Opening Statement to the Standing Committee on Public Accounts

Fisheries and Oceans — Fleet Management
(Chapter 31 - December 2000 Report of the Auditor General)

Thank you, Mr. Chairman, for this opportunity to discuss Chapter 31 in our December 2000 Report. Joining me at the table today are John O'Brien and Kevin Potter from our regional office in Halifax.

In Chapter 31, we concluded that the Department was not managing its fleet cost-effectively.

This finding concerns us because the fleet plays a major role in providing services that are important to many Canadians. These services include aids to navigation, icebreaking, marine search and rescue, and marine environmental response. The fleet also supports the Department in conducting science and enforcement activities.

The fleet represents a significant portion of the Department's ongoing operational costs. In 1999-2000, the Department spent about $229 million on operations, maintenance, and capital replacement of the fleet. In addition, it spent an estimated $52 million on shore-based support.

Our audit focussed on the 47 large vessels that operated during 1999-2000 and that regularly incur between 70 and 80 percent of the operating costs of the fleet.

Our report focussed on three areas—organization and accountability, vessel life cycle management, and human resource management. I would like to highlight our main concerns in these areas.

The fleet is not a stand-alone organization in the Department. Reporting relationships are complex. There are many players-at headquarters and in the regions, both in the fleet that provides services and in the programs that use these services. These players influence decisions on the Department's fleet activities.

We found that important elements, which could make these organizational relationships work effectively, were either weak or missing altogether. For instance:

• program performance expectations for the fleet were short term, unclear, or unrealistic;
• the funding horizon was for only one year, even though the fleet is a capital-intensive activity with high fixed costs;
• it was difficult to determine how amounts budgeted for the fleet were actually used in the regions;
• there was inadequate information to monitor and account for fleet performance; and
• the method of allocating costs to programs discouraged vessel use.

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

I would now like to highlight our concerns about life cycle management. Essentially, life cycle management is intended to manage the total cost of ownership of an asset over its lifetime. In 1995, the government required that all departments manage their materiel resources, including vessels, by using a life cycle approach.

We found that the Department did not have a formal life cycle approach for vessels in place. In the absence of such an approach, we examined how the fleet managed key stages in the life of a vessel.

Our findings include the following:

• There was a wide variation in management and operating practices.
• The capital plan did not represent a realistic or true picture of the fleet's long-term needs.
• There was no national system to regularly monitor the efficiency and economy of vessel use or to determine the results achieved.
• The fleet operated without timely, reliable, and integrated information.
• There was a need for a national approach to vessel maintenance.

Finally, I would like to discuss our concerns about the management of the fleet's human resources. People are the single largest operating expense of the fleet, representing about 79 percent of the operating costs allocated to programs. Our key findings revealed a lack of management focus on human resources:

• There was no human resource plan.
• There were variations in human resource practices among the regions.
• The implementation of collective agreements, when combined with the way in which funding is provided to the regions, constrained management's ability to operate cost-effectively.
• Payroll costs were not regularly monitored.
• The existing shore-based support was too large, given the size of the fleet.

Mr. Chairman, we are pleased the Department has committed itself to developing an action plan with concrete timelines and accountabilities in seven areas. We believe that these seven areas encompass the concerns that we have raised. While we are pleased by the Department's positive response, we have not yet seen a detailed action plan, a year after the audit was completed. I encourage the Committee to seek assurance from the Department that this plan will address our concerns in a timely manner.

Mr. Chairman, while we concluded that the fleet was not managed cost-effectively, correcting this problem may not result in major savings. In fact, the fleet was not meeting important program requirements. Therefore, I believe that our recommendations will help the Department to address the shortfalls of its programs and improve service to Canadians.

Mr. Chairman, that concludes my opening statement. My colleagues and I would be happy to answer any questions from your Committee.