The financial processes relating to the JSF programme

We audited the financial processes surrounding the JSF programme in 2017 and 2018. Our audit report, entitled The financial processes relating to the JSF  was published in October 2018. The aim of the audit was to ascertain whether the Netherlands was paying the correct amount of money for the JSF.

What is the nature of the financial processes surrounding the JSF?

The financial processes are shown in the following diagram

Financial processes JSF

The JPO has commissioned two aircraft manufacturers, viz. Lockheed Martin and Pratt & Whitney (LM/P&W), together with a large number of subcontractors, to develop and produce the JSF and all the related equipment. The manufacturers send invoices to the JPO, which is responsible for performing a thorough check of all incoming invoices and keeping a full record of them, before ensuring that each country is charged for the correct contribution. The JPO sends the partner countries calls for funds for the amounts in question. The partner countries then pay their contributions, after which the JPO pays the manufacturers’ invoices.

US audit

The bulk of the financial processes surrounding the JSF programme take place in the US. For a long time, it was assumed that the partner countries were not entitled to audit the US data. As the project team at the Dutch Ministry of Defence said, ”we simply have to trust that the information we get from the JPO is correct.” It subsequently emerged that the US audit office, the Government Accountability Office (GAO), did not audit the financial processes surrounding the JSF programme either, which meant that there was an ‘audit gap’. However, when we examined the MoUs, we found that there was no reason why the partner countries’ national audit offices should not audit the figures. We then decided to perform a joint audit in 2017-2018 in conjunction with the Norwegian Office of the Auditor General (Riksrevisjonen).

The audit was conducted in part at the US Department of Defense. It was the first time that foreign audit offices had performed an audit at the Department of Defense. The Dutch and Norwegians audit offices also each performed separate audits at their own defence ministries, with a view to examining the relevant processes.

Risk of errors in the allocation of costs

Our audit report explains how the financial processes at the JPO are organised and how the payment process in the Netherlands works. The report also identifies the risks inherent to these processes and describes whether steps have been taken to mitigate these risks.

We make a clear distinction between payments made as a partner in the programme and payments made as a customer:

  • The size of the contribution made as a partner in the programme changes no more than once a year if the partner countries decide to amend the planning number of aircraft notified to the JPO. This means that it is relatively straightforward to calculate the size of the contribution made by each partner country. There is a low risk of errors being made in the calculation of these contributions.
  • Calculating the share of the costs borne by a country as a customer of the programme, on the other hand, is an extremely complex business requiring a number of manual calculations on the part of the JPO. Each country’s share of the cost may even differ from one invoice item to another.. The payment process is also different from that used for the payment of contributions as a partner in the programme. As a result, there is a higher risk of errors occurring.

Conclusion drawn in the audit report entitled ‘The financial processes relating to the JSF programme’ 

The conclusion we drew in our audit report is that, although errors are made in the allocation of costs in the US, the Dutch Ministry of Defence effectively detects and rectifies these errors. The audit also underlined the importance of making clear arrangements in any future international partnerships about the financial processes, and the procedures for reporting on these processes.