Auditor General Fraser slams chopper buys

The federal government did a good job of rolling out the economic stimulus plan and many other services and programs, but failed to properly manage two purchases of military helicopters, says Auditor General Sheila Fraser.

Auditor General Sheila Fraser's report on Tuesday praised the handling of economic stimulus programs but questioned the purchase of helicopters. (Fred Chartrand/Canadian Press)

"I am pleased that many of our findings are positive," Fraser said Tuesday at a news conference before her fall 2010 report was tabled in Parliament.

The audit probed nine areas of government programs and services, including:

• The rollout of the roughly $61-billion budgetary stimulus package in 2009 (branded by Stephen Harper's Conservatives as Canada's Economic Action Plan).
• Regulation of Canada's large banks.
• Managing conflict of interest in government.
• Administering tax laws as they relate to charities.
• The recent acquisition of military helicopters.

The findings on the helicopters stand out against the positive findings in most other areas, the report said.

The previous Liberal government initially ordered 28 Sikorsky Cyclone helicopters to replace the Canadian Forces' aging fleet of Sea Kings for $1.8 billion. There was also a $3.2-billion contract to provide setup and long-term support.

Delivery of the first Cyclone was first expected in 2005, was then delayed until 2008 and is now expected to occur in 2012. During that time, the cost has also risen to $5.7 billion, including training, setup and long-term maintenance.

In 2005, the government announced plans to purchase new medium- to heavy-lift military helicopters. Boeing was awarded the contract to provide 15 "Canadianized" Chinooks. Boeing's original directed contract was valued at $1.4 billion, but the total cost, including setup, training and maintenance, is now expected to be $4.9 billion. And the first fully capable helicopter is scheduled for delivery in 2013, five years later than planned, the report said.

Helicopter purchases broke rules: auditor

The audit found that the Department of National Defence did not follow some of its own rules in the purchases. Total costs weren't disclosed to the Treasury Board at key points, and decisions were made without the required oversight and challenge by management boards within National Defence.

The auditor general's report raised alarm bells about military purchases to come. The Canadian government plans to spend $16 billion on new F-35 fighter jets. (Northrop Grumman)

The Department of Public Works and Government Services Canada used an advanced contract award notice, or ACAN, for the Chinook deal, the report noted.

"The manner in which [the agency] used the ACAN did not comply with the letter or intent of … regulations and policies and, consequently, the contract award process was not fair, open and transparent," Fraser said in the report. The ministry disagrees with that conclusion.

Defence also underestimated the complexity of the helicopters it wanted to buy, which led to delays and cost overruns.

"After lengthy delays and significant cost increases, National Defence still has not completely estimated what it will cost to operate these helicopters," Fraser said. "Nor has it put in place all the elements, such as personnel, needed to maintain them over the long term. This is cause for concern."

Fraser largely took issue with the process of how the contracts and purchases were made. "To put these developmental projects at a low- to medium-risk level is totally inappropriate," she said.

At the news conference prior to tabling, she was also asked about the government's recent purchase of F-35 fighter jets and asked what lessons might be learned from the helicopter deals. "I would hope that nobody is assessing those as low risk," she said.

In July, the government announced that Ottawa would buy 65 F-35 fighter jets from Lockheed Martin to replace the country's aging fleet of CF-18s. Liberals have slammed the Tories not just for the price tag — at least $16 billion when contracts for support and maintenance are factored in — but because Lockheed Martin was awarded the contract with no competition.

'This is cause for concern.' —Sheila Fraser on helicopter purchases

Liberal Leader Michael Ignatieff continued that refrain outside the House on Tuesday, arguing the tendering process was flawed and needs to be re-examined.

"There's $16 billion of taxpayer money at stake here. We think he should go back to the drawing board," Ignatieff told reporters. "Why don't we learn from the mistakes the AG said we made on the helicopters?"

The subject also figured prominently in question period on Tuesday. Liberal MP Siobhan Coady said Fraser's report shows the Conservatives "broke every rule in the book" on the helicopter purchases.

Defence Minister Peter MacKay replied that he met with Fraser last week to discuss her findings and hear her "constructive" recommendations.

"All of her recommendations have been accepted and will be acted upon," MacKay told the House.

High marks for economic stimulus

Aside from the helicopter deals, the report's findings in most other government departments probed were largely positive. On the subject of the roughly $61-billion economic stimulus plan, which the government unveiled in early 2009, adequate measures to speed the rollout of funds were taken, and adequate attention was paid to risk by implementing suitable controls, the report found.

"I think officials deserve congratulations for rolling out such a major program quickly, without resorting to throwing needed regulations and safeguards out the window," Fraser said in French at the news conference.

The report only examined how 11 of the 90 programs in the plan were designed, and the steps taken to ensure only eligible projects were green-lighted. A second audit to be unveiled in about a year's time will focus on the delivery of those programs and whether they were completed as intended.

The audit found that all the approved projects that were examined met the eligibility criteria set out in the program terms and conditions.

"Departments and central agencies worked hard to accelerate their selection and approval processes and put in place the appropriate controls," Fraser said. "We are pleased to see the role that internal audit played."

In question period on Tuesday, NDP Leader Jack Layton said the report shows too many stimulus projects started late and are running behind schedule, while the Conservatives "ran rough" over the environmental assessment process.

The need to replace Sea King helicopters, one of which is shown landing in a field in Nova Scotia in 2010, was first identified in 1975, the auditor general's report said Tuesday. (Phonse Jessome/CBC)

"In most cases, nobody went down to look at the sites," Layton told the House.

Speaking for the Conservatives while Prime Minister Stephen Harper is abroad, government House Leader John Baird said Fraser's report "speaks well" to public servants and the job the federal government did on the stimulus program.

Baird also challenged Layton to name a single case among the 23,000 approved stimulus projects that contained an environmental problem, to which Layton retorted: "Someday they'll be back on this side of the House and then they can ask the questions."

Sound banking

Elsewhere, the audit found that Ottawa has appropriate practices in place to regulate and supervise the country's large banks.

Specifically, the audit found that the Department of Finance and the numerous regulatory bodies that supervise Canadian banks regularly share information, and that was especially helpful during the financial crisis, when the global economic situation was changing rapidly.

Canadian banks fared relatively well during the financial crisis of 2008 and 2009, and experts have attributed that in part to the country's approach to regulation.

Canada Revenue Agency praised on charities

In another chapter, the audit found that the Canada Revenue Agency does a good job of ensuring that the country's 85,000 registered charities comply with Canadian tax law, and that the public is kept informed of that.

Specifically, the CRA makes "reasonable arrangements" to warn taxpayers about tax shelter gifting arrangements, in which a taxpayer makes a donation to an entity only to receive a tax receipt for a sum greater than the initial donation.

The agency has vowed to audit everyone involved in any such arrangement, and has thus far kept to its word — more than $2 billion in charitable donations have been denied under the policy.

While the majority of the audit's findings were positive, each chapter contains recommendations meant to support efforts and continue improvement, the report noted.

Fraser will end her 10-year term as Canada's auditor general in May. The government has already begun the search for her replacement.