Department of Defence: interrogation of Audit Reports 2005/2006
Public Accounts (SCOPA)
09 March 2007
Meeting Summary
A summary of this committee meeting is not yet available.
Meeting report
SELECT
COMMITTEE ON PUBLIC ACCOUNTS (SCOPA)
9 March 2007
DEPARTMENT OF DEFENCE: INTERROGATION OF AUDIT REPORTS 2005/2006
Chairperson: Mr T N
Godi (ANC)
Relevant Documents:
Department of
Defence 2005/2006 Annual Report
Department of
Defence Audit Reports 2005/2006
Audio recording of the meeting Part 1 & Part 2
SUMMARY
The Committee interrogated the 2005/6 report of the Auditor
General of the Department of Defence. Committee sought clarity regarding the
delays n some of the strategic defence packages, the progress made in the
improvements in the system of registration for intellectual property and the
reported weaknesses in information systems. Members also raised key concerns,
which included the poor record keeping, inadequate management of inventories of
machinery as well as the poor reporting on the maintenance of buildings and
land. Questions were asked about the systems when sending equipment to foreign
countries, the plans to reduce the staff in line with the White Paper, the loss
of skills, the review process into rank,
the outcome of the investigations in this regard, Members expressed the view that the delays
in achieving compatability between the accounting system used by the Department
and the standards relied upon by the AG was unacceptable and said that National
Treasury should look more closely at the system of granting exemptions. Further
questions related to the management of the National Arms Convention Control
Commissioner, trips undertaken by the Minister that were not reflected in the
report, the costs of administration, problems with the management of buildings,
progress on addressing the weaknesses in the information systems, the
registration of intellectual property assets and the operational budget, which
had resulted in certain cuts and changes to the types of aircraft and equipment
utilised.
MINUTES
The Chairperson noted that the Department of Defence (DoD) was, in terms of
financial management, one of the poorly performing departments. The complexity
of the problems within the Department was appreciated, but the lack of adequate
compliance with the legislation governing the management of public finances was
a cause of concern. DoD needed to find creative ways to deal with these complex
issues.
The Chairperson noted that the internal auditing committee had confirmed the
findings of the Auditor General (AG). The findings included lack of reporting
of losses, inadequate recovery of losses; the failure to conduct regular
follow-ups; files not being able to be located for auditing purposes, and
absence of an register of losses and damages. He asked the DOD to comment.
Mr January Masilela, Secretary for Defence stressed the complex nature of the
Department, which was compounded by the magnitude of its annual budget of R90
billion. He explained that the observations made related only to the 2004/2005
and 2005/2006 financial years. DoD had acted on the observations. The
inadequate management of losses was reduced to a matter of emphasis, rather
than a qualification.
The Chairperson said that the Committee would explore both the issues of
qualification and emphases of matter. These findings suggested that although
improvements had been made, DoD was still plagued by critical problems. He
asked if the issues in the 2004/2005 AG’s report were accurately captured.
Mr Masilela confirmed the accuracy of the issues in the 2004/2005 AG report.
Although problems had persisted into the next year, DoD had made significant improvements in the 2005/2006 financial
year.
The Chairperson requested DoD to explain the changes and improvements made.
Mr Masilela clarified that neither Chiefs of Services nor Divisional Chiefs
were required to account for losses and irregularities in units in the past.
The line of accountability and reporting had been expanded and improved. These
officials were now also accountable for losses and recovery. The Chief
Financial Officer (CFO) was no longer working directly with functionaries
within the divisions of services, as this had been problematic in the past.
The Chairperson wanted to know what the impact of these changes had been on the
functioning of the Department.
Mr Masilela answered that both Chiefs of Services and Divisional Chiefs had
adopted a more hands-on approach and that these accounting officers were more
visible in the day-to-day management of the different parts of the Department.
Accountability had been improved, hence the reduction of these problems to an
emphasis of matter in the AG reports.
The Chairperson reiterated that DoD needed to explain the particular measures
employed to improve management of losses. He asked in particular if there had
been a change in the number of cases reported and the recovery of such losses,
whether regular follow-ups were conducted and if the lost files could be
recovered. It was stressed that these problems should not appear in the next
audit report.
Mr Masilela agreed with this. There was better accountability by key accounting
officers and both an accountability monitoring policy and action plan had been
developed.
The Chairperson asked whether files could be located on the day they were
requested.
Mr Masilela confirmed that they could, since the correct mechanisms and
processes to retrieve these files were currently in place. The improved
management of losses and recovery was work in progress. A detailed action plan
had been developed and such information could be made available to Committee.
Losses and recovery were monitored every month and scrutinised by an
accountability management committee. Moreover, Chiefs of Services had
instituted Boards of Enquiry to investigate the critical problem areas related
to losses and recovery.
The Chairperson stressed that the Department should appreciate that the level
of compliance was critical, not merely
the institution and development of policies and procedures. He asked if the DoD
could ensure compliance with these policies and procedures.
Mr Masilela replied that the Department regularly conducted independent
reconciliations and reviews; improving command and control, and continuously
improved the lines of accountability. These were the main areas of focus.
The Chairperson noted that the management of prepayments and advances was also
problematic. The AG’s report included an observation that insufficient
information and supporting were filed, as well as reporting on a backlog in
filing.
Mr Masilela explained that these logistical problems were linked to the current
challenges facing the interfacing of the Government payroll system PERSAL, and National Treasury’s (NT’s)integrated
finance management system. The training needed to enhance these systems was a
great challenge. The AG’s report had noted the skills shortages and the need
for training a significant number of officials. A detailed action plan in this
regard had been developed and should be implemented by 31 March 2008.
The Chairperson wondered why the Department had not identified this lack of
capacity beforehand.
Mr Masilela responded that although this had been a priority area, the measures
had been intensified subsequent to the AG’s observations. The interface between
the two systems needed immediate attention.
The Chairperson commented that although measures to improve systems were
appreciated, the oversight responsibilities of the Committee required that
persistent problems needed to be explored. It became more problematic when
management, given its responsibility to provide leadership, identified
problematic areas only subsequent to the AG report. It was critical that the
management of the Department took proactive measures to ensure that persistent
issues were resolved. The deadline for the resolution of these issues was much
too far in the future, given the urgency and basic nature of the issues.
Mr V Smith (ANC) said that the Chapter 1 of the Public Finance Management Act
(PFMA) stated that this legislation was applicable to all national departments.
However, given the nature of the work done by the National Intelligence Agency
(NIA), parliament was forced to legislate that this Department be exempt from
accounting to parliament. It was presumed that similar exemptions were relevant
to the DoD due to the nature of its work. He asked, where NT had granted
approval to deviate, the period of time for which these deviations were
granted. He also asked if NT would continue to grant deviations. He wondered if
this matter should not be legislated for to ensure clarity on how SCOPA needed
to perform its oversight duties on these departments. It was feared that these
departments would also receive qualified audit reports because of limitations
imposed by these exemptions. He asked if NT could clarify whether exemptions
would be granted to DoD indefinitely.
Mr Msulwa Daca, Chief Director: Accounting Policies and Standards, NT explained
that deviations were granted in extremely rare circumstances. Requests for exemptions
were received from departments annually, in terms of some of the sections in
the PFMA. Every request was considered and NT made a decision on which
departments would be granted exemptions. These deviations were valid for one
year only and a clear instruction was given to develop a plan to ensure
compliance with the PFMA. The same process was followed with the granting of
deviation to the Department of Defence, and the link between the requirements
of the NT and what DoD’s systems could produce was investigated. The Department
could not produce the required information for reporting purposes, and
therefore the deviation was granted. The AG report had grouped together those
issues on which the department received permission for deviation of and this was
therefore made clear.
Mr Smith emphasised that deviations were granted to the department, with conditions attached to improve its
compliance with the relevant sections of the legislation. He asked the
Department to indicate its plans for compliance with the legislation. The motivation for granting deviations was
worrisome since the department did not have systems. This was not a sufficient
answer and greater steps needed to be taken to ensure improvement of these
systems. Permission to deviate for lack of systems made a mockery of the PFMA.
The bias should rather be to have the DoD to improve its systems in order to
comply with the PFMA. If there were special areas such as the special defence
tasks, separate legislation dealing with oversight needed to be developed. Both
NT and the DoD needed to consider this possibility.
Mr Smith said that most problems had been detected in the basic financial
management systems pertaining to physical assets and accrual. He asked if the
Department anticipated the improvement of these systems soon.
Mr Masilela answered that a very detailed plan had been developed to ensure the
adequate operation of these financial management systems, subsequent to a
thorough analysis of the problem. A joint Asset Management Task Team with NT’s
had been set up for this purpose. He added that accruals would be approved
through the integrated asset management. Detailed plans were also developed by
the Department and changes would be implemented over a three-year period. The
fundamental challenges related to the fragmentation of the accounting systems
in the department. This included the clean up of data and specific
interventions had been identified and put in place, in collaboration with the
Sector Education and Training Authority. DoD was not merely waiting on the
completion of the integration of financial systems. He emphasised that
improvements would be made over a period of three years, and had been
implemented since 2006.
Mr Smith commented that basic IT management should require that a programmer
could not have access to the production and end user side of the system, and
anything to the contrary was indicative of weak controls. He asked if this
situation had been rectified, and, if not, when did the department envisage
rectifying it.
Major General Otto Schrier, Chief Director: Acquisitions, DOD explained
electronic interventions were needed to achieve strong control over the IT
system, and the Department was currently moving into that direction. Oversight
by management and regiment officials was relied upon, in the context of the
disparate systems of the transactions. Responsibilities were segregated as far
as possible between the person operating the system and the person who made
approvals. Great strides had been made to improve and achieve total control of
the IT systems. This was also within the three-year time frame.
Mr Smith stressed that this matter was too critical to wait and needed to be
urgently addressed. The explanation of manual controls provided by the
Department was noted. He requested the Department to supply the Committee with
a written description of the kinds of manual controls instituted.
Mr Smith noted that the DoD was integrating all its logistic systems and
wondered whether this integration was still on track, and if the deadline of 31
March 2008 would be reached.
Mr Masilela answered that the overall target was 2010, but DoD was currently in
track with the integration process. The Department would tackle issues as they
appeared during this process and would also inform the Committee on these
issues. A key challenge was to migrate to the Oasis system baseline to ensure
that systems interfaced with the Integrated Financial Management System (IFMS).
An ongoing debate within the Department was whether it should integrate
directly to the National Treasury’s systems or interface with Oasis.
Mr Smith appealed to NT and the Department to keep the Committee informed about
progress made. The Committee needed to see a normalization of the matter as
soon as possible, particularly because of the size of its budget as well as the
strategic nature of the DoD’s work.
The Chairperson added that SCOPA was gravely concerned that the DoD had only
recently been paying attention to these persisting problems.
The Chairperson also expressed his dissatisfaction that the NT, when
considering deviation, did not stress the importance of compliance with
legislation. This may be a subjective analysis, but he cautioned that
deviations should not be granted to Departments that continuously failed to
comply with legislation. NT had the responsibility to ensure compliance and had
an obligation to ensure that all Departments adhered to legislation such as the
PFMA.
Mr R Mofokeng (ANC) expressed his dissatisfaction with the responses provided
by the DoD. The failure to reach the goals set was unacceptable. He noted that
current management may no longer be in office by 31 March 2008. The current
Secretary of Defence’s contract would expire soon, and he was worried that a
new appointee would not be able to account for the possible failure of these
action plans and remedial efforts.
Mr Masilela stated that his appointment or reappointment depended on the
prerogative of the Minister of Defence.
Mr Mofokeng noted that the Department did not seem to be concerned about its
inability to account for R567 million in the 2005/2006 financial year.
Moreover, it could not account for R 577 million in the 2004/2005 financial
year. He quoted the AG’s report to the effect that this lack of accountability was
attributed to the deficiencies in the financial management systems. The
validity of the expenditure on subsistence and travel could not be tested and
the relevant supporting documentation could not be supplied. He asked the
Department to provide greater clarity on why this money could not be accounted
for.
Mr Masilela clarified that although the R567 million could not be accounted
for, the Department did not suffer a loss.
The Chairperson explained that the focus was not whether there was the
possibility of loss, but rather on the lack of proper accounting practices. The
Department needed to explain why proper accounting practices were not followed.
Mr Masilela said that the Chairperson had already posed this particular
question and he believed that the Department had provided a response. DoD
disagreed with the Chairperson’s assertion that the NT was very lenient in
granting a deviation to the Department. NT vigorously scrutinised the financial
management of Department on a consistent basis. Meetings with the AG, as well
as the internal auditing committee, were regularly conducted and audit plans
had been collaboratively developed. Mr Masilela could personally attest to the
dynamic interactions with NT and the AG. Four of the qualifications by the AG had
been subsequently eliminated. The impression that DoD was continuously
deteriorating was incorrect. It would deal with challenges as they emerged, and
representatives of the AG’s office could attest to this.
The Chairperson stated that this was, as stated earlier, a possibly subjective
observation. He reiterated that persistent qualifications noted by the AG were
a cause of concern. These indicated that despite the corrective measures
employed, different problems appeared. Measures needed to be employed to avoid
any qualifications.
Mr Masilela reiterated that the detailed action plan could be made available to
Members. He stated that the reasons for the problematic accounting of travel
and subsistence expenditure were largely that there no interface between the
Financial Management System (FMS) and the Persal System. The DoD had relied
primarily on a manual system of accounting. As a corrective measure, the
Department had to enhance the interface between FMS and Persal and this was
currently underway. The number of people deployed to focus on improving the
system had strained the DoD’s capacity. Additional people were currently being
trained. He was confident that all challenges would be adequately dealt with,
and that the next AG’s report would reflect this improvement.
Mr Mofokeng commented that SCOPA needed to see Departments account and deliver.
Persistently qualified or disclaimed audit reports were therefore unacceptable.
Mr Mofokeng noted that the AG could not reach any conclusion on the validity of
the R123 million housing loan guarantees and asked for an explanation.
Mr Masilela explained that this issue was also highlighted in the 2005/2006
Annual Report but was not considered a major problem. It was related to the
individual, the Department and the financial institution. The guarantees could
not take into account the changes in the value of properties or the impact of
other external factors, and records were not regularly updated due to
inadequate links to the relevant banking institutions.
Brigadier General A De Wit, Director, Human Resources Planning, DOD confirmed
that proper linkages between the financial institution granting the loan to the
individual and the records of the Department needed to be established. There
was poor communication between the Department and the financial institutions at
the time of re-evaluating the housing bond. This was being improved to ensure
regular feedback, and proper communication linkages would be finalised by May
2007. This would set up monthly feedback to ensure that the Department was made
aware of re-evaluations or changes in home loan conditions.
The Chairperson enquired whether the implementation of this plan was continuing
successfully.
Brigadier- General De Wit explained that the challenge was to ensure compliance
with the programme. Two subsections had been established to ensure compliance
and to foster better communication between the Department, financial
institution and the individual. This remained work in progress.
The Chairperson noted that files on the housing loan guarantees were not
available for audit purposes, and asked how this was being dealt with.
Brigadier General De Wit explained that the better communication between the
Department, financial institution and the individual would ensure that the
information and files containing this information were readily accessible.
Documentation could also be more regularly updated.
Mr Mofokeng asked if the Department could confirm whether these housing loans
were issued to individuals who did not hold title deeds on properties.
Mr Masilela could not verify this observation. Two units had been established
in July 2006, to investigate and verify information. DoD would report to the
Committee in due course about the outcomes of the work of the units.
The Chairperson commented that it was assumed that the Department had
scrutinised the AG report and had read the management letters sent. It was the
responsibility of DoD to respond to those management letter and the findings.
Since the department had agreed with the findings of the AG’s report, the
housing loan guarantees were problematic.
Mr Masilela agreed. Files had been checked and reconciled. In cases where no
title deeds were documented, the DoD conducted further investigation.
Mr Mofokeng enquired whether the DOD was aware of the root causes of these
problems.
The Chairperson commented that the problem was both a management and systemic
problem.
Mr Masilela reiterated that the Department had already admitted to the causes
of this problem. He added that these challenges had a direct impact on the
pension funds of individuals. A degree of command and control had been
re-established.
Ms A Dreyer (DA) focused attention on the South African National Defence
Force’s (SANDF) foreign operations on the continent. SCOPA had noted that
appropriate procedures and policies governing asset management of foreign
military operations were not in place. Due to this internal weakness, the
inventory of assets to and from foreign operations lacked formal supporting
documentation. Equipment had therefore been sent to incorrect destinations.
This caused embarrassment to the SANDF and exposed the Department to
unnecessary high levels of risk. She asked if this this situation had not
impacted negatively on the effectiveness of these operations.
Mr Masilela admitted that serious logistical challenges had been experienced.
The participation in peacekeeping operations was a new security field in which
SANDF was involved. A board of enquiry had been instituted to explore how these
logistics could be improved. In countries lacking basic infrastructure, it was
very difficult to set up specialised logistic systems. These problems were also
related broader systemic issues.
The Chairperson wanted to know how the lack of basic infrastructure on foreign
countries related to the equipment being sent to wrong destinations.
Mr Masilela said that this was a rare occurrence and recalled that equipment
destined for the operations in DRC was accidentally sent to Uganda. This
problem had subsequently been resolved. DoD had developed a detailed plan and
this could be made available to Members.
Ms Dreyer said that the Committee was interested in the detailed measures to
enable SANDF to operate in those countries lacking proper infrastructure. She
noted that although plans were easy to develop, the question was whether the
department had adequately skilled staff to enforce these plans. SCOPA was
interested in the implementation of policies and plans.
Mr Masilela confirmed that measures had been put in place at all departure
points, including Waterkloof Airforce base. These included joint coordinating
committees. Logistics and accounting systems accounted for all materials sent
out and received. These systems would be continuously improved upon as troops
were deployed and the areas of deployment increased.
Ms Dreyer asked whether the Department was able to provide the necessary
logistical support, if troops were immediately and unexpectedly deployed to a
country with poor or no basic infrastructure.
Mr Masilela expressed his confidence that despite the challenges the Department
would be able to provide this support. SANDF would be able to account for the
equipment sent out to this destination. However, DoD could not guarantee the
quality of the logistical support in the other country, given the lack of basic
infrastructure and systems. DoD was doing as best it could under very tough
circumstances.
Ms Dreyer noted that the AG had identified the deteriorating human resource
management as part of its emphases of matter in the 2005/2006 audit report.
DoD’s “Human Resource Plan 2010” envisaged a full human resource composition of
70 000 members to support the force design and structure, as visualised in the
White Paper and Defence Review. The Minister of Defence considered this plan a
strategic priority. However, the process of establishing an improved structure
had not been finalised and an increase of posts and appointments to 120 000 was
recorded. She asked the Department to explain this contradictory trend.
Ms Masilela confirmed that that the 1996 and 1998 White Paper and Defence
Review had cited a 70 000- strong staff composition. DoD had been updating the
White Paper and Defence Review over the past three years and re-evaluating the
missions and enforcement levels and had reviewed the figure to 85 000 posts.
There were currently 77 000 people employed. There were 92 000 posts in the
establishment, of which 4500 were training posts.
Ms Dreyer wondered how the DoD would achieve this revised target given the
increase in the number of posts. Minister Lekota had granted approval for the
voluntary exit of 553 members. However, the Department continued to absorb
rather than decrease the number of employees.
Brigadier General De Wit responded that the Department had reduced its
full-time human resource component from 109 000 members to the current 77 000,
which included the improvements in the new military skills system of a staff
complement of 8 000. The Department would move beyond the Defence Review system
and the staff complement would reflect this. The sudden increase in staff was
due to the capacity needed to implement the new military skills development
component. The management of the system would take into account and deal with a
decrease in staff. DoD was the only department that managed its human resources
budget within the consumer price index figure and the increase in that budget
had been only 5.4% for the last ten years. The 77 000 reflected was merely the
number of posts that the department could currently afford.
Ms Dreyer expressed her confusion as it seemed the Department and Committee
were reading different figures. She asked the Department to explain how the
current staff complement of 102 000 could be addressed.
Brigadier General De Wit said that the full time staff members were currently
at 102 000. There were 9925 administrative student posts. This figure needed to
be subtracted in order to calculate the current full time posts. DoD aimed to
reduce this 85 000, plus 9 000 training posts, to reach a total of 95 300. The
Department should have reduced its staff numbers to 95 300 by mid-2007. A
restructuring process was currently under way,
which included the closure of general support basis and other units.
Ms Dreyer expressed her concern over the impact of the voluntary exit policy on
the SANDF’s ability to retain valuable skills and institutional memory. This
was critical especially in light of the skills scarcity throughout the public
service.
Mr Masilela explained that DoD was not suffering a general skills shortage, but
had experienced capacity problems in two specific areas. Action plans were in
place to deal with this matter.
The Chairperson wanted to know to what extent the shortage of skills affected
the operation of the SANDF.
Mr Masilela answered that DoD had made significant strides in retaining its
skills capacity. The objective of its 2010 Human Resource Strategy was to
addresses the skills problem, rejuvenation, representativity and age profile of
the Department. Since 2003, 18100 trainees had been trained to fit into the
core system of the Department, which represented very good progress.
The Chairperson asked whether the military establishment was losing any skills.
Mr Masilela answered that the Department was not suffering any losses. He added
that the voluntary exit scheme was not responsible for the loss of certain
skills. The Department had become integrated from the start of the integration
system. The Department was still faced with challenges of representativity and
Colonels should not be stagnating at middle management level. The Department of
Public Service and Administration (DPSA) and the government cluster had been
consulted to assist in rationalisation of the DoD. This process was employer-initiated
and was carefully exercised. An individual with a scarce skill could be refused
voluntary exit.
The Chairperson clarified that that the airforce faced a 21% vacancy rate and
joint support’s vacancy rate was 33%. It would not be prudent for a Department
to allow the voluntary exit of staff when there were such vacancy rates.
Ms Dreyer expressed the view that Mr Masilela’s responses seemed defensive. She
was not convinced that the Department had dealt sufficiently with the questions
posed. The DoD was more concerned about the age profile and representativity
especially amongst white Colonels. The Colonels were also the officials with
the most specialised skills.
Mr Smith was not satisfied with the direction that the interaction between
Members and SCOPA had taken. The Committee should interrogate whether the DoD
had adequate levels of financial management skills. He cautioned that SCOPA
should not be reduced to a political arena.
The Chairperson noted Mr Smith’s concerns but explained that the challenges
faced by DoD extended across all levels of the Department.
Mr G Koornof (ANC) noted the errors in the introduction to the 2005/2006 Annual
Report and requested the Department to check the document before it was signed
off.
Mr Masilela said that these errors had been dealt with.
Mr Koornof noted that the rank review was the basis of one of the four
qualifications in the AG report. This was also an emphasis of matter in the
previous year. The AG had observed that the rank review was a potential irregular
expenditure. The salary costs had accumulated over the last two and a half
years. The AG observed that the criteria set by the Minister had not been met
and that the relevant files were not available for auditing purposes. He asked
how DoD would resolve these issues. He said that it could consider reporting
the matter to NT or may opt to recover the money that was irregularly spent
over the period.
Mr Masilela admitted that this matter was very challenging to resolve.
Complaints had been received that officials were not ranked fairly. A task team
had been created to investigate the matter and, using a sample of 384 members,
it was found that ranking had been done prejudicially. This was linked to the
challenge of the integration processes. It also impacted on the reliability of
supporting documentation. The remedial action had to be based on a clear
Ministerial instruction to ensure the rank review process was capable of audit.
It was not financially feasible for the Department to start the rank review
process afresh but mechanisms had been put in place to ensure that the
integrity of the process was not compromised again.
Mr Masilela added that since the AG had studied the files of each of the 384
individuals, the sheer complexity and scope of the problem hampered the speedy
resolution. The Department had two options. It could contact some of the
non-statutory forces to request reconstruction of some of the documentation, or
it could request that the procedures followed on those 384 cases be condoned.
The salary costs could be recalculated on the re-ranking of these officials.
The Chairperson said that this response did not indicate that the Department
had worked extensively on the matter. He asked where all these files were
stored, given the challenge of integration of the liberation forces? He asked
if the criteria developed by the Department were in line with the complexity of
the endeavour. He would imagine that no member of the liberation forces would
be integrated without a service certificate. He therefore asked who was in
charge of the files at a unit level. He also asked how the commanding officers
had accounted for the missing documentation, and what disciplinary steps were
taken against those officers who failed to exercise effective control and
authority. He queried whether the loss of documentation was due to negligence
or deliberate vandalisation of the files. The human resources (HR) officials of
the Department had to respond to this matter. He asked specifically whether the
HR department were able to generate sufficient documentation to satisfy the
auditing needs of the AG.
Lieutenant General Themba Matanzima, Chief of Corporate Staff, DOD answered
that as this issue related to the broader processes of transformation; its
resolution was a challenge. The Department was doing its best to reconstruct
the necessary documentation. The Committee needed to appreciate the efforts of
the DoD to transform the representation of middle management, as it was a key
strategic priority. The integration of the non-statutory forces of the
liberation armies into the SANDF contributed to the pace of transformation.
Although financial challenges were faced in this regard, the broad strides made
should be appreciated. The task team mandated by the Secretary of Defence had
developed some solutions and it had until 30 April to produce the reconstructed
and auditable files. These would be made available to the AG. All units were
instructed to cooperate with this task team and to make all files available for
this audit team.
The Chairperson asked whether those individuals responsible for the files had
been held accountable.
Lieutenant General Matanzima answered that steps would be taken after
completion of the task team’s investigation.
Mr Koornof said that although this was a sensitive matter, it needed to be
adequately addressed. The DoD had provided reassurance that the task team would
reconstruct auditable files by 30 April 2007. It needed to engage with the AG
to ensure a speedy resolution. The main objective of the AG was to ensure that
each case matched the criteria set by Minister of Defence.
Mr Barry Wheeler , Business Executive: Defence, AG added that this
investigation had already been ongoing for two years and confirmed that it had
not been trouble-free. However, it merely focused on a limited and fixed number
of cases and the shortcomings of these files against the set criteria were
significant. The AG considered the unavailability of those files as
unacceptable. The reconstructed files made available to the AG were also flawed
as important information was lacking. There were still deficiencies in terms of
meeting the set criteria. Although the AG understood the complexity of the
matter, the time taken to reconstruct the files was unacceptably long. The AG
had informed the Department that it would abandon the audit of these files
until the completion of the investigation, as this was the only financially
feasible option. The AG had therefore decided to report this matter as
fruitless or irregular expenditure. The Department needed to further engage
with National Treasury or must inform the Minister that the criteria set could
not be met.
Brigadier General De Wit reminded Members of the deadline of 30 April to
complete the investigation and to submit the reconstructed files to the AG and
National Treasury.
Mr Koornof noted the inability of the AG to report fully on the revenue of the
Department. This aspect had been the basis of qualifications and emphasis of
matter over the past five years. In a meeting of SCOPA two years ago, the
Department had stated that the revenue management policy had been revised and
promulgated and also stated that the responsibility for revenue collection was
included in the performance agreements of Chiefs of Services and Divisions. He
asked if indeed these aspects had been implemented.
Mr Masilela answered that this was a challenge and confirmed that the revenue
policy had been promulgated. The DoD had ensured that Chiefs of Services were
accountable for the collection of revenue. Delegations had also been instituted
to ensure maximum accountability in all areas of operations. Programming for
accounting for revenue had been completed on 23 February 2007.
The Chairperson noted that the success of the new measures would be highlighted
in the next Annual Report.
Mr Koornof asked what measures were in place to ensure compliance with these
policies.
Mr Masilela answered that the officials needed to submit monthly accounts of
expenditure to the Accounting Management Committee (AMC).
Mr Koornof expressed his satisfaction that the Secretary of Defence was
personally taking responsibility for the financial management of the
Department. He suggested that the Chief of SANDF needed to take responsibility
for the financial management of this body and also needed to attend AMC
meetings. This would change the management processes of the Department.
Mr Masilela answered that this issue had been discussed in the last AMC. It was
agreed that the attendance of both accounting officers should be required.
Mr Koornof asked whether uniformed personnel managed the finances of different
departments effectively.
Mr Masilela responded that since the directive of the Minister that the chief
of the SANDF should account for all essential services of the Department to the
Secretary of Defence, the situation had improved greatly. The accounting
officers had to account to the Audit Planning Committee. Final accountability
rested with chiefs of divisions and not junior personnel.
Mr Koornof asked if the Department was confident that there would be no
qualifications on this issue in the next audit report. It was a serious matter
that needed urgent resolution.
Mr Masilela expressed his commitment that this would be resolved to the best of
DoD’s ability.
Mr Koornof moved on to DoD’s employee benefit commission, which had been the
third aspect of qualification. The AG observed the lack of internal controls in
the granting of leave credit in the Department. This had been reported on for the last five years. The leave
entitlement amounted to R309 million. This situation posed a serious threat to
the viability of the Department. He asked how the Department was resolving this
matter.
Mr Masilela said that efforts had been made to resolve this very challenging
matter. Although the qualification given on this matter in the 2004/2005 Annual
Report had been removed, more needed to be done to achieve full control.
Suitable systems were in place and issues of command and control were currently
being addressed. This included proper record keeping. The Department was
considering ‘naming and shaming’ those division who were performing poorly in
this regard. Chiefs of both Services and Divisions could also be held directly
accountable. Support material for the management of registers had been
developed and distributed to all units.
Mr Koornof cautioned that a movement from a qualified audit report to an
emphasis of matter did not necessary mean that these weaknesses had been
resolved. The emphases of matter highlighted the risks posed by these
weaknesses.
Mr Koornhof stated that the audit conducted by the Inspector General determined
the level of compliance with internal policies, but did not look at the
financial controls of the Department. This was a very significant weakness, and
could be interpreted as non compliance with the PFMA. The inspector –general
had not exercised all the duties as stipulated by National Treasury and the
relevant regulations. He asked if in future the DOD would ensure that the
internal audit also focused on the systems of financial controls.
Mr Masilela answered that this was being prioritised and had been discussed at
the last audit committee meeting. A company had been contracted to enhance the
skills capacity of employees in order to detect and identify weaknesses in
these systems.
Mr Koornof enquired about the disciplinary action against the
inspector-general.
Mr Masilela clarified that the inspector-general had been under investigation,
but had been acquitted.
Mr Koornof recalled that the inspector-general had allegedly purchased luxury
vehicles for personal use on a generous discount. He asked for comment.
Mr Masilela clarified that the Inspector General had not purchased these
vehicles for personal use. The office, at a total cost of R1.8 million, had
purchased five Mercedes-Benz vehicles to transport VIPs and delegations.
Actions had been instituted and a task team had been set up to investigate the
most cost-effective way of acquiring new vehicles. These vehicles had subsequently
been confiscated. Disciplinary action would be taken against the Inspector
General on this aspect.
Mr Koornof suggested that the Committee hold further discussion with the
Department on this matter and must also engage with National Treasury. He added
that the budget had not been spent adequately and the DoD needed to clarify
what types of vehicles were being purchased.
Mr Koornhof noted that although the National Conventional Arms Control
Committee (NCACC) reported to the Minister of Defence, the DoD provided its
directorate and was responsible for its administrative management. He asked
whether the DOD had finalised the investigative report cited in the AG’s
report, and whether feedback had been given to the AG. The AG had reported that
the NCACC directorate did not follow proper work methodology nor adequate
record keeping.
Mr Masilela assured that the Committee that this investigative report would be
made available to the AG. A disciplinary case was currently underway, and its
outcome would also be submitted to the AG. A Director had been appointed to the
NCACC in November 2006, who was very competent in developing and ensuring the
operation of the necessary systems to
adequately deal with the past challenges. Mr Masilela explained that a
meeting to discuss the methodology informing the work of the directorate had
taken place between representatives of the office of the AG and the
directorate. Challenges related to this process were being addressed. He
emphasised that the work of the directorate was methodical.
Mr Wheeler (AG) clarified that the meeting was scheduled for that day, but had
been postponed until the following week. The discussions would focus on the
specific work of the directorate and the improvement of compliance with the
NCACC Act, through proper work methodology and proper documentation of any work
of the Committee.
The Chairperson expressed his dissatisfaction that these basic systems were
still not in place. He asked what had hampered the implementation of these
systems.
Mr Wheeler added that the AG also needed clarification on this.
Mr P Gerber (ANC) was
pleased that the work of the DOD could be interrogated by this Committee. He
commented on the inadequate management of its financial affairs. He referred to
the international trips made by Minister Lekota in the 2005/2006 financial
years and requested an explanation for the Minister’s trip to United Arab Emirates (UAE),
which was not reflected in the report. He then asked for confirmation on the
total cost of the precautionary suspensions made during the 2005/2006 financial
year.
Brigadier-general De Wit answered that
the total cost of these suspensions was R312 000.
Mr P Gerber enquired how the average
daily cost could be calculated.
Mr Masilela expressed his regret that
this information could not be readily supplied to the Committee. He requested
permission to provide this information within seven days.
Mr Gerber reminded the Department had
on a previous occasion promised to supply the Committee with information, but
this had never happened. This commitment was captured in the minutes of that
meeting. He warned that Members needed this information in order to make sense
of the statistics in the Annual Report.
Mr Gerber further requested
clarity on the Departmental expenditure reflected on page 48 of the 2005/2006
Annual Report, and asked if the Department could clarify the exact cost of
administration as well as the virements.
Mr Masilela clarified that the total administrative costs were R685 million and
virements R99 000.
Mr Gerber noted that
the Annual Report incorrectly reported the total departmental expenditure as
R764 000 and not R764 million. Such inaccuracies made it difficult for members
to scrutinise Departments’ expenditure. The 0.2% under expenditure
reported by the Department would automatically be questioned. The integrity of the figures needed to be
ensured.
Mr Gerber wanted to know whether the
catering services and bar facilities were still subsidised by the DOD, and he
noted that the Annual Report reflected a 102% percent increase in disciplinary
cases relating to drunkenness.
Mr Masilela confirmed that these
facilities were not subsidised. The high figure on drunkenness also reflected a
societal problem.
Mr Gerber said that the AG had reported
several serious problems in the management of buildings. These included
unauthorised sub-leasing and rental of state property to private business, that
buildings could not be inspected since the precise location could not be
identified and that some buildings were declared as inhabitable due to the
major health and safety risks these posed. In its recommendations the previous
year, SCOPA recommended the completion of an asset register and that monthly
meetings must be held to ensure that facilities were properly maintained. SCOPA
was not satisfied that this state of affairs was being properly managed, given
the fact that currently only 25% of the facilities register system could be
confirmed.
Mr Gerber noted that the fixed asset register and the repair and maintenance
programme and cash flow projections had been completed towards the end of the
financial year, and an additional R10 million had been received to address the
backlogs in repair and maintenance and a tender process had been initiated.
Moreover, although R79 million capital expenditure had been reported for the
2004/2005 financial year, this expenditure had reduced significantly in
2005/2006. The Department seemed to pass responsibility to Department of Public
Works (DPW) for the maintenance of buildings, as apparent during a meeting with
the Secretary of Parliament. He asked whether the DoD could not manage some of
the maintenance issues, and to explain how it intended to maintain these
buildings.
Mr Masilela answered that a joint task
team had been set up between DOD, and Departments of Land Affairs and Public
Works to verify the DoD’s assets and their
condition. This was a work in progress. Both DOD and DPW faced a serious
challenge of reconciling assets recorded in their respective registers.
Brigadier general Justice Nkonyane,
Acting Chief: Logistics, DOD explained that the management of fixed assets
depended heavily on the interactions between DOD and DPW. The asset registers
of DOD and DPW were contradictory and regular interactions were taking place to
ensure that periodical reconciliations were
done. A ministerial agenda regarding this matter had been set up to
guide the improvement of the asset register system.
Mr T Bonhomme (ANC) requested the
Department to report on the progress made on each of the weaknesses of the
information systems identified in the AG report.
Brigadier Ray Cummings, Manager:
Information Systems, DOD explained that although not ideal, interim manual
systems had been established. The steering committee would provide the
necessary guidance for the improvement of all information systems in the
Department. The various stages of the disaster recovery plan had been
rationalised, standardised, and
integrated. A disaster recovery exercise was planned for October or November
2007. He added, in relation to improved access to production data, that
although registers had been established, the segregation of duties between the
data base administrators and the Oracle Unix operators remained a challenge.
Officials had been appointed to assist with the delegation of duties. Manual
systems were being used at this stage.
He reported further that the security systems had been improved. The software
used required rotational changes to the security setting when logging into the
system. Physical access to the data centre had been improved through the use of
sophisticated access methods, which included the vistors’ register as well as the recording of
the movement of equipment.
Brigadier Cummings added that the DOD,
the DPW and the contractors jointly managed the improvement of Occupational
Health and Safety equipment, particularly the fire equipment. This included
electrification and fire extinguishers. It was necessary to ensure that the
flow of information from one contractor to the next was maintained.
Mr Bonhomme asked the Department to
indicate which items would be addressed to the satisfaction of auditors at the
close of the current financial year on 31 March 2007. He asked if the
Department could provide deadlines for addressing all other outstanding issues.
Brigadier Cummings requested permission
to respond in writing. DOD needed to consult with the Portfolio Committee on
Defence regarding the time lines for capital investment for the next financial
year, given the challenges in the built and infrastructure environment. This
would provide an indicator of when the challenges observed by the AG could be
addressed.
The Chairperson granted permission, but
stated that the information should be directed to SCOPA and not the Portfolio
Committee of Defence.
Mr Bonhomme wanted the Department to
explain the processes in place to identify all invoices for accrual, of all
sections of the Department, before and on 31 March 2007.
The Chief Financial Officer,
DoD answered that due to the change in the logistic systems and the vastness of
the organisation such information could not be supplied manually. DoD had been
granted deviation from the National Treasury. She stressed that the capturing
of the information was dependent on having an integrated system and this would
ensure accurate accrual.
Mr Bonhomme expressed
his surprise at this response as he was under the impression that much of this
information could have been captured manually.
Mr Bonhomme noted the AG’s observation that proper rules and
procedures regarding intellectual property had not been implemented. DoD also
did not have a complete register of Defence intellectual property. Although
Armscor was responsible for this register, the DoD remained accountable. He
asked whether this register was up to date and available for auditing purposes.
Major-general Schrier responded that
the register had been operational for more than thirty years. With the
implementation of the PFMA the Department had issued a policy on intellectual
property, which had subsequently been applied. The Department was currently
addressing the contradictions within that policy, and he reminded the Committee
that the Department was for the moment unable to account effectively for
intellectual property assets. He had been instructed to manage the improved
accounting process. This was a very complex exercise due to the history of
neglect. Formal engagements were held with Armscor. An implementation programme
had been finalised, without a formal budget allocation. Three pilot projects to
test various levels of intellectual property had launched relating to
foreground intellectual property (IP), background IP and shared IP. Particular
types of IP created particular difficulties. The separation agreements between
Armscor and Denel created a further complexity as Denel were authorised free
access to all military IPs. The Department had created the framework for an IT
system that would capture intellectual property and running programmes had been
utilised to provide access to all data created. Formal project teams had been
set up to regularly manage and report on this project. This database could be
ready for audit by the end of March 2008.
Mr Gerber focused attention on DOD’s Special Defence Account. He noted
that the Department had reported an under spending due to a surplus on the
strategic defence packages. Furthermore 98% of purchase contracts were in
place, there had been delivery of 98%
of materials, and the numbers of irregularities were less than 0.5%. He asked
the Department to explain the challenges experienced with the remaining 4%
percent of contracts.
Major-general Schrier answered that
this delay was due to the difficulties in defining the needed equipment.
Although the vessels and aircraft had been reported and audited, the remaining
logistical supplies still needed to be defined. Technical deviations were also
identified during trial exercises. A request was made to for a roll-over of
these funds, but these contracts were subsequently audited.
Mr Gerber wanted to know how much money
had been rolled over.
Major-general Schrier answered that
R1.5 billion had been rolled-over, of which R950 million was a provision set
aside for changes in exchange rates.
Mr Gerber expressed his shock at the
phasing out of certain vehicles and aircraft and the reduction of flying hours,
that partially due to the replacement of obsolete equipment. He said that that
DOD had expressed concern about the impact of under funding, which caused the
South African Airforce to operate its air services at sub-optimum level. The
under funding of the operating budget was likely to force the combat system
group to operate a strategic defence aircraft at utilisation levels below the
optimum. He asked for explanation.
Mr Masilela confirmed that the
incorporation of the strategic defence packages was challenging and the DOD had
been very honest about these challenges. These problems were noted when
considering the updating of the force design and structure. The Department
would need a specific budget to enable the operation of these packages.
The Chairperson enquired what these
challenges were.
Mr Masilela replied that the DOD needed
to provide a balanced capability to meet immediate operational requirements.
The current need for combat aircraft support for joint operations was very low
because there was no real threat. The Department was mainly focusing on
transport capabilities and the training of new pilots as preparation for future
operations. The budget allocated for combat systems had been deliberately
reduced to ensure that other systems could provide the output that was expected
to meet the audit task team’s commitments.
Operating costs for the Hawke aircraft were roughly equivalent to the Impala’s costs and DOD would continue to fly the
former aircraft at about 2000 hours per year. The Cheetah systems would operate
for about 1000 hours per year. The budget for combat systems would be increased
if the threat to national security increased. DOD had been able to meet its
outputs through utilising its spare reserves, but could only be reliant on this
method for a limited time. The Airforce was implementing a very stringent
recovery processes, and the Oryx helicopters should be serviced in due course.
Capital funds had been ring-fenced for this purpose and the inherent integrity
of the systems was being addressed systematically. This would limit outputs in
the short-term.
Ms T Tobias (ANC), Chairperson of the Portfolio Committee on Defence
informed members that her committee had established nine sub-committees to
tackle any challenges in each of the nine programmes in the DOD. The
improvements made by the Department were appreciated. The Portfolio Committee
had noted all the issues and would engage the Department in this regard. It
anticipated another qualified audit report as the particular challenges faced
by the DOD could not be resolved over one financial year.
The Chairperson noted
that one of the SCOPA’s strategic objectives was to achieve synergy between its
work and that of the Portfolio Committee. The continuous presence of
representatives of the office of the AG and NT was appreciated. He was
confident that DOD had taken due note of the concerns and issues raised, and
that it would realise the commitments made to SCOPA. He summarised that the
discussions had highlighted concerns around the poor record keeping; the
command at unit level; and the challenges of the transformation process and
skills capacity at middle management level. The Department needed to ensure
adequate levels of compliance with policies and procedures.
The meeting was
adjourned.
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