"Despite action by the Department to improve its
asset management and accounting, the issues I have identified are
systemic and deep-rooted. The level of control exercised by
the Department is not yet sufficient to enable me to provide an
opinion on a significant proportion of assets reported in the
financial statements."
Amyas Morse, head of the National Audit Office, 26 July
2010
Amyas Morse, the Comptroller and Auditor
General, has limited the scope of his audit opinion on the 2009-10
accounts of the Ministry of Defence, as he did for the MOD’s
2008-09 accounts, because the Department was unable to provide
evidence to support the existence and value of certain assets and
inventory balances. He has also qualified his audit opinion
because the Department’s accounting policies are not fully
compliant with International Financial Reporting Standards.
In his report on the 2008-09 accounts of the
MOD, the C&AG noted the challenges facing the Department in
maintaining adequate records for certain spares, inventory and
military equipment such as vehicles, grouped assets and BOWMAN
radio equipment.
Following last year’s NAO report, the
Department has taken steps to improve its management of spares,
inventory and equipment. The main areas of weakness on spares
and inventory, that continue, relate to high levels of
discrepancies in stock counts; inadequate assessment for impairment
and an inability to reconcile warehouse system records with
accounting systems. These issues are more extensive than
reported last year because the Department’s actions to address the
prior year findings and the audit work of the C&AG’s staff have
brought a wider range of issues to light.
Keeping track of equipment has improved for
vehicles but is still inadequate for grouped assets and BOWMAN
radio equipment.
In addition, the Department has not complied
with the accounting requirements for determining whether a contract
contains a lease and therefore a material value of assets and
liabilities has been omitted from its financial statements.
The Department has told the NAO that the cost of reviewing all of
its existing contracts to determine whether they contain leases
would exceed the benefits of compliance. While acknowledging
work is getting underway, the NAO believes – as does the Department
– that a serious and concerted effort should be made to become
compliant.
Action has also been taken to address the
issues identified last year of a lack of documentation and levels
of error identified in the payment of allowances and expenses made
via the Joint Personnel Administration system. This has meant
that the C&AG has been able to remove the qualification of his
opinion in this area although his qualification on deductions from
pay for food and accommodation continues. There remains
significant further work to be done to establish a robust control
environment and ensure that processes are sound.