Amyas Morse, head of the National Audit Office, said
today:
"At this time of high operational
demand, it is more important than ever for the Ministry of Defence
to have accurate records of where its assets are, and how much
stock it has. It must also have a military pay process which
is fit for purpose. Although the Ministry of Defence has made
some improvements to its Payroll and HR systems over the past year,
I consider that there are important issues which have not been
fully addressed and further significant changes are
required."
The National Audit Office has identified
errors in specialist pay, allowances and expenses paid to the Armed
Forces via their Payroll and Human Resources system, as well as the
inadequacy of evidence to support certain fixed assets and stock
balances in the financial statements. For this reason, the
Comptroller and Auditor General has qualified his audit opinion on
the 2008-09 accounts of the Ministry of Defence.
In 2008-09, the £8.9 billion of staff costs
for over 191,000 Service personnel were administered using the
MOD’s Joint Personnel Administration payroll system. For the
areas noted above, the JPA system – criticised in the 2007-08 NAO
report on the MOD’s Resource Accounts – relies heavily on HR staff
entering data about personnel in their unit. This data is
then subject to limited further checks, which means any errors are
unlikely to be detected.
National Audit Office examination of a sample
of payments found that 14.7 per cent of transactions contained an
error or could not be substantiated. These errors amounted to
some 10.1 per cent by value, leading the NAO to estimate that there
is most likely to be a net error of £140 million in the
accounts.
Service personnel are able to submit their own
expenses claims via the JPA system and payment is normally made
without further checks. The Defence Fraud Analysis Unit has
highlighted a growth in suspected fraud using the JPA system.
The annual processes for verifying the
location of certain fixed assets have revealed a significant
increase in the levels of discrepancies being reported. In
the case of the BOWMAN secure communications system (currently
being used by Service personnel in Iraq and Afghanistan), some £155
million worth of BOWMAN assets reported in the accounts could not
be fully accounted for, although the MOD estimates that a
significant proportion of these are under repair.
The MOD has £14.1 billion of raw materials,
consumables and capital spares which are held at a number of
different sites around the UK and the world. A good quality
inventory management system is required to ensure appropriate
logistical support for operations and to prevent theft and
fraud. However, the MOD’s stock systems are complex which
creates a significant risk of error and many inventory owners were
unable to confirm or support the balances and stock movements in
their area. High levels of discrepancies between physical
counts of inventory in stores and amounts recorded on systems were
found at the Defence Storage and Distribution Agency, which holds
66 per cent of the MOD inventory.