Audit of Fleet Asset Management

Project Number 6B215
Audit Report
December 2011

Table of Contents

1.0 EXECUTIVE SUMMARY

Under Fisheries and Oceans Canada’s 2011-12 Program Activity Architecture the Fleet Operational Readiness Program is depicted as a program activity comprised of the following sub-activities: fleet operational capability, fleet maintenance and fleet procurement.  The audit of Fleet Asset Management focused on the fleet maintenance and fleet procurement sub-activities. 

Based on our audit work, Fleet Asset Management is generally adequate; however, some areas for improvement were identified.  The following summarizes the audit findings and areas for improvement with respect to Fleet Asset Management.

Strategic Direction – Life-cycle asset management decisions are being made without complete information on future requirements for Fleet assets.

Acquisition of Fleet Assets – Roles and responsibilities for vessel procurement have not been clearly defined.  In addition, the Canadian Coast Guard does not have permanent funding to support the delivery of vessel procurement activities but relies on funding from existing procurement projects, thus providing flexibility in managing procurement activities. 

Maintenance of Fleet Assets – Maintenance plans are developed in significant detail; however, once approved, there is a lack of national oversight; reporting requirements are minimal; and regions operate autonomously to implement their plans.  Furthermore, maintenance plans are developed with no provision for non-scheduled maintenance.  The audit found that little second line maintenance, which includes repair and overhaul, is being carried out by Coast Guard personnel due to limited time and capacity to carry out such maintenance activities. 

Information Management – There are two separate information systems for maintenance management and multiple systems are being used for the management of materiel; collectively, these cannot provide complete and accurate data on maintenance or inventory holdings to adequately support decision making.

The report makes a number of recommendations, which, when implemented, will improve and enhance the Canadian Coast Guard’s ability to manage Fleet assets.

2.0 BACKGROUND

The Fleet Operational Readiness Program provides safe, reliable, available, and operationally capable vessels, air cushioned vehicles, helicopters, and small craft with competent and professional crews ready to respond to on-water and maritime-related requirements.  The Program is comprised of the following sub-activities: fleet operational capability, fleet maintenance and fleet procurement.  This audit focused on the fleet maintenance and fleet procurement sub-activities as these represented areas of higher risk in terms of governance, materiality and reliability of vessels. 

Fleet Procurement

The fleet procurement sub-activity manages the acquisition of new vessels, air cushioned vehicles, helicopters and small craft, and is undertaken by both the Integrated Technical Services and Major Crown Projects Directorates of the Canadian Coast Guard Agency.  Since the implementation of the Fleet Renewal Plan in 2005, the Canadian Coast Guard has embarked upon a series of major vessel procurement projects to address the most urgent requirements of the Fleet.  In recent federal budgets, the Agency has received $1.4 billion to acquire up to 14 new large vessels, including a polar icebreaker. 

The Major Crown Projects Directorate was established in 2006 to act as a centre of excellence for the management of fleet renewal projects.  In 2010, the position of Deputy Commissioner, Vessel Procurement was created to ensure the effective and efficient delivery of the Canadian Coast Guard’s investment and procurement activities. 

Fleet Maintenance

The fleet maintenance sub-activity includes the management and delivery of maintenance services during the operational lives of the Fleet assets.  Integrated Technical Services is responsible for the maintenance aspects of life-cycle asset management of the Canadian Coast Guard vessels.

3.0 AUDIT OBJECTIVE

The overall audit objective is to provide assurance that the Fleet’s asset base is being adequately managed to ensure its sustainability into the future to efficiently and effectively deliver the Fleet Operational Readiness Program.

4.0 AUDIT SCOPE

This audit focused on the management of the Fleet's assets through the asset life-cycle focusing primarily on procurement, maintenance and disposal of vessels, air cushioned vehicles and helicopters during fiscal years 2009-10 and 2010-11. In order to understand the evolution of some activities, a review of information prior to this period was required to provide sufficient context to the area being examined.

5.0 AUDIT APPROACH

The audit team carried out its mandate in accordance with Treasury Board’s Policy on Internal Audit and the Internal Audit Standards for the Government of Canada.  The audit employed various techniques including a risk assessment of the audit entity, interviews, as well as reviews and analysis of documentation and information. 

6.0 AUDIT FINDINGS

This section provides the observations and recommendations resulting from the audit work carried out.  While the audit was conducted based on the lines of enquiry and audit criteria identified in the planning phase, this report is structured along the following main themes:

  • Strategic Direction
  • Acquisition
  • Maintenance
  • Information Management

6.1 STRATEGIC DIRECTION

The Canadian Coast Guard plans the renewal of Fleet Operational Readiness assets based on two overarching planning processes:  the first being the Integrated Investment Plan, and the second being the Fleet Renewal Plan.  The Integrated Investment Plan determines the capital investments that are required to be made in support of achieving the Department’s priorities and strategic outcomes.  The Fleet Renewal Plan outlines the future requirements of the number, classes and mix of vessels and helicopters that will be required for fleet operations in the future.  The information contained in these plans helps to operationalize the strategic direction of the Fleet in the future and has a significant impact on life-cycle management decisions including those relating to design, acquisition, maintenance and disposal activities. 

Observations
Moderate Risk

6.1.1 Fleet Renewal Plan

Life-cycle asset management decisions are being made without complete information on future requirements for Fleet assets.

The Fleet Renewal Plan, which is an evergreen document, has received departmental approval on a number of occasions, once in 2005, again in 2006 and subsequently in 2009.  The Plan is currently in the process of being updated to reflect the future requirements of the Canadian Coast Guard.

While some individuals within the Coast Guard have been engaged in the decision-making process for the Fleet Renewal Plan, the audit found that not all of those having responsibility for maintenance and disposal of Fleet assets (i.e., Integrated Technical Services, regionally and at Headquarters), were aware of what has been identified as the requirements, capabilities and mix of assets in the future.  This may have resulted in decisions regarding in-service support (maintenance and refit) being made without the benefit of complete information on the life-cycle of fleet assets.

Recommandation Management Action Plan
R-1. It is recommended that the Commissioner, Canadian Coast Guard ensure information relating to the future requirements for Fleet assets be shared with those responsible for life-cycle asset management decisions.

All members of the Canadian Coast Guard Management Board will exercise their influence and guide the life-cycle asset management of Canadian Coast Guard vessels.

This will be done via participation in planning discussions, resolution of unplanned maintenance issues and configuration change requests.  All members of the Board will be made aware of Fleet planning activities.

Office of Primary Interest: Commissioner, Canadian Coast Guard
Due Date: June 2012 
Moderate Risk

6.1.2 Integrated Investment Plan

The Canadian Coast Guard's capital budget is not sufficient to cover ongoing maintenance requirements.

In 2009-10, the Canadian Coast Guard developed its own Integrated Investment Plan which lays out the planned investment activities within its major capital envelope over the 2010-11 to 2014-15 timeframe.

The Canadian Coast Guard is provided with an annual Major Capital Budget of $129.4 million, most of which is committed to maintaining the key assets required to deliver its programs and services.  Approximately $54.4 million of its major capital budget is allocated to vessel maintenance and refit.  This major capital budget of $129.4 million is not sufficient to cover the maintenance and refit requirements of the current Coast Guard assets.  In 2011-12, the known maintenance and refit requirements are expected to exceed the budget by at least 23%.  The risk of not having sufficient funds to meet its maintenance and refit requirements is managed through the process in place for allocating funds to the annual plan.  Vessel maintenance and refit requirements are rolled up in each of the regions and assigned priority based on the nature of the requirement (e.g., regulatory or operationally essential) and the professional judgment of regional staff.  Regional requirements are then finalized through a process of negotiations among Fleet and Integrated Technical Services staff at the Marine Engineering National Management Committee.

Management Response

The Canadian Coast Guard manages the risk of an insufficient capital budget by establishing priorities for those expenditures as managed by the Canadian Coast Guard Investment Management Board. Regulatory requirements and health and safety issues are highest in those priorities. In some cases, the insufficiency of the budget has resulted in the removal from service of Canadian Coast Guard assets. To date, such removals have not resulted in changes in the Canadian Coast Guard levels of service.

6.2 ACQUISITION OF FLEET ASSETS

Observations
Moderate Risk

6.2.1 Roles and Responsibilities

The responsibility for the acquisition of vessels has not been clearly defined.

In 2003, the Canadian Coast Guard developed a Life-Cycle Management System Policy to create a single technical community responsible for the life-cycle management of its physical assets. At that time, the Integrated Technical Services Directorate was responsible for managing all aspects of the asset life-cycle. However, with the establishment of the Major Crown Projects Directorate in 2006, the responsibility for procurement was split between the two directorates. The Major Crown Projects Directorate was charged with the responsibility for all major crown vessel procurement projects valued in excess of $100 million as per the Treasury Board Policy on the Management of Major Crown Projects, and Integrated Technical Services for all remaining vessel procurement.

Since 2007, there have been changes in the Treasury Board policies related to procurement and project management. The Treasury Board Policy on the Management of Major Crown Projects is being rescinded and replaced by the Policy on the Management of Projects. Departmental project approval limits will now be based on the Department's project management capacity which is determined by the new Standard for Project Complexity and Risk.

In 2010, the position of Deputy Commissioner of Vessel Procurement was created to help ensure the effective and efficient delivery of its investment and procurement activities which include providing strategic leadership for the planning and advancement of the Fleet Renewal Plan for the Canadian Coast Guard. The Major Crown Projects Directorate was reorganized and now reports to the Deputy Commissioner of Vessel Procurement..

With these changes, there has not been any clarification or guidance provided regarding the respective roles and responsibilities of the Major Crown Projects and Integrated Technical Services Directorates in the procurement process.

Recommendation Management Action Plan
R-2. It is recommended that the Commissioner, Canadian Coast Guard ensure that the roles and responsibilities of the Integrated Technical Services Directorate and the Vessel Procurement Sector with respect to the procurement of vessels are clearly stated, understood and exercised.

The Commissioner of the Canadian Coast Guard will ensure that roles and responsibilities with respect to the procurement of vessels are clearly stated, understood and exercised.

Office of Primary Interest: Commissioner, Canadian Coast Guard
Due Date: December 1, 2012
Low Risk

6.2.2 Funding

The Vessel Procurement Sector does not have permanent funding to support its delivery of fleet procurement activities and relies on funding from existing procurement projects.

The Vessel Procurement Sector, which includes the Major Crown Projects Directorate, is responsible for the implementation of the five vessel procurement projects listed below. The projects are in various stages of planning or implementation. Each project has received the appropriate project approvals, as well as funding for the acquisition of the vessels.

  • Mid-shore Patrol Vessels - $227 million
  • Offshore Fisheries Science Vessels - $244 million
  • Offshore Oceanographic Science Vessel - $144 million
  • Air Cushioned Vehicle - $27 million
  • Polar Icebreaker - $800 million

The vessels are planned to be put in service at various times between 2011-12 and 2017-18.

In 2010-11, the Major Crown Projects Directorate incurred approximately $12 million, financed from the project budgets, for salaries and other program management expenses in support of the delivery of the vessel procurement program. This financing approach provides the Canadian Coast Guard with the necessary flexibility to adjust the procurement organization to project management needs.

Management Response

The Canadian Coast Guard Vessel Procurement project management is funded from the project budgets. In addition to direct project costs, each project contributes to a core program budget to support common services such as engineering and business support, and executive direction. This allows the Vessel Procurement Sector to maintain flexibility with respect to increasing or decreasing those services as project demands vary. Given the long-term nature of the projects, most staff are indeterminate employees of the Department; this creates a low and manageable risk for the Department given the determinate nature of project funding.

Moderate Risk

6.2.3 Project Management

Vessel procurement projects are not utilizing a consistent approach to project management, including standard procedures for projects.

The Treasury Board provides strategic project and procurement management policy leadership to government departments and agencies, who are in turn responsible for establishing their own policies, processes and procedures to enhance or strengthen those already in place.

In 2004, the Canadian Coast Guard developed a Project Management Methodology that was common across all of its functional programs (Maritime Services, Fleet, and Integrated Technical Services) and was intended to be consistent with existing departmental and governmental policies and principles.

While elements of the project management methodology were being used by the Major Crown Projects Directorate staff, different processes were developed for each project due to the absence of standard procedures.

The Vessel Procurement Sector is currently in the process of developing a policy-based, principle-focused project management framework to allow for the harmonization of all the current practices into a common approach. This initiative could assist in establishing standard processes and procedures for ongoing project management for procurement.

The impact of not having a consistent framework in place for the implementation of vessel procurement projects has contributed to weaknesses in areas such as the development of project risk assessments, project cost estimation and client liaison.

Moderate Risk
6.2.3.1 Risk Assessments

Risk assessments for each of the five ongoing capital projects were completed by Major Crown Projects Directorate staff. The risk assessments that were carried out for the Mid-shore Patrol Vessel, Offshore Fisheries Science Vessel and the Offshore Oceanographic Science Vessel projects concluded that these projects were of low risk.

As a condition of preliminary project approval, two of the projects, Mid-shore Patrol Vessels and the Offshore Fisheries Science Vessels, were required to have independent and comprehensive risk assessments completed. The risk assessment for the Mid-shore Patrol Vessel project, prepared by Major Crown Projects Directorate staff, rated the overall risk for the project as being low. However, the comprehensive risk assessment conducted by an independent company identified and assessed 51 risks and rated the project as being a medium to high risk. The Mid-shore Patrol Vessel project is the only project for which a comprehensive and independent risk assessment was conducted.

Based on the review of project documentation, the audit team concluded that there were no risk mitigation strategies related to time delays for three of the five procurement projects. Of the five projects currently being implemented, the Offshore Oceanographic Science Vessel project experienced delays to date of 33%, the Offshore Fisheries Science Vessel project, 120%, and the Mid-shore Patrol Vessel project, 80%. By not developing adequate risk mitigation strategies for time delays, the Canadian Coast Guard is vulnerable to higher-than-anticipated costs and ineffective delivery of programs.

Moderate Risk
6.2.3.2 Project Cost Estimates

Cost estimates for procurement projects have been a major challenge to the success of the procurement program. Prior to the announcements in the 2005 Federal Budget of funding for the acquisition of new vessels, it had been many years since the Canadian Coast Guard had last been involved in major procurement projects. Because of this, shipbuilding and cost estimation capacity was considered limited in the Canadian Coast Guard. Staff relied on information from various sources, one of which was the cost to build vessels in other countries.

There was no formal methodology used to estimate costs so, in most cases, the cost estimate was considered to be in Rough Order of Magnitude. These estimates did not consider items such as exchange rates, inflation and the costs related to life-cycle asset management.

The initial estimates for the cost of the new vessels were used as the indicative estimates in the Preliminary Project Approval documents.  In two out of five cases, the estimated costs of the procurement projects have increased by 33%, and 31% over their origin al estimates.  A third project, the Mid-shore Patrol Vessels, increased by 55% but the requirement also increased from eight to nine vessels.

New Costing Methodology

A new costing methodology was developed in 2009-10 to support the update to the Fleet Renewal Plan.  The Department’s Chief Financial Officer Sector was involved in the development of the costing methodology and it was also accepted by both the Treasury Board Secretariat and the Department of Finance.

The Canadian Coast Guard engaged a marine consulting and technical management group to provide a third-party review and validation of the vessel costing methodology.  The third party concluded that “the costing model as it stands will give a reasonably accurate order of magnitude estimate and with a bit more refinement could give a more accurate cost estimate.”  The third party made a number of recommendations to enhance the methodology, including those related to project contingencies and foreign exchange. 

While the use of a third party to validate the costing methodology demonstrates due diligence on the part of the Canadian Coast Guard, the third party was faced with a number of constraints in carrying out its review, such as access to all necessary information.  However, with the implementation of the recommendations and continued refinement by the Canadian Coast Guard, this is considered to be a major step forward in the costing process.

Moderate Risk
6.2.3.3 Client Liaison

Roles and responsibilities for those involved in the implementation of procurement projects are not always clear or understood, particularly as they relate to receiving input from the ultimate users of the vessels being acquired, namely the Oceans and Science, and Ecosystems and Fisheries Management sectors.

The Project Director is the liaison for questions and concerns on behalf of the Fleet, as well as serving as a contact point for the sectors.  The sectors expressed concerns to the audit team about their perceived lack of involvement in the conception and design phases of the new vessels.  They indicated that Project Directors rarely sought their input and they would send input on the procurement projects through other channels, such as directly to the Project Manager.  

This lack of clarity about roles and responsibilities could be due to the lack of continuity in the position of Project Director for many of the projects.  One project had as many as seven Project Directors over a period of six years, making continuity and the establishment of good client relations difficult.  While the roles and responsibilities of the Project Director are set out in the Project Charter established for each project, there remains a lack of clarity over how they are exercised. 

Recommendation Management Action Plan

R-3. It is recommended that the Deputy Commissioner, Vessel Procurement adapt the existing Canadian Coast Guard project management framework to guide the implementation of current and future vessel procurement projects.  The framework should cover all phases of project management and include:

  • Roles and responsibilities;
  • Accountabilities;
  • Oversight mechanisms; and
  • Guidance for development and implementation of rigorous risk assessments for projects.

The Deputy Commissioner, Vessel Procurement is developing a project management framework based on the Treasury Board policies on Investment Planning and on the Management of Projects, and on its Standards for Organizational Project Management Capacity and for Project Complexity and Risk, and linked to the Canadian Coast Guard’s Project Management Methodology.  Those items outlined in the recommendations will be included in this framework.

Office of Primary Interest: Deputy Commissioner, Vessel Procurement
Due Date: March 31, 2012

6.3 MAINTENANCE OF FLEET ASSETS

In 2000, the Office of the Auditor General conducted an audit of the Canadian Coast Guard activities and concluded that it had not managed fleet and navigational services costs effectively.  In 2002 and 2007, the Office of the Auditor General conducted follow-up audits and found that progress had not been satisfactory in addressing the deficiencies noted in the 2000 audit.  Subsequent to the 2007 Office of the Auditor General’s Report, the Commissioner of the Canadian Coast Guard requested that a national review of the Agency’s vessel maintenance program be conducted.  The Vessel Maintenance Management Review made 23 recommendations to improve the management of maintenance.  A three-year action plan was developed and is currently being implemented to address these recommendations.

Observations
Moderate Risk

6.3.1 Roles and Responsabilities

Roles and responsibilities for vessel maintenance are well defined but the role of the ships' crews in carrying out second line vessel maintenance is limited.

The Vessel Maintenance Management Review recommended that accountability, roles and responsibilities for the Fleet and Integrated Technical Services staff involved in vessel maintenance at Headquarters and in the regions be established and clearly defined.  The Canadian Coast Guard addressed this recommendation through the issuance of the Vessel Maintenance Management Manual. 

The Manual clearly defines the roles and responsibilities of all the parties involved in vessel maintenance.

The Vessel Maintenance Management Manual identifies the roles and responsibilities related to first line, second line and third line maintenance.  Second line maintenance includes repairs and overhaul and is to be carried out by Coast Guard personnel with some contract support.

The audit team found that little second line maintenance is being carried out by Coast Guard personnel due to limited time and capacity to carry out such maintenance activities.  The audit team also found that second line maintenance is sometimes included in vessel refit contracts.  In the past, second line maintenance was carried out by ships’ crews when the vessels were sailing or when docked alongside. 

In 2008 a Marine Industry Review, undertaken by the Canadian Coast Guard in the Newfoundland and Labrador Region, found that in private industry, ships’ crews are more engaged in maintenance activities as compared to the Canadian Coast Guard.   

Recommendation Management Action Plan
R-4. It is recommended that the Director General, Integrated Technical Services, in consultation with the Director General, Fleet, examine the approach of having Canadian Coast Guard personnel, including the ships' crews, increase their participation in the execution of second line maintenance.

The Marine Engineering National Management Committee will be tasked to conduct a review of the Continuous Improvement Process of the Vessel Maintenance Management Manual to confirm its relevance and, if required, make recommendations for improvements. The committee members will be tasked to document what best practices they have adopted since the issue of the directives and present these to the Marine Engineering National Management Committee for adoption of best practices at the National level.  This will be a standing agenda item to be reported on annually.

Office of Primary Interest: Director General, Integrated Technical Services
Due Date: September 2012 
Moderate Risk

6.3.2 Planning

An amount of $54.4 million is allocated annually to vessel maintenance and refit from the Canadian Coast Guard's capital envelope of $129.4 million. Included in the $54.4 million is approximately $14 million that comes from the National Capital Spending Plan fund which was initiated in 2003 to help alleviate the worsening condition of Fleet assets.

To initiate the maintenance planning process, the Integrated Technical Services Directorate at Headquarters requests that regions identify all shipboard maintenance requirements which are rolled up into the National Multi-year Maintenance Plan and finalized through a negotiation process. 

Based on the updated National Multi-year Maintenance Plan, the Regional Multi-year Maintenance Plans are developed and managed as a single refit project on an annual basis.  The Multi-year Maintenance Plan contains work packages for each of the vessels. 

Estimates of costs associated with maintenance planning are developed based on professional judgment. The accuracy of these estimates is unknown as Integrated Technical Services does not track actual costs against estimated costs. Some regions have developed their own cost databases but this practice is not consistently applied across all regions. Without historical cost information, it is difficult to both develop and challenge cost estimates presented during the maintenance planning process.

A key input to vessel planning is vessel condition surveys.  However, they are not being carried out on a regular basis.  A survey was carried out on all vessels in 2008-09, which established a baseline for the vessels’ condition that can be updated as new information became available.  However, some individuals questioned the accuracy of the work carried out and the level of detail that went into it. 

Vessel defects and other maintenance requirements are identified through perpetual surveys conducted by the Chief Engineers on-board the vessels.  These perpetual surveys consist primarily of visual inspection, lubricant and vibration analysis.  While the results of such surveys are not formally documented, they contribute to the ship’s defect list and annual maintenance planning.

Moderate Risk

6.3.3 Reporting

Regular detailed reports on the portion of the refit activities funded under the National Capital Spending Plan are submitted to Headquarters allowing them to exercise an oversight function.  However, the audit found that there was little oversight for the remainder of funding for maintenance activities.

Regions manage their refit/maintenance budgets with a great degree of autonomy once the budget is transferred to them from Headquarters.   They are permitted to reallocate funds from their main refit budget as required to cover any maintenance requirements that arise.  There is no detailed reporting on the approved maintenance plan or oversight at the Headquarters level.  Starting in 2010-11, an annual report for this portion of the refit budget was completed with the information being compiled in a national report.  This report documents, at a very high level, the project outcomes and performance against the approved goals and objectives.  The lack of national oversight raises the risk of funds being expended at the regional level, which may not be in line with higher national level priorities.

Moderate Risk

6.3.4 Non-Scheduled Maintenance Requirements

As the entire $54.4 million funding for refit/maintenance activities is allocated to projects based on known requirements, there is no provision for non-scheduled maintenance activities that may arise throughout the year.  The audit team was not able to determine the full extent of the non-scheduled maintenance arising during the year as the information is not tracked or reported at this level of detail. 

Since plans account for 100% of the budget, regions have limited flexibility to reallocate funds for unforeseen maintenance within their own allocations for maintenance/refit.  In 2011-12, regulatory requirements and operationally essential items accounted for 48% and 33% of the approved funding respectively; leaving limited funding that can be reallocated from other planned activities to cover non-scheduled maintenance.

Moderate Risk

6.3.5 Maintenance Funding Requirements

Between the fiscal years 2000-01 and 2010-11, expenditures have not kept up with maintenance and refit requirements. During this time, funding requirements have increased by an average of 12% annually while expenditures have gone up by an average of 9% annually. As maintenance funding stabilizes at $54.4 million, and in the absence of any additional capital funding, the gap between maintenance requirements and funding is expected to increase. In 2011-12, the requirement for maintenance/refit funding was identified as $82.9 million while the amount approved was $62.7 million.

Recommendations Management Action Plan

R-5. It is recommended that the Director General, Integrated Technical Services improve the planning and oversight for major refits/dry-dockings through:

  • strengthening the oversight, at the national level, over the refit/maintenance budget;
  • using vessel condition survey information in planning for maintenance/refit activities;
  • tracking unplanned maintenance activities so that a contingency can be established in the planning process, based on historical trends; and
  • establishing a costing database or system to track actual costs against estimated costs for individual maintenance items.

The new refit program “dashboard” will be used to strengthen the oversight of the refit budget by tracking the variation in planned work vs. actual and cost variations.  The development of the dashboard will be completed and ready for use for FY 2012-13.

The vessel condition information will be updated to include any factors which may impact vessels’ condition scores.  This will include refurbishment work increasing reliability and new information identifying new areas of concern.

Unplanned maintenance activities will be tracked using the Canadian Coast Guard’s Asset Management System and estimated and actual costs will be tracked to ensure the right information is available during the planning activities.


Office of Primary Interest: Director General, Integrated Technical Services
Due Date: March 2013

6.4 INFORMATION MANAGEMENT

The Canadian Coast Guard has two separate information systems for maintenance management and is using multiple systems for the management of materiel; collectively, these cannot provide complete and accurate information on maintenance or inventory holdings to adequately support decision making.

Observations
Moderate Risk

6.4.1 Maintenance Management

The Asset Management System is comprised of two independent commercial-off-the–shelf maintenance management systems: MAXIMO™ and MAINTelligence™.  MAXIMO is used to track maintenance for small vessels while MAINTelligence is used for large vessels.

Summary information is not available on the fleet of vessels using MAINTelligence, as information only exists for each individual vessel.  With MAXIMO, managers can access real-time maintenance management information on any of the vessels, or the entire fleet using the system.

The audit team was informed that, in time, it is the intention to link these two applications to provide key support data for the Coast Guard’s assets.  However, there currently is no capability to easily support a centralized oversight function of maintenance activities.

Recommendation Management Action Plan
R-6. It is recommended that the Commissioner, Canadian Coast Guard assess the appropriateness of having two separate information systems for maintenance management.

A recommendation will be made to the Canadian Coast Guard Investment Management Board on the need to develop and implement the bridge between MAXIMO and MAINTelligence or to convert to a single Asset Management System for all assets.

Office of Primary Interest: Commissioner, Canadian Coast Guard
Due Date: September 2012
High Risk

6.4.2  Inventory Management

While the Canadian Coast Guard has multiple systems for inventory management, there is little to no guidance or direction on their use.  Consequently, the details of its complete inventory holdings are not known.

There are no standards in place to track inventory either on-board vessels or in storage facilities on-shore.  Several methods are currently being used to manage inventory including: MAXIMO for the smaller vessels, electronics and informatics, and some inventory ashore; the Inventory Management System on many of the larger vessels; and spread sheets and Integrated Logistic Support System ashore.

Inventory holdings within the Fleet and Integrated Technical Services are considered material to the Department.  When Integrated Technical Services was asked to report on inventory holdings, some regions were able to report on complete inventory holdings related to the Fleet (on-board ships and in some cases, in storerooms on-shore) and electronics and informatics under their control, while others were only able to report on what was under the control of Integrated Technical Services. 

The inventory information provided to the audit team ranged from a value of $26.8 million in one region, where much information was available, to an inventory valued at $251,000 where no data was available regarding inventory on-board ships.  Some regions estimated that there was at least $1-1.5 million worth of inventory on-board each vessel.  With such a large inventory, there is a risk of theft, obsolescence or misuse of assets if appropriate controls are not in place.

At the departmental level, the Chief Financial Officer has started to address the issue of inventory management across the Department and is in the process of developing guidelines and rolling out a temporary system to be used for inventory management.

Recommendations Management Action Plan
R-7. It is recommended that the Commissioner, Canadian Coast Guard, in consultation with the Chief Financial Officer, identify the information system that is to be used for inventory management and move forward on its implementation.

In consultation with the Chief Financial Officer, an information system for inventory management will be identified.  System implementation is targeted to start in 2012-13.

Office of Primary Interest: Commissioner, Canadian Coast Guard
Due Date: March 31, 2013
Recommendations Management Action Plan

R-8. It is recommended that the Commissioner, Canadian Coast Guard ensure that internal controls are in place for the safeguarding of Coast Guard inventory and include:

  • defining roles and responsibilities of those involved in inventory management;
  • assigning authorities for inventory; and
  • conducting periodic physical counts of inventory on hand.

The Canadian Coast Guard is in the process of developing a working level guide, to be promulgated this fiscal year to assist regions with the implementation of Inventory Management practices, including:

  • defining roles and responsibilities of those involved in inventory management;
  • assigning authorities for inventory; and
  • conducting periodic physical counts of inventory on hand.
Office of Primary Interest: Commissioner, Canadian Coast Guard
Due Date: March 2013

7.0 AUDIT OPINION

The audit found that the management of Fleet assets is generally adequate.  However, improvements in a number of areas, such as roles and responsibilities and the Project Management Framework for vessel procurement, would enhance overall performance.  In addition, weaknessess were noted in maintenance planning and reporting, as well as in maintenance information management and inventory control.

The report makes recommendations to improve and enhance the Canadian Coast Guard’s ability to manage Fleet assets. 

8.0 STATEMENT OF ASSURANCE

In my professional judgment as Chief Audit Executive, sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy of the opinion provided and contained in this report.  The extent of the examination was planned to provide a reasonable level of assurance with respect to the audit criteria.  The opinion is based on a comparison of the conditions, as they existed at the time, against pre-established audit criteria that were agreed on with management.  The opinion is applicable only to the entity examined and within the scope described herein.  The evidence was gathered in compliance with Treasury Board policy, directives and standards on internal audit and the procedures used meet the professional standards of the Institute of Internal Auditors.  The evidence gathered was sufficient to provide senior management with proof of the opinion derived from the internal audit.

APPENDIX A – AUDIT CRITERIA

Based on a combination of the evidence gathered through documentation examination, analysis and interviews, each of the audit criteria listed below was assessed and a conclusion for the audit criteria was determined using the following definitions:

Conclusion on Audit Criteria Definition of Opinion

1

Criteria Met – Well Controlled

Well managed or no material weaknesses noted, controls are effective.

2

Criteria Met with Exceptions – Controlled

Requires minor improvements.

3

Criteria Met with Exceptions – Moderate Issues

Requires improvements in the areas of material financial adjustments, some risk exposure.

4

Criteria Not Met – High Impact – Significant Improvements

Requires significant improvements in the area of material financial adjustments, serious risk exposure.

The following are the audit criteria and examples of key evidence and/or observations noted which were analyzed and against which conclusions were drawn.  In cases where significant improvements and/or moderate issues were observed, these were reported in the audit report.

Audit Criteria Conclusion on Audit Criteria Examples of Key Evidence/ Observation

Line of Enquiry 1 – Governance and Strategic Direction

Criterion 1.1: Roles and responsibilities for fleet asset management in support of the Fleet Operational Readiness Program are clearly defined, assigned, documented and exercised, in accordance with prescribed authorities.

3

6.2.1
6.3.1

Criterion 1.2: Sound accountability framework, policies, procedures, processes and practices are established to guide the planning, approving, budgeting, and implementation of projects.

3

6.2.3

Line of Enquiry 2 – Physical Infrastructure

Criterion 2.1: Fleet assets are available and reliable to support the effective delivery of the Fleet Operational Readiness Program.

2

6.1
6.3

Criterion 2.2: Assets are managed with a clear consideration of asset life-cycle and cost information, with a view to achieving the objective of the organization (an effective capital budgeting process exists).

3

6.1
6.3

Line of Enquiry 3 – Planning and Risk Management

Criterion 3.1: Adequate planning processes are in place to guide investment decisions (procurement and maintenance) and provide strategies, based on risk, for meeting current business requirements and longer-term priorities.

2

6.1
6.3

Line of Enquiry 4 – Results and Performance

Criterion 4.1: Performance measures and indicators are established and aligned with program and Canadian Coast Guard objectives.

1

6.3.2 (Planning and Reporting)
No observation specific to performance measures and indicators were necessary. Strategy is being developed. .

Criterion 4.2: There are adequate processes in place to ensure that information for asset management is reliable and readily available to support decision making.

4

6.3.2
6.4

Line of Enquiry 5 – Partnership and Collaboration

Criterion 5.1: Stable long-term relationships are developed with key third parties to achieve mandate and deliver programs and services. 

1

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