Defence

Finance

Inventory and financial performance focus for 2007

Achieving ‘true and fair’ financial statements last year, except for uncertainty around inventory and repairable items, was a major achievement and a result the Minister for Defence, Dr Brendan Nelson MP, applauded as an “enormous credit” to the former Secretary, Ric Smith, and his team.

So, after such a successful 2006, what’s the Finance Executive got in store for this year?

Obviously getting inventory and repairable items over the line will be a major priority, but so too is improving financial performance, said the Chief Finance Officer, Mr Phillip Prior.

“This is a complex and large organisation and over the next few years we will concentrate on getting a handle on every element of our business. By thoroughly understanding our business, we can then go about making it more effective and efficient,” he said.

Inventory and repairable items

Reducing the uncertainty around inventory and repairable items is the first priority.

“The complete remediation of inventory and repairable items will be a big focus for 2007,” said Mr Prior.

“Inventory is not solely an issue for logistics. It is also a business and finance issue. Ultimately, there is $7.29 billion worth of inventory and repairable items in our financial statements that the Secretary and I sign off on. So we need to be comfortable that inventory and repairable items are well managed and faithfully recorded in the statements. It’s all about knowing.”

To do that, the Finance Executive has established a Tiger Team to work with the Joint Logistics Group, Defence Materiel Organisation (DMO) and the Services, with the aim of having unqualified accounts for inventory and repairable items in FY 2006-07.

“The signs are good. The Tiger Team has a comprehensive approach to achieving our goals. The work on explosive ordnance, general stores inventory, repairable items and fuel encompasses trend analysis, stocktake and quantity strategies, process mapping and risk and control testing,” said Mr Prior.

“The Tiger Team approach worked very well last year, particularly the partnership with the Personnel Executive, Defence Support Group (DSG) and the Services in remediating employee leave.

“The fact that employee leave was unqualified in the 2005-06 financial statements is a testament to the success of the Tiger Team approach and we’re now applying that model to the rest of the remediation program.

“We’re now partnering with the Chief Information Officer on information technology work evaluations, the DSG on land decontamination and the DMO on platform decommissions.”

Last year’s Southern Cross University Graduate Certificate of Accounting graduates with the Chief Finance Officer, Phillip Prior (far left).

Performance

Over 2007, and for the next two to three years, significant attention will also be given to understanding and improving financial performance.

“We’ve got budgeting, reporting and governance under control. While we still need to get a handle on inventory and repairable items, we can now look over the horizon a bit and think more strategically and long term,” said Mr Prior.

“Concentrating on performance will allow us to assess whether we are really effective and efficient. At the moment I know we are highly effective – we could not successfully deploy to operations and pay 95,000 people each fortnight if we weren’t.

“We now need to demonstrate we are effective and efficient at the same time. Our stakeholders are entitled to know who and why.

“We’re still getting an idea about the detail in our business and this is going to take time because we’re involved in so many different areas. Over the next few years we want to bring our performance in each of these areas to light.”

The Finance Executive will do this by engaging with the Groups and Services to explore what our business looks like and where we are going as an organisation.

“We generated some tremendous results by working closely with the Groups and Services in 2006 and we will continue to partner with them throughout 2007. It’s a successful strategy,” said Mr Prior.

“The partnership approach is not a fad or a one year wonder designed to clear the financial statements. It is a way of doing business. If there are dollars involved, then the Finance Executive will be in that space, working hand in hand with the Groups and Services.”

Another big year

The Chief Finance Officer is excited about the year ahead.

“2007 promises to be just as eventful as 2006. We’re going through a slightly different phase, but an interesting one with lots of challenges and some uncertainties,” he said.

“One thing is for sure, there is only room for the effective and efficient use of public money – and that is the driver here. I want Defence to lead the way in this and show others how to do it.”

Audit and budget funding frameworks lead the way

Mr Mark Jenkin, FASFS, speaking at the recent conference in Canada.
Photo by Sandy Spiers

Australia is ahead of other like countries in a number of financial management spaces, according to First Assistant Secretary, Financial Services, Mr Mark Jenkin, after participating in the inaugural Defence Chief Finance Officers (CFO) conference in Ottawa.

The conference was initiated by the Canadian Department of National Defence CFO and attended by representatives from the United States (US), United Kingdom (UK), New Zealand and Canada.

“Conferences of this nature traditionally happen in other spheres, but not in finance, so it was really welcome,” said Mr Jenkin.

“The conference gave us the opportunity to present and share ideas, talk about issues of common interest and learn from each other.

“I briefed the conference on the Defence Financial Management Framework, and the participants found it very helpful and useful – which only reconfirmed my thinking on its importance.

“The conference also revealed that Australia is leading the way in the audit of public sector financial statements and accrual-based budget funding frameworks,” he said.

While Australia was at the forefront of a number of fields, Mr Jenkin said he learnt some significant lessons on systems integration, financial improvement and strategic asset management from the other participants.

“The US is doing some interesting work on business transformation and data quality and standards. They’ve introduced a common data dictionary, so everyone is talking the same language. They are also rationalising the systems that provide that data and the controls around them,” he said.

“The US is also doing some significant work on costing, establishing environmental liabilities and developing provisions for remediating and decontaminating properties. The Canadian experience on enterprise management systems also offered some useful lessons for us.”

While there were many common themes and experiences, one marked point of difference between Australia and the other countries is the strong military presence in the financial domain.

“In Australia, Defence finance is a civilian world – and perceived as such,” said Mr Jenkin.

“This is a situation unique to us because in the US, UK, Canada and New Zealand military personnel, often star-ranked, are in the financial management space, which completely changes the dynamic.”

The next conference may be co-hosted by Australia and New Zealand. Conference themes will include project and financial management and costing.

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