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.