Tuesday, 24 January 2012

Britain's Ministry of Defence loses billions to theft and incompetence

It would seem that just as mega banks are too big to let fail so, too, huge government departments, like Britain's Ministry of Defence (MoD), are beyond the rules of good governance. For the fifth successive year the MoD's annual accounts for 2010-11 have been qualified and the MoD has no plans to comply with international financial reporting, as laid down by the Treasury, within the foreseeable future, says the Defence Committee, chaired by James Arbuthnot, MP.

Such insouciance is breathtaking, especially at a time when Britons are passing through, perhaps, the worst austerity measures since World War 2. Britain's local authorities are constantly admonished by Government to eliminate waste and cut spending but should the Treasury not look to the mote in its own eye and is it not time for the MoD to clean out its Augean stables?

The Defence Committee is dismayed that the Chancellor of the Exchequer, George Osborne, has not responded to its letter asking what his policy is on Departments who defy Treasury accounting rules. The MoD could also not provide adequate audit evidence for over £5.2 billion worth of certain inventory and capital spares. "These problems are likely to persist until, at the very earliest, 2014-15," says the Defence Committee.

In a staggeringly euphemistic statement, James Arbuthnot said: "The repeated qualification of the MoD accounts reflects badly on the MoD's financial management. The situation is unsatisfactory and the MoD and the Treasury need a clear plan to address the shortcomings in the MoD's accounting systems."

Such gross accounting and logistical incompetence, however, does not only undermine Britain's task of reducing Government debt, now put at over £1 trillion for the first time, or over 70% of gross domestic product. It also poses serious security issues. Two years ago, when I last mentioned this subject under my headline: "MoD's stock mismanagement threatens security," I referred to the Army's relatively new £1.3 billion BOWMAN tactical communications system, which provides integrated, secure radio, intercom and Internet services. Only 89% of these assets then could be accounted for by the end of the year owing to problems with accounting for radios in use on the battlefield. These radios were worth £155 million and it is a reasonable bet that some have fallen into the wrong hands.

It should be made clear that this is not simply an accounting issue gone alarmingly wrong and out of control. Massive fraud and theft are also involved. "The Committee is concerned that the level of theft and fraud in the MoD appear generally to be increasing year on year and that the level of value recovered from theft and fraud is low, " said James Arbuthnot.

Theft and fraud is not new to the MoD, whose financial black hole has reached about £38 billion. Back in 1983 the Army's COD Donnington warehouse went up in flames, and at £174 million the uninsured fire loss was the costliest in the country's history. The fire's cause was never proven but one 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. What is certain is that the sprinkler system failed to work and it is very rare for sprinkler heads to fail. According to warehouse fire statistics there was also an even chance that the fire was arson as nearly half of all UK warehouse fires are maliciously caused.

If ever a Government department responsible for spending billions of pounds of hard-pressed taxpayers' money every year needed forensic accountants with top line logistics experience and robust systems in place the MoD must be top of the list. But it must be backed up by ruthless,
committed, and capable security personnel to root out the fraudsters and thieves for condign punishment.

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