Deployed to the Far East in March, the Glasgow has spent the past two weeks sailing in support of the Australian-led naval force helping to protect the amphibious supply craft carrying troops to East Timor. Some of the crew also went ashore to provide medical assistance, restore electrical power and re-establish infrastructure. This mission is typical of the tasks today's UK armed forces are expected to perform. And one which their commanders will soon be expected to account for using the new resource accounting and budgeting system. While out on deployment, nothing could be further from service personnel minds than the financial consequences of their operations. Yet back in Whitehall, finance and accounting have taken pole position in recent years as central government gears up for the full implementation of resource accounting and budgeting (RAB). This is a hurdle the government, and the Ministry of Defence in particular, must jump if its transition to more commercial-style accounting practices is to be successful. Cultural change is as crucial as the need for new systems. Responsibility for this shift within the MoD lies with what the department refers to as its 'top-level budgets' - these are some 100 accounting centres which have been created under the resource accounting and budgeting model. Each has a chief financial officer responsible to MoD headquarters. Overseeing HMS Glasgow, and the rest of the navy's front-end operational service, is the Commander in Chief Fleet, or CINCFLEET. Some departments were slow off the mark when it came to implementation, but CINCFLEET was an early proponent of the systems. It did experience some initial teething problems, but the command is now more confident using RAB because its staff have had more time working on it than colleagues elsewhere in Whitehall. Within the command, responsibility for the implementation of accruals accounting lies with civil servant Nigel Brind, the command secretary, and his chief financial accountant John Hawthorn. Based at a suburban military installation in Northwood, near Watford, Brind and Hawthorn have had the painstaking task of introducing the new resource accounting and budgeting regime. Since arriving from what he calls 'the outside world' at a bureaucratic organisation where it can be difficult to get things done, Hawthorn has grappled with the minutiae of introducing a new IT system, training his staff how to use it and instilling a cultural change so the system can be used effectively. It was a challenge he clearly relished. 'What attracted me to it was the opportunity to create something from a blank sheet of paper. Developing financial management from scratch is an attractive proposition and remains so,' he explains. One of the first major issues for CINCFLEET - and the rest of the MoD - was the number of staff required to implement RAB successfully. While the department has always employed accountants, they were usually positioned at management level rather than being dispersed across services or functions. Eventually, about 200 extra accountants were recruited as civil servants on fixed-term contracts to import the necessary experience. Others were trained using qualifications from CIMA, ACCA and MBA courses. Hawthorn believes that training existing staff to supplement external recruitment was essential. 'Not least because to draft in the required numbers from external sources would have drained the whole country of accountants,' he jokes. Another challenge for Brind and Hawthorn was explaining the benefits of introducing an accruals system across the command. While his own staff remain committed to the rationale behind accruals accounting, implementing the systems and educating colleagues has been an uphill task. Tanya Armour and Joanne Wooff work as management accountants for CINCFLEET. Speaking to them reveals how large a burden the MoD placed on its staff to ensure the implementation was successful. 'The most frustrating thing is that cash is still at the forefront of people's minds until we move completely to resource accounting,' Wooff explains. The most difficult task has been convincing military colleagues of the long-term benefits of RAB. Brind believes the real challenge is to make the process seem worthwhile to the non-finance community. This is further complicated by the fact that many decisions are made higher up the chain of command in the MoD. But signs that people are beginning to get to grips with resource accounting and budgeting are becoming clearer. 'Things are really moving along,' Armour says. 'People are using the information now. They are coming aboard and it is encouraging for us.' The success should also please the Commons Public Accounts Committee which has criticised the MoD in the past for a £246m overspend. 'We can use resources voted by parliament much better with RAB,' Brind says. 'The new system will improve our performance and if things go wrong we will be able to explain it far better to parliament. We will also be better placed to evaluate the cost of fighting equipment.' By equipment, Brind refers to the vehicles and weapons the fleet uses to carry out operations. With vast and complex assets, such as HMS Glasgow, CINCFLEET has been hard pressed to determine exactly what some of its accounting principles should be. As Hawthorn explains: 'We have to make provisions for the disposal of assets such as nuclear submarines. For example, removing reactor cores for disposal. It took time to sort out exactly what the accounting treatment for that was.' Further work is also needed on how the command will account for the refitting of ships and submarines. Uniquely, refitting increases the value of ships as assets. FRS15 suggests ships should be 'broken up' into different parts to be valued. Asset valuation formed the first stage of RAB implementation and, for the ministry as a whole, the task proved significant - as MoD principal finance officer Colin Balmer explains. 'Drawing up the asset register was our first major hurdle.' During this process the department had to record all the assets it owns including items as diverse as a Napoleonic bunker storing nuclear waste, Salisbury Plain and a fish and chip shop in Catterick. 'Working out the fixed assets took a long time. We just did not know what was there. The stores aspect was also difficult. For example, the RAF holds many years worth of spare parts in case of rapid consumption in times of war.' For CINCFLEET, supplies are provided by another top-level budget area. With resource accounting and budgeting the command will have to report the cost of the consumables that it holds in stores. Balmer admits the department still has a lot of work and the stores situation could mean that the MoD's first set of resource accounts are qualified by the National Audit Office. 'The accounts being processed for this year should be robust and auditable apart from some of the stock systems. But I would hope the qualifications will be small. The year after, I would hope they will be good enough to produce unqualified accounts,' he says. This is a stark change from the ministry which only last year was named as one of the worst performing in Whitehall during the build-up to RAB implementation. This year, dry-run accounts were prepared for 1998/99 for examination by the NAO, which will be followed up by a fully audited accounts from 1999/2000. While findings from the dry-run accounts will not be published they will be used within government as an indication of how well individual departments have performed. The head of the Government Accountancy Service, Andrew Likierman, is confident performance will match expectations. 'The quality of information will improve year by year. The MoD has found things particularly hard but RAB will help them achieve these goals,' he says. Feedback will also come from the external experts appointed to help with the project. Consultants were hired to manage the initiative. Known as Project Capital, the consortium includes major contractors PricewaterhouseCoopers and IBM. The total cost was estimated at £200m, about two-thirds of which will go to PwC. The consortium will remain in place while the MoD adapts to the new system and until staff are comfortable with its use. With such a vast infrastructure, the MoD epitomises the challenge which is facing central government as it gears up for the implementation of commercial accounting practices. Apart from the intricacies of implementing RAB, the biggest hurdle Whitehall faces remains the fundamental change in culture if RAB is to succeed. Balmer's comments echo this ethos. 'A cultural change is needed if commanders are to take better decisions and to understand what is driving costs - so we will achieve a more coherent defence output.' BENEFITS OF RAB For departments - Better management information on costs and assets - Better basis for deciding on the allocation of resources - Better management of working capital - An opportunity to focus more on outputs and outcomes - More financially aware managers For central government - More strategic approach to public expenditure - Part of 'modernising government' agenda - Better basis on which to allocate resources For parliament - More and better focused information - A link to objectives and performance For the management of the economy - Better information on assets and their utilisation - Better use of resources, directly and through capital charging.
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