The Ministry of Defence have spent £9 million on “fruitless payments” between 2016 and 2019, including developing unused software, paying rent on demolished properties and paying contractors to do nothing.
The very interesting Freedom of Information request looking for the following information was lodged on the 8th of January this year, it asks:
- The number of fruitless payments (payments for which liability not to have been incurred or whether the demand for the goods and services in questions could have been cancelled in time to avoid liability) in excess of £30,000 made by or paid for by your department or its predecessor in the following financial years: 2016/17, 2017/18 and 2018/19
- What each payment was for
- The value of each payment
- The reason why the payment was made
- The reason why the payment was classified as fruitless
- Whether any disciplinary action was taken as a result of the payment (if there was any disciplinary action, please specify what the action was)
What are ‘Fruitless Payments’?
As defined in the Ministry of Defence Financial Accounting & Reporting Manual:
“Fruitless payments – Payments where the Department receives nothing useful in return and: should not have incurred the liability; or could have taken appropriate action to avoid incurring the liability. For example: the cost of repairing incorrectly packed equipment damaged in transit, the cost of rectifying design faults arising from poor specification, failure to cancel travel, accommodation and training bookings in time to obtain a refund.”
What are the biggest payments for?
Here are the top 5 payments as per the Ministry of Defence information.
|What the payment was for||Value of payment||Reason for payment||Why the payment was Fruitless||Disciplinary action taken||Year|
|Contractual payment||£3,274,704.00||Leased gas cannisters not returnable to contractor.||Payment could have been avoided||No||17/18|
|Rental on MoD houses||£539,859.71||Payments contractually due rental for 182 demolished properties for a 12 month period||MoD has no beneficial use of the properties||No||17/18|
|Rental on MoD houses||£515,203.59||Contractually due rental for 184 demolished properties for a 12-month period.||MoD has no beneficial use of the properties||No||18/19|
|Minimum Order Quantity||£363,000.00||Contractor had minimum order quantity for operational ration packs||Minimum order quantity was higher than requirement, but it was not possible to procure a smaller quantity||No||17/18|
|VAT Interest/penalty||£184,423.20||Interest on underpaid VAT to HMRC||Payment could have been avoided||No||18/19|
Notably, many payments relate to interest charged by HMRC or are late payment fees. The Ministry of Defence have outlined measures being taken to tackle this.
“Please note there are a number of measures being taken by the MOD to tackle the Interest being charged by HMRC for VAT owed by the department which include:
- The new Contract, Purchasing and Finance system has a tax engine to help determine the correct VAT code.
- Additional training is being provided to assist MOD management group staff in determining the correct VAT codes, and lessons are learned from any previous mis-coding, reviewing existing contracts to ensure compliance and making the appropriate corrections where necessary.
- Specialist finance staff are also available to advise on VAT issues, arranges reviews and ensures corrections are processed.
- Guidance is available from the specialist MOD VAT central team who may themselves contact HMRC if it is required.
- Where the MOD believe the HMRC ruling does not take full account of an exemption or a new category of exemption is required, an appeal may be raised.”
It is important to note for the sake of perspective that the Ministry of Defence budget for the same time period was £35.3bn in 2016/17, £35.9 billion in 2017/18 and £36.7bn in 2018/19, that’s around £107.9bn in defence spending in total over the period covered above.
The total wastage outlined in the response to the Freedon of Information request is £9,086,480, That’s 0.00842120481927711% of £107,900,000,000.
If you’d like to see the full table with the raw data, I created this table from the information and sorted it by value. If you’d like like to see it exactly as presented by the Ministry of Defence, see here.