Audit of Fleet Operational Capability

Project Number 6B230
Internal Audit Report
June 2012
Approved on June 1, 2012

Table of Contents

1.0 EXECUTIVE SUMMARY

The Fleet Operational Capability Program is a sub-activity of the Fleet Operational Readiness Program and includes fleet operations, fleet management and the provision of fleet personnel. This program ensures that certificated professionals safely, effectively, and efficiently operate vessels, air cushion vehicles, helicopters, and small craft that are ready to respond to the Government of Canada’s on-water and marine-related needs. The Audit of Fleet Operational Capability focused on Fleet’s services, including fleet operations, management and personnel, during the fiscal years 2009-2010 through 2011-2012.

The audit has found areas for improvement in the management of the Fleet Operational Capability Program. The program does not evaluate and monitor the actual capacity and utilization of the fleet assets to ensure physical and human resources are optimized. In addition, there are areas in the costing methodology used to determine the cost of delivering its services that could be improved. The following summarizes the audit observations with respect to the Fleet Operational Capability Program.

Governance and Strategic Direction

  • The memoranda of understanding, service level agreements or equivalent documents currently in place with existing clients who receive services through the Fleet Operational Capability Program do not always clearly outline Fleet’s roles, responsibilities and accountabilities, and are out of date.
  • An Integrated Fleet Operational Plan has been prepared and implemented; however, it does not address the needs of Fleet’s clients nor does it allow the determination of the actual physical capacity and utilization of the fleet.
  • There is ongoing communication among the oversight bodies, management and the clients. However, communication with clients could be improved.

People 

  • To support the further development of their competencies and the discharge of their responsibilities, employees are provided with varying degrees of training, tools, resources and information across regions.
  • As prescribed in the Fleet Safety and Security Manual, a register to capture and monitor suggestions, complaints and input on safety and security matters to ensure they are addressed in a timely fashion does not exist.

Stewardship

  • There is a risk that the cost projections determined using the National Fleet Costing Model could be inaccurate or incomplete.
  • Regional shortfalls or surpluses for the Fleet Operational Capability Program are not being reported to headquarters which makes it difficult to determine if the Fleet Operational Plan is adequately funded.
  • Actual human resource and fleet asset capacity are not currently being assessed to identify and address any gaps in capacity that could negatively impact the ability of Fleet to effectively and efficiently deliver its services.

Results and Performance

  • A performance measurement framework is in place; however, performance measures are not clearly understood by clients. In addition, fleet capacity and regional utilization of program funds are not monitored to ensure an optimal utilization of fleet assets/resources.

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

2.0 BACKGROUND

The Fleet Operational Capability Program is a sub-activity of the Fleet Operational Readiness Program in Fisheries and Oceans Canada’s Program Activity Architecture. The Fleet Operational Readiness Program is described as providing safe, reliable, available and operationally capable vessels, air cushion vehicles, helicopters and small craft with competent and professional crews ready to respond to on-water and maritime-related needs. The Fleet Operational Readiness Program supports Canadian Coast Guard programs and the activities of Oceans and Science, and Ecosystems and Fisheries Management within Fisheries and Oceans Canada, and the activities of a number of other government departments needing on-water delivery in support of their mandates including the Department of National Defence, Environment Canada, the Royal Canadian Mounted Police, the Department of Foreign Affairs and International Trade, Transport Canada, Natural Resources Canada, and the Natural Sciences and Engineering Research Council of Canada.

The Fleet Operational Capability Program includes fleet operations, fleet management and the provision of fleet personnel. This program ensures that certificated professionals safely, effectively, and efficiently operate vessels, air cushioned vehicles, helicopters, and small craft that are ready to respond to the Government of Canada’s on-water and marine-related needs.

Activities associated with the Fleet Operational Capability Program are guided by a number of international conventions and domestic marine-related regulations which are captured and reflected in the Canadian Coast Guard’s Fleet Safety and Security Management System.

3.0 AUDIT OBJECTIVE

The overall audit objective was to provide assurance that the Fleet Operational Capability Program is adequately being managed to ensure that certificated professionals safely, effectively and efficiently operate vessels, air cushion vehicles, helicopters and small crafts that are ready to respond to the Government of Canada’s on-water and marine-related needs.

4.0  AUDIT SCOPE

The audit focused on the management of Fleet’s services, including fleet operations, fleet management and fleet personnel, for fiscal years 2009-2010 through 2011-2012. In order to understand the evolution of some activities, review of information dating back earlier was required to provide sufficient context to the area being examined. The audit was carried out in Headquarters and in the Pacific and Newfoundland and Labrador regions.

5.0  AUDIT APPROACH

The audit was conducted in accordance with the Treasury Board Policy on Internal Audit and in compliance with generally accepted audit practices. The conduct phase commenced in August 2011 and concluded in January 2012. The conduct phase included a review and analysis of documentation, data and reports related to the Fleet Operational Capability Program; interviews with senior management and related personnel in headquarters; and interviews and focus groups in two regions.

6.0  AUDIT FINDINGS

This section provides the observations and recommendations resulting from the audit work carried out. The audit was conducted based on the lines of enquiry and audit criteria identified in the planning phase which are centered around the following main themes:

  • Governance and Strategic Direction;
  • People;
  • Stewardship; and
  • Results and Performance.

For conclusions by audit criterion, please refer to Appendix A.

Based the audit work performed and our professional judgment, the risk associated with each observation was rated using a three-point scale. The risk ranking (high, moderate, and low) is based on the level of potential risk exposure we feel may have an impact on the achievement of Fisheries and Oceans Canada objectives, and is indicative of the priority that Management should give to the recommendations associated with that observation. The following criteria were used in determining the risk exposure level:

High Controls are not in place or are inadequate.
Compliance with legislation and regulations is inadequate.
Important issues are identified that could negatively impact the achievement of program/operational objectives.
Moderate Controls are in place but are not being sufficiently complied with.
Compliance with central agency/departmental policies and established procedures is inadequate.
Issues are identified that could negatively impact the efficiency and effectiveness of operations.
Low Controls are in place but the level of compliance varies.
Compliance with central agency/departmental policies and established procedures varies.
Issues identified are less significant but opportunities that could enhance operations exist.

6.1 GOVERNANCE AND STRATEGIC DIRECTION

The Treasury Board Secretariat’s Audit Criteria related to the Management Accountability Framework: A Tool for Internal Auditors (2011), describes how a department’s governance-related objectives are enabled by the collective suite of management processes and controls that are in place to set strategic direction, operational plans, objectives and priorities and to provide clear direction on how resources should be allocated to achieve these plans. The presence of an oversight body is important to ensure that management’s direction, plan and actions are appropriate and responsible. Oversight bodies should be provided with timely and accurate financial and operating information in order to fulfill their oversight function. Resource allocation and budget include financial, human and physical resources, and serve to ensure that sufficient resources exist to meet the objectives of the entity. These controls provide employees and third party service providers with a clear understanding of priorities and performance targets and provide tangible support in the pursuit of operational objectives.

Observations
Moderate Risk

6.1.1 Roles, Responsibilities and Accountabilities


Memoranda of understanding, service level agreements or equivalent documents exist for those clients who receive services through the Fleet Operational Capability Program. However, the agreements do not always clearly outline Fleet’s roles, responsibilities and accountabilities, and are out of date.

The Canadian Coast Guard has agreements such as memoranda of understanding and service level agreements in place with its clients that serve to define the relationship between the parties including the roles, responsibilities and accountabilities.

Based on the interviews with clients and Fleet personnel, roles and responsibilities are generally understood. However, for specific issues that have arisen during the course of the agreements, there have been some misunderstandings with respect to accountabilities. For example, clients expressed the need to clarify who is responsible to pay for inflationary increases, while Fleet personnel believe that clients are responsible because the Canadian Coast Guard is entirely reliant on funding from clients to recover costs for operating the fleet.

The service level agreements presently in effect with Oceans and Science and Ecosystems and Fisheries Management are part of a three year pilot agreement with the Canadian Coast Guard. The purpose of the three year agreement was to bring stability to the relationship between Fleet and its clients. These agreements expired in March 2012 and while there are plans in place to renew the service level agreements, there is a general understanding that the current agreements will be honoured until such time as new ones are signed.

The memoranda of understanding with some clients are out of date. For example, the memorandum of understanding with Transport Canada has been in place since 2000 and some of the information contained within the agreement is no longer relevant.

Recommendation Management Action Plan
R-1. The Director General, Fleet should ensure that service level agreements and memoranda of understanding are kept current; that they clearly define Fleet’s as well as clients’ roles, responsibilities and accountabilities; and that they clearly articulate financial aspects in terms that meet both clients’ and the Fleet’s realities.

Fleet agrees with the recommendation

In the 2012-15 CCG Integrated HR and Business Plan, Fleet is committed to carrying out the following in 2012-13:

  • Negotiate renewed Service Level Agreements for the provision of Fleet services to DFO Ecosystems and Oceans Science and DFO Ecosystems and Fisheries Management in close collaboration with these two key clients and the DFO Chief Financial Officer.
  • Refine performance measures within Service Level Agreement pilot between Fleet and Maritime Services
Office of Primary Interest: Fleet Operational Business
Due Date: March 31, 2013
Moderate Risk

6.1.2 Operational Plan


An Integrated Fleet Operational Plan has been prepared and implemented using an improved process; however, it does not address the needs of Fleet’s clients nor does it allow the determination of the actual physical capacity and utilization of the fleet.

Integrated Fleet Operational Plan
The Canadian Coast Guard 2010-2011 Fleet Annual Report states that the Integrated Fleet Operational Plan “represents Fleet’s operations and on-water program delivery... Based on available resources and client requirements, a schedule of planned operational days is allocated to each client and agreed upon by both parties.” The Canadian Coast Guard ensures that an operational plan is developed that clients and the organization can afford.

The Integrated Fleet Operational Plan process starts with client consultations in June/July to develop a draft operational plan that is presented to the Fleet Executive Board in December. The Fleet Executive Board reviews the plans to ensure client program requirements are aligned with proposed budget allocations and to ensure that the plan is affordable and deliverable. In early January the Integrated Fleet Operational Plan is submitted to the Coast Guard Management Board for final approval.

This year, changes in the Integrated Fleet Operational Plan development process were implemented. According to senior management, the 2012-2013 development process was more bottom-up than top-down; also, all regional requirements that exceeded the cost estimates calculated in the costing model have been addressed through business cases presented during a November 2011 workshop. This resulted in a more collaborative decision-making process that encouraged a sharing of information based on experiences and best practices across all regions.

The Integrated Fleet Operational Plan uses the “operational day” as the unit to measure Fleet’s activities and capacity. According to the Canadian Coast Guard National Fleet Costing Model, an operational day is a day the vessel is available to deliver service to a client. The audit team conducted an analysis of the fleet costing model and determined that the approach used to calculate the total number of operational days does not accurately represent the actual number of days the vessel is available, rather it considers the total number of days the vessel can operate given the available funding. In other words, a vessel could have a day where it is available for service but because of a lack of program funding, this day would be considered a “lay-up”, not an operational day. Vessels could be in lay-up due to weather conditions, lack of program requirement, or lack of funding for operations. Therefore, while it is important to develop an operational plan that clients can afford and that the organization can deliver, for long term strategic and capital planning it would be useful to monitor the utilization and capacity of the fleet assets to ensure the fleet includes the right mix and size of assets. It is also important as the fleet does not have the flexibility to reduce the size of the fleet or its staff complement to address short term fluctuations in demand. To be more responsive to long term delivery of services, an assessment of the fleet’s performance beyond just delivery against plan would add value for decision making purposes.

In addition, increases in Fleet costs, due to inflation, reduce both its flexibility and its clients’ capacity to deliver their programs. Even when program requirements remain static from one year to the next, their purchasing power decreases. As a solution, Fleet has responded by increasing its multi-tasking ability which provides some efficiencies and additional flexibility to re-direct programs to other vessels when the need arises. Given current fiscal restraints, programs are now faced with a need for prioritization and as a result, Canadian Coast Guard is forced with periods of non demand (non-utilized capacity). As discussed by Fleet officials during the November Integrated Fleet Operational Plan planning workshop, a long-term strategy is needed to address the structural funding gap and ensure that client program needs can be met.

Recommendation
To be addressed by recommendations 4 and 5.
Moderate Risk

6.1.3 Communication


There is ongoing communication among the oversight bodies and management. However, communication with clients could be improved.

The audit team found that there is ongoing communication between management, the regions and the oversight bodies throughout the operational planning process. However, through interviews with clients, the audit team learned that clients are not always made aware of the changes made to the regional operational plans once they are submitted to headquarters. Many changes are made to the plans to take into consideration the available funding. These changes are not always communicated to the clients. In addition, clients have questioned the costing methodology and perceive that Fleet has not done an adequate job of explaining the methodology.

Recommendation
To be addressed by recommendations 4 and 5.

6.2 PEOPLE

The Treasury Board Secretariat’s Audit Criteria related to the Management Accountability Framework: A Tool for Internal Auditors (March 2011), states the control elements described under “Public Sector Values” have a role to play in supporting the government’s “People” objectives. As well, this management expectation is supported by a broad commitment to competence and the overall capability of government employees. In an environment with well-designed controls, people have the skills necessary to support the achievement of their organizational objectives. The organization should therefore have controls in place to support the training and development of staff, and a suitably comprehensive suite of human resources policies and practices aimed at attraction, recruitment, and employee recognition.While some of these controls are specific to the organization’s human resources function, many extend beyond and encompass the culture, practices and operations of the broader organization.

Observations
Low Risk

6.2.1 Succession Planning


Succession planning is conducted on a regular basis and considers short and long-term organizational needs and goals.

The Canadian Coast Guard faces a set of unique challenges regarding human resource management and succession planning for seagoing personnel. Seagoing personnel must meet professional competency requirements by obtaining the proper certification to occupy a seagoing position. Here, succession planning is more than simply offsetting annual attrition of ships’ officers and crew through the recruitment of the same number of officers and crew.

At present, Fleet has identified and is addressing their pressures of projected attrition in both the short and long term through the Coast Guard Officer Training Program. The Canadian Coast Guard College is also introducing a new Ship’s Crew Certification Initiative which will help to meet the immediate and near-future need for specific certificates in accordance with operational requirements. Outside of these programs, the Canadian Coast Guard is reliant on those graduating from provincial and private schools for entry-level positions and hiring already certified and experienced personnel for remaining positions. However, labour market pressures, specialized training and experience requirements make recruitment and retention especially challenging.

Low Risk

6.2.2 Employee Training, Tools and Resources


The Canadian Coast Guard developed and implemented Ships’ Crewing Profiles and associated competency profiles across the Fleet which was a marked improvement towards standardizing minimum certification, technical training and experience requirements. To support the further development of their competencies and to support in the discharge of their responsibilities, employees are provided with varying degrees of training, tools, resources and information across regions.

In 2009, the Canadian Coast Guard’s Ships’ Crewing Profiles were developed and implemented throughout the Fleet. These official profiles incorporate the requirements of Transport Canada’s Safe Manning Regulations regarding minimum certification and technical training, with Fleet’s requirement for relevant experience.

Through focus groups held with ships’ crew and officers, the audit team learned that the extent of training, tools, and resources provided to seagoing personnel varies between regions. Training and professional development opportunities for seagoing personnel are delivered via a variety of methods including training courses, training packages, on-the-job training and acting appointments.

Training Courses
Based on an analysis conducted by Marine Personnel as part of the National Seagoing Professional Development Plan that identified regional training needs over the next three years and compared it to actual training budgets in order to identify gaps, there was a projected training shortfall for 2011-2012 of $1.6M. However, Marine Personnel estimated that all Regions, with the exception of Central and Arctic, will be able to meet their Certification and Regulatory training needs with the projected budget if funds are allocated accordingly.

Historically, the type and extent of the training requested and approved has varied between regions as each region has had their own approach to managing training. Some regions have adopted a targeted approach where they support training and development related to personnel obtaining certificates where there are anticipated requirements in the future; while other regions support any/all requests for training required for personnel to obtain advanced certification. In addition, some regions pay for both preparatory materials while others only pay for examinations.

On-the-Job Training
On-the-job training occurs at all levels onboard ships in the form of mentoring by more senior personnel. Formally, some regions use an on-the-job training Manual for ships’ crew while others do not. These manuals lay out an on-the-job training program designed to take an employee from new entry to senior level positions by providing hands-on experience and the opportunity to demonstrate procedures in a work setting under the control of a supervisor. The on-the-job training program is organized by function and level to conform to the International Convention of Standards of Training, Certification and Watchkeeping for Seafarers Code format for defining shipboard competencies. Completion of each phase is to be signed off and a copy sent to the regional training coordinator to be placed on the employee’s training file.

Pre-deployment/ Familiarization Training
New employees receive limited pre-deployment and familiarization training. When personnel join a ship, they do the “walk of life” (a familiarization training specific to the vessel they are assigned to) and in some regions are required to watch a series of security videos, only some of which apply to security onboard a vessel (since much of the content pertains to airport safety). Personnel do receive familiarization training on their first shift aboard a new vessel by one of the senior crew members. However, the audit team learned through focus groups with ships’ crew that this training is sometimes not completed due to operational requirements.

Acting Appointments
Acting appointments were identified as an opportunity for professional development within the Fleet. Acting appointments allow the Canadian Coast Guard employees to gain knowledge and experience at progressively higher levels. The Canadian Coast Guard uses acting appointments to a great extent.

Throughout the course of the audit, a number of good practices were identified in regards to the delivery of training. This included the use of regional trainers employed by the Canadian Coast Guard to deliver technical training; an annual training week in the Pacific region; use of a formal on-the-job training manual and a scholarship program used throughout the regions, with the exception of Quebec.

Recommendation Management Action Plan
R-2. The Director General, Fleet should ensure there are adequate and standardized training tools and resources for sea going personnel across all regions.

Fleet agrees with the recommendation

Fleet will reintroduce the Annual Fleet Training Report (end of year report) which will be used to monitor and standardize training in the Fleet within budget restraints; it will also identify best practices that can be deployed nationally.
Office of Primary Interest: Marine Personnel
Due Date: October 2013
Low Risk

6.2.3 Safety and Security Policies and Procedures


Safety and security policies and procedures are established, monitored and communicated as part of the Fleet Safety and Security Management System.

The Canadian Coast Guard Fleet has adopted the International Safety Management code as a means to show continued leadership but also for the perceived benefits it would bring to the organization. While the Canadian Coast Guard does not have to comply with the International Safety Management Code which applies to all commercial vessels greater than 125 Gross Register Tonnage, the general consensus is that the implementation of the Code was a good thing in that it helped to create a strong new safety and security culture. The Canadian Coast Guard developed the Fleet Safety and Security Management System to comply with the Code. Initially, the Fleet Safety and Security Management System applied only to the large vessels but beginning in 2005, the small fleet, shore stations, offices and training exercises were gradually incorporated in the System. The major functional requirements of the International Safety Management Code and the International Ship and Port Facility Security Code are covered in detail by a number of policies and procedures documented in the Fleet Safety and Security Management Manual.

Monitoring
The Canadian Coast Guard carries out a program of comprehensive safety and security audits, both ashore and aboard ships, to verify that safety, security and pollution prevention activities comply with the Safety and Security Management System Manual. The Canadian Coast Guard conducts at least three types of audits on their vessels including audits conducted by external auditors from a classification society (an organization that establishes and maintains technical standards for the construction and operation of ships), audits conducted by trained Canadian Coast Guard staff, and security audits.

The audit team examined the safety and security audit function to determine the costs of voluntarily complying with the International Safety Management Code. The audit found that the cost of the safety and security audits is immaterial compared with the overall program costs. It was also determined through interviews with ships’ crew and officers that the benefits of complying with the Code outweighed the cost as it increased awareness on safety and security.

Low Risk

6.2.4 Communication of Safety and Security Matters


As prescribed in the Fleet Safety and Security Manual, the Regional Superintendents, Safety and Security must maintain a register to capture and monitor suggestions, complaints and input on safety and security matters to ensure they are addressed in a timely fashion. However, there is no evidence of any such register being maintained.

The Fleet Safety and Security Manual describes the systematic process to be implemented in all regions to allow for suggestions, complaints and input on the Safety and Security Management System from all Canadian Coast Guard personnel. There is a specific form available in the manual to submit with any suggestions, complaints or input. All forms are to be assigned a tracking number when received, an acknowledgement is to be sent and a formal response provided within two months of receipt. Registers of all suggestions received and actions taken are to be maintained by Regional Superintendents, Safety and Security; however, no evidence of these registers was provided to the audit team.

Recommendation Management Action Plan
R-3. The Director General, Fleet should ensure that a register is created to monitor safety and security submissions to be maintained by the Regional Superintendents, Safety and Security.

Fleet agrees with the recommendation

Fleet will Incorporate a register as part of the updated Fleet Safety and Security Manual
Office of Primary Interest: Fleet Safety & Security
Due Date: March 31, 2013

6.3 STEWARDSHIP

The Treasury Board Secretariat’s Audit Criteria related to the Management Accountability Framework: A Tool for Internal Auditors, (March 2011), states departmental stewardship objectives are enabled through controls. Control activities are established throughout the organization, at all levels and in all functions, and prescribe how activities should be performed and prohibit inappropriate action. In this way, they provide the limit of acceptable action that all staff should clearly understand. Controls include a range of activities as diverse as policies and procedures, financial, cost and transaction management practices and controls, physical and information security practices as well as a host of activities designed to effectively manage third parties.

Observations
Moderate Risk

6.3.1 National Fleet Costing Model


A budget has been prepared based on the Fleet Operational Plan; however, there is a risk that the cost projections determined using the National Fleet Costing Model could be inaccurate or incomplete.

The Canadian Coast Guard Fleet supports the marine activities of Canadian Coast Guard Maritime Services, Ecosystems and Oceans Science, and Ecosystems and Fisheries Management. The Canadian Coast Guard provides funding for Fleet support of Canadian Coast Guard programs through an internal allocation process. For Canadian Coast Guard’s other internal clients, funds are transferred from their departmental allocations. The Fleet budget of approximately $230M is, therefore, derived entirely from funding received from internal allocations within Canadian Coast Guard and DFO clients. As the majority of costs of operating the fleet are fixed, the resultant budget is as well. This presents a unique challenge for the Canadian Coast Guard as changes in demand for their services can impact greatly the level of service it can deliver.

Client costs are determined through the use of the National Fleet Costing Model as part of the Fleet Operational Planning Process. Its primary use is to forecast vessel costs associated with the operation of the Canadian Coast Guard Fleet. This is achieved by tracking costs that are recorded, allocated, or apportioned to specific activities, programs or clients. Costs are allocated based on the historical costs of operating individual vessels and total demand for individual vessels with consideration given to multi-tasking of vessels.

The National Fleet Costing Model was developed in-house. It consists of a collection of five Excel workbooks, one for each Region. Each workbook contains approximately 70 worksheets. How the workbooks were developed, and the inter-relationships between the various worksheets, is not documented. Data used to calculate costs and activity volumes are either manually extracted from other corporate systems (the Fleet Activity Information System, the Management Reporting System, MariTime, etc) or entered manually into the National Fleet Costing Model system which is time consuming, since it takes two months to update the National Fleet Costing Model, and increases the risk of error. In addition, there is no manual or other instruction set on how the information is extracted from the various systems or what information must be manually input. As a result, there is an increased risk of error due to the nature of working with an Excel spreadsheet and the highly manual process.

The National Fleet Costing Model Business Tool was developed in September 2008 to provide Fleet managers, and financial and operational planning personnel within Regions and Headquarters, a common understanding of the National Fleet Costing Model’s logic and associated business rules. It categorizes and lists the various costing elements, provides instructions on how various costs should be coded in the financial system and some basic principles regarding the source of cost information but does not provide the level of detail required to understand the intricacies of how the model actually works.

The output of the National Fleet Costing Model is a projected cost per operational day for each vessel for the coming fiscal year. An operational day is defined as a day when the vessel is available to deliver service to a client excluding planned maintenance, refit and lay-up periods. All costs, with the exception of propulsion fuel and hydrographic products, are calculated based on a three year historical average of expenditures divided by the average number of days the vessel was in operation. Projected salary costs are then adjusted using a cost escalator which corresponds to collective agreement increases, while operating and maintenance costs are not increased. Operating and maintenance projections are based on historical averages with no allowance for inflation. This results in projected costs being understated and resultant budget shortfalls. For fiscal year 2010-2011, the projected cost of ship operations was $219.5M, while actual expenditures were $256.3M (117%).

The Fleet operations budget is derived from the results of the Fleet Operational Plan and related funds are received through internal transfers from departmental clients including Canadian Coast Guard programs, Oceans and Science and Ecosystems and Fisheries Management, and external clients such as other government departments, provincial/territorial governments and others. While the Fleet Operational Plan is based largely on what clients can afford, there are still often resultant shortfalls. Even when program requirements remain static from one year to the next, costs are increasing and therefore the clients’ purchasing power is decreasing. Each year, increases in Fleet costs reduce both its flexibility and its clients’ capacity to deliver their programs. As a result, Fleet has responded by increasing its multi-tasking ability which provides some efficiencies and additional flexibility to re-direct programs to other vessels when the need arises.

Recommendation Management Action Plan
R-4. The Director General, Fleet should conduct a review of the National Fleet Costing Model to ensure costing practices are appropriate to improve the accuracy of cost projections for planning and budgeting Fleet operations. The review should also include documenting the procedures for updating the costing information in the model to provide greater consistency and data integrity.

Fleet agrees with the recommendation

In the short-term:
Fleet will examine measures to improve the accuracy of its planning and Costing Model through:

  • review of its fixed basic salary costs to determine whether current relief factor remains sufficient for planning purposes; and
  • Review of efficiencies of vessel costs to ensure greater national consistency.

Fleet will update costing information to provide greater consistency and data integrity by:

  • Continuing to update and document costing information and add documentation to the Fleet intranet; and
  • Leveraging the SLA process to ensure costing information is shared and communicated annually to DFO clients (see R1).

In the longer term:
Fleet will incorporate these requirements into the MariTime System upgrade project in support of a strengthened process of overall stewardship. 

Office of Primary Interest: Fleet Operational Business
Due Date:

Short-term action items: March 31, 2013.

Long-term action items: March 2014. 
Moderate Risk

6.3.2 Capacity


Actual human resource and fleet asset capacity are not currently being assessed to identify and address any gaps in capacity that could negatively impact the ability of Fleet to effectively and efficiently deliver its services.

The National Fleet Costing Model allocates the total fixed costs of operating individual vessels across operational days, which is based on demand rather than the actual physical capacity of the assets. According to data received from Integrated Technical Services, and confirmed in the draft 2010-2011 Fleet Annual Report, Canadian Coast Guard planned 29,543 operational days and delivered 95% or 28,066 days for 2010-2011. According to the Report, a vessel may be unavailable due to “winterization, laid-up due to lack of funds or undergoing extended refit or maintenance.”  A vessel could also be in lay-up because it could not operate due to weather conditions. According to the Report, vessels were available and assigned to clients 65% of the time and in lay-up 29% of the time.

Based on data obtained from Integrated Technical Services, vessels considered to be non-seasonal and able to operate year-round were in lay-up for 2,660 days in 2010-2011 as there were no program requirement and/or funding available. Based on this, Fleet has a minimum of eight percent excess capacity as these vessels had the potential to operate if there had been program and/or funding requirements. Seasonal vessels were identified as being in planned lay-up for 5,939 days in 2010-2011 due to operating limitations imposed by weather conditions or there being no program requirements and/or funding. The audit team was unable to determine the extent to which these vessels were in lay-up due to lack of program requirements and/or funding as Fleet does not track this information. Therefore, the Fleet has excess capacity of a minimum of eight percent.

If vessels are being underutilized or there is a reduction in demand for a vessel, the fixed costs are redistributed among existing clients (actual demand), increasing the unit cost of an operational day. Therefore the greater the demand, the lower the cost per operational day, and the lower the demand, the greater the cost per operational day.

The majority of Fleet’s expenditures relate to Personnel costs (approximately 65% of total expenditures for 2010-11). Personnel requirements for the Canadian Coast Guard vessels is determined by a number of factors including the staff complement required for each ship, the duration of the operational period (year-round vs seasonal), the crewing system (i.e. conventional, lay-day and 46.6 hour average system used for lifeboats), and the relief factor needed to compensate for leave. The relief factor is used for planning purposes to determine the number of employees on strength needed for each crew or officer position on the ship. It considers the average leave taken per year and the average number of days worked in the year. The Canadian Coast Guard uses a different relief factor for each crewing system used (1.4 for conventional, 2.33 for lay-day and 2.3 for 46.6 averaging).

It was identified through interviews with regional management that leave, especially sick leave and injury on duty leave is an issue within the Canadian Coast Guard. In addition, the relief factor used to determine the relief requirements for seagoing personnel were inaccurate and outdated and don’t reflect the current leave averages or actual average days worked per year. The relief factors have not been updated since 2002.

The audit team attempted to calculate the relief factor and the average leave per full-time equivalent using leave data extracted from the MariTime system. However, the data was found to be unreliable due to data entry errors. The Fleet is aware that the relief factor is inaccurate and is currently completing an analysis to determine what the relief factor should be.

The total leave liability (annual, compensatory and lay-day) for the Canadian Coast Guard is currently $34.7M of which $8.6M relates to those eligible to retire within the next two years. The Crewing Analyst and Human Resource Issues Officer has been tracking leave liability for the Canadian Coast Guard and reporting the results on a semi-annual basis to Fleet management. Marine Superintendents in the Regions and Marine Personnel, NCR, are working to address this issue by encouraging employees to burn down their leave balances. As a result, the leave liability for those eligible to retire decreased from $11M in 2010 to $8.6M in 2011 (lay-day leave balances are paid out at a factor of 1.5 which is not included in this total). This would also explain the higher leave utilization over the past two years.

Injuries occur at a high rate in the Canadian Coast Guard fleet environment. Over the period of 2008-09 to 2010-11, the Fleet has paid on average $12.5 M per year for sick leave, injury on duty leave and direct benefits (CCG reimburses the Workers’ Compensation Board 100% of benefits paid to employees plus an additional 20% administrative fee). Fleet management in consultation with Marine Personnel and bargaining agents for seagoing personnel are exploring “return to work” and “wellness” options that will benefit both the employee and the employer.

Recommendation Management Action Plan
R-5. The Director General, Fleet should ensure that actual physical and human resource capacity and utilization is being captured and monitored. A review of the capacity and utilization should be conducted to ensure that the Canadian Coast Guard Fleet is optimized to meet demand.

Fleet agrees with the recommendation

Fleet asset capacity was assessed as part of the update to the Fleet Renewal Plan and the Deficit Reduction Action Plan exercise. This information will be used to validate the Business Model of the Fleet Operational Readiness Program and feed into the Service Level Agreement (see R1)

Office of Primary Interest: Fleet Operational Business
Due Date: See R1
Moderate Risk

6.3.3 Financial Management


Regional shortfalls or surpluses for the Fleet Operational Capability Program are not being reported to headquarters which makes it difficult to determine if the Fleet Operational Plan is adequately funded.

A budget for the Fleet Operational Capability Program is prepared annually based on the annual Fleet Operational Plan and funding estimated to be acquired from their clients through cost recoveries. Regional budgets are derived from the Fleet Operational Plan once it has been completed and approved. Once the regional budgets have been established, they are devolved down to the Regional Assistant Commissioners who subsequently devolve it to their Regional Directors, Fleet who are responsible for managing the budget.

Once budgets are devolved to the regions, they become the responsibility of the Assistant Commissioners; and the Director General, Fleet has very little control over how the budget is being managed at the regional level. Assistant Commissioners are required to report on their regional budgets through the Departmental Financial Reporting process but not on specific programs. This information is rolled up at the regional level by the Regional Canadian Coast Guard Integrated Business Management Services unit. Assistant Commissioners have the authority to reallocate budgets at the regional level so only the regional deficits and surpluses are communicated to headquarters and many of the financial risks associated with the Fleet Operational Capability program are managed at a regional level. Only under extraordinary circumstances do the regions request additional funding from Headquarters. This makes it difficult to determine if the Fleet Operational Capability Program is being properly funded and if not, the extent of the surpluses/shortfalls.

Recommendation Management Action Plan
R-6. The Director General, Fleet should ensure that any regional shortfalls or surpluses pertaining to the Fleet Operational Capability Program are being monitored and reported by the regions to inform the oversight committees of the affordability of the Fleet Operational Plan and allow for any in-year adjustments as well as provide opportunities for improvements to future plans.

Fleet agrees with the recommendation

In consultation with IBMS, Fleet will explore national process-based options to gather regional in-year FOC financial information.

The MariTime system upgrade project (see R4 will provide the capability to track the actual delivery of the program against the plan.
Office of Primary Interest: Fleet Operational Business
Due Date:
  • FOP variance reporting options: March 31, 2013
  • See R4

6.4 RESULTS AND PERFORMANCE

As per the TBS Core Management Control Framework, controls in Results and Performance enable management to establish and review performance objectives, targets and indicators. The control should encompass the processes that are in place to monitor financial and operational performance on an ongoing basis and the degree to which performance results are fed back into the planning process. Self-assessment, employee satisfaction surveys, internal reviews, quality assurance processes, and the monitoring of contractor performance are important controls providing management with important “early warning signals” allowing them to manage risks before they materialize.

Observations
Low Risk

6.4.1 Performance Measurement Strategy


A performance measurement framework is in place; however, performance measures are not clearly understood by clients. In addition, Fleet capacity and regional utilization of program funds are not monitored to ensure an optimal utilization of Fleet assets/resources.

In the service level agreements the Canadian Coast Guard has in place with its Fisheries and Oceans Canada clients and other government departments, there is a commitment on the part of the Canadian Coast Guard to produce performance reports as well as hold regular meetings with its clients to provide status updates on service delivery. According to Fleet’s Fisheries and Oceans Canada clients, they are apprehensive about the information provided to them as it is not clear what criteria Fleet uses upon which to base their analysis to produce the performance reports.

  • For example what Fleet might consider an operational day is interpreted differently by Fleet’s Fisheries and Oceans Canada clients. Being alongside for a day due to a crew change is not considered an operational day from the client’s perspective even though they might be on the vessel.

Fleet personnel indicated that its weakest link is in its performance measurement against the Fleet Operational Plan. Performance indicators used to assess Fleet Operational Capability Program delivery do not take into account the physical capacity of the Fleet (human resources and vessels). Fleet’s performance is based on the Integrated Fleet Operational Plan’s planned operational days relative to the actual number of days delivered. This does not provide results in terms of Fleet utilization since the performance is not based on the actual number of days the vessels are available for service.

Recommendation Management Action Plan
R-7. The Director General, Fleet should update the performance measurement strategy to ensure performance measures are clear, understood and consider the actual physical capacity and utilization of the Fleet.

Fleet agrees with the recommendation
At the end of 2011-12, a Performance Measurement Strategy including indicators, targets, sources of data and responsibility for data collection and reporting was developed.

The strategy will be reviewed regularly to ensure the best information possible is available to monitor and evaluate performance and to help inform business decision making.
Office of Primary Interest: Fleet Operational Business - PRIM
Due Date: Completed

7.0 AUDIT OPINION

The audit found that the management of Fleet’s Operational Capability Program is generally adequate. However, improvements in a number of areas, such as roles and responsibilities, planning and costing would enhance overall performance. In addition, areas for improvement were noted in the National Fleet Costing Model as well as in Fleet’s assessment of the physical and human resource capacity and utilization of Fleet assets.

The report makes recommendations to improve and enhance the Canadian Coast Guard’s ability to effectively and efficiently manage Fleet’s Operational Capability Program.

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, focus groups 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

Roles, responsibilities and accountabilities for those involved in Fleet Operational Capability are formally defined; Fleet has in place operational plans and objectives aimed at achieving its strategic objectives; and mechanisms are in place to produce sufficient, complete, timely and accurate information.

Criterion 1.1:  Memoranda of understanding, service level agreements or equivalent documents exist for those clients that receive services through the Fleet Operational Capability sub-activity and the documentation clearly outlines Fleet’s roles, responsibilities and accountabilities.

2

Criterion 1.2:  Operating objectives and priorities exist for all key activities and are documented, linked to strategic objectives and priorities, and reviewed from time to time for continued relevance.

1

Criterion 1.3: A Fleet Operational Plan has been prepared and implemented to address the needs of Fleet’s clients. 3  
Criterion 1.4: There is ongoing and transparent communication among the oversight bodies, management and the clients; and the information presented is accurate and has been subject of quality assurance. 2  

Line of Enquiry 2 – People

The organization has in place a formal approach to training; recruitment, hiring and promotion, taking into consideration the current and future needs of the organization; and open and effective channels exist for internal communications and feedback on operational matters such as safety and security.

Criterion 2.1:  Succession planning is conducted on a regular basis and considers short and long-term organizational needs and goals.

1

Criterion 2.2:  The organization has developed competency profiles and employees are provided with the necessary training, tools, resources and information to support the discharge of their responsibilities. 2  
Criterion 2.3:  Suitable safety and security policies and procedures are established, monitored and communicated. 1  
Criterion 2.4:  Communication processes exist to allow for suggestions, complaints and input on safety and security matters to be captured and addressed in a timely fashion 2  

Line of Enquiry 3 – Stewardship

A formal process is in place for the preparation of the budget in support of the Fleet Operational Plan and for challenging the assumptions and related resource allocations within the budget.

Criterion 3.1:  A budget has been prepared that supports an affordable Fleet Operational Plan and decisions related to resource allocations and costing practices are challenged and documented.

3

Line of Enquiry 4 – Results and Performance

Management has identified appropriate performance measures linked to planned results.

Criterion 4.1:  Planned results are achievable and measurable.

  • Performance measurement strategies are in place and are applied for the Program;
  • Information is available to support the implementation of the performance measurement strategies; and
  • Performance measures are reviewed on a periodic basis and updated as required.

2

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