MoD gets clean bill of health

Link: MoD audit highlights fundamental errors

He reported to Parliament that the accounts for 2003-4 represent ‘a true and fair view” – and described it as ‘a significant achievement’.

The head of the National Audit Office also reported the net total cost of the Iraq war and subsequent pacification operations to 31 March this year was £2.2bn and remarked that the first military operation accounted for on a resource basis ‘has generated a number of accounting issues not encountered in previous operations managed under a cash accounting regime’.

The department ‘is committed to working in consultation with his staff to further refine its accounting policies and systems in these areas,’ he said.

Sir John also recorded that the value of losses consequent on terminating procurement or development projects has ‘increased significantly’ from £131m in 2002-3 to £461m.

But he declared: ‘For the first time in five years I am able to give an unqualified opinion on the MOD’s Resource Accounts. I congratulate the MOD on the progress it has made and its commitment to achieving maximum benefit from resource accounting and budgeting.’

He said the MoD ‘recognises that it still has more to do to get the maximum benefit from the Resource Accounting and Budgeting regime’.

The resource form of accounts has, however, been criticised elsewhere for its unintended consequences for defence thinking. A decision to cease using a class of warplane a few years earlier than expected in order to save money resulted in an increased loss because of the effect of writing-off and there have been suggestions it encouraged an inappropriate just-in-time approach to stores which resulted in soldiers going into battle in Iraq ill-equipped.

But the NAO said the accounts now show the true cost of activities as well as assets and liabilities at the year end rather than just cash expenditure and receipts.

The war has, however, been accounted for on the traditional basis of additional expense of assets consumed – ignoring costs like salaries and capital investment that would have been incurred whether operations had taken place or not.

Defence Secretary Geoff Hoon said: ‘This report shows that the armed forces and the MoD have delivered and will continue to deliver what they are required and resourced to do, often in the face of considerable challenges.’

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