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The system was supposed to replace a teleprinter for sending messages to and from about 500 terminals at 13 bases in Britain. But the "common user data system" developed "unacceptable" problems, including "a tendency to stop". 

The audit office, which was critical of the MoD's financial controls, said in a report published yesterday that the contract to supply the RAF with a new message system was awarded in 1989 and was to have been completed by 1994. 

By June 1997, trials revealed continuing problems and the RAF began to look for a ready-made commercial version. The following month the MoD decided that the system would never work and in August the project was scrapped, writing off £21 million. The system had been developed for the RAF by GEC Plessey Telecommunications. 

The audit office report said that during the extra time that it was taking to try to correct the problems, the technology involved had begun to be overtaken by commercial developments. 

In February 1998 the MoD pursued an off-the-shelf solution at a cost of £1.3 million. 

The MoD wasted another £9 million on a computer system for the Royal Navy's pay and pensions
department. The project was abandoned when the cost rocketed from £18.9 million to £41.1 million. Computer consultants told the MoD that the loss could have been limited if the system had been halted earlier. 

The audit office uncovered potential fraud in the MoD's pensions division. 

The staff were inexperienced and it was impossible to reconcile pension payments made to individuals'
entitlements. 

Between February 1998 and February 1999, a civil servant employed at the Army Personnel Centre in
Glasgow allegedly paid into his personal bank accounts "one-off payments using the accounting records of Army personnel currently on the pensions database". 

The civil servant was suspended from duty and is on bail pending trial on fraud charges. 

Yesterday a spokesman for the MoD acknowledged the criticisms in the audit office report but said that under the Government's new "smart procurement" policy, measures had already been taken to tighten financial controls. 

Iain Duncan Smith, the Shadow Defence Secretary, said that if the MoD was making losses on this scale, he seriously doubted whether it would be able to make the £300 million annual savings promised in the Strategic Defence Review. 

He said that if the MoD failed to meet the projected efficiency savings, the defence budget would come under increasing strain.