Defence Committee slams Ministry of Defence over poor accounting standards

Financial management standards in the Ministry of Defence (MoD) have been slammed by an influential committee of Members of Parliament, which has criticised the Ministry for having “a worrying lack of financial expertise”.

The House of Commons Defence Committee, in a report on the MoD's accounts for 2011-12, expressed its concern over the repeated qualification of MoD annual accounts by auditors, which “reflects badly on the MoD's financial management”.  

Committee members said it was “unsatisfactory” that the MoD was some five months late in laying its Annual Report and Accounts for 2011-12 before Parliament, and were “sceptical” about the prospect of this year's reports being delivered on time.

The Committee “has been concerned for some time” about the MoD’s reluctance to estimate the full costs of military operations in Afghanistan, Iraq and Libya, which “brought into sharp relief the poor management and financial information in the MoD”.  As a result of investigating the costs of fighting these wars, the National Audit Office “did not consider that the MoD has adequate information, especially with respect to recording the cost of its activities and outputs, to run its business effectively”.

In evidence to the Committee the MoD Permanent Under Secretary, Jon Thompson, admitted that the MOD did not have the necessary expertise to manage the financial complexity that resulted from the implementation of the Strategic Defence and Security Review. As a result, external support had to be bought in from international accountancy consultancies at considerable expense.

MPs were “concerned” that MoD officials considered that it may not be possible to continue to reduce numbers of civil servants in the department without adversely affecting its output, and recommended that the Defence Board should consider how this risk was managed.

The 2011-12 financial year is the sixth successive year that the Comptroller and Auditor General, which audits the accounts of government departments on behalf of Parliament, has been unable to give the MoD's accounts a clean bill of health.  The auditor qualified the accounts because MoD was unable to demonstrate compliance with international reporting standards for some contracts, lacked audit evidence on the valuation of its inventory and of capital spares (worth a total of around £10 billion); and failed to obtain proper approval for the remuneration package for senior civil servant Bernard Gray, Chief of Defence Materiel.

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