1.18 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 in relation to the non-disclosure of information in relation to prime contract price and expenditure in base date dollars.29 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.
1.19 The application of the financial control framework differed in respect of each of the projects examined, due to the wide range of corporate and project management systems being employed and the varying financial management policies being adopted by different project offices. As a result, there was inconsistency between the information produced by each project's record keeping systems, and efficiencies could not be gained by adopting a consistent approach to developing and subsequently reviewing each PDSS.
1.20 The difficulties encountered by the DMO in presenting PDSS data included:
● projects where the DMO is the systems integrator can involve many different contractors and/or Foreign Military Sales (FMS) cases, often with different contract base dates, in addition to subsequent contract amendments at differing base dates to the original contracts;30
● legacy system issues, where projects that were still using 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, could not readily disaggregate progress payment information;31
● projects involving FMS cases and Memoranda of Understanding (MOUs), for which records are kept in then-year dollars (that is, including price escalation), rather than in base date terms, as a result of requirements of the US Government;32 and
● for some projects, while contracts may have been struck in base date dollars, transactions are not subsequently managed in a way that supports the calculation of payments in base date dollars.33
1.21 As a result of the above issues, the DMO did not populate the PDSSs with the prime contract price in base date dollars for three projects and prime contract progress payments in base date dollars for 11 of the 15 projects included in the 2008-09 MPR. The DMO has continued to encounter difficulties in this area, and the review conclusion has again been qualified due to departures from this aspect of the guidelines. In the 2009-10 MPR, the project financial information for 19 of the 22 projects does not provide project expenditure history in base date dollars, and for four projects the prime contract price in base date dollars is not provided.
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29 Base date dollars is the amount, adjusted for the impact of inflation (prices) and foreign exchange movement over the period from a specified date. 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.
30 This applies to the Hornet Upgrade, Hornet Refurb and Collins RCS projects. In addition, the AWD Ships project also has numerous contracts and FMS cases, and the DMO was unable to reliably report expenditure in base date dollars for this project, despite it having a much more recent inception than many other Major Projects.
31 This applies to the FFG Upgrade, Bushranger Vehicles and HF Modernisation projects.
32 This applies to the Super Hornet, C-17 Heavy Airlift, Next Gen Satellite, Hw Torpedo and Stand Off Weapon projects.
33 This applies to the Overlander Vehicles, ARH Tiger Helicopters, Armidales, Collins R&S and ANZAC ASMD 2A and 2B projects, and Wedgetail for the 'other' component of the financial year to the end of June 2010 expenditure.