Sir John Bourn, Head of the National Audit Office, recognised in his Report to Parliament today the further progress which has been made by the Ministry of Defence in implementing Resource Accounts. The MoD has put in hard work and made great strides during the last year. However, Sir John has qualified his opinion on the Accounts due to some remaining problems.
The MoD has faced major challenges in moving from cash based to accruals based accounts. This is because the MoD undertakes a wide range of complex functions and holds a vast range of assets (net assets in the Department’s balance sheet amounted to £86 billion for the financial year 2000-01). Also many of the computer systems pre-date the change in accounting requirements, and therefore do not lend themselves readily to producing accurate information in the format required for Resource Accounts.
There are continuing problems with data from the MoD’s logistics management systems. As a consequence, Sir John was unable to confirm the values for certain stock and fixed assets and was unable to confirm stock consumption and depreciation charges. Also, the MoD has not yet fully complied with Financial Reporting Standard 15, which deals with the accounting treatment of fixed assets.
Sir John’s Report also considers other significant issues associated with the Accounts on which the MoD will need to take action. He concludes that despite his qualified opinion, the MoD has made considerable efforts to implement Resource Accounting, and those efforts have already resulted in improvements in the way it manages its resources.
The Treasury gives departments delegated authority to write off expenditure such as losses and special payments after careful consideration of all the facts, but such write-offs must be reported to Parliament. Sir John’s Report examines a number of large write-offs by the MoD. These have arisen largely as a result of changes in requirements or specifications, or because it has had to abandon procurement and development projects before the equipment is introduced into service.