NAO Limits Audit Opinion on UK MoD Over Accounting Gaps and Unauthorised Spending

London, 4 November – The UK’s National Audit Office (NAO) has restricted its audit opinion on the Ministry of Defence’s (MoD) 2024-25 financial statements following concerns over over £8.5bn in programmatic and legal liability funding. The watchdog cited a “lack of accounting records” for capital projects, issues with Atomic Weapons Establishment (AWE) asset valuations, and a £2.56bn shortfall in provisions for liabilities in the prior year’s accounts.

In its 4 November release, the NAO said the findings had also triggered a qualified regularity opinion due to expenditure without appropriate Parliamentary authorisation and required restatement of the MoD’s 2023-24 accounts.

Audit Scope Limited After Record and Provision Failures

The NAO stated that shortcomings in the MoD’s accounting evidence led to the Comptroller and Auditor General (C&AG) limiting the scope of the audit opinion for 2024-25. According to the NAO, a “lack of accounting records” for certain ongoing capital projects and a “materially significant” shortfall in provisions from the previous year informed the decision.

AWE Projects Under Scrutiny

As of 31 March 2025, AWE projects accounted for £6.13bn of the MoD’s assets under construction. Within this, £1.5bn related to legacy projects supporting the UK’s nuclear deterrent programme. The NAO said the value of these legacy projects had “remained unchanged for several years”, and that the MoD did not provide evidence to support the accuracy of these values for audit purposes.

The NAO also flagged other balances within the £6.13bn total that “did not appear to meet the criteria for continued recognition in line with accounting standards”.

Shortfall in Provisions for Legal Liabilities

Separately, the auditors identified a £2.56bn shortfall in provisions recognised in the MoD’s 2023-24 financial statements. These provisions relate to compensation and costs for legal claims, including personal injury cases such as noise-induced hearing loss.

ARAP and ARR Costs Not Provisioned

The NAO found that the MoD had been treating expenses under the Afghan Relocations and Assistance Policy (ARAP) and the Afghanistan Response Route (ARR) on an incurred basis rather than considering future obligations. The watchdog stated the MoD “had been expensing costs relating to the ARAP and ARR as they were incurred” and had not assessed whether a provision was required for future commitments.

The NAO further noted that the MoD “did not brief the NAO” on the existence of a significant data breach and the subsequent establishment of the ARR until after a super-injunction was lifted in July 2025.

Qualified Regularity Opinion and Restatement of Accounts

In its assessment, the NAO said: “Taken together, these two matters constitute a material omission from the MoD’s 2023-24 accounts, necessitating their restatement. The MoD did not have appropriate authorisation from Parliament for this expenditure, which has resulted in a qualified regularity opinion,” the NAO stated.

Key Points

• Audit scope limited on MoD’s 2024-25 accounts due to evidence gaps and provision shortfalls.
• £6.13bn in AWE assets under construction questioned; £1.5bn in legacy project values lacked supporting evidence.
• £2.56bn shortfall in provisions tied to legal liabilities, including personal injury claims.
• Costs linked to ARAP and ARR not provisioned for future obligations; NAO not briefed on data breach until after July 2025 injunction lift.
• NAO issues a qualified regularity opinion and calls for restatement of 2023-24 accounts.

Context: Defence Spending and Governance

The findings land amid sustained growth in UK defence spending and major capital programmes linked to the nuclear deterrent. The AWE, a key contributor to the programme, holds a significant portion of the MoD’s assets under construction. The NAO’s analysis suggests that governance, accounting controls, and provisioning practices require strengthening to meet audit standards.

What the NAO Highlighted

Beyond asset valuations, the NAO emphasised persistent challenges in the MoD’s financial reporting, including the handling of Afghan resettlement costs and the timing of disclosure related to the data breach that led to the ARR. These elements collectively prompted the limited audit scope and the regularity qualification.

Conclusion: Restatements and Oversight Ahead

The MoD now faces the restatement of its 2023-24 accounts, additional scrutiny over AWE asset recognition, and the need to address provisioning for legal liabilities and ARAP/ARR obligations. The NAO’s restricted opinion and qualified regularity finding signal intensified oversight of MoD financial controls and reporting in the months ahead.