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Chief Finance Officer

Great news on the financial front

After two years of being unable to form an opinion on the accuracy of Defence's financial statements, the Secretary and Chief Finance Officer (CFO) have assessed Defence's 2005-06 financial statements as being a 'true and fair view', except for uncertainty around General Stores Inventory and Repairable Items and the effects of these areas on the Income Statement. The Auditor-General agreed. The work that underpins this result has been quite extraordinary. This is all thanks to the hard work of many, many people over the last 12 months. Gai Brodtmann reports.

The Chief Executive Officer Defence Materiel Organisation (DMO) assessed DMO's financial statements as being true and fair without qualification. An assessment also confirmed by the Auditor-General.

"This is a fantastic result," said CFO, Mr Phillip Prior.

"This has been achieved against the backdrop of unsurpassed operational tempo, the introduction of the new Australian equivalents to International Financial Reporting Standards, the rollout of an extensive remediation plan and the DMO de-merger - one of the largest de-mergers in Australian corporate history.

"Maintenance of the great result must be a priority for everyone. While there remains uncertainty around our Inventory and Repairable Items, I am confident we will have this resolved in the near future. Great progress has been made regarding quantities and controls, but of course more can be done. The big issue is pricing and meeting the current accounting standards.

"That said, in the last year we've gone from uncertainty of around $6.9 billion across General Stores and Explosive Ordnance Inventory, Repairable Items, Infrastructure, Plant and Equipment and Leave Provisions to uncertainty of around $4 billion on just two items - General Stores Inventory and Repairable Items - which is an amazing achievement."

According to the CFO, the thank you list for achieving this result is quite extensive.

"So many people have contributed a tremendous amount of effort for us to arrive at this point," he said.

"These include staff in each of the Groups, Services and the DMO and staff at bases around the country who have had to put up with endless requests for information and teams arriving to conduct audits, often at a moment's notice. They've all pulled through every time.

"I know the journey to this point has been tough, stressful and, at times, frustrating, but we've arrived at a great place and I cannot thank enough everyone who got us here."

While the Australian National Audit Office's (ANAO) confirmation of the Secretary's assessment of the financial statements has been important, over the course of 2006, Defence also made real and tangible progress on a number of other significant issues.

Better articulated business

The CFO said that, "thanks to our work over this year, we can now better articulate what we actually do in the financial management space.

"We've reformed the Chart of Accounts so we have a clearer picture of what we actually spend our money on and we have identified the key controls that manage the key risks in our business. We're now monitoring these controls, on a monthly basis, so we can make sure they continue to do what they are meant to do.

"This improved knowledge has given us a better understanding of our business, which is good for everyone. Ultimately, it will make financial management easier and more efficient and effective for all our people. It will also work towards improving Defence's reputation and restoring the trust of the Government and the Australian taxpayer."

Leave Remediation Team

One of the major achievements of 2006 has been the finance and personnel executive's work, supported by the Services and Defence Support Group, on leave remediation. Thousands of military and civilian Defence and DMO annual and long service leave transactions were substantiated, confirming that the information in PMKeyS is almost error-free. This was a major contributor to the Secretary's revised assessment of the financial statements.

A strong and productive Finance Executive and Personnel Executive partnership was central to the success of the leave remediation program.

"The partnership worked exceptionally well and we are applying this model to the rest of the remediation program" said the CFO.

"We're now partnering with the Chief Information Officer on information technology work evaluations, the Defence Support Group on land decontamination and the DMO on platform decommissioning. We have also just entered into a partnership with the Joint Logistics Group for inventory management."

Financial Management Framework

Over the last 12 months, the Finance Executive has also been turning its attention to new financial management approaches for the future.

"The financial management framework is the key to ensuring we change fundamentally, for the better and in an enduring way - so the remediation programs of the last few years will be a thing of the past, Mr Prior said.

"The framework will improve Defence's efficiency and effectiveness and give us the chance to create a very credible financial management sector in Defence."

Partnering role

Creating that credible space also means a shift in the role of the Finance Executive.

"The Finance Executive will now be involved in every detail of financial management in Defence," said the CFO.

"We know everything there is to know about financial management and we are putting more effort into knowing and understanding the financial business of the Services and Groups.

"It is our job to work with the Services and Groups to assist them in the resolution of their financial issues, and we have to be precise and exact in that process.

"It is incumbent on us to contribute to Defence's financial management."

With so much going on, so many achievements to date and so much planned for 2007 it is an exciting time to be in the Finance Executive.

"There are lots of opportunities at this time," said the CFO.

"We want to help Defence build the reputation that it rightly deserves and contribute to making everyone's life a whole lot easier."

Continued success

Over the last 12 months the Finance Executive has:

  • Seen the Secretary revise his assessment of the financial statements from 'no opinion' to being a 'true and fair view', except on Inventory and Repairable Items.
  • Managed the Defence Budget to within $7.3 million of the allocation.
  • Remained on target to achieve the $200 million Program of Administrative Savings by 2007 08.
  • Progressed the remediation of the 153 audit findings recommended to date and 63 have been closed. Thirty are with the ANAO and 60 are in progress.
  • Produced 29 position papers on Defence accounting issues, including the Australian Equivalents to International Financial Reporting Standards. The papers set out Defence's approach to critical accounting issues ranging from inventory classification for accounting purposes to the intangible asset capitalisation threshold.
  • Organised and streamlined account codes, cost centres and internal order numbers for effective reporting purposes under the Chart of Accounts reform project.
  • Introduced FINMAN3, which replaced Defence Reference Book 44 - now Defence's financial management business rules and policies are in FINMAN3 and the most up to date Chart of Accounts details are available on a searchable website.
  • Established a Chart of Accounts Technical Authority to manage and quality assure future versions of the chart and support users.
  • Led other Commonwealth government agencies in the implementation of the Government's Certificate of Compliance.
  • Identified and documented in the order of 500 key financial risks and 1000 key controls to manage those risks.
  • Introduced the FinD - Finance in Defence - website that will become the authoritative source of financial management information. Visit http://intranet.defence.gov.au/find.
  • Identified 15 major financial processes.
  • Mapped the processes of employee and supplier payments and Goods and Services Tax, which account for around 95 per cent of total cash used in Defence.
  • Briefed more than 1100 people throughout Australia on the Defence Financial Management Framework, held an inaugural conference for more than 50 Regional Champions and gained a clear understanding of financial management and communication issues through extensive qualitative and quantitative research over a number of years.
  • Provided financial training to 14 500 attendees - 50 per cent military and 50 per cent civilian - introducing 25 new courses, plus developed a workforce strategy to raise the profile of financial managers.
  • Continued to improve the Budget and Output Reporting Information System (BORIS) as a corporate budgeting and reporting tool.
  • Developed Defence's 2006-07 Portfolio Budget Submission on time, and obtained a favourable 2006-07 Budget outcome, including a continuation of the three per cent increase in Defence funding to
    2015-16.
  • Worked with the Department of Finance and Administration to amend the Defence Housing Authority legislative framework and establish a smaller, more commercially-focused board.
  • Assessed portfolio bodies against the principles of the Uhrig Review of the Corporate Governance of Statutory Authorities and Office Holders.

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