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The National Audit Office has called on the Ministry of Defence to implement a new management system after it failed to account for equipment worth £6.6bn.

The official auditor says the MoD needs a "good quality inventory management system" to provide logistical support for operations and to prevent theft and fraud of its £14.1bn worth of materials and equipment held at sites in the UK and around the world.

Earlier this summer the NAO refused to sign off the MoD's annual accounts because of "insufficient evidence to support the existence" of equipment valued at about £6.6bn. This included Bowman radios, military equipment and other stock items.

The MoD's current stock IT systems were able to report on the existence and location of only 89% of Bowman radios and associated equipment, so that equipment worth £155m could not be fully accounted for.

The stock systems are "highly complex, because of the number of different lines of stock and locations where they are held," says the NAO. "The networked systems comprise a range of data feeds, incorporating a number of both new and legacy systems."

This arrangement, it found, had created a significant risk of error. Particularly high discrepancies were found during an audit at the Defence Storage and Distribution Agency, which holds 66% of the MoD's equipment.

"In 2008-09 the results of daily stocktakes across the depots operated by the DSDA have shown a deterioration in the accuracy of reported stock holdings," says the NAO's report on the MoD's 2008-09 resource accounts. "The level of reported errors varied significantly, revealing high levels of discrepancies between the inventories counted in the stores and the amounts recorded on the underlying inventory accounting systems."

Amyas Morse, head of the National Audit Office, said: "At this time of high operational demand, it is more important than ever for the Ministry of Defence to have accurate records of where its assets are, and how much stock it has."

Nick Harvey, the Liberal Democrat shadow defence secretary, said the MoD's incompetence was "beyond belief", particularly when it appeared that kit of vital importance to troops in Afghanistan had been mislaid. "How can it be possible to plan with this kind of black hole in the accounting? One has to wonder whether the MoD is any longer fit for purpose," he said.

A spokesperson for the MoD said: "£6.6bn worth of MoD assets were never physically lost. Our stock verification systems have ensured an effective and efficient support chain to theatre. However, we recognise the need to enhance our systems and we are working hard to deliver improvements to our system and processes.

"The issues related to fixed assets, Bowman and stock discrepancies were specific there was no suggestion that any items were lost. The vast majority of stock discrepancies were valued at less then £250 and have not impacted on the inventory values.

"Specific projects to improve visibility in the support chain were already in train, but a comprehensive review is under way and this is now a priority. Reports from theatre are very positive, with level of re-demands significantly reduced and, in many units, eliminated altogether."

This article was originally published at Kable.

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