is “still several years away.” It is not at all surprising, given these findings, that the Deputy Auditor General informed the Committee that:

In the end, it was difficult to see how anyone in the Department could be held accountable for the cost-effective delivery of the fleet service.

Although a 1995 government policy required departments to manage materiel resources — including vessels — using a life-cycle approach, the Department has yet to do so. In the absence of this approach, the auditors examined how the fleet manages stages in the life cycle of its vessels. The findings were not encouraging.

An exercise to determine the number of vessels needed by the fleet was based on regional, instead of national, requirements and thus “missed opportunities for greater sharing of resources and better productivity.” The Department’s Long-Term Capital Plan “does not represent a realistic or true picture of the fleet’s long-term capital needs.” There is “no national system in place to regularly monitor or analyze the efficiency or economy of the fleet use or to determine the results achieved.” Fundamental information needed by fleet managers to manage their vessels was not readily available. The information that was available to managers was not integrated with other financial and operational information, was “not available on a timely basis,” and was “not reliable for decision-making purposes.” Lastly, the audit found that fleet managers:

… make replacement and maintenance decisions based on their best estimate of the condition and operating cost of each vessel, with little analysis supported by facts.

The fleet’s largest operating expenditures are for salaries. In 1999-2000, for example, salaries and related expenses represented about 79% of the vessels’ operating costs. Yet despite this, the audit found a “lack of management focus on human resources.” The fleet does not have a human resource plan and there is “inadequate” national guidance on human resource matters. Mr. Adams acknowledged that the fleet has “an accumulation of probably five to six years of inaction on the human resources side,” an astonishing admission given that the fleet has been in existence since 1995. The audit shows that there is a desperate need for such a plan.

Collective agreements and funding formula, managing sick leave, work-related injuries, and overtime costs all represent significant challenges to fleet managers. The auditors found “no evidence that managers have attempted to understand or reduce the use of sick leave,” which is considerably higher than in the rest of the public service. A report done by the Department itself “could find no evidence that managers were trying to reduce overtime costs” incurred by the fleet, costs that represented 70% of the Department’s total overtime expenditure of $33 million in 1998-99.

Along with other areas of the public service, staff training, recruitment, and retention pose serious problems for the Canadian Coast Guard. The fleet had a shortfall of $1.55 million in its training budget to meet basic technical training requirements. Attrition rates, while not alarming, are a concern because junior officers (the future officer core) are most affected and it takes six to eight years to recruit, educate and train them. Yet the audit found that there was no plan for ensuring that the fleet will continue to recruit, train, and retain sufficient personnel into the future.  Lastly, the audit found that shore-based support is too large for the size of the fleet

Against this background, the fleet is now confronted with several very serious and immediate challenges that its management capabilities are not well suited to deal with.

The first major challenge involves the need to replace aging vessels. The Department estimates that the effective life for its ships is 30 years; the average age of its 41 large vessels is 22 years. These vessels are fast approaching the end of their useful life at a time when funds for capital projects are not plentiful. According to the Department’s own 1999 estimate, the cost of replacing all of the large vessels amounted to $2.2 billion. Mr. Adams told the Committee that based on a renewal of the asset base of 4%, the Canadian Coast Guard should be investing between $140 to $150 million of capital funding each year. In contrast, the budget for the last ten years has been “in the
order of $30 to $40 million.”  But the fleet does not use a life-cycle management approach and will not be using one until at least 2005, an estimate the former Auditor General called “optimistic.”  And the fleet’s capital plan is flawed.

The second major challenge concerns possible new roles that the fleet may have to play in the wake of the events of 11 September 2001. At present, the outlines of any possible additional role remain undefined. But the fleet may be called upon to provide an enhanced presence off Canada’s coasts and to become more active in surveillance and security. The fleet’s difficulties highlighted by the audit are not a source of confidence that the Department will be able, especially in the near future, to respond to any new demands.

The final challenge facing the fleet involves its ability to meet existing important requirements. The audit demonstrated that these requirements are not always fulfilled. For example, national level-of-service requirements that are part of the search and rescue program are not always fully met. With regard to the Marine Navigation Services program, Mr. Adams admitted that “we don’t always get the buoys out of the water as soon as we would like before the ice comes in, we don’t always get them back in the water as soon as we’d like to when the ice goes out,” because “there are some compromises that are made as a result of lack of funding.”

When the federal budget was tabled on 12 December 2001, the government announced plans to allocate a total of $60 million over the next five years to protect Canadian ports and other critical infrastructures. Some of this funding will provide resources to expand the Canadian Coast Guard’s surveillance of Canada’s waterways. The government also announced that Transport Canada would work with other organizations to identify further measures to improve marine security. An increase in funding is not a solution to the fleet’s problems but instead further reason, if such were needed, for management improvements. These improvements must also be made quickly as the prospect of additional responsibilities draws closer. They must be made in any case.

It is noteworthy and encouraging that the Department did not contest any of the findings and agreed to all recommendations. In response, the Department drew up an action plan divided into seven parts. Yet it took a year to do so and the result, which was provided to the Committee at the meeting, was disappointing. What the Department provided was, in effect, a framework for an action plan. This framework lists the areas in which actions are slated to occur with no actual reference to what those actions will consist of. Now that one year has passed since the completion of the audit and several months have elapsed since the meeting occurred, it is time for the Department to fill in the blanks in its action plan. The Committee therefore recommends:

RECOMMENDATION 1

That the Department of Fisheries and Oceans submit a detailed action plan to the Committee in response to the audit reported in Chapter 31 of the December 2000 Report of the Auditor General of Canada. This plan must include specific references to actions planned or underway to address each recommendation, target implementation and completion dates, and be submitted to the Committee no later than 30 September 2002.

The Committee is particularly concerned by the audit findings related to the accountability information given to Parliament. Problems were discovered with the method used by the Department to allocate fleet costs between its business lines, which resulted in “unreliable information” being included in its performance report. Furthermore, the former Auditor General indicated that

Although the Department knows that the fleet is unable to meet even some of the most basic service expectations, it has not made a consistent attempt to either track or disclose the nature and extent of these gaps in service.

Yet this is precisely the kind of information Parliament needs if it is to make sound judgements, not only about the quality of service provided to Canadians by the fleet, but to assess the adequacy of its funding. The Committee expects that these deficiencies will be corrected and recommends:

RECOMMENDATION 2

That the Department of Fisheries and Oceans begin to provide Parliament with accurate, reliable information on the plans and priorities of its fleet, and on its performance, in all of its accountability documents beginning with its performance report for the period ending 31 March 2002. In particular, performance reports must include a frank discussion of gaps in service that have occurred, why they have occurred, and the actions planned or underway to close them.

RECOMMENDATION 3

That the Department of Fisheries and Oceans provide, in its performance reports, information on the results achieved by actions taken in response to the observations and recommendations contained in Chapter 31 of the December 2000 Report of the Auditor General of Canada. Provision of this information should be specifically linked to the action plan prepared by the Department and should commence with the performance report for the period ending 31 March 2002.

Following its review of the evidence and its discussion with witnesses, the Committee believes that many of the problems revealed by the audit stem from the awkward organizational and accountability structure within which the fleet operates. This conclusion is supported by Mr. Adams, who testified that he

Personally [does] not believe that the management model that we are attempting to live with within the Department is necessarily the best, the optimum model, for a line organization, for a national institution like the Canadian Coast Guard.

Although he added that this did not mean that the present model could not be made to work, he went on to indicate that the Department’s Deputy Minister had asked for a recommendation on how best to manage the Canadian Coast Guard. The Department has also agreed to review how the fleet fits into its organizational and accountability structure, as recommended by the former Auditor General. The Committee firmly believes that it is worth the time and effort to conduct such a review in order to bring about, if not an optimal management model, a much better one than the Canadian Coast Guard has today. The Committee therefore recommends:

RECOMMENDATION 4

That the Department of Fisheries and Oceans, in consultation with the Office of the Auditor General of Canada and the Treasury Board Secretariat, conduct a full and rigorous review for the Deputy Minister of Fisheries and Oceans Canada, of the management model currently used by the Canadian Coast Guard. This review should result in a range of options and have a target completion date of 31 December 2002.

The Committee believes that such a review and the departmental response to its findings and recommendations will be of significant interest to Parliament and Canadians. The Committee therefore recommends:

RECOMMENDATION 5

That the Department of Fisheries and Oceans table the report based on its examination of the management model used by the Canadian Coast Guard, along with an official departmental response that includes an action plan, in the House of Commons no later than 31 March 2003.

CONCLUSION

Following the audit, Mr. Desautels wrote that he was “concerned about the number and seriousness of the issues” that had been found. He added that “the resolution of these issues requires management’s prompt attention.”  Mr. Adams echoed these remarks, telling the Committee “the need for action is urgent, and well-recognized.”

The services provided by the Canadian Coast Guard are of no small significance to Canada and the safety and security of its citizens and others travelling through its waters. Failure to resolve deficiencies is beyond contemplation. The Committee expects the Department of Fisheries and Oceans to act with the urgency it agrees is needed.

Pursuant to Standing Order 109, the Committee requests that the government table a comprehensive response to this report.

A copy of the relevant Minutes of Proceedings (Meetings Nos. 27 and 53) is tabled.

Respectfully submitted,

JOHN WILLIAMS, M.P.

Chair