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Defence Equipment and Support 2014-15 financial statements

The Comptroller and Auditor General, Amyas Morse, has qualified his opinion on the financial statements of Defence Equipment & Support (DE&S) in its first year of operation as the body was unable to provide sufficient evidence to support certain costs.

In 2011, the MOD launched a programme to examine ways in DE&S could improve delivery and value for money. A Government Owned Contractor Operated (GOCO) structure was initially pursued, but this process was halted in December 2013. DE&S was instead established as a bespoke trading entity (BTE) in April 2014.

The period between the decision to terminate the GOCO model was short, leaving little time to develop new processes, acquire new tools and systems or adequately train staff to facilitate the creation of a new accounting boundary.

While DE&S was able to support its direct staff costs and communicated costs, as a result of the DE&S financial systems and processes not being sufficiently developed to support the creation of a new accounting boundary, it was unable to provide the C&AG with sufficient evidence to fully support private sector support costs, other programme costs, and the related trade and other payables balance recorded in the financial statements.

Some reported transactions and allocations were not fully supported by the underlying source documentation; some transactions recorded did not relate to the 2014-15 financial year; and some transactions did not accord with the defined accounting boundary. The C&AG has therefore limited the scope of his opinion on the financial statements in respect of the £439.638 million of private sector support costs, £73.769 million of other programme costs, and the related £122.214 million trade and other payables.

DE&S will continue to face a significant challenge to identify and record those private sector support costs and, to a lesser degree, other programme costs to a level of accuracy to support a clear audit opinion in future years. It recognises that it will need to put in place processes to support accurate recording of transactions in future.

December 2015

Notes for Editors

  1. DE&S is a key part of the Ministry of Defence (MOD) Operating Model, responsible for managing the acquisition and through-life support of the MOD Equipment Programme.  It was established in April 2014 and classified as an Executive Agency of the MOD and operates as a Bespoke Trading Entity (BTE) to strengthen the customer-supplier relationship with the military, provide freedoms around recruitment and reward, and drive through efficiencies in costs.
  2. Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.
  3. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO, which employs some 810 people. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of £1.15 billion in 2014.

PN: 69/15