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1996 November Report of the Auditor General of Canada

Assistant Auditor General: David Rattray
Responsible Auditor: Peter Kasurak

Main Points

35.1 In 1994 we reported on Defence management systems, information technology, infrastructure reductions and infrastructure management. This chapter reports on the progress made by National Defence in addressing our recommendations and those of a subsequent report by the Public Accounts Committee.

35.2 The Department did not put an adequate system in place to ensure that its management responses to our 1994 recommendations were implemented. Because departmental commitments were not adequately monitored, some action plans were not fully implemented.

35.3 Progress has been made in implementing our recommendations on the Defence management systems required to plan, organize, direct and control the defence of Canada, but more remains to be done. For example, the Department has begun to assess and report on the affordability of defence policy, but its assessment is limited to a five-year time frame.

35.4 The Department has made significant progress in implementing our recommendations on information technology. Cost reduction has been a major focus within the Department over the last two years. The Department supports the management approach to information technology projects recommended in our 1994 Report as well as by the Treasury Board Secretariat. However, the completion date of the Strategic Message Switching System (SMSS), which would generate net savings of $52 million a year, has slipped about 24 months and the Land Force command and control system will not be fully interoperable with the rest of the Department before 2001.

35.5 Significant progress has been made to rationalize infrastructure. The Department appears to be on schedule in implementing its reduction plan. In addition, the process for determining new and replacement infrastructure requirements should improve the timeliness and cost effectiveness of construction projects. Progress has been slow in developing maintenance strategies.

35.6 Progress has been made in implementing our recommendations on infrastructure management. Construction projects are now managed using a revamped organizational structure and attempts are being made to incorporate innovative practices. The full success of this new construction delivery system depends on the successful implementation of business planning at the command and base levels. Almost all of the bases are considering alternative service delivery for their construction engineering functions. However, more remains to be done to eliminate the 10-year maintenance backlog, end operating shortfalls on married quarters, and reach agreement with municipalities on the level of service to be provided for grants in lieu of taxes.

Introduction

35.7 The Auditor General's 1994 Report included four chapters on the Department of National Defence. Chapter 24 dealt with Defence Management Systems, Chapter 25 addressed Information Technology, and Chapters 26 and 27 reported on Infrastructure Reductions and Infrastructure Management respectively. This chapter reports on the progress made by National Defence in addressing our recommendations.

35.8 The House of Commons Standing Committee on Public Accounts reviewed the National Defence chapters of the 1994 Report of the Auditor General and made 29 recommendations to the government in its Twelfth Report, dated 12 June 1995. We have also followed up on those recommendations.

Departmental Response to Recommendations

Background

35.9 The Deputy Minister and the Chief of the Defence Staff provided a management response to our 1994 chapters in which they agreed with most of the recommendations and stated they would take corrective actions. According to departmental officials, once the 1994 Report was tabled in the House of Commons, copies of the document were distributed to group principals within National Defence Headquarters and environmental commands: Maritime Command, Land Force Command and Air Command. The Department assumed that the Report would be circulated to subordinate levels through the chain of command and that action would be taken at appropriate levels. Because departmental commitments were not adequately monitored centrally, some action plans were not fully implemented.

Conclusion

35.10 Improvements made by the Department appear to be more the result of the efforts of individual managers than of an overall plan to implement the Department's response to our Report. Nevertheless, significant progress has been made on three of the four chapters, specifically Infrastructure Reductions, Infrastructure Management and Information Technology.

Observations

35.11 Copies of the 1994 Report were not formally transmitted to group principals and the environmental commands. Two years after tabling of the Report in the House of Commons, neither Air Command nor about half of the group principals had a copy of the Report. The two other commands obtained a copy on their own initiative.

35.12 Most of the staff officers concerned within National Defence Headquarters groups had received a copy of the Report, but some could not identify the source. No action was required by senior management to implement recommendations, and no direction or instructions were provided to subordinate levels to take action on the recommendations. Staff officers from Maritime Command and Land Force Command have still not received a copy of a recommendation addressed to the commands. Some staff are uncertain about whether they are required to take action on audit recommendations. One command official told us that he would feel uncomfortable taking action without any direction.

35.13 An example of this lack of direction can be found in the implementation of the recommendation that the Department do everything possible to complete readiness measurements, operational exercise programs and post-exercise reports. Command readiness reporting systems and collective training are command responsibilities. However, National Defence Headquarters did not provide direction to command headquarters to take action even though the departmental response was "Agree". As a result, no significant progress on this item has been made since 1994.

35.14 The Department is in the process of developing an integrated mechanism for implementing and monitoring the recommendations of the Office of the Auditor General and the Public Accounts Committee. Once final responses have been formulated and released on behalf of the Department, the Vice-Chief of the Defence Staff will issue directions for formulating implementation plans within the Department. When approved, detailed departmental action plans will be developed for key recommendations and these plans will be monitored through their completion, by the Chief Review Services on behalf of the Deputy Minister and the Chief of the Defence Staff. Intranet technology, scheduled for introduction late in 1996, will likely provide a focal point for sharing the status of implementation plans across the Department.

Defence Management Systems - 1994, Chapter 24

Background

35.15 The Department of National Defence and the Canadian Forces require management systems to plan, organize, direct and control the defence of Canada. Chapter 24 of our 1994 Report was aimed at ensuring that the 1992 Canadian defence policy requirements were adequately translated into a force structure; that senior managers had appropriate information for decisions; and that collective training and readiness systems were properly implemented in order to monitor progress of defence policy goals. Our 1994 audit examined the basic building blocks of the Department's overall management system: the defence policy planning and force development system; cost management systems; the military readiness reporting systems; and the systems used to manage personnel, supplies and medical resources in emergencies and war.

Conclusion

35.16 The Department has made significant efforts to improve cost management systems and to install its business planning system, but these efforts have not yet borne fruit. We found that problems still exist in force development, readiness reporting systems, and cost and performance data.

Observations

Defence planning and force development processes
35.17 Defence planning and force development processes are used by the Department to translate government policy into military forces. In 1994 we recommended that the policy planning process include detailed information on specific conflict scenarios, explicit links between policy and force structure, a full assessment of affordability, and readiness and sustainment goals. We also recommended that these elements be presented in public documents. The Department agreed with the general intent of the recommendation to provide greater detail in policy documents about the kinds of situations that the Canadian Forces must be able to deal with. It also stated that affordability would continue to be a major priority, and program or policy changes would be made if and when appropriate.

35.18 Conflict scenarios. In 1994 we recommended that the Department clarify the range of conditions under which the Canadian Forces are expected to operate, by using conflict scenarios. This would provide clearer information to Parliament and more adequate guidance to force development planners. The Department said it agreed with the "general intent" of our recommendation. At the time of our follow-up, the Department had developed operational and force structure plans around four key scenarios: the deployment of stand-by forces, the deployment of main contingency forces, the sustainment of main contingency forces and full mobilization. The 1994 White Paper provides additional detail on the potential employment of the Canadian Forces. Further improvement could be made to the scenarios by the addition of explicit threat descriptions, and consideration of force options and of costs.

Department's response: With respect to conflict scenarios, the suggestion that they could be improved by the addition of explicit threat descriptions and force options is accepted in principle; while these factors are considered by National Defence Headquarters planning staffs today, an effort will be made to further enhance this aspect of contingency planning. In regard to the costing of hypothetical scenarios, the Department considers that this function is best dealt with as part of the process to prepare options for government consideration; with the introduction of activity-based costing, it will become relatively simple to accurately determine the costs associated with any particular force option.

35.19 Affordable force structure. In 1994 we found that the affordability of defence policy was problematic because the Department included the costs of only activities and projects it had approved and not all those necessary to implement the policy.

35.20 The Public Accounts Committee made two recommendations related to affordability studies. One recommendation asked the Department to do complete and detailed cost information and affordability studies on essential elements in all its defence planning and force development processes. The second recommendation asked the Department to include information on affordability in public documents, such as business plans and Part III of the Estimates. The Department agreed with both of those recommendations.

35.21 We found that although the capability requirements of the 1994 White Paper had never been costed, force planners had judgmentally assessed them against existing resources and anticipated funding. They had concluded that the policy requirements were affordable.

35.22 The current planning approach is to take steps to reduce the overall demand for resources and ensure overall program affordability. This means that planners start with a finite resource envelope and prioritize their requirements accordingly. The detailed planning horizon has been reduced to 5 years from 15. The plan implies that, while capabilities judged essential to support the White Paper can be sustained for the next five years, no guarantees are offered after that date. The plan, however, is moved forward each year so that it always extends five years into the future. The approach is essentially budget-driven and rations available resources rather than estimating long-term needs. Senior officials told us that they managed long-term shortfalls by extending internal plans out to 15 years and by bringing shortfalls to the Minister's attention in a timely fashion.

35.23 With this approach, "affordable" does not necessarily mean sustainable indefinitely. Given the 30-year life span of equipment and the lengthy acquisition process, there appears to be a risk that gaps and shortfalls may result. The Department has completed analyses that indicate these may in fact occur. In May 1996, the Department prepared a development framework model based on activities and projects already approved for implementation in the 15-year fiscal planning framework and on the reference planning budget levels approved by the government. The model reflects overprogramming in capital, personnel, and operations and maintenance in 1997-98 and beyond, which will require adjustments to allocations. The Department believes the level of overprogramming to be acceptable and a useful management tool, given the size of its budget.

Department's response: Regarding the affordable force structure comments, the Department contends that the force structure required to support the 1994 Defence White Paper remains affordable. However, as noted in the 1996 Outlook document, the Department also recognizes that, in the longer term, a higher level of capital spending may be required to prevent rust-out.

35.24 Public reporting. In keeping with its commitment to the Public Accounts Committee, the Department addresses affordability briefly in its 1996 Outlook document by stating that it considers its program affordable. It notes that post-1994 budget reductions will affect the Canadian Forces over the longer term and that "rust-out" and decreased performance may be unavoidable. It has not, however, provided the basis for its assessment or the magnitude of anticipated deficiencies. The Department also agreed to update departmental manuals to represent as accurately as possible actual policy-planning processes and capture innovations and departures from past practices. The Department has not yet revised its management manual.

Department's overall readiness reporting system
35.25 The Operational Readiness and Effectiveness Reporting System (ORES) was developed by the Department of National Defence to report to the Chief of the Defence Staff on the level of readiness of each command to achieve its missions and tasks, as described in the Defence Development Planning Guidance. Commands must provide quantitative information on levels attained in personnel strength, personnel training, equipment availability and materiel availability.

35.26 The Department has not submitted any ORES information to the Chief of the Defence Staff since the publication of our 1994 Report. Data are still being collected, but only significant new deficiencies are reported. The Department plans to integrate a new system with business plans in the 1997-98 fiscal year. Until then, the Department will not have an objective and verifiable operational readiness reporting system for the Canadian Forces.

35.27 Officials pointed out to us that the new system they are developing will address the deficiencies raised in our 1994 audit:

  • The system will be less subjective than the existing system.
  • It will allow deficiencies to be traced to the units where they occur.
  • There will be continuous tracking, rather than just exception reporting.
  • Costs will be captured.
Officials told us that this system will be presented to senior management for approval in late 1996.

Command readiness reporting systems
35.28 Commands have also developed their own readiness reporting systems in order to manage their units. Our 1994 recommendation stated that the Department should do everything possible to complete readiness measurements. However, even though the Department agreed with the recommendation, no significant progress has been made in reporting readiness at command levels.

35.29 In 1994, we found that Maritime Command relied on three measurement and reporting systems: Combat Readiness Inspections, the Operational Readiness Requirements Reporting System and the Operational Deficiency Reporting System. Combat Readiness Inspections have not been conducted since 1994. Maritime Command officials explained that this system has been replaced by the assessment phase of the new Workups program. This program provides training to a team of a ship after a refit, a major conversion or a turnover of ship crews. We did not verify individual records of workups; however, officials assured us that workups were conducted in accordance with the program.

35.30 Maritime Command could not provide a report on progress made on the implementation of the Operational Readiness Requirements Reporting System required to assess readiness of operational teams on ships. No system has been developed by Maritime Command to ensure that readiness deficiencies identified in our 1994 chapter will be corrected. Due to the outdated nature of the required exercises, the Naval Reserve divisions have not conducted any assessments since March 1995.

35.31 In 1994, Land Force Command did not have a command system for evaluating and reporting on the readiness of units or formations. Since that time, Land Force Command has introduced collective battle task standards for the conduct of operations. These standards have been in force in draft format since September 1995 and were partly implemented for the VENOM STRIKE exercise. Fifty percent of their validation has been completed so far. Field Training Regulations, providing guidance for the conduct of collective training, were approved in principle by the Command in June 1996. Standards for operations other than war, such as domestic operations and peacekeeping operations, still have to be developed.

35.32 Air Command employs a testing system known as Operational Evaluation (OPEVAL) to assess the readiness of units. However, the Command has not developed any system to implement our 1994 recommendations. Following a major budget reduction in the spring of 1995, the Command began an important re-engineering of its activities. Operational evaluations continued but rethinking of the reporting system was postponed to April 1996, pending the re-engineering of the whole Command. The new system is being redesigned in accordance with the new Command structure. At the time of our follow-up, Air Command did not know the extent to which units met the level of readiness required by the OPEVAL system. In response to our follow-up, Air Command updated the data reported in 1994 on OPEVALs, and in 1995-96, it assessed 5 of the 18 units subject to operational evaluations in accordance with the policy. An additional unit will be assessed after the prescribed period because of two successive deployments to Haiti in 1995 and 1996. No progress has been made since our 1994 Report when 7 out of 22 units were assessed, one of which was assessed after the prescribed time period.

35.33 Since our 1994 recommendations, progress has been made more in developing than in implementing command readiness reporting systems: Maritime Command is conducting workups but still does not know the extent to which operational teams on ships have achieved the required level of readiness; the Naval Reserve divisions do not conduct assessments anymore; the validation of the battle task standards developed by Land Force Command has not yet been completed; and Air Command has not developed any system to implement our recommendation. A departmental update of data reported in 1994 confirms the lack of progress made.

Collective training
35.34 At the time of our audit, environmental commands did not use the 1995 Defence Development Planning Guidance to develop collective training to achieve the 1994 White Paper commitments. A national training policy was approved for Land Force Command by the Army Council in April 1996 to rectify the situation. Its implementation is planned for April 1998.

35.35 Even though the Department agreed with our recommendation to do everything possible to complete operational exercise programs and post-exercise reports, Land Force Command and Air Command were not able to provide information on progress made since 1994 in conducting planned major exercises and in completing post-exercise reports. Staff officers in the three commands were not made aware of the departmental response to our recommendation. To respond to our follow-up, Maritime Command reviewed major exercises conducted since our 1994 audit. All of the major exercises planned had been conducted by the Command: three exercises in 1994-95 and two in 1995-96. Four of the post-exercise reports had been produced thus far.

35.36 Officials told us that a new National Training Plan would be approved in the near future to link policy goals and defence development guidance to exercises. In addition, since the fall of 1995, the Department has been developing a national Lessons Learned Information System to capture and use exercise results.

Cost management
35.37 Departmental plans are translated into decisions through the senior management committee structure. Cost information is an essential element of management decision making. Decision makers need to know costs in order to compare various options. The 1994 chapter reported that managers lacked the necessary information and that there were few incentives to minimize costs. Cost-saving initiatives had been delayed by a lack of information. We recommended that the Department improve information presented to senior management for decision making, possibly as part of its business planning initiative; develop cost information for decision makers on a timely basis, concentrating on critical areas first; review the accountability and incentive structure of cost information and make changes to promote improved cost management; and develop the capability to track the impact of major decisions, especially major cost reduction initiatives, to ensure that the intended results are being achieved. The Department agreed with those recommendations, referring to recent initiatives under way.

35.38 The Defence Support Productivity audit (Chapter 34 of this Report) examined departmental progress on "level one" business planning. Level one plans are developed by command commanders or group principals in National Defence Headquarters and approved by the Deputy Minister or the Chief of the Defence Staff. We examined whether those plans adequately described activities, objectives, priorities, performance measurements and expected results. Nearly all business plans described activities adequately, but some lacked a description of the intended results. Most plans lacked performance data and information on the cost of activities. As already noted, officials plan to correct this by 1997-98. We also found that the "data warehouse" required to act as a central repository for business planning had not yet received full funding approval. We noted some progress in developing business plans, but much of the effort has been expended on defining activities and objectives to provide a valuable base for further development. The Department has been very active in developing cost information systems but none of those initiatives has yet been completed.

35.39 The Department has defined business planning as an accountability process developed to link activities to performance measures through a contract between superiors and subordinate levels. Level one business plans were formally put in place on 1 April 1996. Even though local managers have been delegated more funds and are therefore accountable for more departmental resources, lower-level business plans have still not been implemented. The Defence Support Productivity audit confirmed the lack of performance information at all levels of the Department. We did not find any improvement or development of new incentive policies to promote cost management. The Department has, however, drafted a new financial signing authorities document that, when approved, will allow lower-level managers to exercise increased authority and to work more effectively within the framework of their business plans.

35.40 The Department has also implemented a tracking system for identifying cost savings arising out of the 1994 and 1995 federal Budgets. This system, called the Defence Expenditure Reductions Monitoring and Tracking report (DERMAT), tracks cost reductions coming from Cabinet-level decisions. The system provides biannual reports on the government's initiatives to reduce defence expenditures. However, the system does not track departmental initiatives to reduce costs that have not originated from government direction. For example, DERMAT tracks savings due to base closures but does not track the Department's Alternative Service Delivery initiatives. These initiatives seek to generate savings by replacing departmental service providers with non-departmental agencies or the private sector. DERMAT does not fully address our 1994 observation that dealt with the lack of tracking for departmental management decisions.

35.41 The Public Accounts Committee recommended that the Department develop the means to provide managers with cost information relevant to the decisions they make. This information must be timely, accurate and verifiable. The Committee also requested that the Department report on progress made in providing its managers with the cost information they need. The Department agreed to these recommendations.

35.42 The departmental response to the Committee referred to initiatives that make cost information more readily available to managers: the Cost Centre Management Project, designed to identify and report costs by activity; the Customer Consumption Awareness Project, established to identify the cost of materiel consumed from inventories; and the Data Warehouse Project, established to ensure that the necessary hardware and software are in place to deliver the data. Our Defence Support Productivity audit found that cost information is lacking, although progress is being made. The Cost Centre Management Project continues to evolve in Air Command and the Department is improving data integrity. As previously noted, the Department has not yet funded the "data warehouse" intended to serve as a central repository for business planning data. Nevertheless, the Department is continuing to work on providing improved cost information to managers. A Managerial Accounting Working Group has been established and the Department intends to have an activity-based costing system in place by 1998.

35.43 The Committee recommended that the Department develop, on an urgent basis, the means to track the results of its cost reduction initiatives to ensure that the intended objectives are being achieved. In addition, the Committee asked the Department to report on its efforts; however, as noted, the DERMAT report does not fully address the Public Accounts Committee's concerns about savings.

35.44 The Committee also asked that the Department continue to strengthen and improve its accountability and incentive structure. As part of this effort, the Department would charge to command and base budgets, to the fullest extent possible, the complete costs of resource consumption. We found that the Department has almost achieved the delegation of 40 percent of operating funds to commands and National Defence Headquarters groups. In addition, departmental officials told us they were pursuing a number of initiatives to improve the ability of managers to work more effectively within the framework of business plans.

The growth of major headquarters has stopped
35.45 In 1994 we reviewed the personnel levels of National Defence Headquarters and the environmental commands from 1983 to 1993. At that time we found that, while there was a general decline in the size of the Department overall, the number of staff working at major headquarters continued to grow until 1993. While 1993 staff levels had decreased, they were still only 4.3 percent below the 1990 figures despite claims by the Department that, since 1990, it had been in the process of reducing National Defence Headquarters by 20 percent.

35.46 Although we did not make any specific recommendations regarding this observation, the Public Accounts Committee recommended that by 1999 the Department achieve its stated objective of reducing resources allocated to its headquarters by 50 percent, and that the Department submit annual progress reports on reduction of its headquarters staff.

35.47 The Department responded to the Committee that it will reduce by at least one-third the personnel and resources committed to headquarters functions, as stated in the 1994 Defence White Paper , and that it has adopted a "stretch goal" of 50 percent reductions for internal planning purposes. The Department also indicated that, commencing in 1996-97, it would include progress reports on its headquarters reductions in the departmental Outlook document.

35.48 In April 1995, the Vice-Chief of the Defence Staff reaffirmed the Department's commitment to obtaining a 50 percent reduction in headquarters resources by 1999. A commitment to staff reductions is also reaffirmed in other departmental documents such as the Information Management Long-Term Capital Plan and various Management, Command and Control Re-engineering Team documents. The initial figures supplied to the Public Accounts Committee in November 1995 suggested that staff levels in National Defence Headquarters had dropped by approximately nine percent from midyear 1994-95 to midyear 1995-96. Projections for 1999 indicate a total headquarters staff of as few as 7,100 military and civilian employees, suggesting a staff reduction to that point of almost 45 percent.

Information Technology - 1994, Chapter 25

Background

35.49 The Department of National Defence is an organization composed of military and civilian personnel distributed among headquarters and operational units. Operations and activities are supported by complex networks of computers and telecommunications systems. Chapter 25 of the 1994 Report presented the findings related to three specific levels of management: program management, project management and operations management. The chapter also assessed progress made in developing military command and control information systems.

Conclusion

35.50 The Department has made progress in implementing our recommendations. Significant progress has been made in program management; however, improvement is still required to ensure that projects have a stable staff throughout the project life. Little progress has been made in fully developing and funding plans for telecommunications and computer operations. Interoperability of command and control communication systems needs further development for joint and combined operations.

Observations

35.51 Program management. Program management is the overall approach used by managers to make strategic choices and allocate resources within the Department for all information technology projects over $3 million. The 1994 chapter found that the Department took too long to complete information technology projects, long-range budgets were not adequate and program management systems did not sufficiently take cost reduction into account. The Department agreed with our recommendation to re-examine the way it managed its information technology program to ensure accountability, practicable long-term planning and assignment of priority.

35.52 The Public Accounts Committee recommended that the Department begin forecasting funds for future information technology projects on a five-year basis, and put in place a system that will give greater priority to projects that will reduce costs. The Committee also asked the Department to report on progress made in revising its Defence Program Management System as it relates to the management and acquisition of information technology.

35.53 We found that these recommendations are being carried out. The Defence Information Services Organization (DISO) is responsible for co-ordinating all information technology projects within the Department. DISO also produces an Information Management Long-Term Capital Plan focussing specifically on a five-year timeframe. Only 11 of the 54 information technology-related projects whose funding began on or before 1996-97 extend beyond 1999-2000. Cost reduction has been a major focus within the Department over the last two years. The Department is re-engineering its business processes in order to eliminate unnecessary work and reduce the labour associated with the remaining essential activities. It has also established a $10 million investment fund targeted specifically at cost-saving projects, including information technology projects.

35.54 Project management. In 1994, problems also existed in project management or in the processes used to design and acquire individual systems. Definition of requirements and options analysis were inadequate and resulted in extra costs to the Department. We recommended that the Department use an evolutionary approach in developing information technology projects; that capital projects be approved after adequate options analyses had been completed; that directors and managers of information projects be adequately qualified; and that project staff be stable throughout the project's life. The Department agreed with our recommendations.

35.55 The Public Accounts Committee also recommended that the Department move quickly to adopt a modular approach to information projects by breaking them down into smaller, more manageable units. It also asked that the Department report to the Committee on the changes made in relation to information technology project management. The Department agreed with those recommendations.

35.56 As the result of a review that identified problems with the management of information technology projects in government, the Treasury Board Secretariat has published An Enhanced Framework for the Management of Information Technology Projects , which addresses many of the problems in project management previously identified in our 1994 chapter. In a letter to the Treasury Board Secretariat, the Department expressed support for the management of information technology projects in the manner noted in our 1994 recommendations as well as in the Enhanced Framework document. The Department identified several projects that are moving toward the implementation of our recommendations, in particular, the adoption of evolutionary acquisition, whereby projects are divided into phases and subjected to independent review before receiving authority and funds to continue to the next phase. Because the Treasury Board grants approval for each step of an evolutionary project, the Department expressed concern that incremental approvals would result in an excessive administrative burden. Consequently, the Treasury Board and the Department have agreed to a process whereby Treasury Board ministers will approve projects and delegate release of funds for each step to the Secretary of the Treasury Board. This approach is intended to provide independent review of projects while minimizing the administrative burden.

35.57 The Department has now revised the Defence Program Management System to include consideration of such alternatives as "commercial-off-the-shelf" purchases, partnerships, joint ventures and leasing, with each project proposal. In developing the Information Management Long-Term Capital Plan, project business cases are included in the documentation associated with specific projects. The Department states that for some applications, a cost/benefit analysis that justifies the investment can often be shown; however, the financial benefits associated with common infrastructure and applications are more difficult to identify because the benefits are distributed throughout the organization's various functional domains. The Department also points out that while savings may be part of the business case, intangible factors such as doing the job more effectively will also be included.

35.58 On the issue of project management qualifications, the Department is developing guidelines to provide project management training, co-ordinate the implementation of projects from a management and technical point of view, and oversee the progress of projects. The latter point especially will involve improved standardization of information technology project design and development procedures, including risk assessment, and continuous project performance assessment using normal good project management practices as well as progress assessment tools.

35.59 When asked what formal steps it had taken to ensure stable project management throughout the life of the project, the Department responded that while no formal policies or procedures had been adopted, the modularization of projects should lead to shorter projects. The shorter project life spans should lead in turn to a lower turnover of military management staff. In response to our recommendation, the Department has also stated that the assignment of qualified project managers and their availability for the life of the project must be consistent with the exigencies of the Canadian Forces and the availability of qualified civilian personnel.

35.60 Operations management. Operations management is the in-service use of information technology throughout the Department. We found that operational efficiency and effectiveness were affected by the lack of adequate central management of the entire program. We recommended that users of information systems be suitably trained, that information systems contain the data required for users to perform their jobs, and that transferability of data between systems be improved. The Department agreed with our recommendations. We did not survey users of information systems in the follow-up.

35.61 We identified possible savings in telecommunications and computer operations. Our 1994 chapter recommended that plans for the Strategic Message Switching System (SMSS) and the Defence Telephone System (DTS) projects be fully developed and funded. The plans should describe benefits, provide accurate estimates of capital and operating costs, provide a detailed implementation schedule and address technical and personnel impacts. We also recommended that costs be reduced by accelerating the rate at which users are added to the Integrated Data Network, and that adequate information be available to support business planning for management of telecommunications services. The Department concurred with our recommendations, subject to availability of security products.

35.62 According to a submission to the Treasury Board, implementation of the SMSS would generate net savings of $52 million a year to the Department. However, the completion date of the project has slipped by about 24 months, which will delay the start of savings. The Defence Telephone System project has progressed but is less advanced than the SMSS. The DTS plans do not yet clearly state savings, costs or an implementation schedule. Officials told us that the evolution plan is undergoing change despite the fact that $4.6 million was to be spent in 1996-97 and $0.2 million in 1997-98 out of a total budget of $7.25 million. Additional delays are expected.

35.63 Our recommendation on cost reduction relating to the rate at which users were added to the Integrated Data Network (IDN) is now obsolete. The Department is gradually replacing the technology used for IDN with the new Frame Relay and Asynchronous Transfer Mode communications protocol, which provides more capacity and connectivity.

35.64 The Department has not developed detailed information on the use of communications to support business plans. Even though the Department has a good knowledge of its overall communications costs, it does not track costs for application systems use. An exception was made for the Canadian Switched Network, for which costs are shared with the United States. Those costs accounted for about 23 percent or $7.5 million of the total communications costs. The Department could estimate a representative cost and has very good knowledge of the factors that affect cost, but special cost studies have to be carried out each time detailed information is required.

35.65 Local area networks are computer systems based on connected groupings of small computers or workstations that share software, databases and network resources, such as printers. Networks can be local or national in their scope, or in one office or a single building. In 1994 most of the Department's personal computers were linked in local area networks, and larger metropolitan area networks were planned. The Department had not taken full advantage of its investment in local area networks. We recommended that the Department review network management policies and practices and make them consistent with a technology that might need updating every 36 to 48 months, and establish standards centrally to be distributed quickly. We also recommended that network support personnel be adequately trained to perform their duties. The Department agreed with those recommendations.

35.66 We found that the Department is now circulating draft policies for senior management review. Practices have been improved by building local area networks by site instead of by organizational group, service environment or application. Commands and bases plan to implement this approach. The Department approved an information management training policy, identifying missing competency skills for each individual. The policy has been partially implemented in National Defence Headquarters. The number of training courses for systems administrators has increased by 300 percent and attendees by 222 percent in 1995-96, compared with 1993-94.

35.67 The Public Accounts Committee recommended that the Department approve the proposed plans for increasing the savings from its Integrated Data Network and report to the Committee on the savings realized. The Committee also recommended that the Defence Information Service Organization (DISO) be given the resources and authority to manage the Department's information technology effectively.

35.68 DISO was given the appropriate authority and new responsibilities and is now responsible for technology information, such as the software, hardware and communications environment. DISO is one of the three entities that has the authority to develop long-term capital plans for Treasury Board approval. The organization is developing the management framework for all departmental information holdings.

35.69 Command and control information systems. Perhaps the most important use of information technology in a defence department is the control of military operations. Military organizations use command and control information systems to communicate, manage and manoeuvre troops deployed in the field. In 1994 we found that command and control information system projects had been developed in isolation and had limited ability to interoperate. We recommended that "joint" standards be used to develop all command and control systems and that concepts and specifications for new systems require that they be able to communicate in joint and combined operations and to survive on the battlefield. The Department agreed with the recommendation.

35.70 We found that most of the command and control systems being developed within the Department will provide full interoperability for joint and combined operations. This is being achieved through the Department's participation in a United States initiative referred to as the Global Command and Control System (GCCS). The Department is adopting the GCCS standards and architecture for all headquarters.

35.71 The Department, however, is taking a different approach for the Land Force. It is presently seeking Treasury Board approval for the Land Force Communication System (LFCS) project in order to implement the SIC-F CCIS product from the French military. This $180 million project will not be fully interoperable with the GCCS before 2001. Initially, it is being designed to accommodate only E-mail and structured message-transfer with other systems, the lowest levels of interoperability. Officials told us that this system more closely meets their requirements and would also save money. The Department is committed to full interoperability between LFCS and other systems by 2001, but at the time of our audit no technical plan for this goal was in place.

35.72 The Public Accounts Committee made two recommendations to which the Department agreed. The Committee recommended that the Department make its command and control information systems interoperable as soon as possible. The Committee also recommended that the Department inform the Committee as soon as systems are interoperable, but not later than April 1996, or provide a report explaining the reasons for the delay and indicating the anticipated date for the implementation of the interoperable system.

35.73 The Department's response stated that the goal had been partially achieved by defining the four levels of interoperability and establishing a program to address the issue. According to the Department, levels one and two will be achieved by 1997-98 and levels three and four by 2000-01. It states that these levels will be achieved through the establishment of a Common User Core set of products and standards. As noted already, the Land Force project will not be included in the Common User Core set of products and standards, but officials told us that the Land Force system would use as many Common User Core elements as was cost-effective.

Department's response: With respect to the observations on interoperability, as stated, the Department has imposed specific constraints to ensure that the Land Force Command System is fully interoperable with other Canadian Forces command and control systems by 2001.

Infrastructure Reductions - 1994, Chapter 26

Background

35.74 In 1994-95 the Department had a budget of $11.5 billion to deliver its Defence Services Program. The bulk of the budgeted departmental activity takes place at 30 military bases and other related facilities. The configuration of infrastructure has a great impact on local economies and the cost effectiveness of defence services. The Department's infrastructure should be based on military requirements identified in 15-year force structure plans. Experience in Canada and from other countries indicated that savings could be made while respecting political realities.

35.75 Chapter 26 of our 1994 Report recommended that, based on its long-term force development plans, the Department advance its development of a comprehensive, fully integrated strategy for portfolio management and investment to define the optimum infrastructure for the total force; requirements for new infrastructure, replacements and disposals; and maintenance strategies. The Department's response to our recommendation deferred an additional detailed assessment of facilities pending the Defence Policy review (the 1994 Defence White Paper was issued in the fall of 1994). We also recommended that the government consider an independent process, open to public scrutiny, for base closures or reductions. Cost/benefit studies of proposed financial assistance to affected communities should be conducted. As this recommendation was directed to the government, the Department did not respond to it.

Conclusion

35.76 Progress on infrastructure rationalization has been satisfactory. The process for determining new and replacement infrastructure requirements should improve the timeliness and cost effectiveness of construction projects. Progress has been slow in developing maintenance strategies.

Observations

35.77 Our 1994 chapter referred to a 1975 study that assessed the minimum infrastructure needed to support the Canadian Forces at 12 bases; there were then 32. At the start of our audit, there were still 30 bases. Before the publication of our audit report, the 1994 Budget announced the closure of four bases, and the reduction or consolidation of several others.

35.78 The 1995 departmental Budget Impact Statement defined the operational needs of the Canadian Forces as :

  • a "naval and maritime air presence on the Atlantic and Pacific coasts;
  • a land force presence in all four regions of Canada;
  • eastern and western fighter aircraft bases; and
  • eastern and western air transport bases."
35.79 The Impact Statement stated that certain training facilities would be required but was not specific. The Statement analysis was very similar to the 1975 study analysis of requirements. This document also stated: "While the closure of bases and units has a significant impact on local communities, the government must proceed with further reductions in defence infrastructure to bring it in line with the military requirements of the smaller force set out in the White Paper."

35.80 We found that, in terms of type and number of bases being kept, the Department is close to reaching its goal. We discussed the status of bases kept open but not covered under the Budget Impact Statement, and obtained explanations from officials. Air Command headquarters are being amalgamated in Winnipeg to form a single-level headquarters, to be known as 1 Canadian Air Division/Canadian NORAD Region Headquarters. This was not foreseen and savings are not expected. Since our allies pay their share of annual costs at the training bases they use, the Department's officials told us that they do not anticipate significant savings from closing these facilities. However, total cost figures were not available in the Department. Officials also told us that the Department has no immediate plans to change the status of Montreal, Moose Jaw or Gander.

35.81 The closure and consolidation of bases has created a need for new infrastructure at remaining bases. Other new infrastructure, replacements or disposal will be managed through the new Defence Resource Management System, which relies on the business planning process. This process now permits the global approval by the Treasury Board of a number of replacement construction projects at the same time. This should go a long way to improving the timeliness of their implementation. Officials told us that once performance indicators are developed for infrastructure maintenance, maintenance strategies will be developed and integrated with capital plans.

35.82 Both our chapter and the Public Accounts Committee recommended that the government develop a process for rationalizing the Department's infrastructure that is as open and transparent as possible and allows every opportunity for consultation with those likely to be affected. The Minister's response to the Committee was: "The magnitude and immediacy of the budget cuts do not permit such a time-consuming approach."

Infrastructure Management - 1994, Chapter 27

Background

35.83 The Department of National Defence manages the largest portfolio of property in Canada. The replacement value of departmental buildings and works is more than $17 billion, without assigning any value to the land. The Department's infrastructure must support defence activities as reflected in the 15-year strategic plan. Our 1994 audit addressed construction management, operations and maintenance, and environment management. The audit focussed on National Defence buildings, properties and works. Leased office facilities were not included in the audit scope.

Conclusion

35.84 Significant progress has been made in construction management. A full response to our recommendations depends on the successful implementation of business planning at command and base levels. With regard to the management of infrastructure operations, studies have been undertaken to address identified problems concerning the 10-year backlog of infrastructure projects and deferred maintenance. Decisions are pending until completion of those studies in 1997. Alternative service delivery has been considered by almost all of the bases for their construction engineering functions. The Housing Agency intends to pay back operating losses on married quarters from future surpluses. It has identified the direct costs of support to non-public activities, but has not allocated indirect costs. Departmental plans and budgets still do not identify all clean-up costs to comply with environment regulations. The Department is making slow progress in developing infrastructure information systems required by each management level.

Observations

Construction management
35.85 Chapter 27 of our 1994 Report observed that the Department spent about $200 million every year on major construction projects to replace existing infrastructure, and an additional $70 million yearly on minor projects. We found that high-priority construction projects that were part of the National Defence Headquarters initiative -- the Infrastructure Adjustment Program - were within budget and on time, while major construction projects suffered some weaknesses in the management of their early phases. We were concerned about the delay in delivering replacement structures, and recommended that the Department strengthen needs and requirements analyses for major replacement projects, consistent with force structure and base development plans. We also recommended that in setting its priorities it take into account the optimum savings to be achieved in construction projects, and ensure that first phases of the projects are performed in a timely manner; that it track the inventory of projects in the predevelopment phase for force development planning; and that it revise policies and practices to conform to Treasury Board policy on capital spending. The Department concurred with our recommendations. It stated that infrastructure was managed to support operations best and that operational need was the main determinant of funding priority.

35.86 Significant action has been taken on these recommendations. Under the Department's new system, projects originate with the departmental business plan, which in turn is based on command and eventually base business plans. These plans link the Department's program subactivities to departmental performance, and seek to provide a framework between assigned resources and expected results.

35.87 National Defence Headquarters now implements projects using a revamped project-oriented organizational structure and streamlined approval processes, and is trying to incorporate many innovative practices into the delivery of construction projects. The initiatives should improve the needs and requirements analyses, and the timeframes of projects. In addition, business cases now are key to decision making in projects, as the Department endeavours to evaluate a broad range of delivery options, including opportunities to save money. A limited review of project documents indicates that project staffs are still developing the expertise needed to do the necessary financial analysis for the business cases.

35.88 Our follow-up did not assess a sufficient number of projects to form a complete opinion on the effectiveness of the Department's new approach. However, the Department has made significant changes that should result in greater value for money in construction. A full response to our recommendations depends on successful implementation of business planning at the command and base levels. Business planning is necessary to provide the information for ensuring that only the most defence-worthy, cost-effective construction projects receive funding.

35.89 The Department is still using maintenance funds to recapitalize and rejuvenate its infrastructure. Officials told us that appropriate policy changes will be implemented by the end of fiscal year 1996-97. Until then, the Department will not be able to introduce proper life cycle management of its infrastructure.

35.90 The Public Accounts Committee made two recommendations related to maintenance capital spending policies. The first recommendation suggested that the Department take immediate steps to bring its policies on recapitalization into conformity with existing Treasury Board policy. The second recommendation suggested that, until the Department's policies on recapitalization are harmonized with Treasury Board policy, the Department adhere to the Canadian Institute of Chartered Accountants standards on capital assets. The Department is not yet complying with accounting standards.

Management of infrastructure operations
35.91 In 1994 we found that the Department often deferred maintenance, leading to loss of performance or asset value, or to more expensive repairs later on. We recommended that the Department introduce life cycle management for major elements of infrastructure to determine the most appropriate balances between capital and maintenance spending and to use information in infrastructure planning. We also recommended that deferred maintenance be addressed at the same time as the Department rationalizes its infrastructure to meet force structure needs, and that the Department consider using savings from improved efficiency in operations to reduce the amount of deferred maintenance. We reported that, based on studies conducted by the Department since 1980 and confirmed by our own study, the productivity of the construction engineering function was low. To correct that problem, we recommended that the Department have access to better information for decision making on infrastructure maintenance, develop a national strategy for dealing with human resources and gain union co-operation. We also recommended that the Department compare its construction engineering functions at each base with other service providers, and look to other countries for areas and methods of introducing competition for support services. The Department concurred with our recommendations. The 1994 Report also stated that married quarters needed to be streamlined to eliminate significant operating losses. To do so, we recommended that the Department study, with a sense of urgency, the military and financial benefits of married quarters in relation to program objectives, and end operating losses to the Crown on married quarters. Finally, we reported that non-public-fund facilities required cost controls in order to be operated "at minimum public expense", and that information should be reported in the budget process. The Department concurred with those recommendations.

35.92 The Public Accounts Committee recommended that the Department actively explore ways to cut the costs of maintenance services, such as contracting services out to the private sector or exposing in-house services to competition. The Committee also requested the Department to report on its cost reduction objectives and the savings realized.

35.93 The Department reported to the Committee on its Alternative Service Delivery initiative and personnel reductions in headquarters staff; however, its response does not refer to any savings. A pilot study on alternative service delivery was conducted at the Construction Engineering section at Canadian Forces Base Kingston. Estimates of cost savings were between 40 to 60 percent. However, a more conservative figure received from a large prime contractor indicated 10 to 20 percent cost savings. The Department still has to clearly and fully enunciate its cost reduction objectives, the expected savings and the timeframe.

35.94 The Department initiated an in-depth review of the 10-year backlog in infrastructure projects identified in 1994. Since that time, the government's closure and reduction of military bases has reduced the backlog. The Department should complete its maintenance backlog study for the remaining infrastructure by July 1997. Adequate infrastructure information appropriate to each level will be included in business planning as a mechanism for improving maintenance management. The Department is maintaining regular communication with affected unions and appears to be effectively managing the relationship.

35.95 Although many of the facilities requiring maintenance are on bases that have been closed, the Department has still not resolved the issue of deferred maintenance. A working group has been established and the Department has initiated a project to design a performance measurement system based on a facilities condition index. This project is scheduled for completion by July 1997. Once the system is operational and deferred maintenance has been identified, the Department intends to provide command commanders with the available resources to attack the problem.

35.96 Senior officials told us that the process of comparing construction engineering functions with those of alternative service providers, and streamlining and contracting-out support services has been implemented for all but one base. A complete review of the business process has been done and core functions have been defined. Resource reduction goals have been set to 1999. However, no statistics are yet available on the total amount of work put to competition, and the total savings, if any, that have been achieved. Officials also told us that many informal meetings continue to be held with union representatives to keep workers informed and obtain their support for these initiatives.

35.97 Housing. In 1994, we reported that the Department owned approximately 22,000 dwellings and leased an additional 2,000 units under bulk lease from the private sector to house Canadian Forces personnel and their dependants at 36 bases and stations. The Department estimated that the replacement value of the entire housing portfolio is approximately $2 billion.

35.98 Married quarters are still losing money and may do so until 1998-99, according to the management of the newly created departmental special operating agency, the Canadian Forces Housing Agency. However, the Department recently decided that any shortfalls will have to be repaid out of future Agency revenues.

35.99 The Canadian Forces Housing Agency does not own the departmental housing, but acts as operator and maintainer. Currently, the Department retains ownership of the housing and related lands but it can seek the Treasury Board's approval to transfer this ownership to the Agency. Overall policy on the provision of housing remains a departmental responsibility and the Agency is responsible only for operating policies.

35.100 During the first two years of operation, the Agency plans to review and determine the operational housing requirements at all bases, develop housing policies and implement its business planning process to the base level. Comprehensive studies of the housing requirements have been done for Canadian Forces bases at Comox, Edmonton and Esquimalt. These studies identified the quantity and type of housing required and the extent to which this could be provided by the private market or the Department. Management intends to study the housing requirements at each base using a similar methodology.

35.101 Senior management is making a serious commitment that 1998-99, at the latest, will be the break-even year. It told us that this will be accomplished by using the discretionary power of management to allocate resources. If revenues do not cover expenditures, management will defer maintenance and provide only what is absolutely necessary.

35.102 As the Canadian Forces Housing Agency has been in operation only since 1 April 1996, we cannot comment on whether it will be successful. This Agency is committed to providing suitable and affordable housing on a financially self-sustaining basis. The Agency's business plan describes how it will do this. However, there are elements of the business plan that raise concern:

  • Base closures and downsizing of the military have not been taken into account in the Agency's business plan. Chronic vacancies at specific sites could affect the ability of the Agency to manage its housing. While this problem could be solved by disposing of housing stock, the Agency does not own the housing portfolio and does not have the power to sell any of its housing stock at this time. Departmental officials told us that the Canadian Forces Housing Agency will be returning to the Treasury Board in the near future to seek additional authority.
  • The forecast expenditure and revenue figures in the business plan are not based on the housing requirements at each base. The housing requirements for all bases have not yet been determined.
  • Grants in lieu of taxes, paid to compensate for services provided by municipal governments, are not included in the forecast expenditure and revenue figures in the business plan. Management estimates that grants could be $20 million or more. The Agency management was not aware that following the devolution of the budgetary responsibility for grants in lieu of taxes to the Department on 1 April 1997, future increases in these grants will become the responsibility of the Department. Departmental officials told us that future business plans of the Canadian Forces Housing Agency will take this change into account.
  • Only one member of a Management Advisory Board, set up to provide advice and guidance to the Canadian Forces Housing Agency, has practical and extensive experience in management of a large housing portfolio.
35.103 The Public Accounts Committee recommended that the Department redraft its business plans for the Canadian Forces Housing Agency in order to end the losses on its married quarters sooner than fiscal year 1997-98, and report to the Committee by January 1996. The Committee also recommended that the Department and the Treasury Board act to establish a special operating agency on an urgent basis. The Department agreed with those recommendations.

35.104 The Department has since responded to the Committee that it sought Treasury Board approval of the Canadian Forces Housing Agency as a special operating agency in March 1994. However, the resolution of issues required for Treasury Board approval of a provisional special operating agency took until October 1995. Consequently, the implementation of the Agency was delayed from the original plan and the deficit reduction target recommended by the Public Accounts Committee is not achievable. The Department stated that the Agency's management has taken a more aggressive approach to cost reduction than appeared in the original business plan. A break-even position is foreseen for 1998-99, three years after the Agency's start-up, instead of the four years required in the initial plan. The new plan will also reduce operating costs directly, which will result in greater net savings than the original plan reviewed by the Committee. In addition, the Department has decided to repay any operating shortfall from future surpluses.

Department's response: The Department generally agrees with the comments on infrastructure management. However, we disagree with the assertion that losses on married quarters may not end before 1998-99. The Department's recent decision to treat any Agency shortfall as temporary and repay it out of future revenue will ensure that losses on married quarters will no longer be paid out of public funds.

35.105 Non-public-fund activities. Through its Personnel Support Programs, the Department provides recreational and community services and facilities for military and family needs. As prescribed by Treasury Board guidelines, the costs of these programs are shared by the Crown and the military community. In 1994, we counted 36 non-public-fund activities that received some public support for utilities, materials, construction and administration. At the time, the Department could not tell us the extent of its financial support to non-public-fund activities.

35.106 The Department estimates that the direct cost of public support to non-public-fund activities in 1994-95 was $40.2 million: $22.4 million for personnel, $12.8 million for accommodation and almost $5 million for capital expenditure. The figures for 1995-96 will be available in September 1996. Not included in this amount is an allocation of cost for the time spent on non-public-fund activities by personnel such as the base comptroller or base administration officer.

35.107 The Treasury Board guidelines specify that non-public-fund activities are to be operated at minimum public expense. In that respect, the Department has conducted a strategic review of the personnel support program. Officials advised that as a result of the review, the Department has approved the formation of a Personnel Support Agency with full implementation by 1998-99, the purpose of which is to deliver personnel support programs in a more cost-effective manner. The Department expects that this initiative will substantially reduce the number of military personnel employed in support of non-public-fund activities, and save 20 to 25 percent of personnel costs.

Environment
35.108 Experience has proven that military activities have the potential to damage the environment. Departmental activities must be conducted in accordance with environmental regulations, including proper estimation of clean-up costs. In 1994, we found that environmental clean-up and prevention projects were not all included in departmental plans, and that senior management was not given a full picture of total environmental projects and costs in order to assess the feasibility of the environmental program. We recommended that departmental plans and budgets recognize all costs identified by departmental studies, and clear accountability be established for achieving all levels of environmental plans. Information should be reported in Part III of the Estimates. The Department agreed with our recommendations.

35.109 Departmental staff now provide information to senior management about the Department's clean-up program for three separate types of activities. First, for active bases, staff report on environmental issues and estimated costs to clean up and monitor sites using a new risk management approach to site remediation. Where contamination is not likely to immediately impact on the environment or people's health, the site may be monitored or managed over the long term rather than cleaned up. This approach reduces both the cost and the amount of time that would otherwise be required under the total remediation option. Under this approach, the current estimate for environmental cleanup of active bases is $190 million over a 10-year period. The second type of activity for which environmental information is provided is decommissioned bases, where environmental clean-up, including unexploded ordnance, may require 10 years of work at an additional estimated cost of $107 million. The third type is the Distant Early Warning (DEW) Line sites for which the Treasury Board approved the expenditure of $242 million over a 10-year period to clean up. This amount includes the cost of both remediation and monitoring. An additional nine years will be required for monitoring.

35.110 We noted that for active ranges, unexploded ordnance has not been included in the total environmental clean-up cost. The Department explained that these active ranges will continue to be used and that more ammunition will be fired in the future to satisfy ongoing military training requirements. The Department has clean-up procedures and standards for unexploded ordnance but does not have criteria for the explosive material residues. Environmental costs related to the removal of unexploded ordnance on one decommissioned base to be transferred to a third party are not included. The clean-up cost of unexploded ordnance at the Harvey Barracks in Calgary will be about $13 million.

35.111 The Department reported on its Incremental Environmental Program in the 1996-97 Part III of the Estimates. All commanders and managers will be directed to incorporate environmental issues into their business plans.

35.112 Clean-up costs over the medium term are estimated at about $500 million. This does not include the sites that have yet to be surveyed and investigated to determine the level of contamination, cost and clean-up methodology. The Department's officials told us that field surveys will be completed by March 1997.

Major departmental information systems
35.113 We examined the Department's three major information systems supporting infrastructure management: a property record system (CEMIS I), a base-level work control system (CEMIS II), and a maintenance effectiveness tracking system (MES). We found that those systems could not provide the effective life cycle management information required in the long term. In 1994, the Department agreed with our recommendations to implement, where appropriate, information systems that support life cycle management of individual structures, buildings systems and works; and to ensure that business plans provide a strong accountability framework to match delegation of authorities.

35.114 The challenge for the Department is to ensure that adequate infrastructure information systems are available at the appropriate management level. For example, the Department has yet to develop reliable performance measures for its infrastructure activities, to introduce policies that adequately differentiate capital and maintenance spending, to rework significantly its new base-level information system, to develop new mechanisms for "rolling-up" base-level information to higher levels, and to implement controls to ensure the consistency and reliability of information. The Department is making slow progress in meeting these challenges. Officials told us that performance measures are being developed and should be in place by 1997. In addition, a strategic plan for information management is being written and should be completed by the time this audit is reported. The Department plans to have a new information system in place by 1999.

35.115 In 1994 we noted that the delivery of infrastructure services was often divided among several departmental functions, different departments or even different levels of government. For example, we reported that the Department was providing municipal services to defence properties where Public Works and Government Services was already paying the local municipality for some of the same services.

35.116 To have a strong accountability framework, the Department must first have information concerning inputs and outputs. As we note in our chapter on Defence Support Productivity, departmental managers still lack cost and performance data upon which to build the framework. So far, the Department has implemented business planning only down to the command level - not the base level where most of the delivery of infrastructure services takes place.

Grants in lieu of taxes
35.117 Grants in lieu of taxes are paid to municipalities under the Municipal Grants Act , administered by Public Works and Government Services Canada. The 1992 estimate of grants in lieu of taxes for the Department's properties was close to $110 million for municipal and school services. However, some bases provided many of the same type of services in order to meet the Department's own standards. In four bases we found that these services - recreation, firefighting and protection, garbage removal, snow removal and street cleaning - represented, on average, approximately 30 percent of the grants in lieu of taxes already paid to municipalities by Public Works.

35.118 We recommended that the departments of National Defence and Public Works and Government Services jointly review the legislative and administrative frameworks for the grants in lieu of taxes paid for defence properties, with a view to clarifying accountability, ensuring maximum co-operation with municipalities and minimizing overlap of services provided by National Defence and the municipalities. The Department's response confirmed that officials were already working on this issue with their counterparts within existing legislative and administrative frameworks. Public Works and Government Services agreed with the recommendation but raised the point that the accountability issue was not restricted to National Defence. It specified that changes in ministerial responsibility could well require legislative amendment. The amount of grants paid by the Government of Canada on properties where municipal-type services are provided by the Department would be considered in the context of the overall review of the program.

35.119 In April 1997 the municipal grants statutory vote will be allocated to the operating budgets of departments that administer real property. Consequently, National Defence will have a budgetary responsibility for the amount of grants in lieu of taxes owing to municipalities. Public Works and Government Services will still be the department in charge of paying the grants in lieu of taxes and in negotiating with municipalities the amounts to be paid.

35.120 The Department of National Defence intends to pass these moneys down to base commanders. Public Works officials are meeting with base commanders or their representatives to inform them of the type and amount of services they can reasonably expect from municipalities. Progress with the municipalities is slow because many parties must agree on the level of service that municipalities should provide.

35.121 The Public Accounts Committee recommended that: the Department report to the Committee on the results of its review of the new procedures that have been developed to improve communications between it and Public Works and Government Services Canada on matters of grants in lieu of taxes and municipal services; steps be taken to charge grants in lieu of taxes directly to the budgets of the Department's facilities for which these grants are paid; the Department transfer greater control of base expenditures for municipal-type services to base commanders; and the Department inform the Committee by January 1996 on new responsibilities that have been transferred to base commanders. The Department agreed with those recommendations.