In April 2003, Audit and Advisory Services (ARA) tabled, at the Audit and Review Committee (ARC) meeting, an Audit Framework Governing Internal Audit’s role in the Financial Information Strategy (FIS) environment. This document contained a five-year plan for the audit of various departmental financial systems and processes. One of the audits proposed for 2003-04 was the audit of Consumable Supplies (renamed Inventory of Aircraft Parts).

The Aircraft Services Directorate (AAF) administers a $95M inventory of aircraft parts. The inventory is used to maintain the Department’s fleet of aircraft as well as to service some aircraft operated by other federal departments and external parties. AAF employs the Aircraft Maintenance and Dispatch System (AMDS), a perpetual inventory system, to record the acquisition and use of these parts.

Finance and Administration (AFT) is responsible for departmental policy governing inventory management practices and for attesting to the accuracy of inventory balances reported in the Integrated Financial Reporting System (IDFS).

The objectives of the audit were to determine that:

• the posting of the acquisition and use of aircraft parts is accurate and complete;
  
  
• the appropriate inventory amounts are recorded in departmental accounts for financial reporting purposes; and
  
  
• AAF has established sound inventory management practices.

The scope of the audit focused mainly on assessing 2003-04 inventory management, control and reporting practices. Site work was principally confined to the AAF base at Macdonald-Cartier International Airport where approximately 96% of the inventory value is maintained.

The principal audit findings are as follows:

• The posting of the acquisition and use of aircraft parts is neither accurate nor complete in AMDS. Our testing disclosed significant errors in unit values and quantities reported in AMDS thereby resulting in the recording of inaccurate inventory amounts in departmental accounts for financial reporting purposes. The reconciliation of AMDS to IDFS also continues to be a time consuming and problematic exercise. In addition, TC is not recovering the total cost of inventory and related freight costs associated with the maintenance of aircraft operated by other federal departments and external parties.
  
  
• Current inventory management practices could be improved. In particular, program management does not have ready access to the information required to analyze and evaluate its inventory practices including the establishment of optimal inventory levels that should be maintained.
  
  
• It is also our opinion that excessive departmental resources are expended in administering low dollar value items.

The management of aircraft parts inventory is a complex operation with many factors such as high transaction levels, the legal requirement to track parts for airworthiness reasons, the increasing scarcity of parts needed to maintain an aging aircraft fleet and the high cost of obtaining parts quickly to meet operational needs. The implementation of AMDS has encountered significant problems that have restricted the ability of the Department to fully employ the system’s operating capabilities (i.e. reporting capabilities). However, measures are currently in place to address these deficiencies and both AFFA (Accounting Operations) and AAF have expended considerable effort in order to enhance the integrity of the inventory balances.

Management Response

AFT Management Response:
We agree with the general findings of the audit. The Finance and Administration directorate will ensure the action plan detailed below for AFT will be completed by the expected completion dates identified.

AAF Management Response:
We agree with the audit report. A management action plan with completion dates has been provided for each recommendation for which the Director General, Aircraft Services Directorate has an identified role.

Audit and Review Committee Decision

The audit report and the management action plan (MAP) were presented to the Audit and Review Committee on September 15, 2004. The Committee approved the audit report and the MAP as presented.