Assessment of Mutual Logistics Support Arrangements

Acronyms and Abbreviations

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Results in Brief

To support the Department of National Defence (DND) and the Canadian Armed Forces’ (CAF) mission to provide combat-effective, multi-purpose forces domestically and internationally, Canada may engage allied nations and their militaries for mutual cooperation in combined exercises, training or other cooperative efforts. Mutual Logistics Support Arrangements (MLSA) are agreements that enable the CAF to acquire and reciprocate the logistics support, supplies and services (LSSS) needed for troops to uphold their responsibilities and fulfill operational requirements at home and abroad.

Transactions performed under these arrangements must reflect fairness and prudence in the spending of public funds and make appropriate use of government resources, in alignment with applicable policies and legislation. For fiscal year (FY) 2018/19 the Department reported MLSA transactions totalling $71.7 million. As such, in support of the Department’s efforts to modernize the management of MLSAs, a request was made to Assistant Deputy Minister (Review Services) (ADM(RS)) to assess whether DND/CAF’s MLSA transactions are executed in compliance with applicable departmental policies and guidance, and meet Treasury Board (TB) reporting requirements.

Findings and Recommendations

Governance. While all transactions sampled complied with the definition of LSSS, some transactions were not linked to a formal MLSA. The interim policy directive should be updated and finalized to support the consistent application, management and documentation of MLSA-related activities.

Reporting and Oversight. While annual reports are submitted to TB as required, the reporting process is inefficient and requires improvement. MLSA activities are managed and reported differently across the Department. Further, reported data is generally not validated. Implementation of a validation process combined with future Defence Resource Management Information System (DRMIS) input enhancements and capabilities would enhance the overall reporting process and improve data quality.

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1.0 Introduction

1.1 Background

DND and the CAF have a mission to provide combat-effective forces at home and abroad to protect Canada and Canadians. Fulfillment of the departmental mandate requires continued implementation of Canada’s Defence Policy: Strong, Secure, Engaged, and ensuring that the CAF has the capabilities and equipment required to uphold their responsibilities both domestically and internationally.

To provide the necessary capabilities and level of readiness expected of the CAF, the Department has numerous instruments available depending on need and circumstance. While abroad, one such instrument is a non-contractual, non-legally binding blanket agreement allowing for the exchange of goods and services between Canada and foreign forces. This international, negotiated instrument is called a Mutual Logistics Support Arrangement (MLSA).

1.1.1 Mutual Logistics Support Arrangements

MLSAs are a unique type of Memorandum of Understanding (MOU) that establish frameworks for mutual cooperation and interoperability between the CAF and defence organizations of another nation for combined exercises, training, deployments, operations or other cooperative efforts. MLSAs are highly flexible instruments designed to facilitate reciprocal provision of specific LSSS between the named cooperating defence forces. Food, water and transportation petroleum are examples of LSSS that can be obtained or provided under an MLSA. The definition and scope of LSSS is very specific. The provisions under an MLSA may not exceed the definition as prescribed.^{Footnote 1} 

The LSSS provided may be reimbursed by either cash payment or the reciprocal provision of support, supplies or services, or a combination of the two. MLSAs are designed to supplement and not replace other normal means of providing or procuring support. As such, MLSAs may be considered only after following normal procurement mechanisms, in order of precedence:

1. The CAF’s existing in-house resources and capabilities;
2. Pre-facilitated procurement instruments established in advance by Public Services and Procurement Canada (PSPC) such as Standing Offer and Supply Arrangements; and,
3. Contracting through PSPC when there is sufficient time for PSPC to respond and meet operational requirements or under contracting authorities delegated to the Minister of National Defence.

The establishment, ongoing management and renewal of MLSAs between DND/CAF and other foreign militaries are guided by the Interim Policy Direction – Mutual Logistics Support Arrangements, superseding Canadian Forces Administrative Orders 36-42. The Direction was published in 2012 to serve as an interim policy while previous policy authorities were to undergo revisions and updates.

One of the commitments DND made in the process was to modernize the management of MLSAs including improving the definition of responsibilities for management of MLSA activities at the program level; improving visibility of the department’s use of MLSAs; instituting annual reporting to TB; and updating its internal policy direction. Updates to the internal policy were to be completed in two stages and take the form of multiple Defence Administrative Orders and Directives (DAOD). DAOD 7014-1, Memoranda of Understanding Development defines the MLSA and refers Offices of Primary Interest (OPI) to the interim policy for direction and awareness. The interim direction continues to serve as the main departmental policy for the development and use of MLSAs.

1.1.2 Authorities and Responsibilities

MLSAs are established under the authority of the Minister of National Defence. Table one identifies the Accountabilities, Responsibilities and Authorities (ARA) of key stakeholders related to the establishment and ongoing management of MLSAs.

Table 1. Key stakeholders’ authorities and responsibilities. This table outlines the key stakeholders along with their authorities and responsibilities related to MLSAs.

1.2 Rationale

The preliminary assessment was conducted at the request of ADM(Mat), the departmental functional authority for MLSAs to support the Department’s efforts to modernize the management of MLSAs.

1.3 Objective

The objective of this preliminary assessment is to assess whether DND/CAF’s MLSA transactions are executed in compliance with applicable departmental policies and guidance and meet TB reporting requirements. The scope, assessment exclusions and methodology are included in Annex B.

1.4 Assessment Criterion

MLSAs are used and recorded in compliance with policy requirements.

1. Transactions are exercised in accordance with MLSA authorities.
2. MLSA-related transactions are recorded accurately in the departmental system of record, to support internal and external reporting.

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2.0 Findings and Recommendations

2.1 Governance

We expected to find:

• Policies and directives provide clear guidance on the use and management of MLSAs, including well-defined ARAs.
• The LSSS exchanged meet the approved definition under the MLSA interim policy.
• Files contain evidence to demonstrate that required procurement mechanisms for LSSS are considered prior to using MLSAs.

2.1.1 MLSA Interim Directive

The MLSA interim policy provides a definition of LSSS and exclusions, rules and limitations in negotiating MLSAs, conditions of use, and identifies the key stakeholders and authorities responsible for the arrangements. Interviewees with several user groups described MLSAs as a diplomatic tool with foreign forces and further emphasized the importance of MLSAs as flexible instruments to meet operational requirements. Interviewees also suggested that the interim policy is not overly prescriptive. While a certain level of flexibility is necessary to account for differences in user operations, systems and processes, ambiguous policies may result in inconsistent interpretation and application.

The interim policy, as the main source of information for MLSA users, provides minimal detail on the execution, ongoing management and reporting of MLSA-related activities including guidance on how users can demonstrate compliance with usage conditions. For example, while the interim policy explains what an MLSA is, it does not differentiate an MLSA from other forms of MOU.^{Footnote 3}  This lack of clarity may create confusion amongst user groups, thereby affecting what is ultimately included and reported to TB as MLSA-related activities.

To assess whether transactions reported in the L1 MLSA Annual Reports (further explained in section 2.2.1) were associated with formalized MLSAs, the assessment team examined a sample of those transactions reported against lists of approved Arrangements. Three such lists were available: an official list included in the interim policy (found in Annex C); one from Director Materiel Policies and Procedures (DMPP), the group that sends the annual reporting call letter; and one from the JAG MOU group, the custodian of approved MLSAs and MOUs. The list provided by DMPP included 27 instruments (15 of which are unique to DMPP). JAG’s list included 21 instruments (eight of which are unique to JAG); and there was an overlap of 12 instruments found on both lists. Sampled transactions across L1 MLSA Annual Reports contained an additional six instruments not recognized by either DMPP or JAG. This discrepancy highlights that there is no complete list of MLSAs available to support validation efforts. A visual representation of the exercise can be found in Figure 1.

The exercise found that transactions listed in the L1 MLSA Annual Reports were linked not only to MLSAs, but also to other MOUs, draft MLSAs and other procurement instruments, suggesting that the understanding of what constitutes an MLSA is different between L1 user groups.

While non-MLSA transactions may share similar attributes as MLSA transactions and may have been reported for the sake of transparency, it also suggests that policies should be clarified to provide additional guidance so that the determination and differentiation of an MLSA transaction is not subject to user interpretation. Further clarification on the distinction of an MLSA from a conventional MOU or other instrument, along with a single aggregate list between functional and policy authorities would improve overall management, support users in the application and reporting of MLSA activities.

2.1.2 File Review

A total of 41 MLSA transactions were reviewed to determine if:

• LSSS exchanged or procured under MLSAs comply with the approved definition and scope as per the interim policy;
• Normal procurement mechanisms for LSSS are considered prior to using MLSAs;
• The subject transaction could be executed within the assigned resource envelope of the given unit/mission/operation; and
• MLSA transactions are accurately registered into applicable management information systems.

File review and analysis of the 41 transactions found the following:

• LSSS for all transactions were found to conform to the definition and scope under the interim policy;
• Several transactions were not associated with formal MLSAs, but with other MOUs or instruments like the North Atlantic Treaty Organization Standardized Agreements;
• Minimal evidence to assess whether other mechanisms and means of procurement were considered prior to the use of MLSAs;
• Minimal evidence to assess whether the subject transactions could be executed within the resource envelope of the associated unit/mission/operation; and
• Majority of the transactions reviewed were able to be reconciled against figures reported in DRMIS. Reporting to DRMIS is discussed further in section 2.2.2.

Without fully documented MLSA transaction files it is unclear if the appropriate instrument was used and may increase the risk of not meeting competitive expectations to support fair and transparent procurement practices. Improved policy clarity may provide support to users in how they can demonstrate compliance, consistent application and usage without removing the MLSA’s intended flexibility.

2.1.3 Conclusion

MLSAs are important tools in procurement and relationship management for the CAF with allied nations and foreign militaries. While transactions in the file sample fell within the limits of those set out in the interim policy directive, files generally contained minimal supporting documentation to demonstrate compliance with usage conditions. Additional clarity and guidance in existing policies should support users in the overall application and management of MLSA activities.

2.2 Reporting & Oversight Mechanisms

We expected to find:

• A reporting process for MLSA-related activities in place.
• Oversight and validated reporting occurring at both the operational and functional levels.
• MLSA transactions are accurately registered into applicable management information systems.

2.2.1 Reporting Mechanism

MLSA-related activities are reported to TB on an annual basis. The process is initiated with a call letter and reporting template sent by ADM(Mat) to all L1 organizations. Upon completion, the spreadsheet templates are sent back to ADM(Mat) and subsequently reported to TB on overall MLSA activities. While there is a formal reporting structure in place, the process requires additional guidance and validation to ensure transactions are consistently reported, validated and complete.

Interviews with user groups and review of transactions found that some figures reported to ADM(Mat) were estimates as opposed to actual costs. Additionally, one of the sample files reviewed found that cost recoveries or adjustments may not be reflected in reporting. In this specific case, Canada, as a framework nation for an international exercise, had agreed to pay for LSSS up front on behalf of other nations. While Canada recovered these costs individually after the exercise, the original amount paid was reported in the MLSA totals as opposed to the net recovered amount.

It is the L1 organizations’ responsibility to report on their MLSA use and activities for the year. Each environment has its own internal roll-up process for producing this figure. Interviews with user groups and DMPP confirmed that figures reported are not regularly validated both within the environments and by ADM(Mat), as there is no formal oversight or validation process to manage reporting. While an informal review may be conducted at DMPP, this is heavily reliant on its capacity, knowledge of the subject and nature of the transactions being reported. 

Recognizing that flexibility in the management of MLSA transactions is needed to account for operational differences, consistent reporting standards are necessary to ensure that amounts reported to TB are in compliance with applicable financial policies.

For example, fuel transactions are treated differently between the Air Force and Navy.^{Footnote 4}  While the Navy reports the dollar differential between outgoing and incoming fuel costs, as shown in Figure 2, the Air Force reports all transactions in the given year, thus reporting a gross figure. From Figure 2, the gross volume of fuel transactions between Canada and the USA during the noted six-month period was $12,913,221 – comprised of the USA providing Canada with $11,079,549 of fuel and Canada providing the USA with $1,833,673 of fuel. While the differential method is used for payment settlement purposes, reporting the differential of $9,245,876 as overall MLSA activities under-represents the true value of fuel exchanged by $3,667,345 for that six-month period alone. This variance may be significantly larger if extrapolating to account for activities with other nations, and for the entire fiscal year.

Both methods of differential and gross reporting of MLSA activities are currently accepted by ADM(Mat) for TB annual reporting. While allowing flexibility in transactions at the operational level is an important trait of MLSA management, reporting should be applied consistently across the environments to ensure that the amounts reported are both an accurate reflection of activity levels and in compliance with financial management and reporting requirements. Accepting all forms of reporting, combined with limited L1 validation and oversight of the amounts, affects the totality and accuracy of the data available to inform senior management decision making, and to fulfill reporting requirements to TB.

2.2.2 Defence Resource Management Information System

The MLSA interim policy requires that all relevant financial and materiel accounting transactions be properly registered in the appropriate management information system. According to the interim policy, any actual transactions can be processed through DRMIS and direct deposits and cheques be processed through the Standard Payment System managed by Director Military Pay and Allowances Processing.

From a review of sampled transactions, a majority of transactions reported were able to be reconciled against information reported in DRMIS. Transactions with discrepancies between the L1 MLSA Annual Reports and the associated invoices/DRMIS may be attributed to estimates being reported on the call letter spreadsheet while invoices and DRMIS reflect actual amounts paid.

The current reporting process is not automated and is labour intensive, which increases the risk of errors and omissions. Since each environment applies their own method of data entry into DRMIS, information available to support MLSA transactions also varies.

ADM(Mat) is aware of this issue and adds the caveat to the TB annual submission that states the manual effort involved in identifying and gathering of the required data to produce the report remains a “best effort” and more comprehensive reporting capability is anticipated as system improvements are delivered in the future. In addition, interviews within ADM(Mat) indicate that DRMIS improvements are underway to improve the labeling and tagging of MLSA transactions. This identification standardization initiative will assist L1 reporting and improve the accuracy of the data being reported.

2.2.3 Conclusion

While a formal reporting structure is in place and transactions are being registered into DRMIS, additional guidance around the scope of reporting is required. Data entry standardization is needed to ensure information is correctly captured to improve MLSA data quality. Without clear direction, sufficient oversight and validation of the data, there is a risk that information may not be accurate and reliable. Establishing an oversight and validation function and data enhancement in DRMIS would promote consistency across the L1s and strengthen the overall integrity of the information reported.

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3.0 General Conclusion

MLSAs are important diplomatic tools that afford the CAF the flexibility to exchange and procure the necessary supplies and services to meet operational requirements. While the LSSS exchanged complied with the definition under the interim departmental policy, existing directives and guidance should be updated and finalized to provide additional details on differentiating factors of an MLSA. Additional clarity and guidance in existing policies to demonstrate compliance with usage conditions, and to support overall management should support users in the application and reporting of MLSA activities.

The current reporting process is labour intensive and increases the risk of errors and omissions. Reporting is completed through the use of a standardized call letter, but the calculation and compilation of transactions is managed independently by the environments with minimal validation and oversight. As such, figures required to be reported to TB are not a complete reflection of total MLSA activities for the period. Validation at the operational and functional levels, along with future DRMIS enhancements to improve labelling and identification should improve the reporting process and data integrity.  

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Annex A—Management Action Plan

Management Action

Action 1.1

ADM(Mat) will consult with JAG and L1 stakeholders to update the MLSA policy while ensuring:

1. ARAs are in alignment with DAOD 7014;
2. Standard Operating Procedures are developed and incorporated into the new policy; clearly articulating policy requirements used to classify, manage and document MLSA activities.

OPI: ADM(Mat)
OCI: JAG, RCN, CA, RCAF, CJOC, CANSOFCOM, ADM(Fin), ADM(IE)
Target Date: March 2021

Management Action

Action 2.1

ADM(Mat) will consult with L1 stakeholders to develop effective monitoring and reporting of the following MLSA activities:

1. Update the call letter process to require L1 attestation of reported information;
2. Engage stakeholders to clarify reporting requirements; and,
3. Engage ADM(Fin) representatives to consider financial control monitoring.

OPI: ADM(Mat)
OCI: RCN, CA, RCAF, CJOC, CANSOFCOM, ADM(Fin), ADM(IE)
Target Date: June 2022

Management Action

Action 3.1

ADM(Mat) will collaborate with end users to identify and prioritize DRMIS requirements for MLSA transactions and will then submit this requirement to ADM(IM)/DRMIS through the Integrated Business Requirements Planning process.

OPI: ADM(Mat)
OCI: JAG, RCN, CA, RCAF, CJOC, CANSOFCOM, ADM(Fin), ADM(IE)
Target Date: June 2022

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Annex B—Assessment Scope and Methodology

Scope

The scope of this assessment included the review of policies and directives in place to develop and manage MLSAs, including lists of formalized arrangements from the interim policy and provided by key stakeholders. A selection of transactions from the FY 2017/18 and FY 2018/19 reports to ADM(Mat) were reviewed, along with any supporting documentation and invoices, and corresponding DRMIS records.

The assessment work was conducted from January 2020 to February 2020 inclusive.

Scope Exclusions

The following were excluded from the scope of this preliminary assessment:

• Establishment and negotiation of MLSAs, including the reasonableness of terms and conditions;
• Adequacy and suitability of LSSS procured to meet operational requirements;
• Transactions not on the most recent reports to ADM(Mat) for FYs 2017/18 to 2018/19; and
• Timeliness and accuracy of invoice and payment processing, and reporting to DRMIS.

Methodology

The preliminary assessment results are based on the following:

• Review of relevant policies and directives that support the use and management of MLSAs;
• Interviews with subject matter experts within the functional authority organization, and within user organizations on the execution and reporting processes;
• File review of select transactions included in the FY 2017/18 and 2018/19 MLSA report to ADM(Mat):
  • Transactions reviewed across multiple MLSAs, and environments (CJOC, Navy, Air Force, and Army);
  • Reconciliation of those transactions against reporting on DRMIS; and,
• Analysis of MLSA listings provided by functional and policy authorities against transactions reported by the environments to ADM(Mat).

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Annex C—List of MLSAs Included in the 2012 Interim Policy

Table C-1. List of countries with MLSAs in place and included in the 2012 Interim Policy.

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Annex D—Army CADTC LSSS Section 32 Form

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