DND gave up $300M because of foot-dragging: AG

[Snakedoc]

New report from the Auditor General regarding DND financial management.

http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20090512/auditor_general_090512/20090512?hub=TopStories


DND gave up $300M because of foot-dragging: AG
Updated Tue. May. 12 2009 2:07 PM ET

The Canadian Press

OTTAWA -- National Defence gave up $300 million in desperately needed funding last year because of bureaucratic foot-dragging, the auditor general said Tuesday in her latest report on federal financial gaffes.

Defence officials were unable to get enough accurate information to senior managers in time for them to decide how to spend surplus money within the department's budget, Sheila Fraser noted.

The cash is now "permanently unavailable to the department to meet its ongoing requirements," said Fraser's examination of defence spending, one of seven reports tabled in Parliament.

"This is a serious consequence for a department that stated a need for additional funds to fulfil its mandate."

Fraser took a swipe at officials, saying "senior management at National Defence needs to be more involved in financial management."

Her examination found very little discussion of financial matters at the most senior levels of the department.

"We would have expected to see that in a department that manages some $19 billion of appropriations each year," Fraser told a news conference.

The criticism comes at a time when the Defence Department is scrambling to pay the continuing cost of the Afghan war.

Federal law mandates that departments spend the money apportioned to them each year and that surplus cash be sent back to the treasury.

There is some wiggle room for departments, especially when it comes to spending projects that stretch out over many years as they often do when National Defence buys new equipment.

Departments are allowed to hold onto a small percentage of their budget surpluses, but anything over a certain threshold must be "re-profiled" to future years.

"We found that National Defence's in-year management and monitoring activities may not serve as sufficient oversight for effective resource management," Fraser concluded.

As a consequence of the information gap, $300 million in cash earmarked for the military was returned to the federal treasury in the 2007-08 budget year.

Fraser said it's happened at least one other time in the last four years and recommended the department produce more timely and accurate financial data.

The overall budget for National Defence rests at about $19 billion per year.
Fraser's report also cited a raft of other spending gaffes:

Corporations have been depositing unnecessary cash with the Canada Revenue Agency to profit from the agency's generous interest rates -- a corporate benefit that costs taxpayers $30 million a year.
A consultant for Natural Resources designed funding programs, then worked for groups that successfully applied for the money -- a clear conflict of interest that the department ignored.
The Crown corporation that manages federal bridges is so short of cash that key bridges in the Montreal area could become safety risks.
The Conservative government has ordered billions of dollars of new equipment and programs for the military since 2006.

But many initiatives, including the purchase of additional battlefield helicopters, fixed-wing search and rescue planes and navy supply ships, remain stuck in the bureaucracy and years away from delivery, even though money has been set aside for them.

Part of the problem is that the military is chronically short of project management staff.

Fraser also raised concerns there is no overall financial plan to marry the aims and equipment needs set out in the government's Canada First Defence Strategy with the department's business plan.

The strategy sets out a list of ships, planes and armoured vehicles that need to be purchased over the next 20 years.

But Fraser said National Defence has a "collection of plans, not an integrated corporate business plan" to carry out the new defence policy.

 

[The Bread Guy]

Don't know enough about the internal machinations to comment on the process, but as a taxpayer, I'd be LOADS happier with the $300M spent as Infanteer outlined as a start.  Oh yeah, on USEFUL stuff for the soldiers/sailors/airmen, please.

In the AG's words, from "Chapter 5 - Financial Management and Control—National Defence":

What we found

    * National Defence has taken steps to strengthen financial management and control. It has some basic elements of good financial control, including compliance with legislative and government requirements for financial reporting, and it has kept its annual spending within authorized funding limits. However, National Defence’s governance structure is not sufficiently focused on financial management. We also noted that the Department’s draft governance framework does not mention the responsibilities and accountabilities of the Chief Financial Officer, a position required under the Treasury Board of Canada’s new Policy on Financial Management Governance.
    * National Defence invests a lot of time in business planning, but the result is a series of short-term operational plans for each division. There is no corporate business plan that links defence strategy to objectives and associated risks, activities, resources, and expected results with medium- and long-term plans in order to guide decision making and resource management across the Department.
    * The Department’s financial management and monitoring of resources may not be adequate to support decision making by senior management. The lack of accurate and timely information for decision makers contributed to the lapsing of more than $300 million in funding that was available during the 2007–08 fiscal year but is now permanently unavailable to National Defence.
    * The Department is aware of the need to manage the risks associated with its responsibilities. However, its integrated risk management framework has not yet been incorporated in the analysis, recommendations, and reports used by senior management. Consequently, senior management lack the information needed to plan for and allocate resources to manage key risks that could impact National Defence in meeting its objectives.

 

[Pat_Y]

Ridiculous,

What battle field helicopters are they thinking of purchasing?

And I think we could all come up with a few things that money could have been spent on…
:clubinhand:

 

[jacksparrow]

From another source

http://www.edmontonsun.com/news/canada/2009/05/12/9434591.html

 

[54/102 CEF]

Every project has a FIN guy/gal making the most Olympian pronouncements

Everyone Performance Pay Pouge should be stripped of this entitlement and names published

Absolutely disgraceful

 

[Edward Campbell]

All government departments except DND can "carry over" surpluses up to and including some (small) percentage of their total budget - it's 5% or 10%, I think. This is because it is a practical impossibility to spend exactly what was voted and it is illegal/improper to spend more than was voted. Thus every department spends less than was voted and most are able to carry some "unspent" money over to he next year.

DND is allowed to carry forward some money, too, but it is a finite sum, not a percentage, and, in a $20 billion/year budget, it is something like 1.5%. You try to manage your budget so that you spend 98.5%, and only 98.5%, of your income in one year; it's bloody difficult.

The AG has highlighted a real problem but the solution is only partially better management within DND. The real solution is for Prime Minister Harper's government to treat DND the same as all other departments - give them a reasonable (5-10%) carry forward limit.

 

[54/102 CEF]

Edward

Great answer -

 

[dapaterson]

Getting plans in place for execution is done, but there's always a support tail that needs to be accounted for - fine to buy new toys, but what if there's no money to use them?  There are also manufacturer capacity issues; timing issues; and leaders (not fin guys) at all levels unwilling to ever declare a surplus until the last minute.  "Because if I hand it back too soon they won't give it to me next year".

Other issues may also involve the colour of the money (vote 1 / vote 5); people/projects refusing to follow orders on using tools for tracking their expenses, and instead using their stand-alone Excel sheet; in one memorable case a L2 organization designing their own chart of accounts within DND's accounts, leading to an understatement of actual pay expenditures of roughly $15M per year...

 

[chrisf]

I keep a "shopping list" in my desk, ready to go at a moments notice, as twice now, we've been told there's surplus money in the purchasing budget, and we were to come up with things we needed... of course, we were also told that the requests had to be in by noon the next day (an unrealistic deadline for class A reservists).

The shopping lists includes such things as pelican cases, recovery equipment, lighting equipment, internet provision equipment, etc, all things that don't require any logitics tail, and can be purchased through LPO... I'm not passing up any more opportunities to spend somone's budget on kit we can use/need.

 

[Good2Golf]

Ridiculous,

What battle field helicopters are they thinking of purchasing?
...

Not the six 36-40 year old rebuilt B/C to D model Chinooks, but the 16 new ones perhaps?

 

[CBH99]

This is all starting to fall into place...the term "Puzzle Palace" is finally starting to make sense to me now.

I finished working in a study group for the outgoing commander of 41 CBG in February, in which we were studying ways we could save money.  The goal of the working/study group was to look at various things at the brigade level and find ways to get more bang for the buck.  It wasn't too hard to do - we easily found tens of millions of dollars in savings just from eliminating waste and inefficiency, and restructuring simple things like vehicle insurance on DND vehicles, etc.

But now I see that the inefficiency is actually necessary in order to secure funds for the next fiscal year.  As E.R. Campbell explained to us, we actually need to use up 98.5% of the budget due to DND's limited ability to carry over funds from the year previous.  This now explains why some of the senior brass were so 'disinterested' in our findings when it came to stretching dollars and getting more bang for the buck.

I still insist that we should eliminate waste and inefficiency, and redirect the savings towards equipment procurement.  But at least now I understand why certain things are the way they are.  (Some people on here may remember how bitter and frustrated I was in my posts here about the amount of money being wasted, lol)

 

[dapaterson]

It's always amusing to read such threads as this.  While there are on occasion interesting ideas, most fall into the "I'm proud to display my ignorance" bent.

I finished working in a study group for the outgoing commander of 41 CBG in February, in which we were studying ways we could save money.  The goal of the working/study group was to look at various things at the brigade level and find ways to get more bang for the buck.  It wasn't too hard to do - we easily found tens of millions of dollars in savings just from eliminating waste and inefficiency, and restructuring simple things like vehicle insurance on DND vehicles, etc.

Hmm... DND doesn't carry any insurance on their vehicles.  Nothing to restructure.  For rentals on DND travel cards, insurance is covered - nothing to restructure there, either.  I'd be curious how a single CBG could find tens of millions in savings, given that their overall allocation on a good day might see two tens of millions.  Mind you, in every review I've ever seen, everyone is always able to pinpoint massive waste in other people's money, never in their own...

But now I see that the inefficiency is actually necessary in order to secure funds for the next fiscal year.  As E.R. Campbell explained to us, we actually need to use up 98.5% of the budget due to DND's limited ability to carry over funds from the year previous.  This now explains why some of the senior brass were so 'disinterested' in our findings when it came to stretching dollars and getting more bang for the buck.

Ever stop to think that perhaps you don't know everything?  That perhaps there are other restrictions in place that would prevent some of your recommendations from coming to fruition?  For example, did you know that the Army Commander's contracting authority is $25000 - anything above that amount goes through PWGSC?  Did you know that benefits are mandated by Treasury Board, and "We'll just not pay FOA" (heard that one a few times) would be disobedience of an order?

I still insist that we should eliminate waste and inefficiency, and redirect the savings towards equipment procurement.  But at least now I understand why certain things are the way they are.  (Some people on here may remember how bitter and frustrated I was in my posts here about the amount of money being wasted, lol)

 

[CBH99]

Never once did I claim to know everything, so not sure where that comment came from.

But anyhow, as E.R. Campbell stated...DND is required to spend 98.5% of its budget, and is only allowed a 1.5% carryover to the next fiscal year.  And as others have stated in this thread also, many things tend to be purchased near the end of the fiscal year in order to satisfy expendature figures.

And from the recommendations we reviewed by the group, some DND vehicles were insured - and insured at a very high price.  (In 41 CBG, anyhow.)  There were vehicles insured by reserve units that never left the vehicle pool, and these were highlighted throughout the findings.

I'm not claiming to know everything, and I have no idea why you seemed to think so.  All I'm stating is that the way the finances are run makes more sense now, since DND isn't treated the same as other government departments in regards to carryover funds.  And while I stated I did not understand why some of the funds were used the way they were, it makes more sense now that others on the board have explained the required use of a percentage of the budget. 

Whatever the case, it certainly wasn't intended that way - and I think most people on this board could agree that some funds could be used more efficiently than they are now.

 

[dapaterson]

I apologize for coming across a bit strong - it's been a long week, and it's only Tuesday...

But anyhow, as E.R. Campbell stated...DND is required to spend 98.5% of its budget, and is only allowed a 1.5% carryover to the next fiscal year.  And as others have stated in this thread also, many things tend to be purchased near the end of the fiscal year in order to satisfy expendature figures.

Mr Campbell has summarized a complex issue at the DND/Corporate level that has some implications at lower levels.  But it's not a cut-and-dried 1.5% carryforward that is permitted.  There are other elements (some involving annual negotiations with TBS) related to the same issue; at lower levels, it's generally higher levels maintaining asinine "commander's reserves" well beyond any reasonable point, then releasing them once it's too late to take advantage of funding.  Just slimming down those contingency funds would avoid the "March Madness" and provide better value for money (since it's not just the $300M "lost" that's at issue, it's also the value for the remaining dollars expended in the Defence Services Program).

And from the recommendations we reviewed by the group, some DND vehicles were insured - and insured at a very high price.  (In 41 CBG, anyhow.)  There were vehicles insured by reserve units that never left the vehicle pool, and these were highlighted throughout the findings.

If anyone in 41 CBG is carrying insurance on DND vehicles they are morons, breaking rules, and in need of a good inspection by a qualified MSE supervisor and a Fin O, followed by a bit of marching without headdress.  Note that I'm not saying I disbelieve you...

All I'm stating is that the way the finances are run makes more sense now, since DND isn't treated the same as other government departments in regards to carryover funds.  And while I stated I did not understand why some of the funds were used the way they were, it makes more sense now that others on the board have explained the required use of a percentage of the budget. 

DND is in many ways treated with kid gloves compared to other departments.  DND's authorities in many areas are greater than those of other departments; approvals can be done internally that for others might require engaging Cabinet or TBS; and DND's 1.5% (which is a rough guideline, not a hard and fast rule) still represents $300M - a not insignificant sum.  If one removes Reg F pay from consideration in DND's overall allocation, that 1.5% is closer to 2.5%; if we deduct SWE and Res pay and only consider the carryforward as a proportion of O&M and capital funding it's closer to 5%.  DND's recurring inability to plan its expenditures and to prepare both onramps and offramps to take advantage of available funding or defer spending when belts get tight is worthy of criticism, analysis and improvement.

I think most people on this board could agree that some funds could be used more efficiently than they are now.

Definitely.

 

[daftandbarmy]

Before we get out the pitchforks and torches and start besieging all the public sector financial managers out there, I can assure you that private sector financial management is not always the best either. In my experience, public sector financial managers are generally pretty good from an accountability/ethical point of view, especially when the glare of public opinion is always beaming down upon them.

We only need to look around at the current global financial mess to get some sense of how badly messed up other 'big money' managers are.

This concludes your glass half full intermission. And now, back to the tar and feather party!  ;D

 

[retiredgrunt45]

This shouldn't come as a surprise to anyone who is serving or has served. This type of double standard has being going on for years and years. The only people who can fix this is the government and as the present or past governments have shown, no one wants to touch this.

Its also no secret that the privy council doesn't hold DND in high regard. Its been stated time and again by the council that DND is a waste bucket quagmire of wastefullness and mismanagement. With this flaming endorsement by the council, whispering into the Pm's ear, I don't see anything changing anytime soon.

They giveth and they taketh away, some things will never change.

 

[armyvern]

For all those who constantly bring up the "needless" spending at end-FY ... (which has already been pointed out as occuring due to the fact the DND can not carry over to the next FY unlike every other Govnt Dept - "use it - or lose it") ...

The very nature of of our employment and purpose within DND and the CF necessitates that we "keep" money (and lots of it) until the very last week of March. We do that "just in case" - let's just suppose - a major international deployment should be thrust upon us by the Government ... that takes MONEY. Just imagine if DND/CF said to Government ...

"Sorry Mr & Mrs Politician, it may be the 2nd week of March 2004, but we've just don't have the multi-millions left in our budget that will be required to mount that surprise last-minute mission to Haiti, get there within the next 48 hours, evac those Canadians and Peacemake. Please don't forget that it would be illegal for us to overspend what you've allotted us."

It's hard to plan for what we do. It's the nature of our jobs, and we've always got to have millons left (usually spent in the last FY of the year so we don't 'lose it' lest those funds be required for some unforeseen deployment to gawd-knows-where next FY) for that shit that just might hit the fan immediately prior to end-FY. Not too many other Departments out there have to build in that little tidbit into their financial planning figures ... You can plan for the war and the deployment, but you can't plan on which day of the year that shit is going to hit the fan and require money - be it 20 March or 01 April, but politics says "the CF had best have the damn funds there to do it" even if it be 30 Mar.

 

[MarkOttawa]

Sen. Colin Kenny weighs in:

Fix defence bureaucracy
http://www.calgaryherald.com/news/todays-paper/defence+bureaucracy/1630715/story.html

Military stories don't get much play in the media these days. So it was largely overlooked when Auditor General Sheila Fraser reported that the Canadian Forces lost out on $300 million in spending last year on badly needed equipment because of bureaucratic tie-ups at the Department of National Defence.

A few papers picked up on it, but most ignored it.

But the slippage at DND is key to understanding the argument between the Harper government and its critics as to whether the government is spending the money it must if it is going to resuscitate our badly overstretched military...

...maybe it's just lousy management. That is Fraser's best guess. Her report says that due to a lack of "accurate and timely" information for decision-makers, the department had $300 million left in the 2007-08 fiscal year that wasn't spent and could not be carried forward under government rules. (For some reason, these rules only allow one per cent of DND budgeted money to be carried forward, compared to five per cent for other departments.

...I am not expecting any quick responses to Fraser's report. The truth is that--at least so far -- this government has not shown itself to be much more willing than its Conservative and Liberal predecessors at giving Canadians the military they need now and will need in the future [emphasis added--quite].

The committee has been told that after Canada's combat duty ends in Afghanistan, the army will probably have to turn down any more combat assignments overseas until it can rest and rehabilitate. That would mark two shutdowns in six years--unprecedented for any army representing any industrialized country. And the navy is in worse shape, but that's a story for another day.

Either the government is going to have to increase its modest plan to increase military spending by two per cent a year, or cease deploying troops when Canadians' best interests tell it they should be deployed. That's not a reasonable option for any government that wants to be taken seriously on the international scene, but it will be the only option left.

Senator Colin Kenny Is Chair Of The Senate Committee On National Security And Defence. Kennyco@sen.parl.gc.ca

Mark
Ottawa