A Defence Force plan to cut costs by turning military positions into civilian positions has failed, the Auditor-General has found.
The audit also found that New Zealand troops' morale was low, and combined with staff attrition had led to reduced Defence Force capability.
The report - which can be found online here - was presented to Parliament this afternoon.
Government told the Defence Force in September 2010 that it needed to reduce costs so that money could be redistributed within the Force.
"The project has had limited success," the Auditor General's office said in a statement.
It would not meet the target of converting 1400 military positions, which would have saved $20.5 million a year by 2014/15.
Instead, just 600 positions would be converted, with estimated savings of $14.2 million.