1.20 The ANAO reviewed the financial control framework supporting the DMO's management of its Major Projects. In particular, this review sought to reassess the prior year qualification for the non-disclosure of information in relation to prime contract expenditure in base date dollars for those 11 projects nominated by the DMO and endorsed by the JCPAA in the 2010-11 guidelines.44 The review also sought to assess the process in place for reporting on out turned dollars45 in this and future MPRs if agreed to by the JCPAA. The ANAO's review included:
• identification of key controls;
• establishing the aim of each control, including whether the control was preventative or detective, and how frequently the control was applied;
• identification of the implications of failure of each of these controls; and
• identifying, in light of the findings of this review, any significant control weaknesses.
1.21 The application of the financial control framework differed in respect of each of the projects examined, with a wide range of corporate and project management systems being employed and the varying financial management policies adopted across project offices. As a result, there was inconsistency between the information produced by each project's record keeping systems, and any efficiencies which might have been gained by adopting a consistent approach to reviewing each PDSS were limited.
1.22 The difficulties encountered by the DMO in presenting PDSS data in the 2010-11 MPR included:
• projects where the DMO was the systems integrator often involved different contractors and/or Foreign Military Sales (FMS) cases, had different contract base dates, in addition to contract amendments at differing base dates to the original contracts46;
• legacy system issues, where projects utilised the Defence Financial Management Information System (DEFMIS), the financial management information system used by the DMO prior to the introduction of the Resource and Output Management and Accounting Network (ROMAN) in 2000, and therefore could not readily disaggregate progress payment information47;
• projects involving FMS cases and Memoranda of Understanding (MOUs), for which records were kept in then-year dollars (that is, including price escalation), rather than in base date terms, as a result of requirements of the US Government48; and
• for some projects, while contracts may have been struck and managed in base date terms, transactions were not subsequently recorded in a way that supports the disclosure of base date dollars.49
1.23 As a result of the above issues, in the 2009-10 MPR the review conclusion was qualified as the information on expenditure and contract prices in base date dollars was not presented in accordance with the guidelines endorsed by the JCPAA. The project financial information for 19 of the 22 projects did not provide project expenditure history in base date dollars, and for four projects the prime contract price in base date dollars was not provided.
1.24 To address these issues, the 2010-11 MPR guidelines allowed for contract prices to be expressed in current dollars for those projects unable to make this disclosure in base date dollars, thus resolving the prior year qualification on this issue.
1.25 In an effort to overcome the prior year qualification on project expenditure history, and as recommended by the JCPAA in Report 42250, only 11 of the 28 projects in the 2010-11 MPR were required to report expenditure in base date dollars (these projects being Wedgetail, MRH90 Helicopters, LHD Ships, ARH Tiger Helicopters, C-17 Heavy Airlift, Air to Air Refuel, Bushmaster Vehicles, Next Gen Satellite, Armidales, ANZAC ASMD 2A and 2B). Of these, three were unable to comply with the Guidelines (Wedgetail, Next Gen Satellite and Bushmaster Vehicles), and hence the review conclusion was again qualified in respect of these projects. Positively, the DMO was able to report base date dollar expenditure for six additional projects (AWD Ships, Super Hornet, Joint Strike Fighter, Additional Chinook, 155mm Howitzer and Battle Comm. Sys.).
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44 By converting the actual expenditure on a project to base date dollars, an assessment is able to be made of the performance of the project against its originally approved budget (base date dollars). Base date dollars is the amount, adjusted for the impact of inflation (prices) and foreign exchange movement over the period from a specified date (usually Second Pass Approval). In order that the initial budgeted cost of a project can be compared to the actual expenditure over time, in like terms, the financial tables in the PDSSs also adjust for real variations to budgeted costs, which involve: changes in the quantities of equipment or capability; transfers to the Defence Support Group to fund the acquisition of facilities and transfers to other projects; and budgetary adjustments such as the harvesting of efficiency dividends.
45 Out turned prices are estimates adjusted to incorporate the expected rate of inflation. Defence Portfolio Budget Statements 2007-08, p. 346.
46 This applies to the Hornet Upgrade, Hornet Refurb, SM-2 Missile and Collins RCS projects.
47 This applies to the FFG Upgrade and High Frequency (HF) Modernisation projects.
48 This applies to the Next Gen Satellite, Hw Torpedo, UHF SATCOM and Stand Off Weapon projects.
49 This applies to the Overlander Vehicles, Collins R&S and Bushmaster Vehicles projects, and Wedgetail for the 'other' component of the financial year to the end of June 2011 expenditure.
50 Joint Committee of Public Accounts and Audit, Report 422, Review of the 2009-10 Defence Materiel Organisation Major Projects Report, April 2011, p. xii.