Key recommendation 6. Financial management throughout the Department should be considerably strengthened and there should be a widely-shared culture of managing Defence within available resources and realistic assumptions about the longer-term budget. At the centre, the DG Finance should be a member of the new Defence Board, chair its Investment Approvals Committee (IAC) and set standards and policy for financial management across Defence. Responsibility and accountability should be aligned for all Top Level Budget (TLB) holders, with responsibility and budgets for detailed capability planning passing to the Service Chiefs and Commander Joint Force Command. |
a. The Head Office should be smaller, more strategic but stronger. It should advise the new Defence Board on high level balance of investment, set strategic direction and provide a strong corporate and financial management framework for the Department. |
b. The Service Chiefs should take responsibility (and ultimately own the budget) for detailed capability planning and propose (through a Command Plan) how best to deliver the strategic direction set by the Defence Board across all lines of development. Once the Plan is agreed by Head Office, the Chiefs should be given greater freedom to fex within their budgets, provided they continue to deliver the agreed objectives within their delegated resources. The Plan should be refreshed annually, including to enable cross TLB adjustments where necessary, but the Department should aim to make major changes only at SDSRs. |
c. Major investments should continue to be scrutinised by the Investment Approvals Committee (IAC), chaired by DG Finance. Within a strict approvals process, he should delegate some authority for smaller projects to Directors of Resources in the relevant TLBs. The Department should rationalise current processes as far as possible (but as a minimum to ratify the strategic requirement, affordability and sequencing of these major investments). The Department will need to consider with HM Treasury how quickly it is prudent to move to this more delegated model. |
d. DG Finance and the TLB holders should jointly appoint TLB Directors of Resources (formerly Command Secretaries). The post should report to them jointly. The Directors of Resources must have the necessary financial skills and experience and be properly supported. |
e. The new Defence Board should take an active role in managing departmental performance and risk at the strategic level, and the PUS should hold TLB holders to account at least on a quarterly basis for delivering their objectives within their delegated budgets. |
f. Financial management in the Department should be based on a single version of the financial truth. The Department should develop and resource a strategy for all management information, encompassing clear governance, processes and training, and it should invest in improving core information systems by bringing together financial, personnel and other management information in one place. |
8.1 This section sets out the financial management framework, which is at the heart of the proposed operating model. Getting this right is essential, not least because a loss of financial control is in our view (along with the high tempo of operations) the key strategic issue that the Department has faced in recent years. We welcome the work in hand in preparation for the next planning round to close the current funding deficit. A broadly balanced programme (at least in the early years) will be a key enabler to implementing the model that we propose in Part 3.
8.2 Our proposed operating model involves, in some areas, a greater level of delegation from the Head Office. Our aim is for the Department to recognise that decisions should be taken in the right place. Sometimes this will be in the centre of the Department, but in other cases better and more efficient prioritisation will result if decisions are taken in the Commands. The model aligns budgets and responsibility in the Service TLBs and creates stronger incentives on budget holders to manage the financial consequences of their actions. Our model also aims to reduce bureaucracy and simplify over-complex processes, which are manpower intensive. But this aspiration should not be misunderstood. We are not proposing that the Head Office relaxes its grip. The new operating model must be underpinned by a robust and transparent framework based around the Head Office putting mechanisms in place to ensure it has the visibility and assurance to ensure financial control while reducing micro-management.