Audit of Non-Public Property (NPP) Governance, Strategic Management and Business Planning

May 2012

7055-21-16 (CRS)

Reviewed by CRS in accordance with the Access to Information Act (AIA). Information UNCLASSIFIED.

Caveat

Non-Public Property (NPP) is created under the National Defence Act (NDA). The purpose of NPP is to provide benefit to serving and former members of the Canadian Forces (CF), and their families or for any other purpose designated by the Chief of the Defence Staff (CDS). NPP of each unit is vested in the Commanding Officer of that unit.

NPP is a unique type of crown property, the governance of which is assigned to the CDS. The Minister of National Defence (MND) has authority to make regulations with respect to liability and restitution for loss of or damages to NPP. MND also has authority to ensure good governance and to ensure NPP is being used as intended.Article 38(1) of the NDA provides that the Financial Administration Act (FAA) does not apply to NPP. Revenues from NPP operations are retained as Non-Public Funds.

Acronyms and Abbreviations

Results in Brief

In accordance with the Chief Review Services (CRS) NPP Audit Group Work Plan for fiscal year (FY) 2009/10, an audit of NPP governance and strategic management was conducted.

The purpose of this audit was to provide assurance to the CDS on the effectiveness of the governance structure over, and strategic management of, NPP. The audit assessed the NPP governance framework, risk management, and management controls, which affect the adequacy and efficacy of information available for decision making.

NPP is a distinct form of Crown property, created under the NDA. NPP shall be used for the benefit of all or any officers and non-commissioned members or former officers and non-commissioned members, or their dependants.¹ The organization responsible for the administration of NPP operations and delivering publicly funded physical fitness, training, and sport programs is the Director General Personnel and Family Support Services (DGPFSS). This organization has undergone several changes over the last decade, with the addition of new programs and services, notably those supporting deployed members and their families. The most significant change was a re-organization in 2008 which saw the Canadian Forces Personnel Support Agency (CFPSA), which had been established in 1996, transformed into DGPFSS.

Due to the harmonized nature of MW program funding and service delivery, there are strong linkages between the Public, i.e., the Government of Canada/Treasury Board (TB) and NPP business planning (BP) processes. DGPFSS operates with two types of funding: public funds and non-public funds (NPF). Both funding sources are controlled under different frameworks.

Key Findings

Governance

• All levels of the CF chain of command (CoC) need to be apprised of their roles and responsibilities with respect to NPP and MW programs and services;
• The role and participation of NPP Board members, including the terms of reference (TOR), needs to be revisited; and
• Financial and human resource delegation instruments and other foundational governing documents need to be strengthened.

Strategic Management

• The organization is working toward a long-term vision that has been approved only on a conceptual basis; a long-term strategy is absent, which could put NPP at risk; and
• Strategic plans are out of date or key elements are absent.

Business Planning

• The DGPFSS Public BP is of excellent quality and could serve as a benchmark to which other organizations strive;
• The NPP BP process needs to be augmented to better reflect the spirit and intent of Public standards; and
• The NPP Contracting Policy and Procedures do not protect NPP resources to an equivalent level of Public resources.

Risk Management

• DGPFSS’ Corporate Risk Summary provides comprehensive risk identification and assessment components. This document could form the basis for a much-needed NPP Corporate Risk Profile, which includes risk mitigation strategies.

Performance Management

• The development of appropriate organization-wide performance measures is an ongoing challenge for DGPFSS. Measures that have been developed at the operational level for select lines of business should be validated and incorporated into a NPP Performance Management Framework.

Note: For a more detailed list of CRS recommendations and management response, please refer to Annex A—Management Action Plan.

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Introduction

Background

Historical Context

Personnel support programs have been an integral part of the Canadian military for more than a hundred years. Public funding has provided resources to ensure the MW of Canadian military personnel, starting with the first assembly of military personnel at Camp Niagara in 1871, through the Great War (1914-1918), and World War II. Services were delivered through various organizations and mechanisms including the Salvation Army, the Knights of Columbus, the YMCA, and the Canadian Legion; in 1939, Crown agreements were put in place with these charities. In the early years, private donations, referred to as “non-public funds” to differentiate them from money coming from the public, i.e., the government, initially supported much of the funding for social services, though by the late 1940s, the government of the day determined that public funding would finance all social service activities. A committee was set up under the National War Services Funds Advisory Board to oversee the use of both public and non-public funds. The three services—Army, Navy and Air Force—and the four noted voluntary organizations were represented on the committee. After World War II, when the active military forces were demobilized, the Army, Navy, and Air Force were solely responsible for their own non-public fund activities. In 1950 Parliament codified the regime for financing and operating MW services through new NPP provisions in the NDA.

Throughout the 1950s, the CF again expanded, thus requiring the expansion of MW services. This growth produced a change in the way NPP was administered; a new organization under the Canada Corporations Act called “Maple Leaf Services” was created to discharge the functions formerly provided though the three military services.

In the late 1960s, just prior to the integration of the three services, a study team was put in place to develop a common system of NPP operations. The product of the study, the Dillon Report, noted that frequently the Department of National Defence (DND) was not meeting its “good employer” responsibility and was therefore forcing the servicemen and women to divert their own funds, including NPP profits, to provide facilities that were clearly an obligation of the Government. The report led to the creation of Canadian Forces Exchange Service (CANEX), the retail arm of NPP. In 1968, DGPFSS was created to administer NPP operations and publicly funded physical fitness, training, and sport programs, and all NPF were consolidated in a single fund called the Canadian Forces Central Fund (CFCF).

The following year, TB approved a key enabler of the MW regime, Directive 689194, “Guiding Principles for the Provision of Services and Recreational Facilities at CF Establishments and the Provision of Support to CANEX and associated Non-Public Fund Organizations.” The Directive outlined DND’s obligations to ensure the “availability of a reasonable level of goods, services, and recreational facilities in their area of service…levels of facilities and services that are normally associated with comparable Canadian communities.”²

Legal Context

NPP is a special category of Crown property defined in the NDA. Though often referred to as non-public “funds,” NPF is a term that really only describes the money set aside for NPP programs or services, and does not reflect the fact that NPP includes not only money, but also other types of property, such as physical assets, real estate and rights.

Authority for NPP is vested in the CDS and Base, Wing and Unit Commanders for the benefit of serving and former CF members and their dependants.

Although NPP is Crown property, it is not subject to the rules and regulations governing the administration of public property, including theFAA, due to a special provision in the NDA. However, as the CDS and Base, Wing and Unit Commanders are always acting in their official capacities when carrying out their NPP responsibilities and, as the MND is ultimately responsible for NPP, there is always accountability to the Crown (Parliament) for the administration of NPP.

Most NPP programs and activities are delivered by the “Staff of the Non Public Funds, Canadian Forces” (herein referred to as Staff of the NPF, CF), who form part of the DGPFSS organization. These personnel are more commonly referred to as NPF employees. The MND delegated authority over the staff to the CDS in 1978. The 5,400 full-time, part-time and casual NPF employees are public servants, employed by a separate agency under FAA Schedule V, and are exempted from TB human resources (HR) policies. NPF employees are subject to policies and procedures as approved by the CDS or his delegate.³

Objectives

The intent of this audit is to provide assurance to the CDS on the effectiveness of the governance structure over, and strategic management of NPP. The audit will assess the NPP governance framework, risk management, and management controls, which affect the adequacy and efficacy of information available for decision making.

Scope

This audit covered the period January 2011 to October 2011. Due to the harmonized nature of MW programs, this project spanned the public and non-public accountability frameworks, where warranted. The audit was conducted across five broad aspects:

• policies, procedures and organizational structure;
• business planning processes;
• risk management;
• capital project management; and
• performance management.

The audit included a review and analysis of the NPP governance structure and strategic direction (i.e., the mandate, structure, key processes, and policies), risk management, and management controls, accountability and stewardship. An expansion of the audit scope and the division of roles and responsibilities of key stakeholders can be found at Annex C. Though the entire “2008 New Deal Study Directive” is the subject of a future CRS audit, where appropriate this audit will reference specific New Dealinitiatives related to governance and strategic management, where work has progressed sufficiently for assessment.

Methodology

• Pre-conduct phase meeting with the key stakeholders, including Associate (Assoc.) DGPFSS; Executive Assistant, CDS; select Vice Chief of the Defence Staff (VCDS) staff; and select Chief Military Personnel (CMP) staff.
• Preliminary background research, including a review of governance structure, NPP Board TOR and records of decision (RoD), applicable processes, legislation, policies, procedures and governance structures.
• Review and assessment of DGPFSS’ strategic alignment with CF/DND goals and objectives.
• In-briefing for DGPFSS and preliminary interviews with DGPFSS executive, staff and key stakeholders.
• Review and assessment of the BP process and the organization’s budget allocation.
• Review of NPP contracting policy and sampled documents.
• Review and assessment of corporate risk management documentation and practices.
• Review and assessment of performance management regime.
• Follow-up questions and interviews.
• Periodic audit updates and post-conduct meeting with DGPFSS, Assoc. DGPFSS, and other appropriate stakeholders.

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Findings and Recommendations

NPP Governance

Governance Structure

The NDA, Chapter N-5 defines NPP and the accountabilities related to it. Section 2, subsection 41(1) states “The Chief of the Defence Staff shall exercise his authority under subsections 38(1) and (2) and 39 (1) subject to any direction that may be given to him by the Minister for carrying the purposes and provisions of these sections and sections 38 to 40 into effect.” The CDS, not unlike the Deputy Minister (DM), is accountable to Parliament, via the MND, with respect to his oversight of NPP.

Section 2, subsection 38(1) of the NDA notes that authority for NPP is vested in the CDS and Base, Wing and Unit Commanders for the benefit of serving and former CF members and their dependants. Over time, this section has been interpreted to mean that the CF CoC has no role to play in the administration and oversight of NPP. This view may be a consequence of the fact that the overall knowledge of NPP within the CF has gradually eroded, mainly since the 1996 alternate service delivery (ASD) initiative under which key functions formerly performed by military personnel (NPF Accounting Officers, Physical Education and Recreation Officers and Instructors, numerous Mess Stewards billets, NPF trained Resource Management Clerks, etc.), were now delivered by civilian NPF employees. During that time, NPP-related training that was previously resident in the curriculum at CF training schools for the noted military occupations and senior leaders ceased.

The 2004 “CDS Guidance – Canadian Forces Morale and Welfare Programs” reinforced that MW is a fundamental responsibility of the CoC and that CFPSA (now called DGPFSS) exists to support commanders at all levels in that role. Recent local decisions to build facilities or enter into new business ventures, sometimes outside the NPP mandate or in the absence of sound business analysis, with or without the knowledge of subject matter experts (SME) at DGPFSS, have served to demonstrate the impact of the erosion of the NPP knowledge base within the CoC. In some instances, these ventures have been very costly. The CDS directed in 2010 that steps be taken by the Managing Director, NPP to improve the knowledge of NPP fundamentals in the CF, which has been accomplished in part through the development of an NPP Certification Course; this initiative will need to be further communicated throughout the CF CoC to achieve broader penetration of this NPP enabler.

Ensuring that the CF CoC is re-engaged on matters relating to NPP would afford the CDS the opportunity to benefit from the combined knowledge, experience, expertise and situational awareness of his CoC, similar to the resources afforded to him when engaged in strategic decisions related to public funds or activities. MW resource decisions are the responsibility of a recently established Resource Management Committee (RMC), whose TOR define its responsibility to Managing Director, NPP for developing plans, establishing priorities, identifying and confirming resource constraints, and ensuring projects align with NPP priorities. Review of initial meeting agendas and RoD indicate this committee is fulfilling its TOR. One related concern though is that this committee is staffed solely by DGPFSS staff, and that Base/Wing/Station Commanders, as part of the CoC, are not represented. In the absence of NPP Board participation in the setting of strategic direction and providing financial oversight, the current governance framework’s locus of control rests mainly with DGPFSS staff.

Delegated authorities, both financial and human resources will be discussed under a subsequent topic heading.

Figure 1 depicts the audit team’s interpretation of the current NPP Governance Framework, achieved through piecing together various governing documents. This structure is not documented as such in any official document.

Figure 1. NPP Governance Framework. This chart represents the accountability relationships between the CDS, the NPP Board, the Executive within DGPFSS, and the various sub-committees. *Note that CMP is the functional authority for Public programs and services delivered by NPF staff.

Figure 1 illustrates the accountability relationships between the CDS, the NPP Board, the Executive within DGPFSS, and the various sub-committees. Note that CMP is the functional authority for the public program and services delivered by NPF staff.

Over the last decade or more, the composition, role and functionality of the NPP Board have undergone numerous changes. Annex D outlines these changes, in detail. In the early years, the TOR of the NPP Board, as outlined in Defence Administrative Order and Directive (DAOD) 9003-1, defined the NPP Board as an advisory mechanism to assist the CDS in his capacity as the governing authority for NPP. Though the specific elements of the TOR focused on strategic direction and decision making, the reality, as evidenced by an analysis of meeting agendas, minutes and RoD, was that the NPP Board functions at a managerial or operational level. As responsibility for the NPP Board secretariat passed from the National Defence Headquarters (NDHQ) Secretariat to the administration section within DGPFSS (or its precursor, CFPSA⁴) the focus of the agendas moved further away from strategic issues. Re-assigning secretariat responsibilities to the NDHQ Secretariat combined with the use of a forward planning agenda tool, an example of which is included at Annex E, should mitigate the risk of the NPP Board agenda losing strategic focus.

During the same timeframe, the level of the NPP Board membership devolved from Level One (L1), participation, i.e., direct reports to the CDS including the Environmental Chiefs, chaired by the CDS to, in 2008, a de facto advisory committee, staffed at the Level Two (L2) or Level Three (L3) level and chaired by the Managing Director of NPP. In this latter format, only exceptional issues would be raised to Armed Forces Council (AFC), whose representatives closely mirrored the participants of the CDS-chaired NPP Board, and an annual report, prepared by DGPFSS staff would be tabled at the AFC meeting. Though the intent of this NPP Board was to provide a source of strategic advice to the Managing Director, NPP, the function was further challenged by the fact that a number of NPP Board meetings had to be cancelled due to a lack of quorum. The reason cited for these cancellations was the existence of higher priority CF operational demands. The erosion of the perceived importance of the NPP Board was evident. In the absence of strategic direction and oversight, critical foundation documents became dated. For example, in March 2011 AFC endorsed the theme “One Million Strong”; however, the NPP Board has not reviewed nor approved the associated NPP Vision Statement, nor has a long-term strategic plan been endorsed by the NPP Board since 2006 (CFPSA Strategic Plan 2006-2009).

The CDS is committed to supporting those programs and activities that enhance the quality of life of military members and their families, as this positively contributes to the operational readiness and effectiveness of the CF. The NPP Board can and should play a vital role in advising the CDS on the strategic direction of NPP. To do so, the CDS needs to further clarify the NPP Board structure and responsibilities. In July 2011, the CDS signalled his intent to re-energize the NPP Board by elevating the participation to the L1 level, with himself as Chair at that month’s meeting, ensuring direct senior leadership engagement. The CDS issued a letter confirming these changes in October 2011.⁵

The requirement for Environmental Commander endorsement of the NPP vision, mission, strategic objectives, and broad policy approval is essential to ensure the commitment of the CoC. Equally important is stakeholder representation and the matching of skills and expertise of members to the mandate of the NPP Board and NPP. In July 2011, for the first time, retired members were represented at the NPP Board. Presently, there may be an overreliance on internal SME, i.e., those managing/delivering the program or service. The periodic engagement of independent SMEs, or the convening of sub-committees with participation of these SMEs, may be required. The Investment Committee, which advises on a combined portfolio of more than $500 million, currently reports to Managing Director, NPP. At its second meeting of FY 2011/12, the NPP Audit Committee noted that the CDS and/or the NPP Board needs a strategic investment advisory capability, and it is the Audit Committee’s view that the Investment Committee should be a sub-committee of the NPP Board, and should have access to external SMEs. These SMEs should be reporting to the NPP Board and the CDS at least twice per year, or more frequently depending on market conditions.

Delegation of Authorities – Financial and Human Resources

Over time, the Managing Director of NPP has been afforded significant financial signing authorities. With the January 2009 CDS Delegation, financial authority has been almost entirely delegated from the CDS to the DGPFSS; shortly thereafter, the financial authority of Base/Wing Commanders was reduced. While the latter action was intended as a risk mitigating response to the erosion in NPP-related knowledge by local CF senior managers, and the associated risk of inappropriate NPP business decisions, there does not appear to be an associated risk mitigation strategy related to the former.⁶ Figure 2 depicts the changing levels of expenditure authority afforded to the DGPFSS and Base/Wing Commanders over a ten-year period.

Figure 2. Capital Expenditure Authority. This graph identifies the trend related to the size of capital expenditure authority for DGPFSS, which as an upward trend, having increased from $0 to unlimited authority and Base/Wing Commanders, with a declining trend, whose authority has declined from $1 million to $25,000 in some instances. Prior to 2000, expenditure authority rested with the NPP Board, and the 2000 delegation of authorities did not include the Managing Director, NPP if the unit was not indebted to CFCF. The data is summarized in Table 1.

Table 1. Capital Expenditure Delegation of Authority for Local NPP for Units not Indebted to CFCF.

Acknowledging that NPP operations are significantly different than those of other DND organizations, in some instances more closely aligned with the Private sector, the current delegation to Managing Director, NPP far exceeds those of comparable level senior managers, i.e., Assistant Deputy Ministers (ADM), and does not meet the spirit or intent of previous CDS Direction of meeting or exceeding Public standards. With the Managing Director, NPP having almost full authority, the segregation of responsibilities between the oversight authority, i.e., between the CDS and the NPP Board and management, is absent, which could lead to unintended results.

Annex  G provides an analysis of the changing levels of authorities granted, and weighs these against comparable CF or DND senior managers. With the present governance construct, it would be difficult for the CDS to demonstrate the NPP is being managed to the same level of stewardship that the DM manages Public resources.⁷

The MND delegated authority over the Staff of NPF, CF to the CDS in 1978. This authority was officially delegated to DGPFSS in January 2009. Prior to 2006, the NPP Board had a subcommittee responsible for making recommendations on HR, compensation, and benefits issues. Subsequent TOR did not encompass this capability. The CDS’ role with respect to the Staff of NPF appears to be limited to ad hoc discussions. In comparison with DND, the Staff of NPF, CF with 5,400 full-time, part-time and casual members may seem a small workforce, but the service-orientated nature of the majority of positions, i.e., direct client interface, staff working in a non-unionized environment or a unionized environment with 23 separate collective agreements, and the blending of NPF staff, Public servants and CF members in MW work units, all with separate employment policies, increases the inherent risks associated with managing such a staff. In comparison with other federal departments, 5,400 staff would be an average-sized department. Conversely, the relatively flat HR component of the NPF organization, with strong ties to its staff in the field, increases the likelihood that Vice-President, Human Resources (VP HR), and ultimately Managing Director, NPP, would be aware of emerging trends or issues. However, there is no formal mechanism to ensure the CDS is also kept apprised of strategic concerns, nor are there independent bodies, such as the Treasury Board Secretariat Chief Human Resources Office representatives available to provide independent advice or guidance.

The DM is responsible for approximately 29,000 staff members under 18 collective agreements, and has DND and CF members working side by side in most work units.⁸ The DM has access to significantly more HR resources for advice and guidance and he chairs the ADMs Council as well as the Civilian HR Committee, ensuring he is kept apprised of strategic HR issues and emerging trends. The latter committee’s mandate is to provide the DM with a policy and decision-making body for civilian HR issues. With accountabilities to the Public Service Commission and TB Secretariat (TBS), DND has tight controls to mitigate the risk of non-compliance with prescribed regulations and has an HR resource, outside the department, for advice and guidance. This, at times can be viewed as contributing to the bureaucracy for some HR functions, such as staffing, but most control processes are designed to address acknowledged risks.

The DM is afforded significant resources, internal and external to the department, to aid him in fulfillment of his responsibilities. To mitigate risk, the CDS—in his role as head of the Staff of NPF, CF—should be afforded a comparative resource or mechanism, which reports to the NPP Board a specified number of times per year.

Foundational Governing Documents

Critical foundation documents, including the document establishing the former CFPSA as an ASD initiative to deliver both public and non-public MW programs and services via civilian NPF employees, are significantly out of date. Over the past decade or more, additional programs have been delegated to DGPFSS as part of the ASD; however, the ASD Framework has not been officially updated since its inception in 1996. In 2003, a review of VCDS 3/96 was co-sponsored by VCDS and CMP (at the time, ADM(HR-Military)) and was prompted by changes to programs, responsibilities, management, reporting, resource levels and funding mechanisms that have occurred since CFPSA had been created. The original TOR for the review called for three deliverables:

• a report on senior reporting relationships (due September 2003);
• a report of findings and recommendations in 17 areas (due December 2003); and
• a replacement for VCDS Instruction 3/96 (due March 2004).

After almost 21 months, the review had not produced the deliverables called for in the TOR and work on the replacement VCDS 3/96 had not begun; work was delayed pending completion of the other staff priorities. Revised timelines had a replacement due June 2005, but this was also overtaken by other events and the project never did progress.

Most often the cause of friction between NPP and Public business or program managers is related to the interpretation of the lead-in to the percentage tables which note “… maximum level of Public support that may be authorized…[emphasis added].” On occasion, the maximum allowable percentage of Public support to a specific program or service has been viewed by NPP managers as an entitlement, and as such, has been set up as a receivable owing by the Public. NPP programs and activities are challenged when expected Public support is not forthcoming, requiring a reduction in the level of service or an offset by NPP, which is viewed by DGPFSS staff as a misuse of NPP. Conversely, the noted support levels, i.e., the prescribed ranges starting from zero up to the noted maximum percentage of support, were never intended as a mechanism for the Public to circumvent its good employer obligations by reducing support to zero. Challenges with the interpretation of the manual have also affected how NPP BP is conducted, and this issue will be expanded upon under the topic heading “Business Planning” within the Strategic Management section of this report.

In March 2011, the Managing Director, NPP issued a document titled “Way Ahead – Public Funding Framework, CFP 110 Re-write and NPP Certification Training,” which outlined the intent to develop an “ASD Framework” to “formalize the relationship between Public responsibilities and resources that have been formally assigned to DGPFSS through an ASD process.” This internal document (i.e., was not endorsed by the NPP Board) signalled the intent to address the lack of relevance of VCDS 3/96, as well as to revise the CFP 110, and to produce the NPP Certification Training Program. Timelines for deliverables were not identified, and interviews with the responsible parties revealed slippage in self-imposed timelines, due to competing priorities. Interviews also suggest the intent is to tighten up the language of the CFP 110 to eliminate the “may versus shall” ¹⁰ issue that DGPFSS staff believes is contributing to reduced Public support, i.e., not to the maximum level. Given that the Public funding support affects the operating budgets and business plans of organizations outside DGPFSS, this and other proposed changes may be difficult to progress.

Work on the ASD Framework and the revision of the CFP 110 had not progressed sufficiently for the audit to assess the efficacy of the documents; however, given the critical nature of these foundation documents, the absence of NPP Board participation in their framing is concerning. Noting the prolonged time and effort put forth during other revision exercises, DGPFSS staff are at risk of expending significant time and their limited resources in the production of documents that may not reflect the expectations of the CDS and his NPP Board. In the interim, measures need to be put in place to mitigate the risks associated with out-dated, unclear directing documents.

Other key NPP policy documents are out of date or absent. This situation may be due to the fact that DGPFSS does not have a documented organization-wide policy development and approval process. Each of the division heads is responsible for policy development in his or her functional areas. The Managing Director, NPP and/or Assoc. DG, DGPFSS provide final approval of major policies. For example, A-FN-105 Accounting Policy and Procedures Manual has many chapters that require revision—a theme noted in previous CRS audits. The Chief Financial Officer (CFO)/DGPFSS stated that priorities have been established and a process is in place for updating the financial policy manual, but this revision plan has not been formally documented and specific timelines have not been established. Other DGPFSS policies face similar circumstances.

The December 2004 letter titled “CDS Direction – Canadian Forces Personnel Support Agency” directed that “…the policies and directives for NPP financial administration shall reflect the spirit of public regulations and should adopt the public provisions where practicable.” Policies over sensitive expenditure areas were specified: travel authorities, hospitality, membership fees, conference sponsorship and attendance, and contracting. The NPP travel policy is clear and comprehensive and meets the spirit and intent of TB and DND travel directives. DGPFSS does not have specific NPP hospitality or conference sponsorship and attendance policies or directives, though some evidence suggests that hospitality has been an issue i.e., through the alienation of NPP. The NPP contracting policy was reviewed under the topic of “Business Planning” and the observations and recommendations will be noted therein.

A previous CRS project, the Audit of Non-Public Property Information Management/Information Technology Rationalization: Phase 1—Governance identified that the Information Services division has developed and documented a very thorough formal policy development process that could be adapted DGPFSS-wide. The HR Division also has a well-documented policy development and approval process laid out in the first section of The Staff of NPF, CF Human Resources Policy Manual.

Strategic Management

DGPFSS recently added two director-level staff to its management group, the Director Corporate Strategy (DCS) and the Director Strategic Outreach and Initiatives. The DCS advised that “Strategy 2030” has been renamed as “One Community, One Million Strong”—based, in part, on a new definition of a “family” and that this strategic vision is more than a 2030 vision—it is a vision for the next 50 years. DGPFSS staff acknowledges that the situation as it stands today is very different than it was 20 years ago for the CF. Before 1990 most CF families lived on bases/wings; now, the majority live off-base. Even though the “demographics” and associated service-requirements have changed, funding and delivery models are still reflective of pre-1990 needs. The “one million strong” definition, specifying recipients of NPP programs and services, varies based on the information source; in the draft NPP Vision Statement the definition includes CF members, retired CF members and their immediate families, and foreign military personnel and their families serving with the CF in Canada (as authorized by the CDS Letter – Alienation of NPP). The definition extends to DND civilians and NPF employees and their families in other documents describing the “CF community” i.e., this definition goes beyond the beneficiaries outlined in the NDA.

The theme “One Million Strong” was presented to AFC in March 2011, in the form of a video, supported by a broad, high-level brief; the concept was endorsed by AFC. No underlying business case analyses were presented for any of the new initiatives suggested.

DCS completed the draft of the NPP Vision Statement and a copy was presented to the NPP Audit Committee, at its request, in August of 2011. Neither this vision statement, nor its supporting guiding principles have been presented to the NPP Board for approval.

DCS advised that when this vision statement is approved, an opportunity report will be developed and submitted to the CDS to present different paths that DGPFSS could take in the next 50 years. Given the breadth of change in demographics experienced by the CF in the last 20 years, coupled with technology advances, a 50-year plan may not be appropriate. The development of the strategic plan does not appear to be a DGPFSS priority, as work has not progressed in the last several months.

Capital Infrastructure Planning

There is no documented NPP long-range infrastructure replacement plan. The absence of a plan was raised in 2007, as part of the development of the “New Deal Study Directive”; a conceptual approach for restructuring the funding and management for NPP programs, activities and capital infrastructure was presented to the NPP Board in September of that year.¹¹ A proposal document was circulated to Environmental Commands and other stakeholders for comments, and a revised New Deal Study Directive was issued by the CDS in October 2008. Timelines for deliverables have been overtaken by events (five of seven New Deal initiatives, including a national NPP capital plan, were to be completed by April 2010; to date, only three initiatives are complete or are near completion). Though the entire New Deal is the subject of a future CRS audit, where appropriate this audit will reference specific New Deal initiatives related to governance and strategic management, where work has progressed sufficiently for assessment.

Business Planning

Public and NPP BP Processes

Due to the harmonized nature of MW program funding and service delivery, there are strong linkages between the Public and NPP BP processes. DGPFSS operates with two types of funding: Public funds and NPF. Both funding sources are controlled under different frameworks.

The convening of the RMC has greatly improved DGPFSS’ oversight and monitoring of its annual Public and NPP BPs; a Quarterly Review Process has been implemented to monitor spending against budgets and to identify opportunities for re-allocating funds during the year. This Committee is also the mechanism for monitoring spending against budget allocations; surpluses or shortfalls are identified for funding re-allocations, where appropriate.

For the Public framework, CMP is the L 1 organization with overall responsibility for the BP, with DGPFSS as one of its L2 organizations. The public BP process is well documented on the VCDS website and supplemented by guidance found in Military Personnel Command Orders and other specific direction provided by CMP.

Contracting

The 2004 “CDS Direction – Canadian Forces Personnel Support Agency” directed that “…the policies and directives for NPP financial administration shall reflect the spirit of Public regulations and should adopt the public provisions where practicable.” This direction resulted in the creation of the NPP Contracting Policy; the most recent version is dated July 2011.

Generally, the NPP Contracting Policy mirrors elements of the Public contracting regulations; however, unlike the Public procurement framework, the NPP framework does not provide the same level of oversight and control with respect to procurement practices.

In the Public contracting policy, the section outlining the exceptions that permit setting aside the requirements for soliciting bids has five additional explanatory paragraphs that ensure that these exceptions are not simply interpreted to allow sole sourcing. For example, the Public policy is very limiting as to what constitutes an “emergency” circumstance that warrants the setting aside of bidding requirements. Further, the DND Procurement Administration Manual has an entire chapter related to procedural and documentation requirements for low-dollar value (LDV) procurement—those under $25,000. Except for very specific commodities and requirements, all goods contracts greater than $5,000 must be issued by the central procurement authority, Public Works and Government Services Canada. The minimum number of documented quotes for LDV procurements, for varying levels below the $25,000 threshold, is also outlined. In the absence of similar direction for NPP procurement, the “under $25,000” threshold almost always results in sole sourcing, which adversely affects the reputation of MW programs and services due to perceived favouritism, and increases the risk of entering into contracts that do not provide the best value for money. The latest version of the NPP Contracting Policy, which was not in force when the contracts that were sampled for review were entered into, no longer includes the “under $25,000” threshold as a possible criteria to set aside the requirement to compete a contract. The policy now requires that any contracts that do not meet the exemptions permitting setting aside the requirement for soliciting bids or contracts that exceed the CDS Delegation of Authority for Financial Administration of NPP for directed or non-competitive contracts receive prior written approval by the Managing Director, NPP and in all cases files be properly annotated with the rationale for not having competed the requirements.

A sample of contracts was selected to assess the efficacy of the NPP Contracting Policy (see Figure 3). Selecting the sample proved challenging as there is no single repository or financial coding identifier for contracting documentation within the NPP information or accounting systems. The sample spanned NPP projects across the divisions and included select local projects, all with a materiality greater than $25,000 (the threshold at the time whereby competitive tendering is required for all but a few prescribed circumstances).

Figure 3. Analysis – Compliance with NPP Contracting Policy. This bar graph identifies the total number of projects assessed against the four key NPP Contracting Policy compliance requirements. The data is summarized as follows:

• Total number of projects: 17
• Contracts signed by all parties: 12
• Statement of Requirements: 13
• Invoices authorized: 17
• Competitive process documented: 6

At issue with NPP contracting is the frequency that sole sourcing is the preferred method for engaging a contractor—in contravention of the policy, based not only on the sample analysis, but also on anecdotal evidence from other audit projects.

Language in the NPP Contracting Policyprovides for use of the NPP contracting framework when Public funds are used to pay for goods/services relating to Public programs delivered by NPP. TB requires that all contracts valued at greater than $10,000 be publicly disclosed through quarterly reporting, and posted on departmental and TBS websites. The NPP contracting framework, in essence, could lead to the circumventing of disclosure of public spending on contracts over $10,000. In this sense, the NPP policy is not meeting the spirit and intent of Public regulations. Disclosing contracts on the NPP website (still called the CFPSA site) would alleviate this concern, and the organization’s competitive position would be protected by Access to Information and Privacy regulations.

DGPFSS staff have expressed the concern that duplicating the very rigid Public procurement procedures would hinder NPP operations and limit their flexibility. However, the risk of not meeting the more stringent Public standards has to be weighed against the actual, as opposed to perceived, risks of not doing so.

There are some controls specified in the 2004 CDS Directiondocument that have not been incorporated in the NPP Contracting Policy, that, individually or combined, could put NPP at risk. Specifics are noted at Annex H.

Risk Management

Risk is an expression of the likelihood and impact of an event with potential to influence the achievement of an organization’s objectives. Organizations that manage risk well are more likely to achieve their objectives. Risk management includes the identification of an organization’s risk tolerance, the assessment and ranking of higher-level risks, the linking of risks with strategic objectives and corporate priorities, and the development of risk responses.

Status of Risk Management

Risks affecting MW programs and services are identified in numerous documents, including BPs, risk assessment summaries, and in briefings to senior management.

DGPFSS has developed a Corporate Risk Management Summary. The summary provides a description of the programs and processes, identifies the potential impacts, and provides assessments for the likelihood of occurrence and the impact/consequences for each identified risk. The impact and likelihood related to “opportunity management” are also assessed. However, the opportunity management assessment is not described clearly.

The risk identification and assessment components of the Summary are relatively comprehensive, covering Executive Management, Personnel Support Programs, CANEX, Service Income Security Insurance Plan Financial Services (SISIP FS), Casualty Support Management, Comptrollership, Finance, and Accounting, HR, and Information Management/Information Technology. While responses have been put in place to manage some of the identified risks, these responses, or proposed responses, have not been formally incorporated into a risk management plan. Such a plan would clearly articulate each risk, the potential impacts from that risk and outline management’s planned response, and it would be an effective tool to communicate to DGPFSS stakeholders that the organization has a plan in place to deal with the identified risks, and a timeframe in which to do so.¹³

Key threats to NPP, as identified in the Corporate Risk Management Summary include the difficulty with strategic relationships with other CF stakeholders, including the risk that the Public accountability regime will be applied to NPP in error; the out-of-date ASD “contract” specifying terms and conditions for service delivery; that insufficient funds will be generated internally via CANEX or investments to fund NPP programs; and rising re-insurance costs for SISIP FS war coverage life insurance negatively affecting the availability of NPP funds for other uses. Absent from the identified risks is the challenge to NPP’s exemption status related to the FAA through actions of the Office of the Auditor General and the Office of the Comptroller General staffs. Despite legal opinion supporting the special exemption status of NPP, both organizations are pressing for NPP to be reported under the Public Accounts of Canada, which would essentially limit the flexibility afforded to the CDS in the administration of NPP. These actions could result in increased costs for goods, services and, ultimately, salary costs associated with NPP programs and services. Cost savings resulting from the ASD initiative could be greatly eroded, perhaps to the point that the rationale for ASD via DGPFSS no longer applies.

Business Continuity Planning (BCP)

DGPFSS’ most recent BCP is dated 2009. The associated documentation, including the Fan-out lists, is up to date, and comprehensive. The BCP identifies incidents/events that would lead to the need to implement the DGPFSS BCP such as loss of personnel (major storm, flood, pandemic influenza, etc.); loss of services (power, water, telecommunications, etc.); and loss of facilities (fire, earthquake, flood, terrorist attack, etc.). The document provides DGPFSS with a plan that ensures that the organization is ready to operate and respond effectively to an event that has a significant impact on facilities, services or personnel required to complete its assigned mission.

One component of the BCP is the Business Impact Assessment (BIA), which is designed to identify threats that may cause interruptions in service or operations. The DGPFSS BIA details the impacts of disruptions on the identified critical operations and services and it also identifies and prioritizes these critical services, assets and internal enablers/ and/or dependencies. Specifically, the BIA

• identifies critical services and the impacts/effects of disruptions;
• provides an assessment of the critical services to determine their criticality;
• identifies maximum allowable downtime and maximum services levels;
• identifies interdependencies;
• identifies resources requirements;
• identifies gaps in the present recovery capabilities; and
• prioritizes recovery procedures.

The comprehensiveness of the BIA demonstrates that DGPFSS management possesses a very good understanding of business continuity risk levels, the potential impacts, and the likely degrees of loss. To increase the benefit of the BCP, it should be tested for effectiveness.

Performance Management

Non-Public Property – Program Activity Architecture (PAA)

In 2004, the CDS issued instructions that, as a matter of practice, the policies and directives of NPP for financial administration should reflect the spirit of Public regulations and should adopt the Public provisions where practicable. Accordingly, NPP has developed a Management, Resources and Results Structure (MRRS) which is similar to that of the TBS. The MRRS has three main elements: (1) clearly defined and measurable Strategic Outcomes; (2) a PAA; and (3) a description of the current governance structure which outlines decision-making mechanisms, responsibilities and accountabilities.

Based on the NDA definition of NPP, the five following Strategic Outcomes have been identified for DGPFSS:

• programs, activities, and services that reflect caring and compassion for the military community;
• programs, activities, and services that contribute to the financial security of members of the military community and that may generate revenue to support other elements of NPP;
• programs, activities, and services that provide social opportunities for the military community;
• programs, activities, and services that assure that the military community has access to a wide range of retail goods and services, that provide value to the military community and generate revenue to support other elements of NPP; and
• programs, activities, and services that contribute to an active and healthy lifestyle.

DGPFSS currently tracks budgetary allocations and expenditures through a centralized national accounting system called ABACIS. The ideal would be to have a PAA to which DGPFSS could manage its activities, using tools such as a reporting and performance measures framework; to do so will require that DGPFSS plan, budget, track and report expenditures against the PAA structure. With the current accounts structure within ABACIS, this would not be easily accomplished; accounts will need to be affiliated with the PAA structure. In addition, NPP senior management intends to have ABACIS support the activity-based costing capability that includes attribution of internal services to product lines and incorporates reciprocal costing techniques, and which will support the NPP MRRS/PAA.¹⁴

DGPFSS RMC is the integrated resource management decision-making and oversight structure that is responsible for certain performance measurement activities, including the following:

• endorsing the annual DGPFSS Business Plan (combined Public and Non-Public) and tracking performance against plans;
• developing a capital investment plan (NPP) and monitoring its progress;
• monitoring in-year resource plans (including NPP and Public quarterly reviews) and making resource re-allocation recommendations; and
• tracking project progress.

NPP financial results are reported monthly, with annual statements audited and presented to the NPP Audit Committee for endorsement. Select NPP divisions track performance at the operational level, against self-identified criteria, i.e., CANEX results are measured against sales volume, gross margins, and inventory turns and SISIP FS tracks the number of clients for insurance, financial planning, and financial counselling. With the new NPP Funding Distribution Model there is a requirement for base/wing commanders to conduct a Community Needs Assessment before receipt of funds, and attest to the use of these via an annual NPP attestation. It is expected that the base/wing commanders will rationalize how they utilized any additional funds that may have resulted from the new funding formula, i.e., the funds should not be sitting idle, but rather should be earmarked for current or future programming. The effectiveness of these two performance measurement tools will be assessed as part of the follow-up action to the audit.

What is absent is a corporate-wide strategy for performance measurement. One study area of the 2007 New Deal strategy was titled “Reporting and Performance Measures.” In 2010 a working group was convened; the Working Group adopted a balanced scorecard approach for developing performance indicators for CANEX, Messes, Recreation, SISIP FS, and Specialty Interest Activities. The resultant spreadsheet was presented for discussion purposes only at the Base/Wing Commanders Forum in April 2010. It was determined to be inadequate and was subsequently discarded.

Going forward, the intent is to develop or rationalize the performance indicators as each study area of the New Deal is completed. There are two concerns with this stated approach: first, as the seven New Deal initiatives do not encompass the entire DGPFSS management and delivery model, there is a risk that the framework will be incomplete if it continues to be developed in a piecemeal fashion; second, since the development and implementation of the seven New Deal initiatives will likely take two to three more years, the associated performance metrics will not be developed until at least 2014-2015. How will performance be measured in the interim? NPP resources could be at risk of inefficient or ineffective use in the absence of a concrete performance measurement regime.

The audit team acknowledges that the development of robust, empirical performance measurements is also a continuing challenge in the public sector.

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Annex A—Management Action Plan

Management Action

Agreed.

• The Managing Director, NPP will produce a broad educational/training package/plan which ensures that commanders are appropriately prepared to assume their NPP responsibilities.
• The Managing Director, NPP initiated the conduct of an NPP workshop for newly appointed base and wing commanders in August 2011. A post-workshop validation is in process with the participants. The workshop will continue to be enhanced. The next session is scheduled for June 2012.
• The Managing Director, NPP designed and implemented two on-line certification courses in November 2011 as pre-requisites for individuals to receive/maintain delegated financial signing authority for the financial administration of NPP.
• The Managing Director, NPP will continue to enhance the “Fundamentals of NPP Course” as a measure to enforce accountability within the financial administration of NPP.
• Amendments to the Officer General Specification and the NCM General Specification to enable NPP education at appropriate levels within the CF have been suggested by the Managing Director, NPP to the Canadian Defence Academy.
• Development of an NPP module for the CDS’s Guidance to Commanding Officers is under way.

OPI: CDS

Target Date: April 2013

Management Action

Agreed.

• The Managing Director, NPP has developed an NPP Board Authorities/Responsibilities/Accountabilities document for CDS review.

OPI: CDS

Target Date: July 2012

Management Action

Agreed.

• NPP Delegation of Authorities for Financial Administration of NPP will be reviewed in the context of the review of the NPP Board role, scope and TOR.
• The CEO of the Staff of NPF, CF will table a strategic human resources report to the NPP Board at least annually and seek Board guidance concerning future priorities.

OPI: CDS

Target Date: November 2012

Management Action

Agreed.

• The Managing Director, NPP will develop an NPP policy life-cycle framework for NPP Board approval.
• The Managing Director, NPP will present a plan for the development of the “ASD Framework” and CFP 110 revisions for NPP Board approval.
• The Managing Director, NPP will review the requirements referred to in the CDS Letter of December 2004 entitled “Canadian Forces Personnel Support Agency,” and address any remaining gaps in policy development.

OPI: CDS

Target Date: September 2012

Management Action

Agreed.

• A planning cycle agenda format will be introduced for NPP Board meetings.
• A short-, medium and long-term strategy for NPP will be fully developed. The implementation of the concept of “One Community – One Million Strong” requires a short-, medium and long-term planning horizon that is greater than 10 years.
• The policy themes that underpin the NPP capital infrastructure program were approved at the 27 February 2012 NPP Board meeting. The NPP Real Property Investment Policy and the NPP five-year Capital Infrastructure Plan are under development. The policy will articulate the requirement for coordination of the NPP and Public approvals for all plans involving shared Public/NPP infrastructure.

OPI: CDS

Target Date: December 2012

Management Action

Agreed.

• The NPP Business Plan will be prepared by the Managing Director, NPP and submitted to the NPP Board for approval.
• Areas of shared Public/NPP concern, such as capital expenditures, will be coordinated with the appropriate strategic to tactical authorities via the chain of command.
• The Managing Director, NPP will provide the NPP Board with a semi-annual update concerning the Business Plan.
• The Managing Director, NPP will identify any significant capital investment opportunities that arise between business planning cycles to the NPP Board for approval.

OPI: CDS

Target Date: November 2012

Management Action

Agreed.

• Existing NPP contracting policy will be amended to include the bid solicitation process, exemptions and decision enablers.
• A more detailed NPP contracting procedures document will be developed to ensure clarity.
• Documentation requirements will be reconfirmed and options for an internal contract database tool examined in the context of available resources.

OPI: Managing Director, NPP

Target Date: April 2013

Management Action

Agreed.

• The NPP risk mitigation strategy has been documented and tabled with the NPP Audit Committee.

OPI: Managing Director, NPP

Target Date: July 2012

Management Action

Agreed.

• An NPP performance management framework will be developed pursuant to a minimum reporting requirement to be determined by the NPP Board.

OPI: Managing Director, NPP

Target Date: April 2013

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Annex B—Audit Criteria

Objective

1.   Ensure that a proper corporate governance structure is in place.

Criteria

• DGPFSS decision-making processes include effective oversight by appropriate governing bodies and a transparent accountability framework.
• DGPFSS has achievable goals, objectives, and priorities that support its overall mandate and mission.
• DGPFSS has established a structured approach to policy and program development and management.
• DGPFSS’ organizational structure effectively supports the achievement of its goals and objectives and the delivery of its mandate.
• DGPFSS has established an appropriate mechanism to provide effective oversight of its legislated responsibilities.

Objective

2.   Determine whether DGPFSS has established an effective business planning and strategic management process that integrates public and non-public resources and requirements.

Criteria

• DGPFSS has established an effective corporate-level strategic planning framework or process (medium and long-term planning).
• DGPFSS has established an effective business planning and strategic management process (short-term planning and management).
• DGPFSS has established an adequate capital planning process.
• DGPFSS has developed policies and procedures to ensure that NPP contracting is consistent with the spirit and intent of the federal government’s contracting regulations, the Treasury Board Contracts Directive, the Government’s procurement policies, the FAA, and related DAODs.
• DGPFSS has established adequate HR strategy and planning processes.

Objective

3.   Ensure that DGPFSS has established a comprehensive and documented approach for corporate risk management.

Criteria

• DGPFSS has established a comprehensive approach to corporate risk management.
• DGPFSS has developed a BCP process and has an adequate BCP in place.

Objective

4.   Ensure that DGPFSS has a structured capital project management framework in place that is working effectively.

Criteria

• DGPFSS has a capital project management framework in place.

Objective

5.   Ensure that DGPFSS has established a structured performance management regime.

Criteria

• DGPFSS has appropriate performance measurement tools and procedures in place to provide management with timely, accurate and relevant information.

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Annex C—Governance versus Strategic Management

CDS (NPP Board)

Roles

Set the desired outcomes, the “Ends” and oversees achievement of results.

Responsibilities

• Defining the overall vision
• Endorsing the overall mission
• Setting and reviewing the strategic direction (long term)
• Providing financial oversight
• Granting broad policy approval
• Selecting Managing Director, NPP and determining compensation and benefits levels (when appropriate)

CEO and Executive Management

Roles

Develops, implements, and manages the “Means” to achieve the desired ends.

Responsibilities

• Development and implementation of NPP accountability framework
• Development of the strategic planning (medium to long term)
• Program development and management
• Development of capital planning and budgeting processes
• Oversight of project management
• BP and resources allocation (short term)
• Risk management
• Development of performance management tools and reporting performance to the NPP Board

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Annex D—NPP Board Composition, Role and Functionality

Table 2. NPP Board Composition, Role and Functionality. This table presents the evolution and the composition of the NPP Board between 2000 and 2009.

NPP Board Functionality

Analyses were based on NPP Board RoD for the period of 10 May 2000 to 24 January 2011. During that time frame, NPP Board was chaired, at different times, by the CDS, CMP and DGPFSS in his role as Managing Director, NPP.

DAOD 9003-1 (2000-04-27 – first release date) – CDS as Chair

For the period May 2000 to October 2006, the NPP Board was tasked to meet three times per year and was composed of 18 permanent members. The presence of not fewer than seven permanent members was required to constitute a quorum, and members of the NPP Board were not to be represented by another individual acting on their behalf, except that the VCDS was permitted to act as Chair in the absence of the CDS. Administrative support was provided by the NDHQ Secretariat. The overall member’s average attendance based on the analysis of 25 meetings was 73 percent.

DAOD 9003-1 (2006-10-06 – amendment date) – CMP as Chair

For the period October 2006 to January 2009, changes were made in regards to the NPP Board’s quorum. The NPP Board was tasked to meet three times per year and was composed of 16 permanent members. The minimum acceptable number of members to constitute a quorum was not provided, and members were allowed to designate an alternate at the general or flag officer level, and civilian members were allowed to designate an alternate at the appropriate civilian level. Administrative support was provided by CFPSA. The overall member’s average attendance based on the analysis of three meetings was 79 percent.

7331-0 (DGPFSS) (2009-01-06 – distribution date) – Managing Director, NPP – Chair

Note: This direction was delivered via a letter, signed by the CDS, and then distributed to stakeholders; it did not receive the same CF-wide distribution as a DAOD. For the period January 2009 to July 2011, the NPP Board was tasked to meet twice per year and was composed of 15 permanent members. At least 50 percent of the members were required for a meeting to take place. In the event that a member was unable to attend an NPP Board meeting, the members were allowed to designate an officer at the rank of colonel/captain (navy) to represent them, and in the event that ADM(Fin CS) was unable to attend an NPP Board meeting, an officer at the rank of lieutenant-colonel/commander was designated to represent the member. However, that representative was recorded as “in attendance” and did not count towards meeting the quorum. Administrative support was provided by DGPFSS. The overall member’s average attendance based on the analysis of four meetings was 55 percent.

NPP Board Role

An NPP Board of Directors is meant to deal with and establish the “Ends” and monitor the Managing Director’s performance in achieving the prescribed “Ends.” The Managing Director, NPP is responsible for developing and implementing the “Means” to achieve the desired “Ends.” The role of a Board is to provide leadership and oversight of the activities of an organization. In both areas it will strive to represent the interests of members and the broader community. The NPP Board has governance, leadership, stewardship, and other specific responsibilities in order to represent these interests.

The overall evaluation of the NPP Board functionality is that since 2000, the NPP Board role has systematically degraded from its true role as governing body that functioned as an “advisory” resource to the CDS. Specifically, between 2006 and 2009 the NPP Board functioned as an advisory body for CMP, as opposed to the CDS, in exercising CMP’s NPP responsibilities, i.e., administration and management, as opposed to governance-type responsibilities. In 2009, the role further degraded, with the NPP Board functioning as a mechanism for stakeholder input to the Managing Director, NPP, in exercising his delegated NPP authorities.

The analysis also revealed that NPP Board TOR were missing or were not explicitly developed for the 2006 version of DAOD 9003-1 and for the 2009 version of the NPP Board as outlined in the letter,7331-0 (DGPFSS) dated 16 January 2009. TOR describe the purpose and structure of the NPP Board, and are critical as they define the roles, responsibilities, expectations and limitations of the members.

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Annex E—Suggested NPP Board Forward Planning Agenda

Table 3. Suggested NPP Board Forward Planning Agenda. This table denotes which area of Board focus or responsibility is to be included at the noted quarterly meeting.

Legend:

I – Included

N/I – Not Included

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Annex F—Suggested NPP Board TOR Elements

• Define membership participation, and limitations;
• Requirements for quorum;
• Establishment and maintenance of the vision and mission of NPP;
• Provide strategic direction for all NPP activities, including shared NPP/Public activities;
• Exercise financial oversight of all NPP activities, including shred NPP/Public activities;
• Assess the operations and performance of the Managing Director, NPP;
• Board self-assessment;
• Approve major policies related to NPP;
• Provide strategic oversight and direction on the management of NPP investments;
• Approval of corporate risk management and performance management frameworks for NPP;
• Selection and appointment of the Managing Director, NPP (if this were to again become a civilian position); and
• Establish and maintain a forward planning agenda to ensure key responsibilities are addressed annually.¹⁷

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Annex G—Analysis of Financial Delegations of Authority

Delegation of Authorities for Financial Administration

The NPP portfolio is worth over half a billion dollars; the level of risk exposure for NPP expenditures could eventually put the CDS in a position of not being able to demonstrate that he is managing NPP to the same level of stewardship as any other DH (Level 0).

A comparison of delegation of authorities was conducted to assess whether the expected hierarchy to initiate various expenditures was adequate. The comparison was made among both public and non-public organizations, and it was divided between different individuals with diverse reporting levels of delegations of authorities. Key expenditures such as Personnel, Operations and Maintenance (P, O&M), Capital, Write-Offs, NPP alienation, Membership Fees, Sponsor Support and Relocation were compared.

Table 4. Delegation of Authorities for Financial Administration. This table compares delegation of authorities between public and non-public entities.

Legend:

X – Position holder has full signing authority within his or her area of responsibility and approved budget, whereas dollar limitations are indicated by specific amounts.

F – Full authority within budgetary limits, subject to TB and departmental spending limits and the limitation of the governing authorities and area of responsibility.

R – Authority has specific restrictions.

N/A – Not Applicable.

Table 4 illustrates and compares delegation of authorities that were assigned to DGPFSS as Managing Director, NPP versus his public counterparts. DGPFSS signing authority was scrutinized and it was assessed that the authority differences between that position and the CDS are marginal since both entities have similar delegation of authorities. This situation is due in part to the 7331-0 (DGPFSS) document released on 6 January 2009 (approved on 16 January 2009) where the CDS delegated the overall operating authority for the administration and management of NPP to DGPFSS, as Managing Director, NPP. Taking into account that the CDS acts as a reporting Level 0 according to the DND

Organizational Chart, DGPFSS as a L1 is theoretically on the same reporting level as L1 Advisors (military and civilian) and should reasonably be expected to have similar delegation of authorities. This is not the case; the higher authority levels afforded the Managing Director do not appear to be related to a specific risk acceptance strategy.

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Annex H—NPP Contracting Policy Gaps

On 15 December 2004, the CDS issued a directive to CEO/CFPSA (now DGPFSS) with respect to the controls that should be adopted by the NPP organization. In this document, the CDS directed the development of “…policies and procedures to ensure that NPP contracting is consistent with the spirit and intent on the Government Contracts Regulations, the Treasury Board Contracts Directives, the Government’s procurement policies, the FAA, and related DAODs…” In Annex D of this directive, the CDS outlined three main requirements, the third of which has seven sub-requirements to be included in the NPP Contracting Policy.

In response to this directive, CFPSA developed the NPP Contracting Policy and the CDS Delegation of Authorities (DOA) for Financial Administration of Non-Public Property. With these two documents, only one of the three main requirements has been addressed: the 2006 DOA; a second has been achieved in 2011, related to training, and the third requirement has only been partially addressed.

The third requirement consists of seven sub-requirements. Of these seven requirements only two have been addressed by CFPSA (now DPGSSS) with the 2011 version of the NPP Contracting Policy.Although the new version is easier to understand and provides better coverage on elements that had been covered by the previous version of the contracting policy, additional work is required to meet all of the CDS’ expectations.

The following controls requested by the CDS in his directive of 2004 have not been specified in the NPP Contracting Policy:

• no work is to be approved or started until an NPP contract has been put in place by an appropriate authority;
• contract requirement must clearly describe the work to be carried out, the objectives to be met and within what time frame;
• an employee/employer relationship must not be created when contracting for services of individuals;
• public guidelines on limiting the length on contracts for services of individuals must be respected; and
• while required qualifications may be identified, the contracting firm must not be told, directly or indirectly, who to hire or to assign to a given task.

Controls that are covered by the 2011 NPP Contracting Policy:

• fees paid must not exceed the appropriate market rate for the service provided; and
• contracts or contract amendments must not be split to avoid obtaining the required approvals.

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Footnote 1 NDA Section 2, Subsection 38(1).

Footnote 2 Treasury Board Minute 689194, dated 20 June 1969.

Footnote 3 Non-Public Property: Unravelling the Mystery, by Mary Turner, Apropos article, fall 2005.

Footnote 4 Though a transformation exercise, CFPSA was reorganized to become DGPFSS in 2008.

Footnote 5 CDS Memo “Governance of Non-Public Property,”31 October 2011.

Footnote 6 At the November 18, 2011 NPP Audit Committee Meeting, the Draft NPP Corporate Risk Profile was presented. This document has not been assessed, as this event occurred subsequent to the completion of audit work.

Footnote 7 In this context, stewardship refers to the careful and responsible management of something entrusted to one's care.

Footnote 8 ADM(HR-Civ) Business Plan, FY 2011/12.

Footnote 9 A-PS-110-001/AG-002, titled Public Support to Morale and Welfare Programs and Non-public Property Manual, March 2007. (Section 3 of the cover letter and Chapter 1, page 7).

Footnote 10 In this context, “shall” implies a fixed level of Public that must be honoured.

Footnote 11 7331-1 (CEO CFPSA) The New Deal – Proposals for a New Approach for the Funding and Management Arrangements for NPP Programs, Activities and Capital Infrastructure, dated 16 November 2007.

Footnote 12 Shared service in this context refers to programs and services that are funded by both NPP and Public resources.

Footnote 13 At the November 18, 2011 NPP Audit Committee Meeting, the Draft NPP Corporate Risk Profile was presented. This document has not been assessed, as this event occurred subsequent to the completion of audit work.

Footnote 14 NPP Program Activity Architecture presented to NPP Audit Committee, February 2011.

Footnote 15 Subsequent to the completion of the audit fieldwork, the following titles changed: CMS became Chief of the Naval Staff, CLS became Chief of the Army, and CAS became Chief of the Air Force Staff.

Footnote 16 CFPSA President and CEO and CEO CFPSA are previous titles for the position of Managing Director, NPP.

Footnote 17 Extracts from multiple versions of DAOD 9003-1.