Battle of the audits

The Ministry of Defence has just been through another ritual bashing over the
state of its accounts. The man in charge of finance, Jon Thompson, will have to
soak up the blows again and move on with improvements.

What’s happened?

MPs on the Commons Defence Committee last week turned on the MoD’s
accounting, describing errors they found as unacceptable. In their sights was
pay for specialists and the accounting for the new battlefield Bowman radio
system.

Mistakes over pay totalled £280m, while £155m worth of radio equipment was
unaccounted for. Committee chairman James Artbuthnot said: “The security
implications associated with losing equipment such as this are significant;
having an effective audit trail is not the only way to ensure that all equipment
is accounted for.”

Of course, comments like that make it seem like the accountants are to blame.
In another sense they laud the fact that, under Thompson, the accountants have
told it like it is – equipment goes missing in war.

Besides, losing them is not an issue for internal audit – it’s an issue for
the soldiers on the ground. The remarks don’t take account of the fact that MoD
systems do not account for items in transit – which is clearly a system failure,
though.

The more difficult problem for Thompson is over pay. The errors are
significant and they will bring attention to the finance department and its
efforts to ensure systems do not allow such mistakes. Not least because they
contributed to the department having its accounts qualified for the third year
in a row.

What happens next?

Thompson, who took over at the MoD in January last year, will have to dig in
and see if he can work things out. He has received some praise for his work. Sir
Bill Jeffrey, permanent secretary and nominally the accounting officer at the
MoD, told MPs in November that there was “a lot of effort” from the FD focused
on trying to iron out the problems.

Thompson comes to the MoD not without controversy himself. He was FD of the
Department for Schools and Families and is still head of the government
accounting profession. Some civil servants saw that as spreading himself too
thinly.

But Thompson (diagnosed with with synaesthesia as a child – the condition
which means his senses mingle so that he also understands numbers as colours)
also has an advantage.

The accounts under scrutiny closed in March last year, only shortly after he
joined. Thompson’s big test is the next set 2009/10. It’s in those that he will
want to make his mark and improve the department’s accounting.

It being the Defence Department means accounting for all its equipment will
always be somewhat flawed. After all, bullets and missiles are fired, kit lost
in the heat of battle. Thompson’s challenge is to ensure the inaccuracies are
not material. In peacetime that would be difficult. When a country’s at war?
Well, maybe he’ll have to start dropping auditors into warzones if the MPs are
to be appeased.