Defence

Chief Finance Officer

CEO DMO and CFO - joined at the hip

By Ken Moore, Chief Finance Officer

With what some pundits have described as the 'biggest de-merger in Australia's corporate history' now a reality, the Chief Finance Officer's (CFO) Group and the Defence Materiel Organisation (DMO) begin a different, but still close relationship. DMO remains not just in the Defence portfolio, but in many respects, part of Defence.

While we will have two agencies now reporting under the Financial Management and Accountability Act, with the individual responsibilities that flow from that, DMO remains the 'sole supplier' and Defence remains the 'sole customer'.

That relationship is reflected in the literally hundreds of agreements that have been put in place that will provide the basis for the way DMO and the rest of Defence do business together. The large number of people across the organisation who delivered those agreements inside a demanding deadline are to be congratulated.

One of the major challenges for the CFO Group in making its contribution to prescription was to ensure that the way DMO and the rest of Defence were to do business drove the restructure, rather than have a set of pure accounting concepts dictate the way the relationship would work. So we started from the business management end and built the accounting treatment in behind it.

The basic driver was to keep the model as simple as possible. So we won't run two treasury areas, two corporate areas or two personnel areas because it makes sense for Defence to continue to provide these.

Likewise a number of 'free of charge' agreements have been put in place (Defence is providing DMO with free accommodation at 50 sites), rather than a detailed structure of internal charges - again following the 'keep it simple' principle.

We looked at the level of accountability we needed to have and while that required another level of bureaucracy, time will be the judge of whether we have got that right.

The fact is that the relationship is still a work in progress. For example, we are still coming to grips with things such as pricing at the individual product line level and both Defence and DMO acknowledge that the pricing information in the Materiel Sustainment Agreement needs to be better.

So we in CFO will have an ongoing role to ensure that the structures and agreements continue to reflect financial reality.

In addition to the challenges inherent in a de-merger as complex as this, both Defence as a whole and DMO will also need to deal with the challenges reflected in the audit issues around our Financial Statements. We need to deliver the outcomes from the remediation projects already in place and commit to the recently launched Financial Controls Framework project.

So in more ways than one CFO Group and the new DMO remain joined at the hip.

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