Accrual Accounting Won’t Help
Jan 15, 2008

Excuse me if I offend accountants everywhere, but the impact that accrual accounting is going to make to the financial health of the Canadian Forces isn’t likely to be noticeable.

The Auditor General and others in her profession are undoubtedly excited about the introduction of Accrual Accounting at the Department of National  Defence. I am happy for them. But counting the money differently isn’t going to put a dent in the performance of an underfunded organization.

Accrual accounting is good stuff. It is designed to do a better job than cash accounting at smoothing out budgetary bumps that spending on expensive military equipment sometimes create. The impact on DND’s budgets are spread over the life of equipment.

Some people think accrual accounting will make it easier for the government to buy badly needed military equipment over the next few years and amortize it over time. I will applaud if it does.

But forgive me if I applaud with one hand. I know that unless this government starts to openly and honestly address the budgetary needs of the Canadian Forces, no system of accounting is going to save Canada’s military from the life of penury that it has suffered through – first under the Chrétien and Martin Liberals and now under the Harper Conservatives.

If the government does not introduce significant budget increases in the coming years, whatever equipment it purchases up front is only going to drain its capacity to recruit, train, maintain and deploy down the road.

Soldiers from A Squadron of the armoured regiment, 12e Régiment blindé du Canada, and Afghan police assist in the orderly arrival of people seeking treatment at the joint U.S. and Canadian medical and dental clinic that recently treated close to 400 people in the new town of Spin Boldak in Afghanistan. They also organized a free shoe distribution to almost 1,000 young afghans in need. (Photo: Cpl Simon Duchesne, QC AFG ROTO 4)

That’s already happening. In DND’s last departmental performance report, the government quietly announced that it has “reprofiled” its plan to grow the military to a semi-respectable size, citing difficulties in providing the resources for training and recruiting. Those difficulties stem from something pretty basic: lack of money.

As Chair of the Senate Committee on National Security and Defence, I have been accused over and over again of exaggerating Canada’s military needs. When the Committee stated a year and a half ago that Canada should be planning for a defence budget of $25-35 billion by 2012 – rather than the $20-21 billion currently planned for – there were gasps of incredulity, even from some supposedly knowledgeable people.

Since then, most defence analysts have done the kind of careful counting that our committee members did, and the $35 billion figure is now generally acknowledged by sources within the department to be on the low side.

Unfortunately, it looks like Canadians are going to continue to get short-changed on defence. The heftiest of the three spending scenarios, set out in a leaked draft of the Defence Capability Plan, would get Canadian defence spending up to $36 billion by 2025 – 13 years too late.

The Conservatives know they only have to outflank the Liberal Party to win voters concerned about Canada’s ability to defend itself and advance its interests abroad. Current Liberal leadership doesn’t see this as a winning issue. Outflanking them is easy.

So the Conservatives feel they can get away with portraying themselves as friends of the military without putting much money behind their words, and so far they have succeeded. The last throne speech talked the big talk:

“Our government will modernize Canada’s military to provide effective surveillance and protection for all of our country, cooperate in the defence of North America, and meet our responsibilities abroad to the United Nations and our allies … Rebuilding our capabilities and standing up for our sovereignty have sent a clear message to the world: Canada is back as a credible player on the international stage … Our government believes that focus and action, rather than rhetoric and posturing, are restoring our influence in global affairs …”

Right. Meanwhile, the helicopters our troops need so badly in Afghanistan to avoid roadside bombs haven’t even been ordered, and wouldn’t arrive until 2012 even if they were ordered today. The government says it wants to replace the current unreliable tactical unmanned aerial vehicles used to try to detect ambushes in Kandahar, but has denied the military’s request to purchase a few  modern replacements immediately and ordered up a ponderous bidding process instead.

Soldiers from A Squadron of the armoured regiment, 12e Régiment blindé du Canada, take a few precious minutes of rest after having travelled several hours escorting a convoy with their Coyote armoured reconaissance vehicles. (Photo: Cpl Simon Duchesne, QC AFG ROTO 4)

That may work for accountants, but it’s not going to save any lives on the battlefield over the next couple of years.

In 2005, Chief of Defence Staff Rick Hillier made a three-pronged commitment: first, to send Canadian troops to Kandahar as replacements for American troops  (who appeared to have chased the Taliban out of their home province); second, to  develop backup capacity in the Canadian Forces to allow them to deploy to more than one overseas theatre at any given time; and third, to reinvent the Canadian Forces.

Unfortunately, the Kandahar deployment has drained the Canadian Forces of any capacity to take on another assignment elsewhere. The promised growth and transformation of the Canadian Forces is staggering, with no convincing evidence Canadians are going to end up with the military they will need at home and abroad in increasingly uncertain times.

Hillier lost traction on two fronts.  First, it turned out that the Taliban were in retreat, not defeat. Now rebuilt with funds from the poppy fields and young recruits from radical religious schools in Pakistan, they remain a lethal enemy in a costly campaign.

Hillier is honest about this faulty intelligence in the recent book The Unexpected War, Canada in Kandahar, by Janice Gross Stein and Eugene Land. “Nobody predicted the resurgence of the Taliban,” Hillier admits. “It came as a surprise.”

Canadian governments don’t fund our Forces to overcome the kinds of surprises that have confronted military endeavors throughout history. Well-planned budgets should have wiggle room to confront the unexpected, but our military never has any room left in its budgets because it is always cash starved. Lack of adequate funding has been an even bigger albatross to Hillier than the unexpected tenacity of the Taliban in Afghanistan.

The NATO target for member countries’ defence spending is 2% of GDP. Canada’s current defence spending is only 1.2% of GDP, and there are no plans to close that gap. In NATO, only tiny Luxembourg and Belgium, spend a smaller proportion of their national wealth on defence, and they have far less territory to defend.

Even the governments of Pierre Elliott Trudeau – a man loathed by many in the defence community – spent as much as 13.3 percent of their budgets on defence. The Conservatives,who, unlike Trudeau, pretend that defence is a priority, are currently  spending 8.7 percent. Canada, the Netherlands and Australia are all mid-sized countries with similar outlooks and interests. Australians spend $808 per capita on defence. The Dutch spend $669. Canadians spend $558.

You don’t have to be warlike to favour reasonable investment in national security – you just have to recognize that the future is unpredictable, and countries that take their sovereignty and their citizens’ physical safety seriously shouldn’t be counting on luck alone to win the day.

Accounting may be boring, but it has prudence and intelligence at its core. So should defence spending. Good accounting may help, but only a little. Without government vision and more intelligent funding, it will hardly help at all.

Senator Colin Kenny is Chair of the Senate Committee on National Security and Defence.  He can be reached at
© FrontLine Defence 2008