Saturday, 3 April 2010

MoD's stock mismanagement threatens security

In what must be one of the most damning indictments of a Government department's financial ineptitude the Defence Select Committee has excoriated the UK's Ministry of Defence (MoD) for its accounting failures. In its annual report on the MoD's accounts, published on February 24, the Defence Select Committee comments: "Failures in the administration of service personnel and sensitive equipment are unacceptable" This has led the National Audit Office to qualify the department's resource accounts for the third consecutive year. Usually one year's qualified accounts would be enough to presage a commercial company's obsequies.

Such an embarrassment could not have come at a worst time for a government battered by economic forces and preparing what seems to be deep cuts in this year's Defence Review. Given the three armed services' worries over cuts that could reduce their commitments, such monumental logistics and accounting failures, worth many millions of pounds, must feel like a stab in the back from their own governing department. But if the MoD does not clean out its own Augean stables then the Defence Committee, chaired by the Rt Hon James Arbuthnot, MP believes that the MoD's accounting failures have the potential to threaten its own long-term capability.

The MoD has long been a lumbering, bureaucratic moloch, devouring huge taxpayers' funds, and stock control has rarely been its forte in modern times. Apart from worries over specialist pay of £268 million and lack of evidence to show that the errors in accommodation and food charges of £83m had not been made good, a key worry of the Defence Committee was the inability of the MoD to account for certain items of expensive and sensitive equipment.

The National Audit Office has carried out a selective audit of the army's relatively new £1.3 billion BOWMAN tactical communications system, which provides secure, integrated radio intercom and internet services. Only 89% of these assets could be accounted for by the end of the year owing to problems of accounting for radios in use on the battlefield. James Arbuthnot said that the MoD could not at a given time account for radios worth £155 million, giving rise to serious security implications. "Having an effective audit trail is the only way to ensure that all equipment is accounted for," he added.

Veracity and transparency, however, are two traits woefully lacking at the MoD, the COD Donnington warehouse fire in 1983 being a huge example. Until then, at £174 million, the uninsured fire loss was the costliest in the country's history. On various occasions the MoD had been explicitly warned that the building was not fire safe but the MoD ruled out fire improvements on cost grounds, callously opting instead for the "calculated risk" approach. The consequences of that decision are now being felt decades later with the recent death of a 31-year old woman from mesothelioma, caused by asbestos ash falling on thousands of houses over 15 square miles. The asbestos content was originally denied by the Army and the Controller and Auditor General, the Public Accounts Committee and the Select Committee on Defence all made scant comment on the fire.

The fire's cause was never proven but the investigators thought that the likely cause was workers using lighters and cigarettes to sever plastic wrapping. Another, darker, mooted cause was arson, because the Falklands War allegedly occasioned a comprehensive stock audit which, it was claimed, would have exposed serious stock losses and so tracks had to be covered by a fire. The sprinkler system failed to work and it is very rare for sprinkler heads to fail. Nearly half of all warehouse fires are maliciously caused.

Astoundingly, five years later, a second fire hit the stores after £31 million had been spent on building 10, autonomous, high bay automated stores designed to limit fire damage spread, destroying most of store B1. Arson was not ruled out but the cause was never determined for certain. Ironically, on another occasion, the sprinkler system accidentally flooded out an entire high bay store. Still, at least the store separation principle was sound and probably saved £800 million worth of stock.

The Defence Select Committee recommends that the National Audit Office should continue to monitor closely the MoD's management of stock, perhaps giving consideration to undertaking a broader analysis of this problem at some future date. But given the broken assurances made last year by the Secretary of State for Defence and the Permanent Under Secretary to provide sufficient audit evidence to support their accounts perhaps a start should be made to encourage these two functionaries to fall on their swords now.

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