MINISTRY OF DEFENCE ACCOUNTING OFFICER SYSTEM STATEMENT 2018

1.Introduction

1.1‘Defence’ covers all those matters that are the responsibility of the Secretary of State for Defence. In practice this means the business of the Secretary of State and his fellow Ministers, of the Ministry of Defence (MOD) as the Department of State that supports them, and of the Armed Forces as constituted by the Defence (Transfer of Functions) Act 1964.

1.2The MOD’s objectivesand a summary of our spending are articulated in the ‘Single Departmental Plan’ which can be accessed at

1.3The Defence Operating Model is described in ‘How Defence Works’ which can be accessed at . This document also outlines the way in which the department makes sure that it is meeting its business aims.

2.Principal Accounting Officer’s Statement

2.1As the MOD Permanent Secretary I am the government’s principal civilian adviser on Defence. I have primary responsibility for policy, finance and business planning, andI am the MODPrincipal Accounting Officer.

2.2My responsibilities as Principal Accounting Officer include:

  • Ensuring that resources authorised by Parliament are used for the purposes intended by Parliament;
  • Providing assurance to Parliament and the public through the Committee of Public Accounts that the department exercises the highest standards of probity in the management of public funds;
  • Having personal accountability to Parliament for the economic, efficient and effective use of Defence resources;
  • Accounting accurately and transparently for the department’s financial position and transactions;
  • Delegating financial and other authority and accountability to senior colleagues.

2.3This System Statement sets out all of the accountability relationships and processes within the MOD.

2.4The Secretary of State for Defence and his fellowMinisters have a duty toParliament to account, and be held to account, for the policies, decisions and actions of thisdepartment and its agencies. They look to me as the department’s Principal Accounting Officer todelegate within the department to deliver their decisions and to support them in making policy decisions and handling public funds.

2.5I delegate responsibility to control the department’s business and meet the standards required by the relevant regulatory authorities within the scheme of delegation. This gives me insight into the business of the department and its use of resources, and allows the Defence Board -the senior corporate decision-making body in Defence - to make informed decisions about progress against departmental objectives, and if necessary to steer performance back on track.

2.6Nevertheless, as Principal Accounting Officer I am personally responsible for safeguarding the public funds for which I have been given charge under the MOD and Armed Forces Pension and Compensation Schemes Estimates. Where I have appointed Accounting Officers, their letters of appointment reflect the principles outlined in Managing Public Moneywhich can be accessed at and theirresponsibilities are also set out in this System Statement.

2.7The Statement covers my core department, its Arm’s Length Bodies (i.e. Executive Agencies and Non-Departmental Public Bodies) and other arm’s length relationships. It describes accountability for all expenditure of public money through my department’s Estimate, all public money raised as income, and the management of shareholdings, financial investments and other publicly owned assets for which I am responsible.

2.8Estimates are the means of obtaining the legal authority from Parliament to consume resources and spend the cash needed by the Government to finance a department's agreed spending programme. Full details of the MOD’s Main Estimate and Supplementary Estimate can be found at respectively.

2.9This System Statement sets out my personal view of how I ensure that I am fulfilling my responsibilities as an Accounting Officer, in accordance with the Treasury’s guidance set out in Managing PublicMoney. The Statement describes the accountability system which is in place and will continue to apply until a revised statement is published. The diagram at the appendix to this document provides an overview of MOD’s funding arrangements, with more detail provided in the narrative below.

3.Modernising Defence Programme (MDP)

3.As part of the MDP work strandI amdeveloping a new Defence Operating Model, centred on a more strategic and authoritative Head Office. This includes the roll-out of government’s approach to Functional Leadership to coherently oversee cross-cutting functions, e.g. finance and commercial,adopting best practice in governance across Defence; and a new approach to delivering change and efficiency. More detail of the entire MDP Programme, and the impact of this upon the governance of the department can be found at .

4.Distribution of Fundingthrough the MOD

4.1The MOD operating model delegates authority to those best able to deliver outputs for each business area. The core financial structure of the department comprisessevenTop-Level Budget (TLB) organisations and five Executive Agencies.

4.2The TLBs are:

  • Navy Command
  • Army Command
  • Air Command
  • Joint Forces Command
  • Defence Nuclear Organisation
  • Defence Infrastructure Organisation
  • Head Office and Corporate Services (HOCS)

4.3The Executive Agencies are listed below, with links to further information on theirroles and the Framework Agreements under which they operate:

  • Defence Equipment and Support (DE&S)
  • Defence Science and Technology Laboratory (Dstl)
  • Defence Electronics and Components Agency(DECA)
  • Submarine Delivery Agency (SDA) and
  • UK Hydrographic Office (UKHO) which also has Trading Fund status

4.4In addition, MOD sponsors a mix of Non-Departmental Public Bodies,a Public Corporation, Grants-in-Aid and General Grantrecipients who in turndeliver other defence related outputs.

4.5Further detail on how these bodies are held accountable, and the arrangements in place to provideassurance to me, is provided in the following sections.

5.MOD’s Delivery Bodies

5.1Between them, the sevenTLBs and the five Executive Agencies deliver the department’s principal outputs.

TLBs

5.2The head of each TLB – the TLB Holder- is personally accountable for the performance of their organisation. They have to deliver agreed outcomes as effectively, efficiently, safely, sustainably and economically as possible. They also have to operate effective controls to protect regularity and propriety; and stay within financial limits (known as “control totals”).

5.3Each TLB Holder chairs a TLB Board, with the exception ofDefence Infrastructure Organisation whose Board is chaired by a Non-Executive Director. TLB Board members include a Director of Resources and up to fourNon-Executive Directors. Non-executives are generally from the private sector withone chairing the relevant TLB audit committee. To assist in assessing the adequacy of control arrangements across the department, each TLB Holder submits an Annual Assurance Report, endorsed by their Board and Audit Committee.

5.4Command Plans set the outcomes and standards that the TLB Holder will plan and deliver against in the short, medium and longer term, within agreed resources. Each Command Plan is proposed by the TLB Holder and agreed with me and the Chief of Defence Staff before the start of the financial year. In addition each TLB Holder participates in quarterlyPerformance and Risk Reviews against the Command Plan, chaired either by me, the Chief of Defence Staff, the Vice Chief of the Defence Staff or the Chief Operating Officer.

5.5I delegate financial authority to the TLB Holders. Each TLB has a Director of Resources (DRes) who acts as the Senior Finance Officer (SFO) and is the principal adviser on financial matters to the TLB Holder. The letters of delegation state that the SFOs are functionally responsible to Director General Finance, and outline their core roles and the standards to which those roles are to be discharged. The letter also includes Control Totals and delegated approvals limits in respect of equipment, infrastructure and operating cost expenditure.

5.6On 4 December 2017 I appointed a Chief Operating Officer (COO). Quite apart from being the HOCS TLB Holder, the COO role is a pivotal part of the future of Defence as we seek to maximise efficiency and ensure that decision making across the department is as effective as possible. The COO works across Defence to enable the development of the necessary skills, governance and support required for the MOD to operate more effectively, and ensure that we can resource the capacity and capability needed to face the challenges of the future.

5.7A key focus of the COO is to support the TLBs in delivering their required outputs, and to help the department achieve its efficiency targets. The COO has recently beenappointed as a Non-Executive member of each of the TLB’s Boards, where he will seek to ensure that the Commands better understand Head Office’s issues and priorities when making decisions, and that Head Office better understands the strategic issues arising in the Commands when setting defence policy. The COO is also leading the work to develop a new strategic approach to delivering change and efficiency. To this end, the COO has also established a Change and Efficiency Board where he, the Vice Chief of Defence Staff, DG Finance and others in the senior leadership team can take a pan-Defence view of, and provide direction to, the major change and efficiency programmes. The COO is also leading work to review the governance frameworks in place,in particular the relationship between Head Office, TLBs and the broader delivery and enabling organisations to ensure that these organisations are suitably supported to be effective, efficient, well-run and accountable.

5.8In June 2014 a Strategic Business Partner (SBP) was appointed to lead and manage the Defence Infrastructure Organisation for a 10-year period. Following the Defence Infrastructure Model Review (DIMR) the contract will now be brought to an end by no later than 30 June 2019. The DIMR recommendation to replace key SBP roles with Civil Servants has led to the recruitment of a Commercial Director and Finance Director. There is an agreed phased transition plan to replace other SBP roles with Civil Servants throughout 2018/19. The Defence Infrastructure Governing Authority manages how the SBP contract operates on behalf of the Chief Operating Officer.

Executive Agencies (EA)

5.9With the exception of UKHO (see section 7 below), the EAs each have a Chief Executive who is appointed as an Accounting Officer by me. They all producetheir own accounts which are audited by the NAO. Furthermore, the EAs are subject to a Framework Agreement with their Owner who is the Secretary of State for Defence. Governance is provided through the EA Boards, each of which includes up tofour Non-Executive Directors.

5.10Dstl was previously a Trading Fund but has been operating as an on-vote EA since April 2017. It owns a subsidiary company ‘Ploughshare Ltd’ about which further detail can be found in Section 10of this Statement.

5.11The SDA is a new EA that wasformally launched on 1 April 2018. It focuses solely on the procurement, in-service support and disposal of the UK’s nuclear submarines.

6.Non-Departmental Public Bodies (NDPBs)

6.1The two different types of NDPB and the way they are funded are described below.

Non-Departmental Public Bodies (NDPBs) with Executive Functions

6.2Like all central government departments, MOD decides how much of its budget provision it should cascade to its various public bodies in each year of a multi-year agreement.

6.3Longer term assistance toa variety of external organisations in support of defence objectives is provided through a Grant-in-Aid (GIA), and this is the case with MOD’s NDPBs with Executive Functions. GIAsare generallyregular or recurring payments, and the recipient has a certain level of autonomy concerning the utilisation of the funds. The recipient is often, though not always, an NDPB with Executive Functions.

6.4The department’s NDPBs with Executive Functionsare listed below,with links to further information on their roles and the Framework Agreements under which they operate:

  • Single Source Regulations Office (SSRO)
  • National Museum of the Royal Navy (NMRN)
  • National Army Museum (NAM)
  • Royal Air Force Museum (RAFM)

6.5While NDPBs enjoy a certain level of autonomy over their own affairs, a Framework Agreement is in place to agree the conditions of expenditure of the GIAand to articulate how this is monitored and against which performance indicators by the sponsoring TLB within MOD. They are signed by the Chair, Chief Executive or equivalent of the external body, and the Budget Holder and Director of Resources of the TLB providing the funds.

6.6Each of the NDPBs has an Accounting Officer appointed by me, and eachproduces its own accounts which are audited by the Comptroller and Auditor General.

6.7The three museums are registered charities and as such also have a statutory obligation to meet the requirements of the various Charities Acts. They are managed by Boards of Trustees who provide oversight and governance on decision making.

6.8SSRO hasa Board, which is chaired by a Non-Executive Director. It is comprised of Executive and Non-Executive Directors.

NDPBswith Advisory Functions

6.9NDPBs with Advisory Functions provide MOD with a wide range of useful advice and support. They do not manage MOD funds and therefore have no Accounting Officer of their own. MOD expenditure on its NDPBs with Advisory Functionsis not made through GIAs; instead it is restricted to daily rate payments for their members (i.e. a fixed fee negotiated with the individualwithin certain limits and dependent on their qualifications, skill set, etc.) and/or travel expenses when the various bodies convene to conduct their business.

6.10The MOD’s NDPBs with Advisory Functions are listed below, and more information about their role can be found at the links:

  • Advisory Committee on Conscientious Objectors
  • Armed Forces Pay Review Body
  • Veterans Advisory and Pensions Committees
  • Defence Nuclear Safety Committee
  • Nuclear Research Advisory Council
  • Independent Medical Expert Group
  • Scientific Advisory Committee on the Medical Implications of Less Lethal Weapons

7.MOD funding to other bodies

Trading Fund

7.1United Kingdom Hydrographic Office (UKHO) is an Executive Agency with Trading Fund status. Its Chief Executive (CE) is appointed as an Accounting Officerby HM Treasury’s Permanent Secretary, while I delegate to the CE, within certainconstraints, the necessary authority for effective management of financial, contractual, pay and personnel aspects of UKHO's operation.

7.2The UKHO is owned by the Secretary of State for Defence. It is subject to a Framework Agreement which can be found at and whichsets out its responsibilities and governance arrangements. It has a Board which is chaired by an independent Non-Executive Director and also has three independent and two formal Non-Executive Directors amongst its members.

7.3A biannual Owner’s Council is chaired by Minister Lords to approve the Corporate Plan and monitor performance against a set of indicators. Around 90% of UKHO’s revenue is derived from commercial shipping; the rest is funded by MOD and the Maritime and Coastguard Agency. UKHO produces its own accounts which are audited by the NAO.

7.4UKHO also hasa subsidiary company (Admiralty Holdings Ltd) whose activities are highlighted below in Section 10 of this Statement.

Statutory Public Corporation

7.5The Oil and Pipelines Agency (OPA) provides an Oil Fuel Depot and Petroleum Storage Depot capability to the Ministry of Defence. The MOD funds the infrastructure and maintains it, and additionally pays the OPA for providing a fuel storage service.

7.6The OPA is governed by the Oil and Pipelines Act 1985. Ithas an Accounting Officer appointed by me, and its activities are overseen by a board which is responsible for taking forward the OPA’s strategic aims and objectives. It produces its own accounts which are audited by the NAO; they are not consolidated into the MOD’s accounts.

7.7More information on the OPA and the framework document under which it operates can be found at the following links:

Private Company by Guarantee

7.8The Navy, Army and Air Force Institutes (NAAFI) provide catering, retail and leisure facilities for the armed forces in numerous overseas locations. It is regarded as a related party outside the departmental boundary, but the NAAFI Council nevertheless includes serving senior officers from the three services; its board of directors includes a number ofNon-Executive Directors. NAAFI’s accounts are subject to external audit.

7.9More information on NAAFI’s role can be found at

Other

7.10Other recipients of MOD funding which do not fall neatly into a specific category are listed below, and information about their role can be found at the links provided.

  • Royal Hospital Chelsea (RHC) founded by Royal Charter; its Chief Executive is appointed as an Accounting Officer by me. Governance is provided by a Board of Commissioners, whose meetings are attended by Director Resources (Army). A Framework Agreement with MOD governs the expenditure of MOD funding, and RHC produces its own accounts which are audited by the NAO.
  • Commonwealth War Graves Commission (CWGC) founded by Royal Charter. The Secretary of State for Defence is the CWGC co-chair, I am the Accounting Officer and Assistant Chief of the Defence Staff (Personnel Capability) is a member of the finance committee. CWGCalso receives funding from the governments of Canada, Australia, India, New Zealand and South Africa. CWGC’s accounts are subject to external audit.
  • Duke of York’s Royal Military School (DYRMS) a company limited by guarantee and an exempt charity. MOD provides a GIA to fund equipment and services at the school in order to enhance its military ethos. The Board of Governors act as trustees for the DYRMS academy’s charitable activities, and the MOD’s Director of Young People is a member of the Academy Trust. DYRMS accounts are subject to external audit.
  • The Independent Monitoring Board for the Military Corrective Training Centre appointed by and reports to the Secretary of State for Defence. The MOD funds the payment of Board members’ travel and subsistence costs.
  • Service Complaints Ombudsman does not manage MOD funds. As with the NDPBs with Advisory Functions, daily rate payments and travel and subsistence allowances are made to individuals for their services.
  • Reserve Forces and Cadets’ Associations (RFCA) brigaded under the Council of Reserve Forces and Cadets Associations (CRFCA). Army TLB grants to the thirteen individual RFCAs are governed by Service Level Agreements set by Chief of Defence People and Chief Executive CRFCA, from which the latter provides each RFCA with a Business Plan which is reviewed quarterly.
  • Defence Scientific Expert Committee not manage MOD funds. As with the NDPBs with Advisory Functions, daily rate payments and travel and subsistence allowances are made to individuals for their services.
  • Air Training Corps (ATC) headed by a full time reservist Air Commodore supported by a number of permanent staff, all directly funded by Air TLB. In addition Air pays for the training of the adult volunteers who help run the ATC squadrons. The ATC also receives money from the Air Training Corps (General Purposes Fund) which is a registered charity and derives its income from ATC fundraising activity, parental contributions and donations from the public, but does not receive any form of grant or other income from MOD.
  • Central Advisory Committee on Compensation provides advice on policy issues affecting the War Pensions Scheme and the Armed Forces Compensation Scheme including reviews of the control and governance arrangements, and maintains a credible and visible consultative mechanism for these schemes. The committee does not advise on issues of wider concern to veterans or service personnel, such as welfare, for which other forums exist, or routinely become involved in issues of scheme operation and delivery where, again, other mechanisms are in place.
  • International Organization for Migration (IOM) the leading international organisation for migration, acting with its partners in the international community to assist in meeting the growing operational challenges of migration management; advance understanding of migration issues; encourage social and economic development through migration; and uphold the human dignity and well-being of migrants. The IOM comprises 169 member states of which the United Kingdom is one. Until FY2017/18 the UK contribution to the IOM was funded through the Foreign and Commonwealth Office. The IOM sends MOD a quarterly and then yearly breakdown of expenditure demonstrating how the GIA has been spent in undertaking specific tasks on the UK’s behalf.
  • The Service Prosecuting Authority (SPA) provides for the independent, efficient and consistent consideration of criminal cases and offences contrary to service discipline. It will initiate prosecutions where justified and conduct fair and thorough proceedings in the service courts of first instance and the service appellate courts, whilst liaising effectively with the police and dealing with prosecution witnesses and victims of crime with care and sensitivity. Whilst maintaining independence from the service chain of command, the Service Prosecuting Authority fulfils its functions in support of operational effectiveness of the Armed Forces throughout the world.
  • The United Kingdom Reserve Forces Association (UKRFA) the efficiency of the reserve forces by providing opportunities for education, personal development and internationalexperiences. It does this by sharing ideas and good practice through formal channels with reserve forces in theNATOalliance. UKRFAis an unregistered charity, open to all ranks of the reserve forces of the Crown, serving or retired. It is funded jointly by the MOD and by corporate, unit and individual subscriptions.
  • The Defence and Security Media Advisory (DSMA) Committee oversees a voluntary code which operates between the UK Government departments which have responsibilities for national security and the media. It uses the DSMA-Notice System as its vehicle. The objective of the DSMA-Notice System is to prevent inadvertent public disclosure of information that would compromise UK military and intelligence operations and methods, or put at risk the safety of those involved in such operations, or lead to attacks that would damage the critical national infrastructure and/or endanger lives.

7.11The GIA recipients in the list below share very similar governance arrangements and for the purpose of this System Statement can be grouped together. They are registered charities whose accounts are produced and audited in accordance with Charities Commission regulations. For each, the GIA is managed within the terms of a framework agreed with MOD. The funding is variously intended to contribute towards staffing, administration and office equipment costs. More detail on the role of each can be found in the links provided: