The National Audit Office has identified errors in specialist pay, allowances and expenses paid to the Armed Forces via their Payroll and Human Resources system, as well as the inadequacy of evidence to support certain fixed assets and stock balances in the financial statements. For this reason, the Comptroller and Auditor General has qualified his audit opinion on the 2008-09 accounts of the Ministry of Defence.
In 2008-09, the £8.9 billion of staff costs for over 191,000 Service personnel were administered using the MOD’s Joint Personnel Administration payroll system. For the areas noted above, the JPA system – criticised in the 2007-08 NAO report on the MOD’s Resource Accounts – relies heavily on HR staff entering data about personnel in their unit. This data is then subject to limited further checks, which means any errors are unlikely to be detected.
National Audit Office examination of a sample of payments found that 14.7 per cent of transactions contained an error or could not be substantiated. These errors amounted to some 10.1 per cent by value, leading the NAO to estimate that there is most likely to be a net error of £140 million in the accounts.
Service personnel are able to submit their own expenses claims via the JPA system and payment is normally made without further checks. The Defence Fraud Analysis Unit has highlighted a growth in suspected fraud using the JPA system.
The annual processes for verifying the location of certain fixed assets have revealed a significant increase in the levels of discrepancies being reported. In the case of the BOWMAN secure communications system (currently being used by Service personnel in Iraq and Afghanistan), some £155 million worth of BOWMAN assets reported in the accounts could not be fully accounted for, although the MOD estimates that a significant proportion of these are under repair.
The MOD has £14.1 billion of raw materials, consumables and capital spares which are held at a number of different sites around the UK and the world. A good quality inventory management system is required to ensure appropriate logistical support for operations and to prevent theft and fraud. However, the MOD’s stock systems are complex which creates a significant risk of error and many inventory owners were unable to confirm or support the balances and stock movements in their area. High levels of discrepancies between physical counts of inventory in stores and amounts recorded on systems were found at the Defence Storage and Distribution Agency, which holds 66 per cent of the MOD inventory.