Auditors slam MoD's financial management

21 Jul 10
The Ministry of Defence has been criticised by auditors for not putting enough emphasis on its financial management.
By Jaimie Kaffash

21 July 2010

The Ministry of Defence has been criticised by auditors for not putting enough emphasis on its financial management.

A National Audit Office report out today, Strategic financial management of the defence budget, said there had been financial management improvements since the department’s resource accounts were qualified in 2008/09.

But it added that problems remain, especially around budgeting. In July 2009, the MoD had underbudgeted by £700m for the remainder of the year, the auditors report. It had to find additional savings of £800m to bring its spending back in line.

For 2010/11, the ministry forecast a shortfall of £185m but when the plans were reassessed, the deficit grew to over £500m.

These findings follow on from a NAO report in December 2009, which claimed there was shortfall of between £6bn and £36bn over the next ten years.

The auditors say that the department does encounter unique factors that make financial management more difficult. These include: an higher increase in defence cost inflation than general inflation; the impact of the conflicts in Iraq and Afghanistan, which means it is operating at a much more intense level that it is routinely resourced for; and the inflexibility of defence plans, which require a longer horizon than government spending plans.

However, despite these problems, the department could do more to use financial management more effectively. The auditors recommend that the MoD should: use the upcoming Strategic Defence and Security Review to rebalance its future spending plans; review spending plans annually; and use professionally skilled finance staff to develop long-term financial strategy.

NAO head Amyas Morse said: ‘A crucial question for the Ministry of Defence is whether it can use strategic financial management to stop living beyond its means. The current Strategic Defence and Security Review will provide an opportunity for the MoD to balance its books in the short term.

‘The greater challenge will be to keep spending plans affordable in the longer term. The department is not at present placing enough emphasis on financial management to be able to do this.’

This report comes in the same month as the NAO criticised the department’s estatemanagement processes.

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