Defence Select Committee: MoD has worrying lack of financial expertise

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Ministry of Defence building in Whitehall
Image caption,
The committee said the MoD's financial accounting problems were likely to persist until 2014-15.

The Ministry of Defence shows "a worrying lack of financial expertise" forcing it spend money on expensive accountants, a group of MPs has said.

The Defence Select Committee said the MoD now had one outside expert for every 10 in-house accountants and numbers should be reduced quickly.

It also raised concerns that further cuts to MoD civil servants could adversely affect the department.

Ministers said the MoD had a "balanced budget" and a funded equipment plan.

At the end of last year, the National Audit Office (NAO) refused to sign of the MoD's annual accounts for 2011-12 after it failed to provide sufficient evidence to support its valuation of £10bn in military equipment.

It also failed to obtain the "required approval" for Chief of Defence Materiel Bernard Gray's £245,000 salary.

'Poor management'

The committee, which examined the ministry's annual report and account for 2011-12, criticised the five month delay in submitting the audited accounts to Parliament and said problems with the MoD's financial accounting were likely to persist until 2014-15 "at the very earliest".

Committee chair James Arbuthnot said: "The delays in producing the annual report reveal a worrying lack of financial expertise within the MoD.

"The MoD must ensure its people have the right skills to deal with all financial problems so that they do not need to bring in expensive external accountants."

Mr Arbuthnot also criticised the MoD's failure to hold adequate information to allow it to estimate the full costs of operations in Afghanistan. Iraq and Libya.

This, he said, "brought into sharp relief the poor management and financial information in the MoD".

"The MoD should set out its commitment to improving its management information with a timetable for such work," he added.

But the committee insisted it was "vital" that defence spending remains at more than 2% of GDP, in line with the UK's NATO commitment and warned further cuts to civil servants could have an adverse impact on the functioning of the department.

Downing Street said last month the military would not be immune from further financial cuts in Chancellor George Osborne's next spending review.

But Defence Secretary Philip Hammond has warned further big cuts to defence will lead to the loss of the UK's armed forces capability.

Responding to the committee's report, Mr Hammond admitted more needed to be done but said: "For the first time in a generation, we have a balanced budget and fully-funded equipment plan to make sure our armed forces get the equipment they need.

"The committee ignores the independent National Audit Office endorsement of the huge strides MoD has made to improve the department's financial management and to halve the number of issues in our accounts that have had to be qualified."

Labour's shadow defence secretary Jim Murphy said: "This is a stark warning for the government.

"As the budget approaches and a cabinet row over further defence cuts deepens the country will want real reassurances that international commitments will be met.

"The defence secretary is presiding over decline and only found his voice after delivering tens of thousands of redundancies, capability gaps and failing to balance the books.

"There are real concerns about our national capacity to project force around the world and meet our ambitions."

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