Annual Report 2003-04

Progress on Financial Management Reform

Defence recognises that it must constantly seek to achieve best practice to ensure it is recognised by the Government and stakeholders as a respected financial manager. Defence is committed to addressing deficiencies and pursuing new opportunities in a more structured and coordinated way by implementing continuous improvement through financial transformation. Financial transformation will not only remediate business process deficiencies, but embed and sustain systemic reform to support more effective planning, management and reporting of Defence finances. Notable achievements in 2003-04 included:

• the full implementation of the Government's budget estimates framework for Defence budgeting and reporting requirements;
• the full implementation of a portfolio-wide budgeting system to meet reporting for internal or external use at the outcome, output and Group level;
• development, approval and release of a ten-year view of the Defence budget to Group Heads before the start of the 2004-05 financial year;
• the conduct of a rolling program of budget reviews, aimed at improving the overall quality and accuracy of Defence estimates and to eliminate large-scale unforecast variations;
• development and implementation of a force element and product cost capability complemented by improvements to the outcomes/outputs reporting framework;
• adaptation of the Defence business model to position Defence for the prescription of the Defence Materiel Organisation. A separate company code has been established to allow for separate reporting of all Defence Materiel Organisation financial transactions;
• substantial progress in reviewing and updating the Chief Executive Instructions and the Defence Accounting Manual. Solid progress was also made in improving the Defence delegations system and implementing a Regulation 10 reporting regime;
• improvements to the financial statements process and establishment of a Financial Statements Project Board;
• development of a financial systems strategy to progress the Resource and Output Management Accounting Network upgrade initiative and to provide a road map for ongoing improvements to Defence financial systems; and
• undertaking improvements in data quality, particularly debtor and cash management.

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Further improvements to the budgetary process will focus on achieving a best practice budgeting system consistent with the Australian National Audit Office's guidelines.

Work to establish the Defence Materiel Organisation as a prescribed agency by 1 July 2005 provided a stimulus to accelerate change in financial management. A preliminary due diligence was completed to ensure all statutory requirements are met after the Defence Materiel Organisation separates from Defence. To complement this work, a new financial controls framework is to be implemented and remediation plans have been prepared to address major audit concerns. Work is also under way to introduce the new internal financial reporting framework.

Defence has worked to resolve a number of outstanding Australian National Audit Office findings. Under the direction of a newly formed project management board, an initiative titled Project Resolve has addressed audit issues and key aspects for the production of the 2003-04 financial statements. Defence acknowledges that more work remains to be done to address all outstanding issues.

A project to improve confidence in the accuracy of ADF leave records, has centred on the handling of leave applications by members and supervisors, systems changes to the Personnel Management Key Solution, remediation of records containing errors, and the introduction of Employee Self Service.

Work has been undertaken on Defence's key information systems platforms (the Resource and Output Management Accounting Network, the Personnel Management Key Solution and the Standard Defence Supply System) to advance interoperability, increase data quality, and enhance business processes. Defence has also completed a series of targeted programs that have upgraded existing enterprise resource platforms to better support Defence decision makers, as well as aiming to better meet the requirements of Government and other external stakeholders. Defence is now realising gains in areas such as data integrity, business efficiencies, and reporting accuracy. This work will continue in 2004-05.

Defence has also committed significant effort to improving the fundamentals supporting financial management such as data accuracy and business processes. In recognition of the central importance of data integrity, Defence continued a number of projects that examined and addressed shortcomings in information technology and business processes. The central role of training as the foundation for systemic change has also been recognised. A business skilling project was started in 2003-04 to identify Defence financial management proficiencies, leading to the development and presentation of targeted skills training across Defence.

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