PAC has published a list of its subjects for January and February 2017. Meg Hillier, committee chair, indicated that defence topics had been added after the comptroller and auditor general, Amyas Morse, qualified his opinion on the financial statements of defence equipment & support (DE&S) for the second successive year.

In its report, the NAO said DE&S, which is a bespoke agency responsible for buying equipment and resources for the Ministry of Defence, had again been unable to provide sufficient evidence to support certain costs, or demonstrate that all costs it has incurred, have been included in the financial statements.

Hillier said the fact that DE&S could not fully account for around £500m in spending was ‘very disappointing.’

‘This points to a lack of joined-up financial planning in the ministry and raises concerns about whether the department is delivering value for money across the board. We will not be letting this go and officials will have important questions to answer when they appear before the PAC in the new year.’

The accounts were qualified on the grounds that DE&S did not provide sufficient and appropriate audit evidence to confirm whether or not the private sector costs and other programme costs recorded in the statement of comprehensive net expenditure are free from material misstatement.

The statement reported £434m of private sector support costs and £65m of other programme costs. The private sector support costs represent external support procured by DE&S to supplement the management of its work programme and encompasses contracts for the employment of manpower support, consultancy assistance and technical support in the areas of project management and logistics capability. The other programme costs include travel and subsistence, training, safety and other office running costs.

The NAO said the main problem lay in the fact that DE&S maintains financial systems which record both DE&S and MOD related costs. As a result, in preparing its financial statements DE&S has to perform a manual analysis of its accounting records to identify and include only those costs that relate to DE&S. This particularly impacts the calculation of private sector support and other programme costs.

Much of the difficulty is down to the significant number of manual journals that are still relied on to create the accounts as individual lines of expenditure are analysed between DE&S and MOD activities. While an improvement on last year where journals were in excess of 100,000, the level of journals for the year ending 31 March 2016 is still significant, remaining at over 80,000 journal lines, the NAO reported.

The NAO stated: ‘To remove its qualification relating to expenditure the Department needs to improve how it identifies and records private sector support and other programme costs. The Department’s ongoing improvement programme acknowledges this and it is developing financial management systems, processes and controls to record its costs to a level of accuracy needed for a clear audit opinion in future years.’

PAC’s list of 2017 topics is here.

The NAO report on DE&S is here.