Opening Statement to the Standing Committee on National Defence and Veterans Affairs

Other Audit Observations—Independent Reviews of Security and Intelligence Agencies
(Chapter 10 - November 2003 Report of the Auditor General)

Other Audit Observations—Government Purchase of Two Challenger Aircraft
(Chapter 10 - November 2003 Report of the Auditor General)

Mr. Chairman, members of the Committee, it is a pleasure to be here with you to discuss two audit observations from Chapter 10 of my November 2003 Report, tabled on February 10. For your reference, the first audit observation, Independent Reviews of Security and Intelligence Agencies, begins at paragraph 10.120 of the chapter; the second one, Government Purchase of Two Challenger Aircraft, starts at paragraph 10.49.

With me today are Ms. Jocelyne Therrien, the Director of the audit work for the security and intelligence observation; and Ms. Wendy Loschiuk, the Principal responsible for the audit work on the Challenger purchase. With your permission, Mr. Chairman, I would like to ask each in turn to present a very brief statement, after which we would be pleased to answer any questions you may have.

JOCELYNE THERRIEN, DIRECTOR

Chapter 10 — Other Audit Observations
Independent Reviews of Security and Intelligence Agencies

Mr. Chairman, thank you for this opportunity to discuss our audit of independent reviews of security and intelligence agencies.

While conducting work for an upcoming report on the Public Security and Anti-Terrorism Initiative, we noted a variety of models for independent review of agencies involved in the gathering of intelligence on Canadians.

Our objective for this audit observation, therefore, was to survey the situation, describe the roles of the various security and intelligence organizations, and assess the extent to which the activities of each undergo review by an independent external agency. We expected that similar levels of intrusion by the various organizations would be subject to similar levels of review.

The Canadian Security Intelligence Service (CSIS) is reviewed by two external bodies—the Security Intelligence Review Committee and the Inspector General, CSIS. Both bodies have legislated access to all information held by the Service except for advice to, and certain discussions between, ministers. This type of access allows the Inspector General and the Security Intelligence Review Committee, for example, to review warrants and determine whether the Service has adhered to the principle of limiting the information it collects to strictly what is necessary.

In comparison, the Commission for Public Complaints Against the RCMP, based on the ombudsman model, cannot undertake broad reviews to determine systemic compliance with the law the way an agency with audit powers would. In fact, the legislation does not provide for random access to RCMP files or to assessments that would enable the Commission to give Parliament assurance about general compliance with the law, especially where appropriate use of intrusive powers is concerned.

The Communications Security Establishment Commissioner, another review body, has a broad mandate but his public reports focus primarily on the lawfulness of that organization's actions and make few observations on management issues.

There are still other intelligence gathering agencies that are not subject to any independent review. These agencies are involved to varying degrees in the actual collection of security intelligence. There is a distinction to be made between their respective powers to collect and the powers they actually use.

For example, Customs intelligence officers can use intrusive means, but this is usually in the context of alleged smuggling activity. And National Defence focuses on threats to its installations and personnel; its covert investigations are usually limited to employees of the Department. The Financial Transactions and Reports Analysis Centre of Canada receives information and analyzes it but does not actively collect security intelligence.

Now, Mr. Chairman, Ms. Wendy Loschiuk will brief you on the second audit observation.

WENDY LOSCHIUK, PRINCIPAL

Chapter 10 — Other Audit Observations
Government Purchase of Two Challenger Aircraft

The second topic for discussion today is our audit observation on the purchase of two Challenger planes by National Defence to replace two older aircraft in its Administrative Flight Services fleet. These newer aircraft are used for VIP travel. The government could not demonstrate that it exercised due diligence in awarding this contract or that it achieved best value.

We found that the decision was made to buy these planes before the responsible departments had time to analyze the need and the cost and to explore other options. The decision to purchase the jets by the end of the fiscal year was made in mid-March, bypassing the steps established to achieve best value.

We noted that neither National Defence nor Transport Canada had been concerned about deficiencies in the fleet; in fact, its reliability and availability were both close to 100 percent. The older VIP aircraft had experienced some mechanical problems, but they were not considered to be unsafe. Indeed, National Defence is still using them. We recognize that new aircraft may offer improvements in performance, but without a clear assessment showing what improvements were needed, one can only guess whether buying these particular planes was the best option.

In any case, however, the government has not demonstrated a clear case for awarding this contract on a sole-source basis. The Government Contracts Regulations define four exceptions under which sole-source contracts are permitted. This contract was based on two exceptions—urgency and compatibility with the existing fleet.

The government did not show that an unforeseen urgency existed. Nor could we find any evidence of a disadvantage had the government not bought these aircraft before March 30, 2002, the deadline imposed by the contractor.

The government argued that only Challenger 604 aircraft would be compatible with the existing fleet. However, factors against which compatibility could be measured were never defined. Furthermore, government officials had warned that using compatibility as a justification for awarding a sole-source contract in this case was a high-risk strategy—that is, if challenged it would be difficult to defend the position that the Challenger 604 was the only compatible option. If, as the government said, improved performance was needed, it could be argued that other planes could have offered increased flying range, shorter runway access, or better operating costs. No analysis was done to demonstrate that these improvements could be met only by the chosen aircraft.

Mr. Chairman, the purchase of these aircraft for the VIP fleet is another example of government's failure to follow its own rules—in this case, its procurement policies and procedures. The decision to spend close to $100 million was made in the space of nine days. This did not give the responsible departments a chance to look at their requirements or review how best to improve the capabilities of the fleet.

We don't believe the government demonstrated due diligence or due regard to economy in making this purchase. It's difficult to see how good procurement practices could have been followed in the rush to complete the purchase before the end of the fiscal year.

Mr. Chairman, this concludes my comments. The Auditor General will now conclude.

SHEILA FRASER, AUDITOR GENERAL OF CANADA

Mr. Chairman, there are a few points arising from these two audit observations that I would like to address. Firstly, even though there were no specific recommendations regarding the Challenger, the government disagreed with the conclusion that policies and practices were bypassed; it considered that the purchase was managed appropriately. We are concerned about this position because it leaves the door open for the same thing to happen again.

Secondly, in the case of our observation on the security and intelligence agencies, after our work was completed the government announced the creation of a mechanism for an independent review of the RCMP's national security activities. Parliament might want to extend the analysis to others to ensure that all agencies collecting security intelligence are subject to appropriate levels of external review and disclosure.

Mr. Chairman, that concludes our opening remarks. We would be pleased to answer any questions.