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Sir John Bourn, head of the National Audit Office, today reported to Parliament the results of his examination of the 1998-99 Appropriation Accounts of the Ministry of Defence (the Department). The Department have worked hard in recent years to secure better control over their expenditure, and have introduced measures that have led to important improvements and to progress being made in achieving better controls over their suspense accounts. Nevertheless, the report highlights overspending in some areas, the loss of £29.7 million on two Information Technology projects and a £470,000 misappropriation of funds.

Overspending on Class I, Votes 1 and 2

Sir John has qualified his opinion on the account for Class I, Vote 1, which deals with Operational and Support costs, and for Class I, Vote 2 which deals with Defence Logistics Services. Shortfalls in the level of receipts authorised to be utilised as Appropriations in Aid led the Department to incur excess expenditure of £36.4 million and £0.7 million respectively on these two Votes.

This is the third year in succession that Sir John has had to qualify his audit opinion because of overspending by the Department.

Losses on Information Technology Projects

Sir John’s report also details failings by the Department in their management of two Information Technology projects.

The Common User Data System was to be a bespoke signal message handling system for the Royal Air Force. It was intended to replace teleprinters used for sending and receiving signal messages to about 500 terminals, at 13 sites. The contract was awarded in 1989, but by 1997 the Department had concluded that continual problems prevented the system from becoming operational. The project was terminated in August 1997 and the associated costs of £21 million were written off. In 1998, the Department had begun to implement a, mainly, off-the-shelf solution at a cost of £1.3 million.

The Pay Replacement System was intended to deliver the Royal Navy’s pay and pensions system, unit based applications and associated infrastructure. The project was approved in 1994 and was expected to cost £18.9 million. But by March 1995 the estimated cost had risen to £41.1 million and the expected date of implementation had slipped by four years. Following these cost increases and projected delay and in the light of a change in the Department’s policy to a tri-service approach, in March 1996 the Department decided to suspend, run down and close the project. Of the £10.2 million spent, £1.5 million related to hardware and software that was used elsewhere in the Department. The remaining costs of £8.7 million have been written off.

A review of the project by a firm of IT consultants made a number of recommendations. These included:

  • staffing of projects, at the outset, with experienced staff;

  • requirements being specified in a testable way, and the developmental risks being transferred outside the Department; and

  • that any systems used to track the progress of any project should be designed to suit the project’s needs.

The Department consider they have learned significant lessons from the project and the product, together with the detailed design documentation, has been lodged with the Armed Forces Personnel Administration Agency for use with the continuing work to develop the tri-Service pay system.

Misappropriation of funds

Sir John’s report also draws attention to an alleged fraud in the Pensions Division of the Army Personnel Centre, Glasgow. In a little over one year, a civil servant in the Department allegedly paid into his personal bank accounts one off payments amounting to over £470,000. Approximately £48,000 has been recovered to date, and legal action against the individual concerned is currently underway. Sir John notes that an internal investigation by the Department identified a number of weaknesses in the operating procedures within the Pensions Division that contributed to the alleged fraud. These included inadequate documented regulations, failure to monitor information reports detailing payments made, staff inexperience and inadequate staff rotation procedures.

Control over Suspense Accounts

For the third successive year, Sir John has also reported on the Department’s control of suspense accounts. These are used to record transactions which either cannot be brought to account immediately (for example, advances and amounts not readily identifiable), or which are ultimately to be cleared by a third party. Sir John acknowledges that the Department are acting to remedy the problems they have experienced with suspense accounts, and that the position has improved in comparison with 1997-98. But some problems still remain: the report highlights £9.1 million of unreconciled suspense account balances written off during the year and notes that there were problems in reconciling 20 of the 160 suspense accounts with balances of more than £1 million at the year end.

"In 1998-99 the Ministry of Defence once again failed to keep their spending within the limits set by Parliament. And the loss of public funds through abortive expenditure on IT projects is clearly a cause for concern. Although the Department have made some improvements, my Report shows that they need further to improve their financial management and controls over expenditure."

Sir John


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