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Select committee inquiry

Ministry of Defence Annual Report and Accounts 2013-14

Closed

Defence Committee · Opened 15 December 2014 · Closed 11 March 2015

2 recommendations · 6 conclusions
Inquiry on parliament.uk ↗

What the inquiry looked at

“A one-off oral evidence session to scrutinise the Ministry of Defence Annual Report and Accounts 2013-14.”

The committee's words, from the inquiry page on parliament.uk ↗.

What it found

In the committee's words, from the summary of 8th Report - Ministry of Defence Annual Report and Accounts 2013-14 (345 KB) ↗

Even though the MoD’s accounts for 2013–14 have been qualified, we are gratified that the Department MoD is making substantial progress in management of its accounts. There are residual concerns, and this year’s Report and Accounts were delayed by five months to resolve uncertainties around the accounting treatment of assets under construction. The accounts were eventually qualified on the grounds of the accounting for contracts likely to contain a lease and on the accounting for non-current assets, capital spares and inventory items. Whilst acknowledging the continuing challenges, we welcome the progress being made by the Permanent Under-Secretary and his team to resolve the problems that have led to these delays and qualifications, but note that the forthcoming Strategic Defence and Security Review and the management reform of the Service Commands will throw up new questions to be addressed in the administration of the MoD’s accounts.

The MoD is making real improvements more broadly in its management of its assets and liabilities. Progress has been made in DIO in consolidating information systems for recording land and property and, notwithstanding the auditor’s qualification, in management of inventory. The MoD has also developed a new strategic cost model that will enable it to identify the cost of changes in force structure and identify what an affordable structure would be within a given budget. This tool will be a crucial element in helping the MoD to prepare for the next Strategic Defence and Security Review and will contribute to the transparency of decision-making in the context of that Review. Successful operation of this model would mark a further step forward in the Department’s management and strengthen its hand in negotiations for the next Comprehensive Spending Review.

We also welcome the steps being made by the Department to increase the transparency of its reporting on its own performance, including incorporating a number of our previous recommendations; it is essential that the information provided on the MoD’s performance takes account of the changes in focus that the Department will undergo in coming years.

One of the biggest changes in the administration of the Department over the last year has been the reforms to Defence Equipment and Support. Our successor Committee will continue to follow closely changes in the Department’s approach to equipment acquisition.

It will wish to ensure that the arrangements for project management contractors for each of the four domains avoids the risk of “stovepiping” in acquisition decisions within each of the three Services and Joint Forces Command.

What the government said

The government responded on 22 July 2015.

Summary written by Accountability Index from the government's response.

The Government "welcomes the report" and says Defence has made "substantial progress" in managing its accounts, while setting out actions or positions on each of the Committee's conclusions.

  • On the qualified balances for contracts likely to contain a lease, KPMG concluded that IFRIC 4 compliance would be "technically possible" but "practically extremely difficult"; the Department "is currently considering the value-for-money implications".
  • On the Strategic Defence and Security Review, the parts of the MOD "will work together" so that its outcomes are subject to "comprehensive analysis", including impacts on asset balances, write-offs and losses.
  • On performance reporting, the Department "expects to make limited changes" to indicators in its next Annual Report and Accounts, ahead of "significant further work later this year".
  • On returning to the market for a GoCo solution, the Government says this "is not a current deliverable or priority", and that DE&S has decided not to proceed with the third MSP competition "at this point".

Read the government's response ↗ Read the report ↗ Report an error

How the inquiry ran

Each dot is a dated item listed on this page, from the inquiry's opening on 15 December 2014 to 22 July 2015.

  1. Oral evidence 7 Jan 2015
  2. Report 11 Mar 2015
  3. Government response 22 Jul 2015

What it recommended 2 recommendations · 6 conclusions

1It is disappointing that, once again, the MoD was some five months late in laying...
Concluded (the committee's words)
It is disappointing that, once again, the MoD was some five months late in laying its Annual Report and Accounts before Parliament. While it may have been appropriate to delay the laying of the Accounts to ensure the balance sheet figure for assets under construction was accurate, it was concerning that this problem was identified by the National Audit Office rather than by the MoD itself. We were also concerned that the resolution of the problem required a write-off of £267 million, some ten per cent of the total valuation of assets under construction. However, we are satisfied that steps are being taken to reduce the risk of such problems arising again.
2In response to this Report, the MoD should tell us what planning it is doing...
Concluded (the committee's words)
In response to this Report, the MoD should tell us what planning it is doing to ensure that it appropriately manages the impact of the likely changes to asset balances, such as write-offs of assets or shortening the effective operational lives of equipment, that will arise from the forthcoming Strategic Defence and Security Review. It should also tell how it intends to manage the impact of the continuing management reform of Service Commands.
3The MoD Annual Report and Accounts 2013–14 have again been qualified on the balances for...
Concluded (the committee's words)
The MoD Annual Report and Accounts 2013–14 have again been qualified on the balances for contracts likely to contain a lease. The MoD should report to us on the results of its latest review of contracts.
4We are pleased to see that the MoD is finally managing to get to grips...
Concluded (the committee's words)
We are pleased to see that the MoD is finally managing to get to grips with the management and control of its inventory and capital spares and welcome the PUS’s assertion that the MoD Accounts will no longer be qualified on this basis. We also welcome the commitment by the PUS to a detailed item by item impairment review following the outcome of the next Strategic Defence and Security Review. The Comptroller and Auditor General (C&AG) does, however, point to ongoing challenges in respect of systems and embedding good practice. The MoD should tell us how it will address these challenges.
5The strategic cost model is a crucial tool for preparation of the next Strategic Defence...
Concluded (the committee's words)
The strategic cost model is a crucial tool for preparation of the next Strategic Defence and Security Review. Decisions about which capabilities the UK can afford have to be taken on the basis of the most robust information and a clear understanding of the cost drivers behind capabilities. The MoD should provide us with a description of the strategic cost model, its accuracy and any limitations that it has identified in its utility.
6We recognise the difficulties that the MoD has in devising a relevant and comprehensive set...
Recommended (the committee's words)
We recognise the difficulties that the MoD has in devising a relevant and comprehensive set of input and impact indicators. We welcome PUS’s confirmation that the MoD has implemented most of our recommended indicators and look forward to seeing further details. We reiterate our recommendation that more of the Ministry of Defence Annual Report and Accounts 2013-14 19 information provided to the Defence Board should be provided to us and incorporated in the Annual Report.
7Inherent in the appointment of project management contractors for the four domains is the risk...
Concluded (the committee's words)
Inherent in the appointment of project management contractors for the four domains is the risk of ‘stovepiping’ equipment acquisition into the three Services and Joint Forces Command at a time when the MoD is looking to develop a more integrated future force. We are sure that our successor Committee will wish to follow progress in the continuing reform of defence acquisition and will look to ensure that this risk doesn’t materialise. In response to this Report, the MoD should provide further details of how it intends to integrate the two project and portfolio contractors; the contractor providing human resource support; the yet to be appointed contractor providing the finance and management of information systems provider; and the Defence Infrastructure Organisation. It should also inform us of the current state of play on the introduction of new pay and reward arrangements.
8The MoD should set out how it intends to judge the success or otherwise of...
Recommended (the committee's words)
The MoD should set out how it intends to judge the success or otherwise of the arrangements it is currently developing. It should also determine how it will judge whether it is appropriate to return to the market for a GoCo solution and tell us what its timetable is for making these decisions.

Evidence

Oral evidence sessions 1