Monitoring implementation of Audit Action Plan and related challenges; DoD fleet management policy and procurement of essential goods; DoD & DMV BRRRs; with Deputy Minister

Meeting report

Implementation of DoD audit action plans

Ms Gladys Kudjoe, Secretary for Defence, introduced the presentation by highlighting that the duty of the audit committee and internal audit was to hold the Department accountable for the deliverables of the action plan that had been crafted. The Department had a monthly accountability management committee attended by all chiefs of services and divisions, which ensured that the Department was held accountable.

Ms Fikile Mabilane, Acting Chief Audit Executive, Department of Defence (DoD), said that the vision of the internal audit division (IAD) was to be an exceptional, innovative driver of positive change, with the mission to support the DoD, through the internal audit expertise and skills, to promote a resilient control environment. Follow-up audits on the Auditor-General of South Africa (AGSA) findings had been planned for the period from November to mid-February 2023, and a report would be ready by the end of February 2023 to be tabled to the audit committee.

The AGSA audit qualification indicated the following issues:

• Insufficient audit evidence on sensitive projects (Special Defence Account) in the area of goods and services and investments.
• Internal Audit follow-up -- nothing could be done by internal audit due to the sensitive nature of the environment.
• Irregular expenditure which was not fully recorded
• Regarding moveable tangible capital assets, the AG could not verify the location of assets worth R64.7 billion.
• Employee benefits raised concerns over the leave balance, stated at R3.5 billion.

After completing each audit, IAD made several recommendations to the different services and divisions. There was also a procurement seminar in August 2022 attended by all procurement officers on how to avoid a recurrence of the findings. The division was still finalising the last procurement centre, after getting management responses. A final report would be presented around November 2022.

Ms Mabilane said the challenges faced by IAD included not covering the necessary audit risk universe as required by Treasury regulations and standards due to capacity constraints, which resulted in an audit finding by the AGSA. There had also been delays in getting responses from management which subsequently delayed the finalisation of the audit. This included delays in the implementation of audit action plans, which subsequently resulted in repeat audit findings by the AGSA or IAD.

She further highlighted that some challenges faced included the Department not having integrated systems, which created a lot of work for auditors, as they had to go around the units and do a manual audit. Furthermore, some critical vacancies in the Department were not being filled.

Monitoring of implementation of audit action plans

Mr Luyanda Mangquku, Chairperson: Audit Committee (AC), DoD, indicated that the process that was followed after the issuance of the AGSA report in July was the immediate recommendation by the AC that management prepare a detailed audit action plan. Quarterly, the AC monitored the progress of the management in addressing the control weaknesses and root causes from the findings raised by the AGSA and the internal audit. When management tabled its progress report on the audit action plan, the AC required the internal audit unit to verify the reported progress as part of assurance.

He updated the Portfolio Committee on the challenges reported by the audit committee.

In internal audit activity, he said that the Chief Audit Executive position had remained vacant, despite interviews conducted over a year ago. There was a need to build the strategic capacity of specialist skills, especially in finance and information communication technology (ICT) auditing. The external quality assurance review report on the internal audit remained pending. The compilation of a comprehensive findings tracker, covering the 2021/22 and 2022/23 findings for monitoring by the AC, was underway. He added that a combined assurance approach had been successfully employed between the internal audit division and the inter-governmental (IG)-internal audit division for Department-wide coverage.

Mr Mangquku reported that in terms of the services and divisions, the Department had an unmitigated high-risk profile, mainly due to insufficient funding, which threatened the Department's core mandate, inevitably risking a heightened national security and sovereignty risk. Further, internal audit had unearthed serious findings in some DoD procurement units, therefore a breeding ground for irregular expenditure. There was also an urgent need for the policy board to convene and update DoD policies.

He said it was concerning that fraud cases had risen by 9.2%, with investigations taking long to conclude. There had been some recommendations that sanctions from concluded fraud investigations were inconsistent with the “zero tolerance to fraud” policy position. However, due to a lack of detailed reports, the AC was unable to confirm whether all recommendations from finalised investigations were being implemented effectively and timeously.

Mr Mangquku pointed out that the ICT digital transformation strategy remained in the draft phase, despite outdated ICT infrastructure. There were material cases of irregular expenditure in the ICT environment totalling about R312 million. However, the DoD business continuity plans and disaster recovery plans were reported to be 90% complete.

In his concluding remarks, he said that the DoD needed to move with speed and respond urgently to all findings, both from internal audit and from the AGSA. Fraud and corruption investigation processes at the DoD remained challenged, and a new approach independent of the affected services and divisions, which took fraud prevention and consequence management seriously, was necessary.

He added that the challenge of dual authority within the DoD, created by the Public Finance Management Act (PFMA) and the Defence Act, required serious attention and resolution. Breaking the stagnation of a qualified audit report at the DoD was a key target shared by the AC, but this required full cooperation and commitment from all stakeholders, services and divisions, together with specific training interventions and effective consequence management where necessary.

Discussion

Mr S Marais (DA) said that the presentation was needed, as it had emphasised the challenges that the Portfolio Committee was concerned about. However, he wanted to know what the way forward was after the issues had been identified. He was concerned that there was no authority to enforce the recommendations raised, including enforcing consequences for mismanagement. He asked for support in enforcing remedial actions and proper consequence management.

Dr M Basopu (ANC) raised concerns that the AGSA recommendations and the action plans were not implemented, and asked what the reasons for the lack of cooperation were. He added that the Portfolio Committee must make follow-ups to ensure the recommendations were implemented.

The Chairperson noted that the procurement unit had been identified as a breeding ground for irregular expenditure, and asked if the investigations into irregular expenditure, fraud and corruption, were an independent process.

He said that the legal service, not reporting on the litigation matters since December, should be attended to. Further, all cases under investigation, including those matters which had been finalised but were only awaiting the decision of the SecDef, the Chief of Defence, or the head of service or division as the case may be, should be dealt with.

He stressed that by the next meeting, there should be progress on filling vacancies to decrease the capacity constraints, including training the procurement officers to ensure that they had the requisite skills and tools. There should also be progress on digitising the Department’s systems to improve efficiency.

DoD's response

Mr Thabang Makwetla, Deputy Minister of Defence and Military Veterans, said that the observations and concerns of the Portfolio Committee had been noted. The suggestions on the way forward had also been noted, and the members of the internal audit division would follow up and return with an update to the Portfolio Committee in January 2023. He acknowledged that the various strategic weaknesses ought to be addressed, and they were working to address them.

DOD fleet management policy and procurement challenges

Mr Tshepo Malaka, Quality Assurance Manager: Log Strategic Planning Office, DoD, indicated that military vehicles, commonly known as the "white fleet," were considered the administrative backbone of any Defence Force as they were used across all services and divisions. These vehicles were also considered common and universal, with the Chief of Logistics responsible for managing universal and common commodities.

He said that the fleet management policy was a centralised function under C Log, which then initiates the policy for promulgation by the accounting officer. The policy covered the entire management of the fleet, from procurement, utilisation, management and maintenance, to phasing-out. Currently, the policy was under review to cater for the evolving environment in which the DoD finds itself. He also updated the Committee that purchasing the DoD Fleet was centralised with C Log, where transversal contract RT-57 was used to purchase DoD vehicles according to plan.

The current challenges included that fleet replacement was not taking place due to DoD budgetary constraints. The South African National Defence Force (SANDF) had a shortfall of 11 729 vehicles, to operate in line with approved equipment tables. There was also a challenge with the high maintenance costs because of the age of the fleet, which had resulted in declining fleet availability.

Mr Malaka said mess rations and patrol ration packs were considered a common commodity and managed centrally by C Log. Currently, in terms of mess rations, no contracts existed, but the terms of reference (TOR) were at the departmental commercial procurement board for consideration and finalisation. An 18-month patrol ration pack contract's TOR had been approved by the procurement board. This subsequently led to the advertisement for suppliers to tender and participate in the contract, which was expected to be finalised in the next 90 days.

He said that where the fuel consumption of the unit exceeded 2 000 litres per month, a supplier was appointed for the unit by the State Tender Board as a sole supplier to that unit. The appointed supplier installed the necessary equipment and retained ownership thereof.

He further pointed out that with the implementation of the RT70 contract, the ownership of the equipment fell through the cracks. Before 2016, KZN Oils had been awarded a contract by National Treasury (RT70) to supply and maintain the fuel equipment for all state departments. During that period, KZN Oils concentrated only on supply. They neglected the maintenance part of the contract, which resulted in the deterioration of some of the fuel equipment beyond economic repair. Therefore, the DoD had opted out of the National Treasury contract and entered into a contract with various suppliers to supply fuel per province on a rotational basis for a period of five years, from 1 November 2016 to 31 October 2021.

Mr Malaka added that currently, the DoD and the Central Energy Fund (CEF) had entered into a Memorandum of Cooperation (MOC) for the supply of fuel and other related products and services in July 2019. The Military Command Council had approved the fuel model for the DoD, which included the CEF as a strategic supplier. The advantages of utilising CEF included undisputed common interest, the ability to leverage each other’s expertise for the interest of South Africa, cooperation in renewable energy production, collaboration in strategic stock storage for the DoD with the national interest at heart, and the DoD’s ability to purchase cheaper fuel while creating savings that could be utilised at other operational areas.

Gen Xolani Ndlovu, Deputy Chief of Logistics, South African National Defence Force (SANDF),   added that budget constraints were a limiting factor with a negative impact on the manner in which the Department was managing its affairs. Currently, there is an investigation to find the best model to ensure a cost-effective strategy. There was also an investigation to improve the mechanism that would assist in monitoring compliance with policies in the Department.

Regarding rations, he said the Department was striving to be self-sustained, so the aim was to ensure that the Department did its own packaging of the rations.

There were fuel issues that needed to be considered concerning commercial contracts. Firstly, there were long turnaround times to deliver, and secondly, there were non-deliveries by the suppliers who had an impact on the operations of the SANDF.

Discussion

The Chairperson sought more clarity on the shortages of vehicles. Concerning the fleet that had been bought as a stopgap measure and later became a semi-permanent provision for the borderline deployment, he said it was reaching its sell-by date period, and he wanted to know what the plans were to replace it.

He asked if repairs and servicing were wholly outsourced or privatised, or if the Department did some work with a minimal number of mechanics.

Mr Marais asked under what circumstances the Log Division did not follow recommendations in terms of the PFMA requirements, and what was used to support such a decision, including the consequence management plan.

Mr T Mmutle (ANC) referred to the fleet management policy, and pointed out that the presentation had not addressed the fleet maintenance challenges. Therefore, what was being done as far as policy measures to build the Department's capability to deal with such issues?

Regarding the rations, he asked how deployed forces were supported if there were no contracts, and whether this did not pose a risk.

He asked how many companies were part of the fuel contracts that ended last year, and how many were owned by the youth, women and military veterans.

DoD's response

Gen Ndlovu responded on outsourcing and in-sourcing, and said the Department had a fleet management plan that stipulated how this should be managed. However, most commercial vehicles were normally procured with a maintenance plan for some period. After that period, a decision was made whether to continue with the maintenance plan, or if they should be maintained internally. However, specialised vehicles, such as those used by very important persons (VIPs), were maintained through outsourced services.

Regarding the PFMA, he said that within the procurement unit, different committees dealt with issues of procurement as per the guidance of the PFMA. A clear process had to be followed, such as the terms of reference on who should be included in the bid. Once that was done, the relevant committees would go through the procurement process using those terms of reference, including the mandatory requirements which address the Treasury regulations and the PFMA.

Regarding the supply of rations in the absence of contracts, he said that the intervention was that the Department had requested the delegation of R1 million that would be used through the plan tabled in Parliament by the end users.

Deputy Minister Makwetla, in closure, said the challenges involving fleet management and the procurement of essential goods were an amplification of the concerns raised in the audits of the DoD, as discussed earlier in the meeting. The Department faced a heightened unmitigated risk largely due to insufficient funding. This put the defence and security of the Republic of South Africa at risk. These were the issues that would be detailed and addressed in the future report that would be presented in January 2023.

Consideration and adoption of BRRR

Dr Wilhelm Janse van Rensburg, Committee Researcher, presented the Budgetary Review and Recommendation Report, and the recommendations made by the Committee.

Mr Marais added that since this was a report to Parliament, it should include the Committee's observation that the AGSA should use its authority to also act on the issues raised. He moved the acceptance and support of the report.

The report was also supported by other Members of the Committee.

The Chairperson noted Mr Marais’ point, and requested that this be included as an item in the next meeting.

The meeting was adjourned.