Defence wasting cash on unused supplies: report

LONDON (Reuters) - The cash-strapped defence ministry is wasting money on unnecessary supplies and adding to storage costs by not disposing of old stock, parliament's spending watchdog said on Thursday, the latest criticism to hit the embattled department.

As the government struggles to tackle a big budget deficit and revive an ailing economy, few of its departments have been more heavily criticised than the defence ministry, which is striving to corral its chaotic bureaucracy.

Parliamentary watchdogs say the issue of the ministry's stock management will be made more acute by the planned return of British forces from Afghanistan in 2015 and from bases in Germany by 2020.

"In the current economic climate where the department is striving to make savings, it can ill-afford to use resources to buy and hold unnecessary levels of stock, and it clearly does so," Amyas Morse, head of Britain's National Audit Office, said.

"The root cause of excess stock, which the department is seeking to address, is that management and accountability structures currently fail to provide the incentives for cost-effective inventory management."

The defence ministry has scrapped equipment programmes, shed jobs and restructured its forces in the past year. Last month Defence Secretary Philip Hammond said he had fixed his department's 38 billion pound ($59 billion) budget "black hole".

Peter Luff, the minister in charge of defence equipment, said systems were being put in place to better manage inventory.

"The challenge of managing and maintaining vast amounts of equipment, including explosive materials, around the world should not be underestimated but I know that the MOD's (Ministry of Defence) assets must be more efficiently managed."

The National Audit Office said the ministry had spent 4 billion pounds on raw material and consumable inventory, such as clothing or ammunition, between April 2009 and March 2011, but did not use 1.5 billion worth of it.

The cost of storing and managing inventory was at least 277 million pounds between 2010 and 2011, the audit office said.

"This report reveals the staggering waste in the ministry's buying and holding excess stock ... The government simply cannot afford waste on this monumental scale. And yet the ministry is continuing to order items for which they already hold five years' worth of stock," said Margaret Hodge, chair of parliament's Committee of Public Accounts.

(Reporting by Mohammed Abbas; Editing by Mark Heinrich)