MPs publish MoD's Annual Report & Accounts 2011-12

Defence Committee comments

The Qualifications covered non-compliance with international reporting standards on the treatment of some contracts; lack of audit evidence on the valuation of inventory (worth some £3 billion) and of capital spares (worth some £7 billion); and on the regularity of the Accounts because of the failure to obtain approval for the remuneration package of the Chief of Defence Materiel.

The Committee also criticises the MOD for being five months late in submitting its audited accounts to Parliament; the National Audit Office had found errors in its sample examination of accruals and so the MoD decided to resolve these problems before submitting the accounts.

Evidence

In evidence, the MOD Permanent Under Secretary, Jon Thompson, said that the MOD did not have the necessary expertise to manage the layers of financial complexity that featured in the implementation of the Strategic Defence and Security Review. As a result the MOD had sought assistance from the large accountancy firms.

Chairman of the Defence Committee, Rt Hon James Arbuthnot, says, “The delays in producing the Annual Report reveal a worrying lack of financial expertise within the MoD. The MOD must ensure its people have the right skills to deal with all financial problems so that they do not need to bring in expensive external accountants.”

The Committee has been concerned for some time about the MoD’s reluctance to estimate the full costs of its operations in Afghanistan, Iraq and Libya. The Committee asked the National Audit Office to make its own investigations. The NAO reported that they 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.

Chair's comment

Chairman of the Defence Committee, Rt Hon James Arbuthnot, says “The work carried out by the C&AG and the National Audit Office on the cost of operations in Afghanistan has brought into sharp relief the poor management and financial information in the MoD. The MoD should set out its commitment to improving its management information with a timetable for such work.

The Committee’s report also states that it is vital that defence spending remains at more than 2 per cent of GDP in line with the UK’s NATO commitment. The Committee recommends that the MoD and the Treasury ensure that defence spending does not fall below two per cent of GDP in the next spending review.