Sir John Bourn, Head of the National Audit Office, reported to Parliament today that although he had qualified his audit opinion on whether the Ministry of Defence’s Resource Accounts for 2001-02 presented a true and fair view, the Department had made significant improvements since 2000-01. And he reported that the Department continues to make good progress.
The Ministry of Defence undertakes a wide range of complex functions and holds a vast portfolio of assets. Therefore the change to resource accounting has presented the Department with a number of challenges. At the outset, the Department recognised that much needed to be done and has made great efforts to improve the quality of its financial accounting information.
During 2001-02 the Department’s progress was such that two of the issues which Sir John had reported on in the previous year no longer contributed to the audit qualification. These issues related to the calculation of stock provisions and the accounting for major refits and overhauls of ships, submarines and aircraft.
There are continuing problems with data from the MOD’s logistics management systems. The Department has many old information systems which although adequate for the purposes they were designed for are not suited in all respects to producing accruals based information. As a consequence, Sir John was unable to confirm the accuracy of some £340m adjustments to values of certain RAF stock and fixed assets and was unable to confirm stock consumption and depreciation charges in respect of the MOD’s assets held by industry.
Sir John’s Report also notes that although the MOD has remained well within its voted cash requirement of £26 billion, it has breached its approved Parliamentary provision for resource consumption by some £600m in non-cash expenditure. This is owing to reductions in the value of some of its assets for a variety of reasons, such as the decision to withdraw Sea Harrier aircraft by 2006. This technical breach of Parliamentary financial control is another reason for Sir John qualifying his opinion on the Accounts.