Department of Defence & Military Veteran's audit issues: briefing; Draft Budgetary Review and Recommendations Report: discussion

Meeting report

Committee’s Draft Budgetary Review and Recommendation Report (BRRR)
The Chairperson asked Members to comment on the draft Budgetary Review and Recommendation Report (BRRR).

The Committee Secretary read out Section 1.2 of the draft BRRR.

Mr D Maynier (DA) commented that the document was essentially asking for an increase in the budget of the Department of Defence and Military Veterans (DoD or the Department). He felt that the Committee should refuse to increase the budget until proper plans were in place.

Mr A Maziya (ANC) commented that the budget played its own role in the programmes of the Department. He said that he could understand Mr Maynier’s viewpoint, but that position was not going to address the situation, and would in fact make matters even more difficult for the Department.

Ms S Ndabeni (ANC) commented that the reason why departments presented their strategic plans to Parliament was in order that the Members could scrutinise the plans and make decisions on whether the budget was correct to achieve the plans.  She did not believe that the absence of the White Paper was any basis for the Committee not to increase the budget of the Department. The Annual Report presented to the Committee raised some critical challenges, including the fact that some objectives could not be met as a result of the shortage of funds. She believed that the main reason for the Department’s call for the budget to be increased was to address that shortage of funds.

Mr L Diale (ANC) commented that if this Committee were to insist that plans be produced, it would only be in the following financial year that the budget could be increased, and not immediately. He believed that it was correct for this Committee to consider increasing the Department’s budget now.

Ms H Mgabadeli (ANC) commented that the Committee should, through its own enquiries, assess where the funds were needed. She pointed out that the funds may go to different divisions in the Department and this would limit “boardroom activism”. She further commented that she would like to see the different divisions present at the next meeting, so that the Members could ask them to motivate why they needed the money.

Ms N Mabedla (ANC) wanted to align herself with the other speakers who agreed that the budget should be increased. She too noted that the Department had raised challenges and proposed some corrective measures to address the issues it was facing. The establishment Military Veterans unit, and the appointment of new staff members to transform the DoD, necessitated the increase in the budget. It was not sufficient to appoint short-term consultants to try to transform things.

Mr L Tolo (COPE) commented that his party had already discussed, during the budget vote debates, whether to increase this budget. A television programme at the time had featured an interview with a staff member of the DoD, who noted that although there were “other” arms, they could not be used for training purposes, so the soldiers were being trained without access to arms. This begged the question of what would happen if South Africa were to find itself in a war situation. He also commented that he had recently heard of four soldiers traveling from Pretoria to Limpopo, having to constantly top up their vehicle with water. For all these reasons it was important to consider an increase to the budget, to ensure that the defence force was well resourced.

Mr E Mlambo (ANC) commented that the stance adopted by Mr Maynier would be a retrograde step. The strategic plan had been presented, and it was necessary to have a properly capacitated army. The responsibility of the South African National Defence Force (SANDF) was entrenched in the Constitution, and it should not be underfunded as it had a duty to defend all citizens of South Africa. He agreed that it needed more funding to achieve its objectives.

The Chairperson commented that the DoD should be assisted to build capacity and that the Committee should assist the DoD to achieve its objectives. The Committee should also engage with the Department of Public Works (DPW) to assist the DoD with some of its issues. He agreed that the budget had to be increased and that the Committee should move forward on this issue.

Mr Maynier commented that he has no disagreement with the need to have a professional military. He also agreed that responsibility rested with the Committee. However, he said that three questions needed to be asked before recommending an increase to the budget: namely, how much would be required, how would it be spent, and why could sums underspent in some areas not be allocated to others. He noted that at present the military’s allocations amounted to 1.1% of the Gross Domestic Product (GDP), and it wanted to increase this to 1.8%, yet had not, to his mind, produced convincing enough reasons.

The Chairperson commented that the Committee would do its work by asking DoD to respond.

Mr Tolo commented that the Committee should not take too long in reaching a decision on this issue.

Mr Tolo referred to point 3.6.1 on page 7 of the BRRR. The implementation of the new salary dispensation needed funding.

Mr Tolo said that the Committee needed to ask DoD what types of arms were in short supply.

Ms Ndabeni commented that it was not proper to discuss media reports. She felt that the increase in the budget should also take into account the border control issues. There was also agreement about the need for funding the Department of Military Veterans. She also felt that the army should not be politicised.

Mr J Masango (DA) was in agreement that there was a need to look after the SANDF, but cautioned that money should not be allocated just for the sake of doing so, and that valid reasons for requesting the funding must be given. The budget must follow the strategic plan, not the other way round.

The Chairperson commented that the three issues raised by Ms Ndabeni should be included in the recommendations. He noted that the White Paper was too wide.

Mr Maynier said that it seemed the Committee would not reach total agreement, as he could not, in good faith, recommend the increase in the absence of a convincing case being presented, nor without an updated defence policy being produced.

Mr Masango referred to point 3.4.4 on page 5 of the BRRR and suggested that the word “contractors” be replaced by the word “consultants”.

The Chairperson agreed with Mr Masango.

Department of Defence and Military Veterans (DoD): Financial Performance and Audit Report 2009/10: Briefing
Mr Mziwonke Dlabantu, Chief Financial Officer, DoD, tabled his presentation, and explained that slides 3 to 14 depicted the total expenditure and a breakdown per programme, including the economic classification.

He noted that the report by the Auditor-General (AG), under the heading for “Other Auditing Matters” and the report on other legal and regulatory requirements had included a finding that the reporting on the predetermined performance objectives could not be validated, because of lack of sufficient evidence provided to the AG. The AG had also noted that there had been non-compliance with certain laws, including the non adherence to Section 55 of the Defence Act and Section 2 of the Public Service Act, regarding the changes to remuneration of uniformed members matters and performance awards. There were also issues of non-adherence to the Public Finance Management Act (PFMA) requirements in respect of the fully operational internal audit function, and approval of a fraud prevention plan. The AG noted, however, that most of the internal control issues had been dealt with after the end of the financial year. In respect of leadership, the AG had found that there was close involvement of leadership in the management of the audit issues. In respect of financial and performance management, there was a need to review this and understanding of the key controls at the operational levels. He had also commented on governance issues. Most of these issues were dealt with in the report of the Accounting Officer, to be found on pages143 to 175 of the 2009/10 Annual Report.

Mr Dlabantu firstly addressed the mattes of internal control and governance. He said  that currently Operation Clean Audit project had assisted in developing improved and documented systems, policy changes (or new policies) and processes in all areas identified. Training was being undertaken at all levels, particularly at the operational levels. A sustainability plan had also been developed to ensure that there were ongoing controls. The Accountability Management Committee (AMC), Risk Management Committee (RMC) and the Audit Committee were the governance structures tasked with close monitoring.

He noted that slides 18 to 29 of his presentation (see attached document) set out the AG’s findings and corrective action that was needed by the department. Slides 30 to 32 showed the findings for the Special Defence Account (SDA).

Mr Dlabantu explained that the SDA’s total revenue for 2009/10 was R11,6 billion (compared to R8,2 billion in 2008/09). This was mainly comprised of transfers from DoD of R8,6 billion and other revenue of R3,025 million. He set out in detail (see attached presentation) the amounts for capital and interest, fines, sales of equipment and noted that a net amount of R149,9 million revenue was payable to the National Revenue Fund. He then noted the total expenditure of R5,6 billion (compared to R10 billion in 2008/09). He also noted that total assets amounted to R8,5 billion (compared to R2,9 billion in 2008/09), and described how these were made up. Commitments for future expenditure already approved amounted to almost R16 billion.

Mr Dlabantu outlined that there were no significant matters raised in respect of the National Defence Force Fund (NDFF). The assets were largely held in cash investments, and grew from R10.6 million in 2008/09 to R11.4 million in 2009/10. The performance of this Fund was affected by the fluctuations in interest rates, which meant that its surplus had dropped to R0.747 million. Its administration expenses increased from R23 000 to nearly R35 000.

Discussion
Mr A Mlangeni (ANC) commented that he did not want to hear, in future, that the correct systems were not in place. He would like to see the budget increased, but the other side of this was that he would not like to see irregular expenditure in the future. The Department should correct the situation, and spend its money wisely.

Mr Mlangeni asked why there was an amount of R102.7 million understated.

Mr Dlabantu replied that this matter had already been dealt with, and was sorted out in the 2008/09 financial year. The Department accounted fully for any irregularities that occurred. All the issues of the irregular expenditure had been addressed and Operation Clean Audit also assisted in dealing with the matter. The systems were also being made faster and more efficient. He stressed that nobody had stolen money as a result of irregular expenditure. There had also being better communication with the suppliers with whom the Department was dealing.

Mr Diale commented that the veterans fought a very serious struggle for the liberation of South Africa, including having spent time on Robben Island and living in the bush. He wondered why the Department of Military Veterans was not represented at this meeting.

Mr Tsepe Motumi, Director General, DoD, replied that this Annual Report covered the period to 31 March 2010. The Department of Military Veterans was only established in February 2010. The Minister of Finance made allocations, in his budget speech in February 2010, for this department for the following years.

Mr L Mphahlele asked whether the remains of combatants in the liberation movements should not be repatriated to South Africa, and asked whether the DoD would contribute to this.

Mr Motumi replied that there would be no automatic repatriation of the remains. Although the State could facilitate this if the families desired it, the State could not pay for the cost of repatriation.

Mr Mphahlele asked whether there was likely to be recovery of the amount of R2.9 billion.

Mr Mphahlele asked about the two cases referred to the South African Police Services (SAPS), both of which involved veterans.

Mr Mphahlele asked if the equipment in the military was female-friendly.

Mr Mphahlele asked for further clarity on the 240 individuals who were to be transferred from SANDF to SAPS, with the intention of “rejuvenation”.

Lieut-Gen Derrick Mgwebi, Chief Director: Human Resources, DoD, replied that the 240 individuals transferred were at the junior ranks of the SANDF, mainly privates and lance-corporals, and they were between the ages of 18 and 24. Normally, they would be transferred to SAPS when they reached 28, provided that they had demonstrated the necessary discipline, had a valid driver’s licence and had no criminal record. He explained that this then allowed the DoD to be “rejuvenated” by being able to recruit the next batch of young soldiers between the ages of 18 and 24.

Mr Mphahlele asked for details of the racial and gender breakdown for the department.

Mr Masango asked for clarity on the assets that were owned by and sold by SANDF in foreign countries.

Major General Justice Nkonyane, Chief of Logistics, DoD, replied that stocktaking would be carried out to ascertain which assets could be back-loaded to South Africa. There were two categories of assets.  Category One assets had to be back-loaded but Category Two assets did not necessarily have to be back-loaded. The cost-effectiveness of back-loading Category Two assets would have to be determined by the commander. During the disposal period, assets could be donated to the host country. However, both countries must agree on the manner in which the assets would be donated. The assets could not simply be “dumped” in the host country. A Memorandum of Understanding would be drawn up by both countries, and must be adhered to.

Mr Masango asked for further comment on the migration of assets from the DPW to the DoD. He had understood that DPW had not yet finalised its asset register, and this was the reason for it receiving a qualified audit. He therefore enquired how it could get the asset register and transfer of assets sorted out.

Major General Nkonyane replied that this had to do rather with the migration of functions from DPW to DoD. It was an internal decision at the Department to migrate these functions. There would be three phases of migration. The first phase would deal with the migration of minor maintenance functions, the second with the migration of medium maintenance functions, and the final phase would be the migration of the full maintenance functions.

Mr Masango pointed out that there were many unutilised properties owned by the DoD, and enquired why the DoD was spending money on lease agreements instead of using these properties.

Major General Nkonyane replied that a verification project was under way which involved the DoD and the DPW. The DoD was way ahead of the DPW in terms of verification, and had already completed all the asset verification required. He agreed that it was correct that some assets were unutilised. This most often applied where, for instance, the assets were in the rural areas, but the lease agreements had to be held in the urban areas. In other cases it might be found that the assets in fact belonged to DPW, and buildings might be dilapidated and not fit for use. He pointed out that currently the DoD has the lowest expenditure of all departments on lease commitments.

Mr Masango asked for an explanation on the irregular expenditure and commented that he could not understand what the issue was around the housing allowance, and wanted to know what was being done to recover the R1.7 billion.

This question did not seem to be directly answered.

Mr P Groenewald asked about the expenditure per programme, and what was the criterion for and process that resulted in the Air Force receiving R8.64 billion.

Mr Dlabantu replied that the Department followed the guidelines set out by National Treasury (NT) when allocating the budgets. The Department scrutinised each budget proposal in line with the Strategic Plan of the Department. There was also prioritisation when allocating funds to the different programmes in the Department.

Mr Groenewald asked about the lease commitments at Murrayvale in Gauteng, and asked whether the individuals had leases.

Mr Groenewald asked for comment on the AG’s remarks on leases, particularly asking for details on how many individuals had leases and how many did not, and why some did not have leases.

Major General Nkonyane replied that the property in Murrayvale was State-owned property and it was leased and utilised by the DoD. The occupants paid rent according to the DPW’s requirements.

Mr Banie Engelbrecht, Chief Director: Budget Management, DoD, added that DoD collected the rental money from the occupants, and then paid it over to the National DPW, who used the money to maintain the property. He could not say for sure whether everyone in Murrayville had lease agreements.

The Chairperson requested the Department to give the Committee a full detailed written report about the Murrayvale issues.  

Mr Groenewald asked if the money paid out wrongfully on the housing allowance was recovered, and if not, then why not.

Mr Groenewald asked if the irregular and fruitless and wasteful expenditure was related to the new salary dispensation.

Mr Groenewald asked about the deviation of R2.9 billion in relation to the standard tender process, and why such deviation occurred.

Mr Groenewald noted that not all people had received the Occupation Specific Dispensation (OSD) at the end of May 2010. He wanted to know which categories still had to get the OSD and when they would receive it.

Mr Maynier noted that the Annual Report mentioned the White Paper and Defence Strategy, and asked when the new defence policy was likely to be drawn, what the timelines were, and what process would be followed. He also asked if it would follow the steps of issuing a Green Paper, White Paper and full Defence Review.

Mr Maynier asked about the new salary dispensation, particularly what were the costs of this, how it was financed, and what projects might have been postponed or terminated to accommodate the new salary dispensation.

Mr Maynier referred to the Air Defence Programme, and said he had heard that portions of aircrafts would be placed in long-term storage, and that the Gripen programme could not be implemented. He wanted to know whether the Department had a plan to allocate resources to the Air Combat Programme.

Mr Maynier asked what the total cost was of the VIP squadron, and what had been spent on using military aircrafts and, more importantly, on chartering the aircraft. He also noted that the Deputy President had experienced a safety incident during a flight and asked for the findings of the investigation into this. He also asked if the surplus baggage found on one of the President’s flights was investigated, and what the outcome was of the investigations. He also asked if there was a new policy to purchase new aircrafts in the future.

Mr Tolo (wanted to know whether the military veterans qualified for the Military Health Services (MHS) or whether only current army personnel qualified.

Mr Motumi replied that the policy for military veterans’ access to health services had already been approved. The Department was also finalising the costing to extend the access to health services for military veterans. It was also preparing the administrative aspects ready to deal with the delivery of these services effectively. The process was not yet fully operational, but some military veterans had already accessed these health services. This was an absolute priority for the Department, and by the end of the financial year the process should be completed.

The Chairperson wanted more clarity on the Special Defence Account. He wanted to know what sales of equipment meant, what was the recognised recovery expected in terms of capital and interest, and what was meant by commitments for future expenditure already approved, to the value of approximately R16 billion. 

Mr Dlabantu replied that the A400 itemisation set out the capital and interest that was recoverable. The question was not whether it was recoverable, but how the Department would go about recovering the money. There was an irregularity because the legislation or policy had not been adhered to.

Mr Groenewald wanted to know the real shortfall and requirements of the Department for recovery.

The Chairperson proposed that the Department should provide a written response to the Committee on all questions that were not answered during the meeting.

The meeting was adjourned.