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

Upgrading the CF-18 Fighter Aircraft
(Chapter 3 - November 2004 Report of the Auditor General)

Management of Federal Drug Benefit Programs
(Chapter 4 - November 2004 Report of the Auditor General)

Mr. Chairman, thank you for this opportunity to discuss two chapters of my November 2004 Report—Chapter 3 on upgrading the CF-18 Fighter Aircraft, and Chapter 4 on the management of federal drug benefit programs. With me today are Hugh McRoberts, Assistant Auditor General; Wendy Loschiuk, Principal responsible for the National Defence audits; and Frank Barrett, Director of the audit on the federal drug benefit programs.

Chapter 3 focusses on the $2.6 billion program to address capability deficiencies in the CF-18 fleet. As you know, this is a two phase program. Phase 1 is underway, and Phase 2 should start in 2006. We looked at how well Phase 1 is progressing, how the money is being spent.

We examined the CF-18 upgrade because

• first, it is a major expenditure of the government; and
• second, findings from previous audits of National Defence indicated that this project could be at risk.

From earlier statements, I think you know that, overall, I am satisfied with the results that National Defence has achieved so far in this program. Phase 1 is within costs, and the aircraft that are currently coming off the production line are meeting the expectations of the Department. In fact, upgraded aircraft are now being flown at Canadian Forces Base Cold Lake and Base des Forces Canadienne Bagotville.

Of course, the program is not without its problems, and we found that there are delays in two of the upgrades—the simulator acquisition and the cockpit display. Staff shortages and problems in getting projects approved contributed to these delays. National Defence needs to improve its project and risk management to better cope with problems that cause delays. In that sense, the upgrade of the CF-18 is not unlike other major equipment projects we have looked at.

For example, in 1998 we looked at six major equipment purchases at National Defence and found that the Department needed to improve project management and the way it identified and managed risks. We followed up on our 1998 audit two years later and were encouraged by the improvements that had been made. Yet in 1998, in 2000, and again in 2004, we consistently found that National Defence cannot ensure that the right people, with the right skills are available for major equipment projects.

Nevertheless, the CF-18 project team worked very hard to get Phase 1 of the modernized aircraft into operations. Phase 2, however, could be more challenging to manage. I would like to see the Department strengthen its ability to manage the difficulties that it could reasonably expect to encounter in Phase 2 or in any major acquisition project. Senior management needs better information on how well projects are performing and on whether risks are being addressed.

Phase 2 should be completed by 2009. After that, the Air Force expects to get at least eight years of flying time with its upgraded fighters. If the upgraded aircraft are not in service by 2009, the Air Force will not be flying these aircraft for the expected eight years. The longer these aircraft can be used in their modernized version, the more value the Air Force will get out of them. Therefore, National Defence should be assuring this Committee that it will be able to deliver fully upgraded aircraft on time.

Once these aircraft are fully modernized and delivered to the squadrons, there should be assurances that the Air Force will optimize their use. That is, there should be pilots to fly them, technicians to keep them maintained, spare parts, and funding.

We expressed concern before about the shortage of maintenance technicians for the Canadian Forces. In 2001, we reported that there were too few technicians for the jobs required, and many that were available did not have the qualifications needed. And in 2002 I reported on the shortage of pilots. I am still concerned but encouraged by the Department’s response that it is putting additional funding into training for more technicians and recruiting more pilots.

Now, let me turn to Chapter 4 on the management of federal drug benefit programs. The use of pharmaceutical drugs is a fact of life for many Canadians and has fundamentally changed the face of health care. Federal drug programs spent $438 million in 2002-03, funding drug benefits for about one million Canadians. The cost of these programs has risen 25 percent over the past two years.

Six federal organizations manage drug benefit programs: Health Canada for First Nations and Inuit, Veterans Affairs Canada for veterans, National Defence and the RCMP for their members, Citizenship and Immigration Canada for certain designated classes of immigrants, and Correctional Service Canada for inmates of federal penitentiaries and some former inmates on parole.

Recognizing this Committee’s interests, I will focus on the programs of Veterans Affairs Canada and National Defence. Veterans Affairs Canada has the second largest federal drug benefit program. In 2002-03, it provided benefits to 133,400 veterans, and filled over 4 million prescriptions at a cost of $106 million.

In the Veterans Affairs program, we found some areas for improvement but also some good practices that could be models for other departments. For example, the Department has a system that alerts pharmacies if multiple narcotics or multiple benzodiazepines are being dispensed at the same time. The Department also conducts various types of retrospective analysis. In contrast, Health Canada’s alert system does not send these alerts and has stopped conducting retrospective analysis.

Our report found that greater attention needs to be focussed on the drug use patterns of clients who are seniors, the majority of whom are veterans. Our audit found almost 9,000 senior clients taking two or more high-risk drugs at the same time and 4,000 who were prescribed 10 or more drugs at the same time. Neither Veterans Affairs Canada nor Health Canada analyzed their data for these patterns.

With respect to cost, we found that Veterans Affairs Canada approves drugs in a less restrictive fashion than is recommended by the Federal Pharmaceutical and Therapeutics Committee. It also approved at least 18 drugs that were not reviewed by the Committee.

We also found that Veterans Affairs Canada spent $21 million in 2002-03 on the top 20 drugs used in Canada. If it had used the best prices and purchasing practices of British Columbia and Quebec, it could have saved 32 percent. The federal drug programs also paid higher dispensing fees than the provinces.

National Defence has the third largest federal drug program. Although its program is considerably smaller than those of Health Canada and Veterans Affairs Canada, in 2002-03, it provided prescription drugs to 61,600 soldiers at a program cost of $16 million.

We found that National Defence has been proactive in pursuing cost savings. It closely follows the advice of the Federal Pharmacy and Therapeutics Committee, restricts the availability of many drug products, and obtains the drugs it most commonly uses at negotiated prices. It also uses reference-based pricing.

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