Opening Statement to the Standing Committee on Public Accounts

National Defence — NATO Flying Training in Canada
(Chapter 4 - 2002 Status Report of the Auditor General of Canada)

26 February 2003

Sheila Fraser, FCA
Auditor General

Mr. Chairman, thank you for the opportunity to meet with the Committee to discuss our September 2002 Status Report chapter on the NATO Flying Training in Canada program. With me is Hugh McRoberts, Assistant Auditor General and Wendy Loschiuk, Principal, who are both responsible for our audits of National Defence.

We first reported on this program and others in our 1999 Report, Chapter 27, National Defence—Alternative Service Delivery. While we followed-up on most of that chapter in 2001, the size and nature of this program warranted separate attention.

Our follow-up audit in 2002 focussed on the management and implementation of this $2.8 billion program during its first two years of operation. We expected that military pilot training would be delivered as specified in the contract and in a cost-effective way.

We reported that National Defence had used about 41 percent of the training it had paid for. The difference between what was paid for and what was used was about $65 million dollars. The Department views this, in essence, as a prepaid expense. Therefore, we believe it is important for the Department to demonstrate to Parliament that this expense is accounted for and value recouped.

Better contract management up front may have helped prevent some of the problems encountered later. Even though this program had many characteristics of a major Crown project, it was treated as a service delivery contract. No risk management process was set up and no system to assess performance. However, we were glad to see by the end of our audit that Public Works and Government Services Canada was making some changes that were consistent with managing a major Crown project.

Putting in place a solid governance arrangement would be a good first step toward resolving some of the management issues. And at the time of our audit, the Department was considering changes to the program's management and accountability framework. We would like to see a plan that guides the management of this program from a focus on start-up to a focus on steady-state operations.

We did find that National Defence, Public Works and Government Services Canada, and the contractor were working to find solutions to outstanding problems. While the Department of National Defence and the contractor have stated that all concerns about unused training will be resolved in the future, we remain to be convinced. During our audit, it was not clear when National Defence would get the remaining training or if it would get it without some additional costs. We believe that Parliament should be given clear explanations as to how these concerns are being resolved.

Long-term contracts like this one should have some flexibility to accommodate changes when and if they happen. It's hard to imagine that needs will not change by 2019. One cannot be certain that the Air Force will have the same pilot-training needs in 10 years that it had in 1998, when the contract was signed. Nevertheless, that's what the Department is committed to and if changes are needed down the road, then all parties will have to sit down and renegotiate the contract.

The Committee might want to consider asking National Defence questions such as these:

• Is there an agreement in place with the contractor to draw down the $65 million in prepaid training expenses?
• How will the Department ensure that all future training it has paid for will be used?
• How will it report on the program's performance?
• Has the Department documented the lessons learned from this program and prepared an action plan as it indicated it would in its response to our recommendation?

Mr. Chairman, this concludes my statement. We would be pleased to answer any questions.