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AUS MoD ‘Disappointed’ by Audit Report (Nov. 22)

The Government has considered the Independent Audit Report of the Australian National Audit Office (ANAO) to the Minister for Defence in relation to the 2003-04 Financial Statements of the Department of Defence.

The Government is extremely disappointed that the Auditor-General found reason to criticise the quantitative and qualitative internal controls of the Department. Once again the Auditor-General has had to issue a Qualified Audit Opinion in relation to the Department. The Government noted never the less that the Auditor-General found no reason to question balances relating to Cash, Receivables, Revenues from Government, Specialist Military Equipment (Exclusive of Repairable Items) and Quantity of Explosive Ordnance.

The Government recognises that within the Department of Defence a great deal of work remains in areas of systems, management and practice to meet the contemporary requirements of accrual accounting.
The Government has noted and supports a number of significant processes and reforms designed to achieve that goal agreed by the Secretary of Defence and Chief of the Defence Force.

1. Defence has engaged Ernst & Young to support revision of Defence financial principles, policies, processes and systems; development of a rigorous reconciliation process; assistance with implementation of Australian Equivalent International Financial Reporting Standards; and completion of due diligence for the accounting separation of DMO from Defence.

The Ernst & Young team will be headed by Mr Bruce Meehan who has had significant company experience in similar transformation work, helping companies to become best practice (accounting) organisations. Mr Meehan is also being asked to report to both the Minister for Defence and the Minister for Finance on progress on a quarterly basis.

2. Defence has agreed that the Financial Statements Project Board (FSPB) which has oversight of the Department's task in improving its financial accounting performance be enhanced by inclusion of both Finance Department and Private Sector representatives.

The FSPB is also being asked to report to both Ministers on a quarterly basis and in particular on the implementation of the specific projects referred to in (3) and (4) below.

3. Defence has agreed to the introduction of a new Financial Control Framework (FCF) and also to the introduction of monthly Balance Sheet Reports for each of the 16 individual Groups within the Department.

4. Defence has agreed to a series of defined remedial projects with strict timelines to address the following specific issues: Stores Record Accuracy, General Stores Inventory Pricing, Supply Customer Accounts, Explosive Ordnance Pricing, Military Leave Records, Property Valuations.

The Government recognises that comparable Defence Departments in the United Kingdom, United States and Canada are facing these same difficulties as they move from an essentially cash management basis to a balance sheet accountability more comparable to the private sector.

The Government also acknowledges that a great deal has been successfully done to improve budget management practices particularly as they relate to the cash operations of Defence. Efforts on the assets and liabilities side, by both Defence and ANAO, have however revealed long established systems and practices that are no longer adequate in meeting today's whole of Government requirements of transparency and accountability.

The Government is confident that the program as agreed by Defence, and the commitment to its implementation by the leadership of Defence, both military and civilian, will achieve significant improvements in the short term and ultimately the standard of performance required by Government. (ends)
Defence Annual Report