OTTAWA — When it comes to recruiting, the military is running flat out just to stay in place, the auditor general says.

The military faces serious recruitment problems in the coming years, even without the government's ambitious expansion plans.

The Forces have managed to halt the decline in its ranks and even made some modest gains, but thousands of people are coming up to retirement and the government wants to add 13,000 to the overall strength.

This, coupled with a drop in the numbers of young men in the population -- traditional recruiting ground for the military -- means the Forces will have to revamp the way it attracts and trains recruits, Auditor General Sheila Fraser said Tuesday.

"They are going to have to change the way they do business.''

She said National Defence has made some progress on recommendations she made in 2002, but has more work to do.

"The recruiting and attrition problems that remain are jeopardizing the success of the Canadian Forces planned expansion,'' she said in a report to Parliament.

The audit's warnings were based on the former Liberal government's plan to increase the military by 5,000 people. The Conservative government has upped that to 13,000, making the problems all the more serious.

Another followup report found National Defence continues to pay millions of dollars for basic flying training it doesn't use. The Forces signed up with a private contractor in 1998 for a fixed amount of training, but overestimated its needs.

The military struck a deal to recoup part of the money, but the bill for unused training over the last four years was $39 million.

One problem is that there aren't enough places available in operational training squadrons for newly fledged pilots once they get through basic flying school, so the military slows down entries into the system.

Fraser said the Forces have to streamline the recruiting process. Delays in processing applications leave some would-be soldiers in limbo for months.

The Forces promise they will improve the way the system handles and tracks applications.

Recruiting is a tricky business, Fraser said.

A statistical sample of 13,500 applicants showed that 1,200 were found medically unfit, 1,600 were physically unfit, 950 failed because of drug use, 1,200 failed the aptitude and other screening tests and 3,800 others lost interest or backed out somewhere during the process. That left 4,750 actual recruits.

In the last four years, the military recruited 20,000 people, but was left with a net gain of only 700 trained, effective personnel. During those four years, 16,000 people left the military. Thousands of others are still in training, which can take from two to seven years.

"Despite National Defence's results, we are concerned that the number of recruits is barely replacing numbers leaving,'' the report said.

The report urged the Forces to boost its advertising efforts and find ways to enlist more minorities, Aboriginals and women.

The military should also work on keeping people in the ranks, it said.

The auditors found many shortfalls in the ranks, especially among technical specialists, including combat engineers, ammunition technicians and logistics officers.

The report also forecast a recruiting crunch ahead as thousands of people who enlisted in the 1980s come up for retirement. Although the Forces have raised the retirement age to 60 from 55 and increased the service time for a pension to 25 years from 20, these rules don't apply to the old troops, who are subject to the former standards.

Because recruiting dwindled drastically during the cash crunch of the 1990s, a graph of the Forces shows a bulge of people with up to eight years service and a similar bulge of people with 14 years or more and a deep valley in between.

The valley is the problem that must be solved by recruiting more newcomers and persuading more veterans to stay on.