The Ministry of Defence’s strategy for improving its financial management has put its finances on ‘a sounder footing’ and is delivering results, but there are still considerable challenges ahead, according to the National Audit Office (NAO).
When the NAO last reviewed the Department’s financial management, in 2010, it found that the MOD had over-committed against its budget. Since then, the NAO says the MOD has sought to reduce the funding gap in its equipment programme and introduce a new management structure to ensure better financial management throughout the Department.
In its report, Strategic financial management in the Ministry of Defence, published on 17 July 2015, the NAO finds that the MOD has brought its costs under greater control and that its structural changes have encouraged the Army, Royal Navy, Royal Air Force and Joint Forces, known collectively as ‘the Commands’, to take on greater responsibilities for day-to-day financial management. MOD’s Head Office has also taken on a more strategic role in managing the defence budget, focusing on overall affordability challenges and managing financial risk.
To address the gap between its forecast costs and funding the MOD cancelled some projects, took other equipment out of service earlier than planned, and put in place an affordability regime, the Equipment Plan, for buying and supporting equipment over the next ten years. It also put in place plans to achieve savings to staff, military personnel and other administrative costs over the period 2010 to 2015. In total, the Department reports that it has achieved the £9.7 billion savings to which it committed and has lived within reduced budgets that reflect these savings. However, it has not sufficiently tracked how it achieved all of these savings and is unable to demonstrate whether it has met its budget through efficiency measures, moving costs into future years, stopping projects or transferring costs.
As part of the new management structure, the NAO reports that the Commands now manage most of the defence budget giving them the ability to decide how to use their own resources to best effect. To do this they must engage with Defence Equipment and Support (DE&S) and the Defence Infrastructure Organisation (DIO) who supply the equipment and infrastructure the Commands require. The NAO found that the Commands are taking ownership of these budgets but need to develop their financial skills and project and programme management capability to take on this enhanced role. It said the Department will also need to do more to clarify how increased delegation of responsibilities to the Commands will improve longer-term value for money.
The NAO says the Department recognises that DE&S and DIO do not currently have the skills they need to deliver the requirements of the Commands. It is also aware that its information technology systems are not currently delivering the information that it needs to manage its business effectively. The MOD has put in place plans to improve performance across all these areas, which include support from the private sector, according to the NAO.
The NAO found that the Department recognises that improving its financial management is a long-term endeavour, with sustained effort needed to maintain progress. Many of the recent changes to its structure and capabilities are not yet fully implemented and the forthcoming Strategic Defence and Security Review will be the first real test of their strength.