Amyas Morse, the Comptroller and Auditor General (C&AG), has qualified his audit opinion on the MOD’s 2012-13 accounts. There are a number of grounds for this qualification.
Accounting for lease-type arrangements
He has qualified his opinion for a fourth year because the Department has not complied with the accounting requirement under the International Financial Reporting Standards (IFRS) for determining whether a contract contains a lease (those which provide the Department with exclusive or near-exclusive use of assets and capability). Given the potential number and size of these contracts, the C&AG has concluded that material omissions from the financial statements are likely.
As in recent years, the C&AG has limited the scope of his audit opinion on the grounds of inadequate evidence to support the valuation of military equipment in the form of inventory worth £3.3 billion and capital spares worth £7.2 billion. He has noted in his report, however, that the Department has made significant progress on this long-standing issue. Following the work done in 2012-13 through a more detailed programme of valuation reviews, and in disposing of obsolete or surplus inventory, the Department is now in a stronger position to address this issue in 2013-14.
Accounting for the impairment to the value of the Germany Estate
The Department’s overseas estate includes garrisons and training facilities in Germany which, following the March 2013 announcement of the Army’s move back to the UK, will be handed back on a phased basis. The C&AG disagrees with the accounting treatment adopted in respect of ‘impairments’ to the German Estate (or downward revision of the value of the assets). The impairment is due to the fact that the assets will be used for a substantially shorter time than had previously been envisaged by the Department in its most recent valuations. The C&AG considers that the full value of the impairment should have been charged to the MOD’s net operating costs. The Department has charged £597 million to net operating costs and charged the remaining £907 million to the revaluation reserve. The C&AG has also concluded that, had the MOD accounted for the full value of the impairment as he deemed to be appropriate, the Department would have exceeded the resources voted to it by Parliament for 2012-13 by £395 million.
Excess vote on Royal Navy Special Reserves
The Department has reported that it has breached the limit voted by Parliament in respect of the maximum number of personnel retained in the Special Members of the Reserve Naval Forces (1,950 against a limit of 1,940). The C&AG has, therefore, qualified his opinion.