Committee Staff briefings on: DOD; Armscor, CCB & DMV 2019/20 Draft Annual Reports

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Defence and Military Veterans

06 October 2020
Chairperson: Mr V Xaba (ANC)
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Meeting Summary

The Portfolio Committee on Defence and Military Veterans was briefed by the Committee Researcher and Content Advisor on the 2019/20 draft Annual Reports of the Department of Defence, Armscor, Castle Control Board and the Department of Military Veterans. The presentations highlighted the various challenges that each entity faces and raised potential questions that Members could ask when producing the Budgetary Review and Recommendation Report. The information presented to Members have not been audited or finalised yet and may change when the final Annual Reports are submitted.

The presentation on the Department of Defence raised the following issues: there was under-expenditure in the Legal Services and Defence Foreign Relations sub-programmes, healthcare activities and training targets were not achieved, the vetting decisions target was not achieved, various performance agreements were not signed by senior managers and the flying hours target was both reduced and not achieved. Members were advised to raise the following questions: how case finalisation in the Legal Services sub-programme can be improved and what measures have been put in place to attract young South Africans to serve in the Reserve Force. The Committee was also advised to raise the following recommendations: provisions for border safeguarding, funds that are earmarked for inter-departmental military exercises,  increase the capacity for vetting decisions, finalise the Cyber Warfare Strategy and Sensor Strategy,  increase the targets for Military Police and address backlog cases.

The presentation on Armscor raised the following issues: vessel midlife upgrades are delayed due to a lack of funding, the delivery of missiles remains at risk due to Denel challenges, there is no progress on the Hoefyster Project due to the inability of Denel to deliver remains, there is no amount for defence material disposal, an outstanding target relates to female employees, the capital budget has been decreasing significantly over the past two years and the decrease in the number of funded projects. The Committee was advised to make the following recommendations: finalising certain projects and ensuring there is available funds to finalise such projects, the feasibility of Project Hoefyster should be questioned and defence material disposal should be managed optimally to generate revenue. Members were also advised to request a detailed report on the deadlock between stakeholders impacting on the Alkantpan facility, seek clarity on the increase in the number of employees and seek clarity on further potential litigation relating to Project Hoefyster.

The presentation on Castle Control Board raised the following issues: regression to an unqualified audit opinion, going concern status, departure of managers and staff, little progress made on the review of the Castle Management Act, safety and security risks around the Castle, internal control deficiencies, decrease in rental income, failure to make payment of invoices within 30 days, failure to achieve the gross annual revenue and the lack of a dedicated Human Resources Unit. Members were advised to request an update on the implementation of the Integrated Conservation Management Plan and be provided with a breakdown on the way the relief support was utilised. The Committee was also advised to raise the following questions: whether progress has been made to finalise space-allocation and utilisation, clarity on why expenditure in the Administration programme dropped, how vacant posts will be filled, reasons for under collection in revenue and rental income, clarity on the going concern status and what measures have been put in place to retain staff.

The presentation on the Department of Military Veterans highlighted the following issues: decrease in business access to empowerment opportunities, lack of consistent and quality reporting, failure to pay invoices within 30 days, under-expenditure in the two core delivery programmes, poor performance in the Empowerment and Stakeholder Management programme, lack of disciplinary steps taken against officials who incurred fruitless and wasteful expenditure, lack of consequence management, deviation regarding the percentage representation of persons with disabilities and instability at the top management level. The Committee was advised to request reasons for the resignations of employees, clarity on why there is a discrepancy between what was reported by the Department and the Auditor-General's findings and an update on the Zeal Health claim. Members were also advised to raise questions around the number of students who have registered for educational support versus the number of students who actually graduated.

Members raised concern on the recent theft at munitions deports, budget cuts in the cost of employees, senior managers refusing to sign performance agreements, discrepancies in the reporting, failure to complete the Cyber Warfare Strategy, lack of consequence management, under-expenditure in the Socio-Economic Support programme and the long time it takes to resolve cases lodged by veterans.

Meeting report

Opening Remarks

The Chairperson welcomed everyone in attendance to the meeting. The agenda for the meeting is to consider and adopt the 2020 fourth term programme and to receive briefings on the 2019/20 draft annual reports of the Department of Defence (DOD), Department of Military Veterans (DMV), Castle Control Board (CCB) and Armscor.

The Committee adopted the meeting agenda.

The Chairperson said that the time set aside to consider the Annual Reports was shortened because the Minister of Finance issued a notice exempting executive authorities from tabling the Annual Reports and financial statements. These documents were supposed to be tabled at the end of September but this period has been extended by another two months because of the pandemic which disrupted the functioning of government. The tabling of the Reports will now be at the end of November. This also explains why officials from the various departments are absent today. The Committee Content Advisor and Researcher have been asked to present the tentative Annual Reports, quarterly statements and financial statements instead. Based on the presentations today, an interim Budgetary Review and Recommendation Report (BRRR) will be produced. Once the departments have released their annual reports and the Auditor-General (AG) has released its findings, an addendum will be produced and attached to the BRRR.

Mr S Marais (DA) said that the soldiers serving at Operation Notlela are now back at camp. The border situation has deteriorated and it will be ideal to have an interaction with the DMV so that Members will know the plans moving forward. The recent theft at munitions deports is also an issue. It will be good to hear what the DMV's plans are to maintain safety at the various deports. The Secretary of Defence has indicated another budget cut in the cost of employees. This will have a devastating effect on DMV and Armscor. Members need to interact with both entities on these issues. Such issues fall under the purview of the Committee and must be dealt with.

The Chairperson agreed. These issues must be incorporated into the annual reports which will be presented by the DMV to the Committee on 18 and 25 November 2020. Members can interrogate these issues with the Department on those dates.

Ms M Modise (ANC) asked why all of the parliamentary meetings are still being held on virtual platforms when the country has moved onto level one. Why is Parliament still unable to conduct physical meetings?

The Chairperson said that Parliament is preparing to hold meetings in person but where that is not possible, a hybrid system will operate. Some departmental officials may not be able to travel from Pretoria to Cape Town because of underlying conditions and may prefer to meet with Members online. Parliament can only host 250 members according to level one guidelines. That number is less than the number of parliamentary members. Not all members will return to Parliament. The Chief Whip has also indicated that Members will be alternated. 

The Committee adopted the 2020 fourth term programme with amendments.

Briefing by the Committee Researcher on the 2019/20 draft Annual Report of the Department of Defence

Dr Wilhelm Janse van Rensburg, Committee Researcher, said that the presentation is based on the draft annual report of the DOD. The information hasn’t been audited or finalised yet and it may change when the final report is submitted. It does not refer to the input of the AG because the audit opinion has not been finalised. The presentation will highlight potential BRRR discussion points. In programme one, Administration, the Legal Services and Defence Foreign Relations sub-programmes both underspent. In programme two, Force Employment, there was completion of one inter-departmental and multinational military exercise. In programme three, Landward Defence, the sewerage clean-up operation in Mahikeng was a performance highlight. In programme four, Air Defence, the target of the total number of flying hours was reduced from 25 000 in previous years. In programme five, Maritime Defence, the reasons for low performance were due to refits, maintenance and repair. In programme six, Military Health Support, both of the healthcare activities and training targets weren't achieved. In programme seven, Defence Intelligence, the vetting decisions target was not achieved. In programme eight, General Support, all reported targets were achieved. There were reductions in navy personnel and various performance agreements were not signed by senior managers. There has been no sale of capital assets and an auctioneer is yet to be appointed. The Committee must maintain oversight over the implementation of the concerns emerging from the draft Annual Report. There must also be discussions around funding and internal interventions to save costs.

Briefing by the Committee Researcher on the 2019/20 draft Annual Report of Armscor

Dr van Rensburg said that Armscor has executed contracts worth R12.19 billion. This includes maintenance and support contracts as well as capital acquisition contracts. On Project Hotel, there was a five month delay due to additional tests that were required. Project Biro is progressing according to its schedule and the first vessel is set to launch by the end of this year. The vessel midlife upgrades are delayed due to the lack of funding. On A-Darter, the delivery of the first batch of missiles remains at risk due to Denel challenges. On the Hoefyster Project, there is no progress due to the inability of Denel to deliver remains. Urgent discussions on the way forward are required on this. There is no amount for defence material disposal reflected in 2019/20. This remains crucial for Armscor's revenue generation. On the Armscor Dockyard, commercial work is being executed and opportunities are being explored. On Human Resources, there is an outstanding target relating to female employees. There were 34 key performance indicators set for 2019/20 and only six of them were not achieved. A new permanent Chief Executive Officer (CEO) of the Armscor Board was appointed and commenced his responsibilities on 1 February 2020. Armscor's financial well-being was negatively impacted by the prevailing fiscal constraints. The challenges experienced by Denel have had a negative effect throughout the industry and a determination on the vitality of Project Hoefyster is still outstanding.

Briefing by the Committee Content Advisor on the 2019/20 draft Annual Report of Castle Control Board

Mr Peter Daniels, Committee Content Advisor, said that the Castle Control Board (CCB) received many highlights. These are, amongst others, an unqualified audit opinion, completion of the Integrated Conservation Management Plan, appointment of the gardening and maintenance service provider and R3 million relief support for the Covid-19 pandemic. It also experienced the following challenges: going concern status, regressing to two unqualified audit opinions from two clean audit opinions, departure of managers and staff, little progress on the review of the Castle Management Act (CMA), safety and security risks around the Castle and the need for a nominal operational subsidy. On financial performance, the Administration and Conservation programmes underspent. There was also a decrease in rental income. There has been no irregular, unauthorised, fruitless and wasteful expenditure for the third year running now. On performance targets, the payment of invoices within 30 days and gross annual revenue were not achieved. On governance, the 2017/28 annual report listed various strategic risks but these haven’t been addressed for the last two years. The risks included the following: safety and security of staff and visitors, finalising space-allocation, utilisation and sustainability of the CCB and shortcomings in the CCB's founding Act. On Human Resources (HR), there is no dedicated HR Unit and no performance rewards were paid to members for the last two years.

The Chairperson thanked the Committee Researcher and Content Advisor for their presentations. Members must also be guided by the analyses provided to them. Members must focus on the important points for discussion in the analyses which will be presented shortly.

Briefing by the Committee Researcher on the analysis of the DOD 2019/20 draft Annual Report

Dr van Rensburg said that Parliament will make use of the 2019/20 quarterly reports and draft annual reports to compile a preliminary assessment before a BRRR will be finalised. The presentation refers to potential BRRR discussion points for each programme. On programme one, Defence Administration, the discussion points include the following: an intervention to ensure improved case finalisation in the Legal Services sub-programme, increasing the finalisation and implementation of outstanding strategies, measures put in place to return to a Level Five rating and measures put in place to attract young South Africans to serve in the Reserve Force. On programme two, Force Employment, the Committee may consider recommendations around provisions for border safeguarding and funds that are earmarked for inter-departmental and multinational military exercises. On programme three, Landward Defence, the Committee may consider recommendations that ensure the DOD is reimbursed for services provided to other governmental departments. On programme four, Air Defence, the non-achievement of flying hours and the reduction of the total target is a concern. The Committee may recommend that the DOD explore ways to achieve the annual target especially because it has been reduced. On programme five, Maritime Defence, the non-achievement of sea hours is a concern and it's unlikely that it will be resolved without funds from the National Treasury (NT). On programme six, Military Health Support, the non-completion of refurbishments at the Military Hospital is an ongoing concern. On programme seven, Defence Intelligence, there is a need to increase the capacity for vetting decisions and to finalise the Cyber Warfare Strategy and Sensor Strategy. On programme eight, General Support, the Committee may consider recommendations around increasing the targets for Military Police and to specifically deal with backlog cases. On financial performance, the Committee may consider only making BRRR recommendations once the AG's input is finalised.

Discussion

Mr J Maake (ANC) said that he wonders when the right time is for members to ask questions of clarity. The questions might be for the Department itself to answer. Why did 13 managers refuse to sign performance agreements? What are the right questions for Members to ask if it relates to the presentation?

The Chairperson said that Members are limited in asking questions today because the Accounting Officer is not in attendance. The Committee is dealing with draft Annual Reports. Members can try to generate notes for the BRRR. Questions may still be asked because it might help generate talking points for the BRRR.

Mr Maake said that there are discrepancies in some areas. For example, the target achieved is 30% but the budget expenditure is 99%. Why is it that 13 senior managers did not sign performance agreements? What recourse does the department have? The Cyber Warfare Strategy should have been completed by 2016 yet nothing is being said about it until now.

The Chairperson said that the focus should be on consequence management for the senior managers that did not sign performance agreements. The other questions should be incorporated into the BRRR.

Briefing by the Committee Researcher on the analysis of the Armscor 2019/20 draft Annual Report

Dr van Rensburg said that the presentation highlights Armscor's major operations and provides potential BRRR discussion points. On Acquisitions, the capital budget has been decreasing significantly over the past two years. The decrease in the number of funded projects will impact the ability of Armscor to maintain capabilities and expertise in its strategic domain. The Committee may consider the importance of finalising certain projects and ensuring there is available funds to finalise such projects. The multi-year delays in Project Hoefyster are likely to continue and the feasibility of the project should be questioned by members. On defence material disposal, the Committee should encourage Armscor to optimally manage it because it represents a form of revenue generation. On research and development, there is a deadlock between stakeholders which impacts on the Alkantpan facility. Members should request a detailed report reflecting the exact financial impact of the deadlock and the way forward. Strategic facilities, such as Alkantpan, are crucial to Armscor's financial sustainability. Members should encourage the entity to amplify the commercialisation of these facilities so that the strategic value that they offer can be maintained. On human capital management, members should seek clarity on the increase in the number of Armscor employees because it places the entity under increasing financial pressure. The outstanding litigation against Armscor is of concern and members should seek clarity on further potential litigation related to Project Hoefyster.

Briefing by the Committee Content Advisor on the analysis of the CCB 2019/20 draft Annual Report

Mr Daniels said that the aim of the presentation is to assist the Committee with drafting the preliminary BRRR. The highlights of the CCB are positive but members should question why there was a regression from two consecutive clean audits to an unqualified audit outcome for the last two financial years. Members should ask what has been done to address the root causes of the unqualified audit opinion. The CCB should be requested to update the Committee on the implementation of the Integrated Conservation Management Plan and to provide a breakdown of the way the relief support was utilised. The challenges of the CCB raise the following BRRR discussion questions: the reasons for the lack of progress on attempts to amend the CMA, whether progress has been made to ensure the safety and security of staff and visitors around the Castle and whether progress has been made to finalise the space-allocation and utilisation of the CCB. Members should seek clarity on why expenditure in the Administration programme dropped and how the entity plans to fill the vacant posts again. The reasons for under collection in revenue and rental income, failure of investments to accrue interest income and the situation around the Curio shop should also be explained. The going concern status remains problematic and the Committee should seek clarity on this position. Members may want to question the CCB on whether measures have been put in place to prevent a re-occurrence of the failure of internal control deficiencies. The Committee should impress on the CCB the importance of paying invoices on time and to maximise learning opportunities for the youth through student learnerships. Questions around the departure of staff members and measures in place to retain staff may also want to be asked by the Committee.

Briefing by the Committee Content Advisor on the analysis of the DMV 2019/20 draft Annual Report

Mr Daniels said that the DMV should be commended for its contributions to the National Development Plan (NDP) and the Medium Term Strategic Framework (MTSF) outcomes. The Committee may request an explanation for the decrease in business access to empowerment opportunities, for examples of such business access and how well these businesses are currently doing. The Committee should impress the importance of consistent quality reporting to enhance clarity on the Department's performance. Members can raise questions around the number of students who have registered for educational support versus the number of students who actually graduated. Members can also ask why the failure to pay invoices within 30 days continues and what progress has been made since the start of the new financial year. The under-expenditure in programme two, Socio-Economic Support, is concerning and the Department should be questioned on how it plans to improve on this. The over-spending in the Financial Administration sub-programme should also be explained. Programme three, Empowerment and Stakeholder Management, is the worst performing programme and members should ask what steps have been put in place to address the challenges. On fruitless and wasteful expenditure, members should ask why appropriate steps have not been taken against officials and whether any progress has been made with the disciplinary steps. Members have already expressed concern around the claim by Zeal Health and the Department should update the Committee on it. Members should request clarity on why there is a discrepancy between what was reported by the Department and the AG's findings. The lack of consequence management, deviation regarding the percentage representation of persons with disabilities, the realisation of pension and transport benefits, poor performance in programme three, instability at the top management level and the reasons for the resignations of employees should also be posed to the Department.

Discussion

The Chairperson said that all of the BRRR questions contained in the analyses should be sent to the departments and responses should be sent to the Committee before the meeting on 17 October 2020. The responses will be incorporated into the Committee’s report going forward.

Mr M Shelembe (DA) said that the presentation is concerning when you look at the mandate of the DMV in terms of the Act. The under-expenditure by 30% in programme two, Socio-Economic Support, is very concerning. Are military veterans getting the housing, health, pension and transport support accordingly? Many of the veterans don’t have access to emails or internet and their requests aren't dealt with in a one stop manner. The Department is taking too long to resolve their cases.  

The Chairperson thanked the Committee Researcher and Content Advisor for their presentations. The Committee is satisfied with the questions posed in the analyses. The questions will be forwarded to the Department in order for them to respond. If the Department could respond before the meeting on 17 October it will be better. This quarter will be dominated with presentations from the DMV. The adoption of the Committee's previous minutes was deferred to the scheduled meeting on 17 October.

The meeting was adjourned.

 

 

 

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