DoD 2020/21 Quarter 1 performance; 2019 BRRR recommendations; DoD report on investigations into Irregular, Fruitless and Wasteful Expenditure

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Defence and Military Veterans

02 September 2020
Chairperson: Mr V Xaba (ANC)
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Meeting Summary

ATC191024: Budgetary Review and Recommendation Report of Portfolio Committee on Defence And Military Veterans on 2018/19 Annual Report Of The Department Of Defence (DOD), dated 23 October 2019

The Department of Defence (DOD) briefed the Portfolio Committee on Defence and Military Veterans on its first quarter performance report for 2020, the implementation of the 2019 budgetary review and recommendations report (BRRR), and the investigations into irregular, fruitless and wasteful expenditure. The meeting took place on a virtual platform.

The Secretary for Defence said she had provided strategic direction to the DOD through various governance activities and interventions during the period under review. These included timely decision-making on strategic and defence diplomacy matters, effective management and processing of official departmental documents, the chairing of various DOD management bodies, as well as attendance at Directors-General meetings, Cabinet lekgotlas and government clusters.

The declaration of a National State of Disaster had required the government to provide an integrated and coordinated disaster management mechanism that would focus on managing and mitigating the impact of the COVID-19 pandemic. The President had appointed the Justice, Crime Prevention and Security cluster co-chairpersons to coordinate, facilitate and integrate the ‘all of government’ approach to the efforts of the key work groups established to focus on combating COVID-19.

The DOD required an average personnel strength of 77 000.  In order to assure a more sustainable defence capability, an average strength of 75 000 would be maintained during 2020/21, supplemented by 2 695 963 planned Reserve Force man days. This would result in a projected shortfall of R3 billion in the compensation of employees (CoE) budget for the financial year. The Department had received an additional allocation via the 2020 special adjustment budget of R763.4 million in support of its COVID-19 response. 

Members raised concern regarding the shortfalls in the budget, as it indicated that the budget may have to be reprioritised. Other concerns were the reduction in personnel, and the expenditure by the Department on personal protective equipment (PPE).

The deficit in the CoE budget had had a direct effect on the status of funding within the special defence account, which had then impacted on programmes like Project Hoefyster and the upgrading of the submarines. Projects Hoefyster, Hotel and Biro were under threat, as they had contractual obligations until 2023, 2022 and 2025 respectively. The funding requirements for these contracts were not being met, and there was therefore a substantial shortfall. The Department could not enter into any new contracts which would modernise current equipment, due to funding challenges.

Members agreed that the funding challenges needed urgent attention, with a thorough effort by the Department to produce a plan of action going forward.

The Department requested that feedback on its investigations into irregular, fruitless and wasteful expenditure be given in camera due to the sensitive information involved. Members argued that the Department should present the feedback they had, without disclosing any sensitive information. After receiving the feedback, Members were of the opinion that the Department needed to expedite resolving the irregular expenditure issues raised. In particular, internal disciplinary procedures should be followed in cases where it was not necessary to wait for investigations to be completed.

Meeting report

Department of Defence: Quarter 1 performance report

Ms Gladys Sonto Kudjoe, Secretary for Defence, said that during the period under review, the Secretary for Defence had provided strategic direction to the Department of Defence (DOD) through various governance activities and interventions. These included timely decision-making on strategic and defence diplomacy matters, effective management and processing of official departmental documents, chairing of various DOD management bodies, as well as attendance at Directors-General meetings, Cabinet lekgotlas and government clusters.

The declaration of a National State of Disaster in terms of the Disaster Management Act, 2002, had required the government to provide an integrated and coordinated disaster management mechanism that would focus on managing and mitigating the impact of the COVID-19 pandemic. 

To this end, the President had appointed the Justice, Crime Prevention and Security (JCPS) cluster co-chairpersons to coordinate, facilitate and integrate the ‘all of government’ approach to the efforts of the key work groups that would be established to focus on COVID-19. In addition, the President had instructed that the National Joint Operational and Intelligence Structure to serve as the custodian of all reports during this crisis.

The Secretary for Defence had led and coordinated activities in the following key areas during the quarter:

  • Establishment of COVID-19 pandemic work teams;
  • Provision of strategic direction and guidance to the appointed work streams;
  • Formulation of a socio-economic recovery plan for the country, following the COVID-19 national lockdown;
  • Developing and consolidating a draft framework on the risk adjusted strategy; 
  • Ensuring the alignment of government-wide security priorities and programmes that were submitted to Cabinet.

The Department of Defence requires an average personnel strength of 77 000.  In order to assure a more sustainable defence capability, an average strength of 75 000 would be maintained during the 2020/21 financial year, supplemented by 2 695 963 planned Reserve Force man days. 

This would result in a projected shortfall of R3.017 billion in the compensation of employees (CoE) budget for the financial year. 

The DOD’s actual strength as at 30 June was 73 595, which was below the planned average strength of 75 227.

The DOD had received an additional allocation, via the 2020 Special Adjustment Budget, of R763.4 million in support of its COVID-19 response. This allocation had been specifically and exclusively appropriated, and was aligned to the expenditure in terms of allowances paid and projected payments. 

It was projected that the DOD’s funded human resources (HR) strength would continue to decrease due to higher than anticipated attrition within the Department.

Ms Kudjoe referred to “Support to the People,” and said the SA National Defence Force (SANDF) had deployed 15 sub-units to execute Operation Corona in Limpopo, Mpumalanga, KwaZulu-Natal, the Free State, Eastern Cape, Northern Cape and North-West provinces.

Planned budget expenditure had been 21%, and the actual amount spent was 22%.

Under expenditure of R185.681 million on air defence was mainly due to:

  • The closure of local and international businesses following the collective global responses to contain the spread of the COVID-19 virus, which had a negative impact on the ability of the South African Air Force (SAAF) to perform financially as planned.
  • The closure of Denel, which was largely due to persistent, but necessary, lockdown regulations negatively impacting on deliverables directly related to the planned cash flow.
  • Prolonged procurement processes regarding the upkeep of aircraft systems, which had an effect on the cash flow performance during the first quarter.  The SAAF’s cash flow performance would improve as the financial year progressed.

Under expenditure of R108.678 million on maritime defence was also mainly due to the unprecedented COVID-19 lockdown, as well as procurement challenges.

The restrictions posed on traveling had impacted on the movement of personnel involved in courses, training, staff visits and meetings. This had mainly affected subsistence and traveling expenditure.

Over-expenditure of R350.8 million was mainly due to the centralised procurement of all personal protective equipment (PPE) and the establishment of quarantine / isolation facilities required by the DOD to support efforts to contain the COVID-19 virus. R344 million had been paid in this regard at the end of the quarter.

The over-expenditure of R153.2 million was as a result of payment of invoices received from the national Department of Public Works and Infrastructure (DPWI) for work completed on immovable properties in accordance with the user asset management plan, as well as the payment of Microsoft software licences.

A further over-expenditure of R30 000 was mainly due to the write-off of transactions involving thefts and other losses. It should be noted that the Department had not made provision during the budget allocation for unforeseen expenditure such as foreign exchange losses, thefts and other losses, etc. Funds were reserved to clear these transactions at the financial year-end.

Discussion

Mr S Marais (DA) referred to the initial slides of the presented document, and pointed out that the Department had referred to the Secretary of Defence being involved with the formulation of a post COVID-19 socio-economic recovery plan. Since this does not seem to be something which necessarily fell within the mandate of the DOD, he wanted more clarity regarding what this plan would entail.

Secondly, he referred to an issue with the amended budget, specifically involving COVID-19 related expenses. The shortfall in this regard was R1.6 billion. When looking at the other shortfalls in the budget, as well as overruns, it raised a question as to how the Department would fund those areas where there had been shortfalls, as National Treasury had pointed out that there were no additional funds available from the fiscus. This meant that the existing budget would have to be reprioritised. This had a strategic impact on the SANDF and the Department had a responsibility and a degree of accountability, to inform the Committee on how this would be done without compromising the Defence Force.

The presentation had indicated that in the first quarter, the South African Navy undertook no Operation Corona activities, but when one looked at the budget, a third of the sea hours had been utilized. If there was no Operation Corona, which would have taken up most of the budget, then the Department had to provide an explanation as to where the allocated budget had gone.

With regard to the SAAF, only a small percentage of the budget had been spent on preparation. This was concerning, and he wanted an explanation from the Department. He asked if there were any plans to increase the army’s presence along specific borders where there had been an increased threat. He also wanted an update on the refurbishment of submarines.

Ms A Beukes (ANC) said the amounts for personnel had become lower, and she wanted to know what impact this would have. She asked the Department if they had a comprehensive list detailing the particulars of the expenditure on COVID-19 PPE.

Department’s response

Ms Kudjoe said the Department had received a previous request, like all other government departments, to disclose the amount of money they had spent on PPE, along with the names of the companies that had benefited from the procurement of the PPE. The DOD had submitted these reports, and the information had been published by National Treasury.

On the role of the Secretary of Defence in the socio-economic recovery plan, she said that in dealing with the issue of COVID-19, there had been efforts to focus on the post-lockdown period. Prior  to the presence of COVID-19, the economy had not been doing very well, and during the lockdown period, many companies had to close, increasing unemployment rates and further damaging the economy. According to the most recent analysis, the economy would recover from the effects of COVID-19 only after a period of five years. The economic cluster had taken the responsibility of starting the process of coming up with a recovery plan, and before the time of the current Secretary of Defence, inputs had already been made by the security cluster, and that input had been endorsed by the Minister. It had its own action plan, and had its own costs. The economic cluster had now received input from the public, as well various government departments.

In addition to the movement of illegal persons in and out of the country, there had also been illicit goods that had been brought into the country, which had had an effect on the amount of money collected at entry points, and there was also the issue of corruption. In essence, there were various aspects to this recovery plan, and security was one of them.

Addressing the issues raised concerning the shortfall figures, the Secretary agreed that this was a precarious situation, but the fact of the matter was that as long as there was a need to provide services, there would always be difficulties of this nature. Even in terms of HR capacity, the Department had received a communication from National Treasury that for the next year there would be a cut of R1.7 billion in the Department’s CoE. This meant that the Department would be in a tough situation, but whatever approach it chose to take, there would be difficulties. What should be noted was that the role of the Defence Force was changing, as it was now helping to aid the economy and not just going to war.

Maj Gen Michael Ramatswana, Chief: Military Policy, Strategy and Planning, SANDF, said that when COVID-19 hit the country, it had come with a lot of restrictions, and some of those restrictions had affected the Defence Force as well. For training and preparation, the soldiers would have been required to gather together in groups to receive their training, but due to the restrictions, this could not happen. This explained why so little had been spent on training and preparation. However, the budget had been reprioritised accordingly.

He said that the Defence Force acknowledged a need to increase border safety, and they had been using technology in high risk areas. The integration of technology and other innovative measures had also been introduced by the South African Army. He agreed that this was a point of concern, but assured the Department that it was being addressed.

Mr M Shelembe (DA) said that the budget issues were very important, and that the Department should make the Committee aware of what they could do in order to assist. The presentations spoke to the fact that the expenditure was higher in certain programmes which were not necessarily a priority, and this had been an on-going issue, so he wanted the Department to present their suggestions on how to solve the costs issues, instead of simply pointing them out.

The Secretary of Defence said she did not think the budget was going to improve, yet the DOD had many responsibilities, so she shared the sentiment that these issues were very important. The Department would have to take a more holistic approach to the issues, and would have to come back to the Committee with a comprehensive plan going forward. She would to come back to the Committee some time in December.

DOD on implementation of 2019 BRRR

Ms Kudjoe referred to certain slides in the performance report which set out the necessary information regarding the Budgetary Review and Recommendations Report (BRRR).

By way of introduction, the eight BRRR recommendations had been made by the Committee last year and since then, the Department had reported comprehensively, the last report being just before the lockdown in March.

Because there was a shortage in the COE budget, many of the BRRR recommendations were inter-related. This shortage had a direct effect on the status of funding within the special defence account, which then had an effect on projects like Projects Hoefyster and Hotel, and it also impacted on the upgrading of the submarines. These were all inter-linked and depended on sufficient funding.

The report had updates on the status of Projects Hoefyster, Hotel and Biro. These projects were under threat, and had contractual obligations until 2023, 2022 and 2025 respectively. The funding requirements of these contracts were not being met, and there was therefore a substantial shortfall. The Department could not enter into any new contracts which would modernise current equipment due to funding challenges.

Since the lockdown had greatly impacted the staffing process, there were funded positions which had not been filled. Tangible assets were under process, and reimbursement statements had not been sent to the Department during the first quarter. It had not transferred funds out of maritime and the air force, and the expenditure figures for these areas had been provided to the Committee. A full report on progress was usually provided in the annual reports.

The Chairperson asked the Department to circulate a detailed version of the report, as the presentation provided only a summary.

The Chairperson suggested that the third item on the agenda be presented first, and then a discussion would be held on both items at the end.

The Secretary of Defence said she had consulted with her colleagues, and that the Department did have a separate stand-alone item on the issues of irregular expenditure, but there were sensitivities surrounding areas where there were still on-going investigations. She asked that this feedback report be dealt with in a closed session.

Mr T Mmutle (ANC) said that according to the rules, one must apply for a closed session, and therefore the meeting could not be concluded. However, the Committee would just like a progress report, not necessarily the details of the on-going investigations which were sensitive.

Mr Marais agreed with Mr Mmutle, because the Committee also had certain oversight responsibilities that they had to include in their own reports back to Parliament.

The Chairperson agreed, and asked the Department to proceed.

Investigations into irregular, fruitless and wasteful expenditure

The first case mentioned by the DOD was a contract involving asset management. Currently, the Department was carrying out an investigation with the help of a forensic company, which had started on 24 June.

Another case was being conducted by the logistics division of the Defence Force, and an amount of R339 million was being investigated. The Department had approached the National Treasury for assistance, but it was still waiting for a response.

There was an investigation into an amount of R216 million concerning information communication technology (ICT) and licensing. These had not been evaluated according to the criteria stipulated. This investigation had been completed, and more feedback could be given at later meetings.

Discussion

Mr Marais said that if one looked at the seven cases being investigated, even though the Department may not disclose all of the information, there was an amount of up to R1 billion being investigated. This made a substantial impact on the budget.

Referring to the BRRR, he said that he rested his case, as it showed that the financial issues needed to be addressed with urgency. He felt that they should not wait until December -- feedback needed to happen sooner.

Ms Beukes wanted to know how effective the internal audit committee was, because there had been issues raised over record keeping, and the cases being investigated could be attributed to poor and incomplete records. There were clear guidelines where this was concerned, and if there was a problem with record keeping, then it was up to the Auditor General (AG) to obtain evidence in this regard. Why had the AG had difficulties where this was concerned? She wanted to know if any officials had been fired for not following Public Finance Management Act (PFMA) guidelines.

Mr Mmutle raised an issue with the internal processes that followed irregular expenditure. Without waiting for an investigation, what was the Department doing internally to take action against those who transgressed, because this was not the first time there had been irregular expenditure? He implored the Secretary of Defence to ensure that these things did not happen under her watch, because without an eagerness to reduce this issue of irregular expenditure, National Treasury may be more justified to adjust the Department’s budget accordingly.

Mr W Mafanya (EFF) wanted to know if guilty parties were being suspended, and if this suspension was with or without pay.

The Chairperson said that there were issues with criminal investigations, but there were also issues which could be dealt with internally via disciplinary measures, so while the Committee understood that at times waiting for the criminal justice process to run its course could take time, there were other issues which could be dealt with sooner.

DOD’s response

Ms Kudjoe said that when one looked at the history of the cases of irregular expenditure, it was true that some cases had been on-going, but most of them were cases which required the criminal justice system to run its course.

The Secretary of Defence agreed with the Committee, and said that one of the roles of the Auditor General was that at the start of each financial year, they had to commit to determining the number of investigations they would conduct. For a period of two years, the position of auditor had been vacant, but the Department would look into this. With regard to internal auditing, there was a problem with capacity, and also a problem with risk management. If there was sufficient risk management, then a lot of these issues would be resolved and prevented.

The Secretary of Defence said that she would ensure that going forward; she would address the shortfalls that had been pointed out.

The Chairperson said that the financial position of the Department was not likely to change, so they needed to look at what they had and work on ways to make that work. He agreed that addressing the issues of internal auditing processes and risk management would solve many of the issues, and if they were addressed, National Treasury would likely be more responsive to requests for additional funding.

Fourth term programme

The Chairperson said that the fourth term programme had not been finalised yet because there had not been feedback for the third term plan yet. The Committee therefore did not know how many weeks there would be in the third term, and how many of those weeks would be set aside for oversight visits.

He asked the Committee if they agreed to defer the issue to the new term. The Committee agreed.

The meeting was adjourned.

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