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1991 Report of the Auditor General of Canada

Main Points

7.2 There is significant room for improvement in motor vehicle fleet management. The problems merit a comprehensive review by Treasury Board and departments (7.21).

7.3 Transportation planning is generally weak. Typically, transportation needs are not defined in relation to program or service goals. Departments typically do not question whether the actual need for a vehicle continues to exist (7.22 and 7.25).

7.4 Generally, vehicles are purchased on the basis of initial price and, on this basis, we found that the Department of Supply and Services (DSS) obtains new vehicles at prices comparable to those available to large private sector fleet owners. However, environmental concerns and components of life-cycle costs, such as long-term maintenance costs, have not yet been incorporated into the acquisition process as required by the Treasury Board (7.26, 7.28 and 7.29).

7.5 Increased standardization of departmental vehicle fleets could result in greater savings in acquisition, administrative and operating costs (7.26 and 7.27).

7.6 We found indications of underutilization of vehicles and the possibility for savings in some of the departments, using a conservative annual utilization benchmark. For example, based on results of an in-depth study the Department of Transport plans to significantly reduce its vehicle fleet, at a saving of about $8.75 million over two years (7.30).

7.7 Departments have authorized many employees to take vehicles home, in the event the employee has to return to work after regular hours. However, they have not established procedures to calculate possible benefits for tax purposes resulting from this practice (7.31).

7.8 Departments and DSS have invested considerable resources in management information systems for vehicles. A Treasury Board evaluation of the DSS system reported that most departments did not find it to be useful. We found that the systems at the departments of National Defence and Transport were not complete or sufficiently reliable to be used for vehicle management. None of the systems could readily produce reports by location on vehicles whose usage, costs or repairs differed significantly from the norm (7.32 and 7.33).

7.9 Four of the five departments audited are not disposing of vehicles declared "surplus" in a timely manner. The cost to the government of this practice is estimated to be $1 million per year in one of the departments alone (7.35).

Introduction

7.11 Transportation planning is the first step in deciding whether to purchase a vehicle. This involves periodically assessing the cost-effectiveness of alternative ways of meeting transportation needs, on the basis of program or service goals. For example, managers are expected to assess the costs and benefits of re-allocating vehicles; of short term leasing; of increased sharing of existing vehicles through pooling; of using public transit and taxis; and of paying employees to use their own vehicles.

7.12 If it is decided that it is cost-effective to purchase an additional vehicle or to replace one in poor condition, the manager is expected to justify the type of vehicle to be acquired against specific operational considerations - such as the equipment to be carried, terrain, and passenger load - taking into account life-cycle costs, energy conservation and environmental protection factors.

7.13 Generally, branch requests are forwarded to departmental headquarters for review in light of priorities and the availability of funds. Approved requests are forwarded to the Department of Supply and Services (DSS) for acquisition. Once delivered, vehicles are operated, maintained and repaired by departments. Managers are expected to develop maintenance schedules and to track the use and running costs of vehicles using either the DSS "Fleet Management Information System" (FMIS) or their own.

7.14 Departments are expected to consider kilometrage, age, condition and cost of repairs as criteria for vehicle replacement. Unless otherwise authorized, managers are expected to transfer vehicles to DSS for disposal as soon as replacements arrive.

7.15 This chapter begins with a general assessment of vehicle management in the government based on the departments we audited. The components of the management process we assessed are illustrated in Exhibit 7.1 and are the basis we have used to report the details of our findings by department. The common services provided by DSS - acquisition and disposal - are discussed separately.

Audit Objective and Scope

7.17 We audited vehicle management in the Department of National Defence (DND), the Royal Canadian Mounted Police (RCMP), the Department of Transport (DOT), the Department of Agriculture (DOA), and the Department of Public Works (DPW). We also audited the common service vehicle management activities of the Department of Supply and Services (DSS).

7.18 At the time of our audit, the departments examined owned about 19,000 standard commercial vehicles - about two thirds of the government's 28,600 similar vehicles.

Audit Criteria

• The need for vehicles should be identified in relation to operational objectives.
• The lowest-cost vehicle able to meet expected operational needs should be acquired, taking into consideration initial cost, life-cycle costs, energy conservation and environmental protection factors.
• Alternatives to purchasing vehicles, such as paying employees to use their own vehicles, using taxis or leasing vehicles for peak periods, should be used when cost-effective.
• Departments should manage vehicles in accordance with the life-cycle approach to materiel management, involving consideration of initial, operating and disposal costs and benefits.
• Vehicles should be disposed of in a manner that optimizes revenues to the government.

Audit Observations

General Assessment

Room for significant improvement

Transportation planning generally is weak

Acquisitions of vehicles from dealer stock are not adequately justified

7.24 Two of the departments we audited had numerous purchases from dealer stock, which we reviewed. In the Department of Transport (DOT) we examined 30 recent dealer stock purchases made, for the most part, at the end of the fiscal year. These vehicles cost about $540,000. For 26 of the 30 purchases there was no documentation showing that the vehicle being replaced was inoperable or that the need to replace it was urgent. For model year 1988, DPW bought 26 vans through bulk buys and 26 from dealer stock; the latter each cost an average of $3,171 more than the bulk buy purchases. The extra cost may be due in part to additional options that were not originally requested. In our opinion, most of the justifications provided for such urgent purchases were inadequate. For example, year-end purchases from dealer stock were not made on the basis of urgency but because funds became available to purchase additional vehicles.

Vehicle justifications often lack key information

Acquisition methods need to be improved

7.27 The variety of vehicles and options available to departments makes the administration of the "bulk buy" method complex. Based on our review of vehicle justifications it is not clear that departments need such a variety of vehicles. Generally, increased standardization would mean reduced costs of acquisition and administration. It would also make it easier to assess operating and maintenance costs, and it would simplify vehicle management and monitoring.

7.28 Treasury Board's current policy on acquisition continues the requirement that life-cycle costs (such as running costs and resale value) be considered along with initial price. A vehicle with a lower purchase price can end up costing more in the long run than a higher-priced one if it has higher operating and maintenance costs or a lower resale value. Currently, however, vehicles are purchased only on the basis of their initial price.

7.29 The October 1976 Treasury Board Motor Vehicle policy stated that energy conservation should be considered when buying a vehicle. One of the requirements of the new April 1991 Treasury Board policy is that first consideration be given to acquiring vehicles that conserve energy and protect the environment. The government's "Green Plan" issued in December 1990 states that environmental factors must be formally recognized in government as essential criteria in decision making. These considerations have not yet been incorporated into departmental and DSS acquisition procedures. For example, fuel efficiency and the availability of alternative fuels are not taken into account, nor is the impact of options such as air conditioning.

Utilization needs to be reviewed

7.31 According to Revenue Canada's interpretation of the Income Tax Act, taxable benefits are received when employees use employer-owned vehicles for personal use. Personal use includes travel between home and work even where the employee may have to return to work after regular hours, and even if the employee is required by the employer to take a vehicle home. We found that departments had authorized employees to take vehicles home, either continuously or occasionally, without having established procedures to calculate possible benefits for tax purposes. For example, DOT had formally authorized about 900 employees to use departmental vehicles for private purposes in specific circumstances. About half of the authorizations relate to on-call stand-by duty, permitting an employee to drive between place of residence and place of duty because the employee may be required to return to duty after normal working hours.

Monitoring information is inadequate

7.33 Departments and DSS have invested considerable resources in management information systems for vehicles. A Treasury Board evaluation of the DSS information system reported that most departments did not find it to be useful. We found that the DND and DOT systems also were not complete or sufficiently reliable to be used for vehicle management. None could readily produce the exception reports described above.

Maintenance is inconsistent in certain programs

Disposal practices are not economical

7.36 About one third of government's overall disposal revenues - around $8-9 million - comes from the sale of vehicles. DSS obtains reasonable prices for government vehicles and sells them "as is, where is". However, it does not know the administrative costs associated with vehicle sales and has not assessed the efficiency of the disposal operation.

The efficiency of the acquisition of supplies and services needs to be examined

Treasury Board's response: Treasury Board welcomes the report of the Auditor General on Vehicle Fleet Management, in that it will assist in the changes that have been under way during the past year. For example, the Motor Vehicle Policy has been streamlined and simplified to provide a more results-oriented policy.

As a result of the Treasury Board evaluation of the Fleet Management Information System (FMIS) in April 1990, the TB policy was changed to make the FMIS an optional service as of 1 April 1991. Pilot projects are currently being undertaken to contract with private sector firms to provide a fleet management service, including a vehicle information system.

A committee of major user departments was set up in January 1991 to help departments adjust to the new policy and to improve the quality of fleet management in the federal government through consultation, identification and communication of best practices, as well as information dissemination and exchange.

In the disposal area, proposals for revising the Surplus Crown Assets Act were included in the Public Service Reform Bill tabled on 18 June 1991. The disposal system is undergoing considerable revision to ensure that appropriate incentives are in place to encourage managers to dispose of surplus assets at the right time and at best value for the Crown.

The Motor Vehicle Policy is also under the umbrella of the Materiel Management Policy, which was streamlined in 1990 with an increased focus on results, the life-cycle approach to materiel management and a strategy for materiel management in the '90s. The following are the four priorities for materiel management: using technology where it counts, improving skills, encouraging innovative management, and supporting government initiatives (e.g., expenditure restraint and environmental issues). The new policies and approach to materiel management have been the subject of considerable consultation with departmental materiel managers, and seminars on the new policies have been conducted for more than 1,000 managers by the Treasury Board Secretariat.

The implementation of these initiatives, along with the anticipated response to the Auditor General's findings on vehicle fleet management, will have a positive effect on the quality of the management of materiel assets in the federal government.

Department of Environment's response: The government's Green Plan, issued in December 1990, states that environmental factors must be recognized as essential decision-making criteria within government. Treasury Board policy now requires that first consideration be given to acquiring vehicles that conserve energy and protect the environment. In the Green Plan, the government committed itself to adopting a Code of Environmental Stewardship covering all areas of federal operations and activities. Federal departments and agencies will be developing action plans indicating how they will implement the Code and will also report regularly on the implementation of the Green Plan and this new Treasury Board policy. With respect to fleet management, departments will move to incorporate these criteria into the decision-making process.

Department of Supply and Services (DSS) Common Service Activities

7.39 DSS states that the "bulk buy" method is the least expensive method. In practice, "bulk buy" is, with the exception of RCMP vehicles, a simultaneous buy of many different vehicles. It has about a five- to six-month delivery time after a department submits a requisition. The bulk buy purchase system is supported by the Government Motor Vehicle Specifications (GMVS). Treasury Board policy requires that generally all vehicles purchased or leased by the government must conform to the GMVS. The GMVS groups comparably performing vehicles built by different manufacturers and provides information on option availability. This facilitates obtaining competitive bids. The GMVS does not contain information on life-cycle costs and fuel consumption by model and make of vehicle. DSS can provide information on historical life-cycle costs at the request of departments at the time of purchase. However, it has not received any requests. (The usefulness of the DSS information is discussed more fully in paragraph 7.44.)

7.40 The GMVS also does not contain decision criteria related to environmental protection and energy conservation. It does, however, refer managers to other sources for information on alternative fuels, and indicates that propane and natural gas conversions can be purchased.

7.41 As part of the vehicle acquisition process, DSS requires manufacturers to certify that "the price/rate is not in excess of the lowest price/rate charged anyone else, including the contractor's most favoured customer, for like quality and quantity of products/services". The purchase contract states that this certification is subject to verification by government audit. After the start of our audit, DSS obtained letters from the three key manufacturers stating that they were complying with the price certification clause in the contracts. Although DSS obtains the certification, it has conducted only one audit of a sole source contract for 16 vehicles.

7.42 DSS informed us that, in its opinion, it would not be an effective use of audit resources to conduct analyses to verify the certification where the competitive process has been used, which is usually the case in standard vehicle acquisitions.

7.43 We developed an economical test procedure to assess whether the prices were reasonable. We assessed the prices of bulk buy vehicles purchased by DSS by taking a sample of vehicles (excluding unmarked RCMP vehicles) and comparing the prices paid to the maximum prices that fleet management companies would pay for the same vehicles. Using these maximum prices as a benchmark, we concluded that, overall, DSS paid about 11.8 percent less on purchases of 1990 models. On purchases of $27.76 million this represents a saving of about $3.3 million. However, there were significant differences in discounts between police and civilian vehicles and within the civilian vehicle category. About one half of the savings - $1.73 million - were on highly standardized full-sized police vehicles, which are bought in large quantities. Against the benchmark, the saving on these RCMP vehicles was 18 percent. Prices paid for civilian vehicles averaged 8.0 percent below the benchmark, although for about one quarter of the vehicles the average saving was under 4 percent. In contrast to RCMP vehicles, most of the civilian vehicles were bid on individually. Private sector fleet owners can also obtain vehicles at similar discounts off the benchmark price when they buy large numbers of the same vehicle. As indicated previously, based on our review, generally increased standardization would further reduce costs of vehicle acquisition and administration in the government.

7.44 The DSS Fleet Management Information System (FMIS) is not considered useful by departments. The DSS Fleet Management Information System was established to provide information on vehicle fleets based on departmental requirements. Until 1 April 1991 all departments except DND and Department of Transport were required to use the DSS Fleet Management Information System. The estimated total annual cost to the government of operating the FMIS is $1.5 million. (The annual cost to DSS of running the FMIS is about $800,000; the estimated annual cost to departments of completing data input forms is an additional $700,000.) The FMIS readily produces vehicle-descriptive reports but not timely comparative exception reports, which could be used to manage fleets by location. A Treasury Board evaluation of the FMIS reported that managers in most departments do not believe the DSS Fleet Management Information System in its present form to be useful, accurate or complete. Some departments also do not submit accurate and complete data, thus compounding the problem.

7.45 Fleet leasing companies use largely automated vehicle information systems linked to a credit card system, to record vehicle-related purchases and to produce vehicle monitoring and exception reports. DSS is planning to link to the FMIS most purchases of fuel, emergency repairs and routine maintenance on the Government of Canada Credit Card. This would eliminate most manual data input and thus most inaccuracies. However, it would not include all running costs, given the use of standing offers and local purchase orders to buy other goods and services of this type.

7.46 Efficiency of DSS disposal practices not adequately assessed. DSS disposes of all surplus government assets, with vehicles constituting about $8-9 million of $30 million annual sales. About 62 percent of these are sold through public sales, 29 percent by mail, and about 7 percent by auction.

7.47 Government vehicles are generally priced for sale "as is, where is". A reasonable expected price for such vehicles is the wholesale price. We compared actual selling prices of public sale vehicles to expected wholesale prices, for six regional offices. Overall, at least the wholesale price was obtained. Three regions were, on average, obtaining retail prices.

7.48 However, DSS does not know the overhead costs associated with vehicle sales or the efficiency of its vehicle disposal operations. Although this information would be useful to DSS, its importance extends further because of a new rebate program initiated by Treasury Board, designed to get rid of excess inventories and improve management. DSS commission rates are an important factor in determining the rebates departments will receive. Generally, the commission is 25 or 30 percent depending on the sales method. The rate is set by comparing overall revenues with overall expenses. We had planned to assess the efficiency of the vehicle disposal operation, but DSS keeps cost or performance information only on an aggregate basis.

7.49 Although we could not assess the efficiency of the vehicle disposal operation because information on the cost of running the operation was not available, we were able to measure disposal time. We assessed the disposal time for 3,424 vehicles over a 12-month period. Our measurement of disposal time started at the point when a department notified DSS that a vehicle was surplus. About 85 percent of the vehicles were disposed of within DSS's 90-day goal; 3 percent were retained longer than 180 days. Other jurisdictions and private sector companies we contacted use a standard of 60 days or less to minimize administrative costs, reduce the interest foregone on delayed revenues, and lessen the possibility of losing money due to changes in model year. DSS disposes of about 69 percent of vehicles within 60 days.

7.50 Information on the condition of vehicles is not consistently disclosed to buyers in the seven DSS regions we reviewed. Departments are required to inform DSS of defects; however, DSS does not require that information on defects be disclosed to potential buyers. Among the reasons for this is concern about liability for defects that may not be known. Generally, we found that DSS staff would disclose information on a vehicle's condition upon request. However, two regions also attach a list of major defects to the vehicle; one of them also has an inspection program to identify any defects.

Department of Supply and Services' response: DSS recognizes that it does not provide an integrated vehicle management service and is willing to participate with Treasury Board and other departments in discussions on the need to reorganize vehicle fleet management.

It is the position of this Department that the publication of model specific life-cycle cost information in the Government Motor Vehicle Specification (GMVS) is not an effective use of departmental resources. It is more cost-effective to provide specific information when requested.

With respect to the DSS Fleet Management Information System (FMIS), DSS provides information in accordance with the stated requirements of our clients and within the limits of the data supplied by them. Whenever the existence of errors is discovered or brought to our attention they are corrected. Whenever a client department requests information reports from the FMIS in a unique or varied format, all attempts are made to meet their needs. DSS has and will continue to accommodate any such request, within the limits of financial and human resources.

As departments undertake initiatives to improve fleet management, DSS will assist them by making available information on the acquisition cost and disposal returns of vehicles. DSS is also supporting the government wide initiative of the Assets Information Management Project which will help all departments to better manage all material throughout the life-cycle.

Since the release of the Green Plan in December 1990, DSS and other departments have been working closely with the Office of Environmental Stewardship towards the development of new operational policies and procedures necessary to implement the Plan. Important aspects of this work include the development of an Environmental Code which would provide clear criteria and policy direction for all departments, as well as the development of targets dealing with transportation energy. Until this work is further advanced DSS will not be able to formally integrate environmental factors into the criteria for the selection of vehicles.

Department of National Defence

7.52 We also found that DND practices do not include an integrated analysis of the various ways to meet transportation needs. Some bases are securing vehicles in excess of their establishment by retaining replaced vehicles. The process used by DND to monitor establishments at bases is inadequate to detect and track the size of this type of "shadow fleet" - although when it finds variances from establishments NDHQ brings them to the attention of the chain of command. The process of justifying base establishments does not apply to standard commercial reserve and militia vehicles. Establishments for these vehicles were created during the 1970s and have not since been validated against any specific criteria. We estimate these vehicles to number about 400.

7.53 Generally, DND meets peak period needs and other unforecasted requirements by renting. The amount of vehicle rentals is an important input in estimating "establishment" needs, and in obtaining greater volume-related savings through national and regional rental contracts. DND bases spent $8.8 million in 1982-83 renting vehicles and taxi services. The cost of rentals in 1990-91 is projected at $23 million, but it could be higher because not all rental costs are captured or aggregated by the present financial system.

7.54 We also found inadequate co- ordination among the three groups responsible for identifying vehicle needs, procurement and maintenance. This leads to unnecessary expenditures on transportation at bases. Although the three groups report to the same senior level, they operate independently and have distinct operating budgets, which makes transfer of funds difficult. They also maintain their own independent information systems at bases and feed their information separately through the command structure to NDHQ. How well this tripartite approach works depends on the co-operation among the parties, involving frequent planning meetings and informal communication. This system sometimes results in wasteful practices.

7.55 We were unable to determine the degree to which inefficiency results from these practices. We could identify specific instances of inefficiency at bases we visited only by cross-comparison of unrelated data bases and by specific requests for information on individual vehicles. However, that such wasteful practices continue undetected and unchallenged indicates the lack of an integrated system of fleet management.

7.56 For example, at three bases the transport unit was renting vehicles at a cost of hundreds of dollars, because the maintenance unit did not have the parts to repair vehicles that were off the road. Although the needed parts were available locally, they had to be obtained by the supply unit and the process can be lengthy.

7.57 At six of the seven bases we reviewed, maintenance did not know when vehicles were due to be replaced. As a result there is a risk that major repairs may be made to vehicles immediately prior to their disposal. For example, in a supply compound at one base we found three heavy trucks awaiting disposal with tires so new that they still had the paper tags glued to the sidewalls.

7.58 We noted that vehicles rented to meet peak requirements at a base were in the same category as some being held as part of national stock. We were informed that the paperwork to release the vehicles from national stock was not worth the effort considering how easy it was to rent a vehicle against a standing offer. Furthermore, because the paperwork process is perceived to be lengthy, the peak requirement would likely be over before the vehicles were released.

7.59 Vehicle justifications generally satisfactory. Generally, DND's procedures for acquiring the right types of vehicles are satisfactory. However, because of inadequate co-ordination among the directorates responsible for developing specifications for new vehicles, there is a risk that vehicles may be acquired that do not meet DND needs. For example, several bases required new Military Police vehicles. DND contracted through DSS for 19 vehicles at a total cost of about $293,000. The specifications called for a plexiglass shield to be installed between the front and rear seats. When the vehicles arrived it was found that with the plexiglass shield in place the leg room in the rear seat was reduced to a few inches, making it difficult to use the rear seat for passenger transport.

7.60 Utilization review satisfactory. DND vehicles have a wide range of usage. We found DND's reviews of vehicle utilization, which were based on kilometres driven, to be satisfactory.

7.61 Monitoring is an acknowledged problem. DND uses three systems to monitor vehicles, none of which provides all the information necessary for vehicle fleet management. Moreover,the systems cannot be used in an integrated manner for fleet management purposes at NDHQ. DND cannot readily ascertain the relationship between factors such as function and usage patterns, maintenance, and replacement. Currently this is done manually for each vehicle once a year, using reports from all three systems. DND has recognized that the current systems are not sufficiently responsive to allow integrated and timely vehicle management; a new system is being considered.

7.62 Maintenance practices generally satisfactory. Generally, we found that DND vehicles were maintained by DND personnel in accordance with manufacturers' recommendations. However, we found that procedures used to dispose of batteries and battery acid constituted questionable environmental practices at most bases. Unserviceable vehicle batteries are generally drained before being shipped to a "scrap" dealer. The electrolyte (battery acid) drained from the battery is neutralized with baking soda. Neutralized acid containing concentrations of lead is disposed of through the base sewage system. At one base this practice was stopped when soil testing for an adjacent construction project found the surrounding soil to be polluted. At another base the practice was stopped because the Base Hazardous Materials Officer concluded that DND's "standard" procedures are environmentally unsound. As a result of this audit, DND has issued interim directions to halt the practice at all bases.

7.63 Disposal is not efficient. DND procedures for disposing of surplus vehicles are inefficient. To dispose of a vehicle, the base supply unit must obtain authority from NDHQ. This normally involves an exchange of messages that may take anywhere from one to twelve months. Only after the receipt of NDHQ authority can the base transfer the vehicles to DSS for sale.

7.64 We requested specific information on a sample of vehicles disposed of in the last two years. We found that it took, on average, five months for DND to notify DSS that a vehicle was surplus. The DND cycle tends to deliver new vehicles into the system in April and May. Adding five months to the process puts the sale of the bulk of replaced vehicles into September and October, just after the new model year. This reduces their book value by about 20 percent. If this drop in value applied to all vehicles, we estimate that the result would be lost revenue of about $1 million per year.

Royal Canadian Mounted Police

7.66 We found that the basis for establishing the need for vehicles could be improved. Divisions base the need for vehicles on traditional ratios of force members to vehicles. Over the past few years the RCMP has primarily bought replacement vehicles rather than additional vehicles. When additional vehicles were bought, the purchases were reviewed to ensure that they represented valid requirements. But the RCMP generally has not performed systematic periodic reviews to establish that vehicle allocations to Divisions represent valid vehicle requirements, based on identified service levels and expected workloads. Such studies would assess the ongoing validity of planning ratios and fleet distribution.

7.67 The RCMP indicates that future shortfalls in vehicle acquisition may have major adverse effects. Since 1987-88, the RCMP has been unable to replace, on average, 135 vehicles per year. For the 1991-92 planning year the TMB identified a need for $8.6 million above identified funding levels, mainly for replacement vehicles to maintain the size of its base fleet. The RCMP estimates that the 1991-92 shortfall is 400 vehicles. These figures do not include RCMP's estimate of a shortfall of an additional 273 vehicles needed for new and existing programs, such as drug enforcement and police-community relations.

7.68 The Branch states that the consequences of a 1991-92 shortfall could be a decrease in fleet size, because worn-out vehicles cannot be replaced; a reduction in present levels of policing services; severe curtailment of allowed kilometrage; and extension of long-term leasing programs. Divisions need to begin emergency planning to be able to sustain policing services with a reduced fleet, and high-profile units such as the Prime Minister's protective services cannot be given needed armoured vehicles.

7.69 We found that the RCMP has not conducted specific impact assessments of the projected shortfall; however, it states that it will monitor and assess the impact. The estimated shortfall is based on a 120,000 km ordering criterion. This criterion is derived from the approximate average odometer readings of all vehicles that are disposed of, including those that need early replacement due to accidents. We found that the RCMP may need to revise its criteria for ordering replacement vehicles, since the RCMP emergency car bank already provides for early replacement due to accidents. Thus, the odometer readings on those vehicles should not be included in calculating the ordering criterion.

7.70 The impact of any shortfall could be mitigated by changes in the management of the new car and emergency car banks. All Divisions keep new vehicles in compounds for extended periods of time before placing them in service. This practice is costly and the need is questionable.

7.71 If the changes can be made, then significant savings may be possible. For example, in one Division during 1989-91, 746 new vehicles remained unused for an average of about 105 days. During the same period in another Division, 438 new vehicles remained unused for an average of 150 days. If the carrying period for these vehicles could be reduced to an average of 30 days, the savings could be up to $180,000 and $130,000 respectively. This estimate of savings does not include storage costs.

7.72 In our opinion, two factors contribute to the delays before vehicles are placed in service. The first is the conservative ordering criterion, which results in replacement vehicles being ordered earlier than needed. The second relates to limitations on the planning that can be done under the DSS bulk buy process. To meet bulk buy schedules, Divisions must forecast their vehicle needs ten months ahead on the basis of odometer readings. Actual replacement, however, occurs at the end of a vehicle's useful life; new replacement vehicles may thus remain in storage for long periods before they are needed. This problem could be alleviated through the use of standing offers and phased delivery of vehicles by manufacturers. The RCMP states that it has been seeking to implement such changes.

7.73 Another area of possible savings is the RCMP emergency bank. RCMP policy until January 1991 was to have an emergency bank of two percent of cars and station wagons in each Division. Divisions have since been instructed to base the size of their emergency banks on what they need to satisfy short-term emergencies and unforeseen requirements. RCMP data indicate that 125 vehicles in the categories we audited were held in such banks as of June 1990. Most of the vehicles in the banks were standard marked and unmarked police cars. They may remain in the emergency banks for long periods before being used. For example, in one Division, over a five-year period 15 vehicles were held in the bank for more than six months; seven were held for more than a year before being placed in service. The annual cost of carrying the inventory of 125 vehicles in emergency banks is $250,000, not including storage costs. The RCMP has not conducted studies to determine the appropriate size and ongoing need for each divisional emergency bank.

7.74 Vehicle justifications are generally appropriate. We found that the RCMP was generally buying appropriate vehicles. RCMP policy is to buy rather than lease since it believes leasing to be more expensive. However, RCMP Divisions lease some vehicles for surveillance work, to obtain a broader range of vehicle types and to enable them to change surveillance vehicles easily. Total long-term leasing for 1989-90 was 170 vehicles, costing about $1 million. This represents an increase of 34 vehicles since 1985-86. Funds for leasing come from operational rather than capital budgets. Generally, a leased vehicle cannot be replaced with a purchased vehicle, because of a lack of capital funds. This creates an incentive to retain leased vehicles to compensate for the shortfall in acquisitions. The RCMP has not assessed the cost-effectiveness of leasing to determine if it should be expanded or reduced.

7.75 Utilization. Generally, the RCMP is using its vehicles beyond our benchmark of 18,000 km annually.

7.76 Monitoring needs to be improved. The RCMP generally does not use the DSS Fleet Management Information System even though it provides the system with data on all its vehicles and DSS charges about $300,000 annually for this service. Divisions have their own systems to track vehicles and to identify them for potential replacement. However, none of the systems has the capability of producing exception reports to identify vehicles incurring excessive running costs or possible abuse. The RCMP is developing its own vehicle management information system as part of a larger materiel management system, and plans to opt out of the DSS Fleet Management Information System in April 1992. The RCMP estimates the cost of the overall materiel management system to be $600,000, with ongoing annual maintenance costs of $116,000.

7.77 Maintenance and disposal practices of the RCMP are generally satisfactory. RCMP vehicles generally are satisfactorily maintained. Generally, we found that vehicles identified as surplus were being disposed of in a timely manner. However, one Division has retained 23 vehicles without authority for an average of 242 days after the replacement vehicles were placed in service.

RCMP's response: This special audit has been beneficial. The Force has already taken action through DSS and vehicle manufacturers to implement improved acquisition methods. Time and potential cost savings are expected using departmental individual standing offers combined with phased delivery. In addition, the RCMP will act on all recommended improvements as part of its ongoing pursuit of better fleet management.

Department of Transport

7.79 Two locations that have conducted such studies found that POV use was more economical than purchasing or leasing. One of the studies found that it cost 21 percent more to use DOT vehicles than personally owned vehicles. POV use may not be practical at airports due to restrictions on the vehicles permitted on airport grounds. However, DOT has not assessed the extent to which such findings could be generalized to other locations.

7.80 We found that two regional offices use short-term leasing to meet peak-period transport needs. Both locations also make significant use of personally owned vehicles and vehicle pools, but there has been no cost-benefit comparison of leases, personally owned vehicles and departmental vehicles. At the time of our audit, neither of the two regional offices was aware of the extent of POV use.

7.81 Vehicle justifications lack key information. The vehicle acquisition justifications we reviewed did not assess alternative means of transportation, or provide information on numbers of passengers, on driving and climatic conditions, and on projected utilization. They also lacked explanations to support buying selected options. A 1987 review by DOT also found that vehicle acquisitions were not adequately justified and recommended improvements.

7.82 Utilization reviews indicate that fleet reduction is possible. We found a history of underutilization at DOT regional offices, identified in a series of reviews dating back to 1979. For example, the 1987 DOT review reported that motor vehicles at regional offices were being underutilized to an extent that indicated that a considerable number of the vehicles were not needed. That review led DOT to initiate a study on the feasibility of pooling vehicles in the regional offices. The study found that pooling was feasible and could reduce regional office vehicle fleets by 40 percent, with annual savings of about $1.15 million. As a result, DOT plans during fiscal year 1991-92 to reduce its vehicle fleet by 20 percent at all locations. During 1992-93, vehicle fleets at 10 of 11 regional offices will be reduced an additional 20 percent. DOT estimates that the total savings resulting from these planned reductions will be about $8.75 million over two years. DOT's estimates of vehicle underutilization are consistent with our analysis.

7.83 Monitoring information is deficient. DOT's Motor Vehicle Fleet Management Information System (MVFMIS) was upgraded in 1988, in part as a result of a DOT review, which reported that vehicle utilization and maintenance records were not prepared consistently, often contained erroneous information and did not properly reflect actual costs incurred. DOT indicates that the cost of upgrading the MVFMIS was $290,000 and that annual ongoing system maintenance costs are $80,000 to $100,000. This does not include the costs of data input. We found that the MVFMIS continues to be generally unreliable and not extensively used. For example, a comparison of odometer readings and MVFMIS utilization data on 141 vehicles belonging to the three Groups we reviewed showed an average difference of 12,369 km over the life of a vehicle, primarily due to incomplete recording in the MVFMIS. We found that the actual distance these vehicles were driven was about 7.1 million km, compared to the 5.7 million km recorded. There have been mounting internal complaints about the MVFMIS, indicating that the cost information is not useful and that inconsistencies are the norm. None of the Groups was using an exception-reporting system to identify needed maintenance, repair and operating costs or possible abuse. DOT has a major study under way to completely redesign the MVFMIS.

7.84 Maintenance practices are inconsistent in certain programs. DOT's policy is that vehicles should be maintained in accordance with manufacturers' standards. Formal maintenance scheduling for vehicles varies by Group and location. We found that maintenance planning was satisfactory in the Airports Group; however, there was generally no formal scheduling of vehicle maintenance in the Aviation and Marine Groups, except at the few sites we visited that operate vehicle pools. Our general findings on maintenance planning at regional offices were similar to those of the 1987 review by DOT: formal maintenance schedules often were not established to ensure that motor vehicles were serviced to the level required to maintain the validity of manufacturers' warranties. A 1990 DOT study of pooling at regional offices also found inconsistent vehicle maintenance programs and no vehicle safety programs.

7.85 Disposal practices are questionable. We found extensive retention of surplus vehicles by DOT, contrary to its own policy. We reviewed a sample of vehicles replaced by the Airports, Aviation and Marine Groups during 1988-89 and 1989-90. About 61 percent of the vehicles had been retained for more than 30 days after the new vehicles were received, with the average period being 226 days. DOT's 1987 review found no system in place to ensure that vehicles being replaced were disposed of as indicated. The continued use of such vehicles indicates that DOT may have spent funds in advance of need. We estimate that the foregone interest on the money spent in advance of need was $349,000 over 1988-89 and 1989-90.

Department of Transport's response: The audit from the Office of the Auditor General reiterates many points made in internal reviews. Corrective action plans have been prepared and the Department plans a number of major changes with respect to all aspects of the management of its motor vehicle fleet. A new policy will be implemented shortly, and major reductions to the fleet are planned over the next two years. Additionally, monitoring systems will be improved to provide the necessary management information.

Department of Agriculture

7.87 Vehicle justifications are unsatisfactory. Most DOA purchases are to replace existing vehicles - for which DOA requires little justification - and there is seldom a review of whether a vehicle continues to be needed. Further, where justifications for purchases are prepared, they are developed after replacement has been approved and we found they were missing key data. For example, the Ontario and Quebec regions of Food Production and Inspection Branch (FP&I) send an annual replacement priority list, based primarily on kilometres driven and vehicle age, to Food Production and Inspection headquarters with very brief reasons for replacement (the reason usually provided is "replace"). Based on this information, headquarters allocates the necessary funds, and this constitutes the decision to replace the vehicles. The regions then approve the specific vehicles to be replaced. Only at this point are justifications prepared. We found that these after-the-fact justifications and the supporting economic analysis gave a routine explanation, consisting of a brief statement of vehicle duties and kilometres driven. Information was usually missing on vehicle condition. In Food Production and Inspection Ontario, even if an analysis indicated that an alternative would be more efficient, a new vehicle was purchased.

7.88 The Prairie Farm Rehabilitation Administration Branch (PFRA) has set up a vehicle committee to review vehicle acquisitions and related matters. However, its vehicle replacement process is similar to that of Food Production and Inspection. PFRA often replaces a vehicle with a different type of vehicle without adequate documentation to support such changes. For example, the purchase of air conditioning as an option is used as an incentive to area offices to accept a smaller replacement vehicle.

7.89 Utilization reviews indicate that fewer vehicles may be needed. A substantial proportion of DOA vehicles may be underutilized. For example, during the peak demand period of May to October at the Research Branch locations we reviewed, 52 percent of the vehicles were used less than the seasonally adjusted benchmark of 9,000 km. Given this percentage of underutilization, the fleet size could be reduced by up to 27 percent. If these findings are representative of the Branch as a whole, there may be major savings possible in capital, maintenance and administrative costs. Capital cost savings alone in replacements could be up to $2.8 million. In Prairie Farm Rehabilitation Administration, excluding the community pasture program vehicles, we found that 22 percent of vehicles were underutilized. If vehicles could be shared to a greater extent, up to 7 percent of the fleet could be eliminated. Capital cost savings alone to the Branch could be up to $470,000.

7.90 Generally, Food Production and Inspection assigns vehicles to individuals on a dedicated basis. At FP&I Ontario and Quebec we found that 19 percent and 24 percent of their vehicles, respectively, were driven less than 18,000 km a year. If these vehicles could be shared, the fleet sizes at FP&I Ontario and Quebec could be reduced by an average of 4 percent and 7 percent respectively, for a combined average reduction of up to 6 percent. If these findings are representative of the Branch as a whole, there could be a capital cost savings alone of up to $630,000.

7.91 Monitoring information is not used. Currently, DOA pays about $103,000 annually for reports from the DSS Fleet Management Information System. The reports are generally not used to manage vehicles because DOA states that they lack timeliness and accuracy. DOA plans to have its own system operational by April 1993. DOA could not identify the cost of this new system because it is being developed as part of a larger materiel management system.

7.92 Maintenance is inconsistent in certain programs. The manufacturers' suggested guideline for servicing standard passenger vehicles is usually 12,000 km or one year. Generally, DOA branches use 5,000 km driven as a guideline. Servicing was left to the discretion of drivers in Food Production and Inspection. We found that it could be inconsistent. About 34 percent of FP&I Ontario vehicles were being serviced only between 20,000 and 39,000 km. For example, one new vehicle had its first oil change after 30,390 km, then a second oil change one month and 1,383 km later; the next month, after an additional 3,372 km, the oil was changed again.

7.93 Disposal practices are of concern. Some vehicles are disposed of prematurely because of DOA's process of allocating funds. Disposal is based on the availability of funds rather than on an adequate needs analysis. For example, Prairie Farm Rehabilitation Administration has replaced vehicles that were still in good or fair condition.

7.94 We found that all three DOA branches have retained old vehicles for extended periods of time after the arrival of the replacement vehicles. Officials stated that the vehicles were retained because they were still usable or they were needed. As a result, the three branches are actually acquiring additions to the fleet rather than replacements. This practice further calls into question the justifications for replacing vehicles. At the sites we reviewed, a total of 45 vehicles (5 percent) were retained longer than three months and 18 were retained for more than one year. The capital cost of these new vehicles in 1990 is estimated to be $560,000. If the percentage of surplus vehicles retained were representative of the branches as a whole, the capital cost of the "additional" vehicles in 1990 would be about $1 million.

Department of Public Works

7.96 Vehicle justifications are insufficient. Generally DPW's needs analysis for individual vehicle acquisitions is insufficient. We examined 34 out of the 55 requests in 1990 for new and replacement vehicles in the regions we audited. The requests simply stated that a vehicle was needed. Analysis of costs, benefits and alternatives to purchasing either were not done or lacked key information, such as why leased vehicles were needed.

7.97 Utilization reviews indicate that fewer vehicles may be needed. Generally, utilization of vehicles is not assessed in DPW. We found only one region using annual utilization data to assess whether vehicles could be pooled or transferred to other locations. Its analysis assumed that the existing fleet would continue to be used to the same extent. It recommended a reduction of about 14 percent in its 145-vehicle fleet for 1991.

7.98 Available data indicate that a significant proportion of DPW vehicles may be underutilized. For example, our analysis of daily utilization at one location with about a dozen vehicles showed that two thirds of the vehicles were used, on average, about 40 percent of the estimated 200 working days. We also analyzed annual utilization data on the pool of 18 vehicles at another location. On the basis of available data on monthly usage for three years, we estimate that the average annual use was 8,300 km, with only three vehicles exceeding 10,000 km annually. If each vehicle were driven at least 18,000 km annually, there could be a potential reduction of 53 percent in the number of pooled vehicles. The same location also spends about $180,000 on taxis. Data on the amount of POV use at the same location was not readily available. DPW has not assessed the appropriateness of the above vehicle usage patterns.

7.99 Monitoring. DPW paid about $26,000 annually for DSS Fleet Management Information System services, but made little or no use of this system to monitor vehicle operations. At April 1991 DPW had implemented its own system and opted out of the FMIS. The cost of developing the new system was $22,000.

7.100 Maintenance varies. The adequacy of vehicle maintenance planning varies across regions. At most of the audited sites with vehicle pools, all passenger vehicles were generally serviced on a 5,000 km cycle. At sites without pools, there is no formal maintenance planning. Users of assigned vehicles are expected to schedule and obtain the appropriate service at the right time, on their own initiative. We were not able to review all maintenance records because files were incomplete.

7.101 Generally, the DPW locations we examined do not have the capability to assess whether repairs are needed or the charges appropriate. For example, one region sends all its vehicles to a local garage. While doing routine maintenance, the garage also examines the vehicles for any deficiencies and reports orally to DPW. The additional work is routinely approved. DPW usually relies on the garage to determine that the work is necessary and to identify any warranty work which should be referred to a dealer. The site does not have the capability of reviewing whether the work performed by the garage is appropriate.

7.102 Disposal is satisfactory. DPW does not retain surplus vehicles.

Department of Public Works' response: The Department has recently implemented two initiatives to improve the management of its vehicle fleet. The first effective 1 May 1991 a National Vehicle Information control system was installed. The second was the update of the Motor Transport Vehicle Chapter of the Materiel and Facilities Management Manual.