Government response
Introduction
The Government welcomes the Committee's report on
the Ministry of Defence Annual Report and Accounts 2007-08. The
Government's response to the conclusions and recommendations contained
in the Committee's report is set out below.
The Joint Personnel Administration programme:
the Qualified Audit Opinion
1. (Recommendation 1). It is difficult to exaggerate
the magnitude of the failure of the Joint Personnel Administration
programme. At a time when the Department is seeking, in many cases
successfully, to deal with areas of dissatisfaction in service
personnel life, this failure, which affects pay, entitlements
and service records, is unacceptable. (Paragraph 10)
We are determined to identify and address areas of
dissatisfaction with Service life, and have recognised that the
Joint Personnel Administration (JPA) interface with Service personnel
has been such a source of dissatisfaction. The then Under Secretary
of State (Mr Twigg) therefore commissioned a comprehensive and
independent review of JPA in mid-2008.
The Review Report concluded that improvements were
needed in a number of key areas including: governance; training;
and a reduction in complexity to improve the user experience of
the system. At the same time, the Review concluded that JPA has
been "a considerable strategic success".
We have taken determined and systematic action to
meet the Review's recommendations. A comprehensive analysis of
JPA business functionality - that will identify gaps between what
has been required and what has been delivered - is nearly complete.
On the one hand, the initial findings of this stock-take of JPA
show that there are problems with system access, some aspects
of functionality and with the provision of management information.
On the other hand, they show that JPA is largely fit for purpose.
The Service Personnel and Veterans Agency (SPVA)
has achieved a 97.89% level of accuracy against its Key Targets
for Financial Year 2008-09 for the delivery of pay to Service
personnel. 99.99% of personnel were paid on time.
2. (Recommendation 2) We express our serious concern
that the MoD's Resource Accounts for 2007-08 were qualified by
the Comptroller and Auditor General, as a result of their lacking
financial controls, arising from the recently introduced Joint
Personnel Administration system. We are also concerned by the
number of weaknesses in financial control identified by the NAO.
We look to the MoD to address these weaknesses as a matter of
urgency. (Paragraph 15)
We are addressing the National Audit Office's concerns
with urgency and are working to complete:
- A Payroll and Allowance Control
Framework Project;
- A JPA Finance Improvement Project; and
- The implementation of the relevant recommendations
made by the Independent Review (and other business improvements).
The SPVA and the Services have worked very effectively
together to make good progress. This has been very detailed and
time-consuming work - and there is still more to be done. Working
closely with the NAO, SPVA and the Services have demonstrated
that financial controls are in place. The Control Framework Project
is scheduled to finish in December 2009. The JPA Finance Improvement
Project was concluded in Apr 2009.
3. (Recommendation 3) In developing JPA, the MoD
placed insufficient emphasis on financial reporting requirements
or the requirements for management information. A system was put
in place, presumably with the approval of the Department's Finance
Officer, that provided insufficient evidence of payments and which
could have such adverse impacts upon Departmental Accounts. We
consider this to be a basic and fundamental error which is unacceptable
on a project of this scale and importance. (Paragraph 16)
We acknowledge that errors were made early on in
the development of JPA. Failures on the financial accounting
side have been investigated. The investigation report concluded
that, at the outset of the project, there was a failure to recognise
fully the financial dimensions of the work involved. Specifically,
the financial users' needs were not adequately reflected in early
key documents. It followed that:
- Robust financial user requirements
were not developed;
- Consequential risks were not identified sufficiently;
and
- JPA project work did not address adequately
the financial and accounting functions.
Lessons have been learned and changes have been made
to ensure that dependencies with the financial process are correctly
considered by the Department's change programmes. With hindsight,
in paying such close attention to project timescale and the costs
and benefits to be delivered, focus on the Department's financial
reporting requirements was lost.
4. (Recommendation 4) It remains unclear whether
the ability of the MoD to recover such a small proportion of the
monies it paid out to EDS for JPA reflects the nature of the contract,
a just assessment of the proportion of responsibility for JPA's
weaknesses or both. The decision to implement the JPA programme
through an existing contract, which was clearly insufficient to
deal with problems that might arise, was short sighted. The lack
of clarity in the design in the system at the outset has led significant
costs being incurred by the Department which ought to have been
entirely avoidable. (Paragraph 19)
Charges are raised by SPVA for service delivery failures.
These vary according to the nature of each failure and take into
account:
- The share of responsibility
for the failure between MOD and EDS;
- The extent of the impact of the failure on customers;
and
- Any other mitigating factors.
The JPA Procurement Strategy Review concluded that
early implementation offered significant additional value, and
that earliest benefit could be realised by contracting with EDS
for JPA implementation.
5. (Recommendation 5) We recognise that considerable
work has been undertaken recently to enable JPA to support the
MoD's financial performance. We note that more work will need
to be done. We will return to this subject in our next inquiry
on the MoD's Annual Report and Accounts. In its response to this
Report the MoD should set out what the current state of JPA is,
what current satisfaction levels within the service community
are with regard to JPA, and what progress has been made in implementing
the NAO's recommendations. (Paragraph 22)
JPA is a major change programme which has revolutionised
the way in which the Armed Forces are administered. We accept
that there have been issues with the JPA, including with accounting
mechanisms and associated audit trails and are working hard to
correct these.
JPA is however now closer to delivering the comprehensive,
flexible and simplified administration service that was envisaged.
Since roll-out Service Personnel have received their basic pay
without interruption, almost without exception. For the first
time some 300,000 self-service users can now view pay slips, submit
on-line expenses and leave requests, and change personal details
direct onto the system. And by saving of around 1400 administrative
posts we have been able to devote more resources to the front
line.
Overall satisfaction with SPVA has now risen to 80%
- an increase of 12%. Satisfaction with the JPA system has risen
by 7% to 77%. Whilst it remains a particular area for further
improvement, customer service satisfaction with the Enquiry Service
has nearly doubled from 28% to 55%.
Efficiency savings
6. (Recommendation 6) As we noted in our last
Report, the MoD has exceeded its efficiency targets by a wide
margin. We commend the MoD for its focus in maintaining its core
programme. We must however express some concern that these cuts
come at a time of considerable change in the MoD, and of continuing
high operational commitments. Inevitably, such reductions in staff
have placed greater burdens upon personnel and hindered performance.
(Paragraph 27)
Identifying new efficiencies can be challenging and
it is important that, where possible, we do not place greater
burdens upon our people or hinder performance. We are, therefore,
fully engaged in the cross government Operational Efficiency Programme
(OEP) where we are undertaking a self-assessment of MOD performance
and costs against best practice benchmarking in key back office
and shared service functions. We will only identify efficiency
initiatives where there are true savings to be made or where performance
can be improved.
7. (Recommendation 7) We are concerned that there
has been a significant cost to the achievement of the MoD's efficiency
programme. We consider that the difficulties Service personnel
experienced using the JPA system were in part due to the MoD's
pursuit of its efficiency targets. The fact that the MoD has exceeded
its efficiency targets while the JPA system has performed so badly
raises questions about the management of the MoD's extensive change
programme and about a possible conflict of priorities. (Paragraph
29)
As the Committee notes, a focus on efficiency has
been important in maintaining the MOD's core programme. Benefits
management is also an important component of best practice programme
management. This does not mean that efficiency has been pursued
at the inappropriate expense of other factors; indeed a
saving that accrued as a result of a diminution of capability
would not be classed as an efficiency.
There is no evidence that the efficiencies that were
achieved are linked to initial problems with service delivery
and the programme is now delivering significant business benefits
with evidence that it is meeting the majority of business requirements.
8. (Recommendation 8) We are concerned that MoD's
headcount reductions, office closures and consequent move towards
contact centres have together proved a source of frustration to
Service personnel. We note that the MoD has no method of measuring
whether the quality of the service it provides to Armed Forces
personnel has deteriorated as a result of the efficiency programme.
We recommend that the MoD develop a system to monitor the effect
of its efficiency programme so as better to enable it to manage
its impacts on Service personnel. (Paragraph 30)
We recognise that efficiency savings should not normally
impact on delivery performance or quality of service. A range
of measures are been used to monitor the effect of projects in
the efficiency programme, e.g. the Service Personnel and Veterans
Agency undertake regular surveys (twice per year) to measure the
quality of the service provided to the Armed Forces which then
informs ongoing work to improve services offered.
MOD's Value for Money (VfM) programme aims to deliver
£3.15Bn of sustainable, cash releasing gains by 2010-11,
all of which are being recycled to ensure that maximum resources
are focused on delivering Departmental objectives.
The VFM programme is subject to annual internal audit
to validate that robust structures are in places as well as confirming
the actual savings made are compliant with Treasury VfM methodology
- this includes ensuring that output performance is not negatively
impacted. Our savings will also be reviewed by the National Audit
Office, which will report on each Department's claim during the
Comprehensive Spending Review 2007 period.
Capability Review
9. (Recommendation 9). It is probably too early
to determine the success of these changes. We hope that the MoD
will, in its next Annual Report and Accounts, describe in some
detail the positive impact of the programme stemming from the
Capability Review. We do remain concerned, however, that the Streamlining
Programme, coming on top of the efficiency programme and accompanied
by changes to processes and structures, may inadvertently affect
the quality of performance within the MoD. (Paragraph 34)
We have taken action to implement this recommendation.
The 2008-09 Annual Report and Accounts will contain a detailed
description of our progress in implementing the programme stemming
from the 2007 Capability Review. This is in addition to a summary
of the results of the second Capability Review of the MOD, which
took place earlier this year. This Review found that the Department
has a sound platform to build on for the future and recognises
the efforts we have made to implement the recommendations of the
2007 Capability Review.
MOD has made good progress on creating a Head Office
that is cheaper, simpler, clearer and more effective, through
the Streamlining programme. To ensure that the quality of
performance does not suffer, we will drive forward a programme
to help Head Office business areas improve their performance through
the use of flexible resourcing, work prioritisation and decision-making
tools. We are committed to continued development of the
senior leadership group and to better exploiting IT and technology.
And from April we will introduce a comprehensive induction and
training package for head office entrants. We will measure
progress through the use of pulse surveys and maturity models.
Data security
10. (Recommendation 10) We are concerned to learn
that the MoD has been involved in separate incidents where significant
amounts of personal data have been lost. We are pleased that the
MoD has since then put in place firm measures markedly to reduce
if not prevent similar incidents happening the future. While we
agree with Sir Bill Jeffrey that preventing any reoccurrence of
data loss is impossible, we emphasise that the MoD must show no
complacency in this area. We are pleased to see that the matter
is being overseen by the Defence Board, at the very highest level
within the Department, and we expect clear and full information
on progress to date in limiting or preventing such incidents in
the next Annual Report and Accounts. (Paragraph 41)
Information on progress to date in limiting or preventing
incidents will be presented in the next Annual report and Accounts.
We have recently reported on progress in meeting the recommendations
of the Burton Report: 41 out of a total of 51 have now been actioned.
Significant progress has been made against the 10 remaining recommendations.
Sir Edmund Burton has always been clear that a number of his
original 51 recommendations would involve a longer term programme
of change, and the Information Commissioner's Office (ICO) have
recently reconfirmed that they see these 10 in that light and
did not expect completion of them by 31 March 2009.
Overall performance
11. (Recommendation 11) We commend the MoD for
the efforts it clearly puts into supporting the Armed Forces and
attempting to deliver its SR2004 PSA targets. However, we are
disappointed by the quality of the MoD's forecasting during the
2004 Spending Review period. We are concerned that institutional
over-optimism might in some areas significantly impact on efforts
to improve performance. We look to the MoD to make improvements
to the accuracy of its forecasting in future and to inject a greater
sense of realism into how its personnel carry out forecasting
in future, and to report progress on this in its next Annual Report.
(Paragraph 44)
12. (Recommendation 15) We find it perplexing
that the MoD thought for so long that it would not fail against
this readiness target, especially since it understood that the
Armed Forces were "continuing to operate above the overall
level of concurrent operations which they are resourced and structured
to sustain over time" (Paragraph 55)
We recognise the Committee's disappointment with
the quality of MOD's forecasting and at the potential for some
institutional over-optimism. With respect to readiness (PSA
Target 3), in the 2005-06 Interim Assessment MOD reported that
it was on course to achieve the readiness target. This assessment
was fair at the time because at that point the Armed Forces were
not as heavily committed to Operation Herrick in Afghanistan;
had this remained the case, there is no reason to suspect that
the PSA target would not have been achieved. By the time
of the next interim assessment, a year later, the Armed Forces
were committed at above planned levels and the impact of those
current operations on contingent readiness was beginning to bite.
The assessment of "some risk" reflected this.
By the end of the SR04 period, with success on current operations
being the clear highest priority for the Armed Forces, the contingent
readiness target was not met. We regard the progressive
change in the PSA 3 assessment as reflecting the reality of operations
that were not part of the assumptions that underpinned the SR04
target.
13. (Recommendation 12) We do not consider the
MoD's current system of reporting its progress against its targets
to be sufficiently transparent. The response we received from
the MoD to our queries on this issue only emphasises the unsatisfactory
way in which the headlines of the Annual Report were constructed.
When targets comprise many sub-targets, when subjectivity is key
to measurement, when no metrics are provided to assess what is
meant when a sub-target is 'partly met', there is clearly insufficient
transparency. We understand the need sensibly to balance clarity
and accuracy with brevity. Nonetheless, we recommend that the
MoD develop a more accurate method of measuring its progress against
targets for next year's Annual Report and Accounts, and at the
very least make performance against sub-targets a much more prominent
part of that Report's headlines in future. (Paragraph 49)
We recognise the Committee's concern. Parameters
for reporting performance against Spending Round targets are set
centrally by HM Treasury and all departments are expected to work
with these when providing assessments. In addition, the MOD has
to take cognisance of security and that some performance indicators
are not susceptible to quantative treatment. In recognition of
these factors, the MOD in the 2007-08 report sought to provide
a thorough narrative on qualitative performance indicators. 2008-09
performance indicators were set before the start of that year,
but we have noted the Committee's desire to see the assessment
of performance given more prominence in the Annual Report and
Accounts.
Operations
14. (Recommendation 13) We encourage the MoD to
look into making publicly available as many of the unclassified
elements of assessment within this area as possible, but we understand
the operational sensitivities will mean that this area of performance
will necessarily remain less accessible to the public than other
areas of the MoD's performance. (Paragraph 51)
We note and are sympathetic to this recommendation.
Conflict prevention
15. (Recommendation 14) We accept that a number
of the outcomes set out in the MoD's Public Service Agreements
for the period from 2004 to 2008 and in its Departmental Strategic
Objectives for the period from 2008 to 2011 are not subject to
easy measurement. We also accept that the MoD's own direct influence
in relation to some of its international objectives will be necessarily
limited. However, we reiterate the need for the MoD to try to
develop more rigorous and objective methods for assessing performance.
(Paragraph 53)
The MOD now shares targets for conflict prevention
with FCO and DfID under PSA 30 for CSR07. We have developed more
rigorous and objective measures for assessing performance for
PSA 30 as a whole, which are applied across the three Departments,
although specific responsibilities for each Department, as appropriate,
have been allocated by the PSA 30 Delivery Board.
Readiness
16. (Recommendation 16) We welcome the openness
that the MoD has shown in explaining the complex metrics for measurement
of performance with regard to readiness. We expect an assessment
in the Spring Performance Report of how the MoD considers the
new metrics to be working. (Paragraph 57)
We continue to improve our performance metrics and
will provide an assessment of the revised metrics once there is
sufficient data to analyse.
17. (Recommendation 17) This continuing poor performance
against readiness targets is serious. As the MoD's recent Autumn
Performance Report accepts, it limits "the ability of force
elements to engage in new contingent operations and military tasks".
It also reveals the significant stresses which exist currently
upon manpower, equipment, training and logistics. This puts into
stark perspective the UK's capacity to sustain current operations
into the medium term. (Paragraph 59)
We have continued to meet all mandated force generation
activity to sustain the capability needed to conduct current and
enduring operations and Military Tasks. Although performance
against readiness goals is below the target, there have been small
improvements in the overall readiness picture throughout the current
reporting year. Operating for a sustained period above the overall
level of concurrent operations for which Defence is resourced
and structured to sustain, has reduced the capacity to be ready
to react to the full range of contingent operations articulated
in the planning assumptions. Whilst we acknowledge that meeting
the sustained level of concurrent operations has impacted on the
future capability of the Armed Forces to conduct contingent operations,
this will be mitigated as concurrent operational commitments reduce.
18. (Recommendation 18) Restoring full contingent
capability for our Armed Forces is one of the most pressing issue
the MoD faces. It is essential that the MoD's programme of recuperation
is effective and places no further strains upon our Armed Forces.
We are particularly concerned that the programme is founded upon
assumptions as to commitments which the UK Government may not
be able to keep to over this period. We therefore stress to the
Department the importance of this programme being able to take
account of increased deployments in Afghanistan or new smaller
operational commitments while still aiming to recuperate force
elements to the required level in a reasonable time-scale. (Paragraph
62)
The restoration of contingent capability is one of
the MOD's highest priorities after current operations and we have
published our recuperation intentions internally within Defence
Strategic Guidance 2008. Our commitment to Afghanistan is a strategic
priority which does not diminish the importance of maintaining
other operational commitments. The recent conclusion of combat
operations in Iraq improves our capacity to alleviate further
strains upon the Armed Forces.
The European Security Agenda, NATO and ESDP
19. (Recommendation 19) Other departmental select
committees have in the past expressed concern about targets shared
between departments, on the grounds that each department involved
is tempted to believe that principal responsibility for action
or success lies elsewhere. This is clearly unsatisfactory, and
it is vital that areas of responsibility and sub-targets within
each target are formally assigned to particular government departments
so that lines of activity and responsibility are clear. (Paragraph
63)
PSA Target 4, to which the Committee refers, has
now been superseded by CSR 07's PSA Target 30: 'Reduce the Impact
of Conflict through Enhanced UK and International Efforts'.
Indicator 3 concerns more effective international institutions
and covers NATO, the AU, the UN and the EU. Whilst PSA 30
remains a joint target, sub-indicators for each organisation,
with more clearly defined responsibilities for each Department,
have been assigned by the PSA 30 Delivery Board. The Government
therefore believes that it has already addressed the HCDC's concerns
with reference to PSA 30 about the value of shared targets and
more clearly delineated departmental responsibilities and lines
of activity.
Armed Forces personnel
20. (Recommendation 20) Personnel and manning
issues are clearly another area of the MoD's performance that
needs addressing as a matter of urgency. The recuperation programme
which the MoD is about to put in place to assist in improving
readiness levels following the drawdown in Iraq will have to focus
not just upon equipment and training issues but also upon manpower
issues. (Paragraph 69)
Personnel issues are invariably one of the most critical
factors within our internal performance assessment. Recognising
the importance of manning, we have initiated a comprehensive recuperation
programme which will include the readiness levels for Manpower
and Equipment and Training. Recruiting performance indicates
that Manpower levels are being restored which should, in time,
allow the Recuperation programme to address shortfalls in skill
sets and readiness.
Equipment
21. (Recommendation 21) We are not satisfied with
explanations that have been given by the MoD as to what it intends
to do to rectify this decline in performance with regard to defence
equipment, and we will be returning to this matter in the future.
(Paragraph 70)
Of the 42 projects reported for 2007/08, cost growth
was confined to two projects, NIMROD MRA4 and the BEYOND VISUAL
RANGE AIR TO AIR MISSILE, both of which were initiated before
reforms to defence acquisition were introduced. Similarly, around
two thirds of the reported slippage was focused on three projects,
only one of which was initiated after the introduction of acquisition
reforms.
Future DSO targets
22. (Recommendation 22) We will monitor the MoD's
reporting under this new system and call upon the MoD to include
reporting on its work under the FCO-led PSA 30 in quarterly reports
in future. (Paragraph 74)
The PSA 30 Delivery Board produces six-monthly reports
and we wish to continue reporting to that cycle. Many of the
specific objectives are the subject of joint work with the FCO
and DfID (although one Department may be in the lead), and it
would be difficult to produce a report for one element of a collaborative
approach. Moreover, as the PSA requires objectives to be achieved
by 2010/11 and they are very strategic in nature, there are unlikely
to be significant changes in results over a three month period.
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