Department of Defence 2010 Annual Report: media briefing by Secretary for Defence Ms Mpumi Mpofu, 07 October 2010

2010 DOD Annual Report by Secretary for Defence Ms Mpumi Mpofu, 07 October 2010

It is my pleasurable duty to share with you some of the contents of the 2010 Annual Report of the Department of Defence.  This report reflects on the DOD performance for the year under review. It also demonstrates the DOD's contribution towards the achievement of the initiatives and priorities of Government.  During the period covered by the report, the DOD executed its mandate as contemplated in Section 200 (2) of the Constitution with a high sense of focus and purpose.  The Constitution provides that the primary object of the SANDF is to defend the Republic, its territorial integrity and its people. 

 The execution and delivery of the defence mandate as contemplated in the Constitution and the Defence Act requires the existence of effective and efficient DOD organisational structures.  To that end, both the Chief of the SANDF and myself, appointed on the 1^st April 2010, as Secretary for Defence, executed our distinct yet complementary roles and functions through our dedicated structures of the SANDF and the Defence Secretariat respectively. 

These structures include the Legal Services Division and the Defence International Affairs Division. The implementation of the Internal Audit Division could, however, not be concluded in the year under review and is now being finalised through the process of identification and recruitment of suitable people for this structure.  Since internal audit is key to the promotion of good corporate governance in the DOD, the implementation of the Internal Audit function will be a priority for the Accounting Officer during the Financial Year 2010/11. The process of recruitment is underway.

The delicate nature of the defence function requires adequate alignment of the roles, functions and structures of the SANDF and the Defence Secretariat.  It is in view of this consideration that the Minister identified the alignment of the DOD structures as a priority for the Financial Year 2010/11 for an improved delivery of the defence function.

To implement the May 2009 President's pronouncement on military veterans, the DOD, in support of the Minister, undertook work that led to the 28 December 2009 proclamation of the Department of Military Veterans.  This proclamation was followed by the appointment of the Director-General for the Department of Military Veterans in February 2010.  Moving to the future, the organisational structures of the Department of Military Veterans, as a duly proclaimed department, will be independent of those of the DOD except for reporting directly to the Minister of Defence and Military Veterans.

The Minister had identified specific priorities to be pursued by the DOD in the year under review, Financial Year 2009/10.  To that end, the DOD has carried out those priorities as follows:

Creation of a New Dispensation in the SANDF. In view of the uniqueness of the service provided by the SANDF and the conditions under which they serve the State, an appropriate new dispensation was deemed urgent and necessary. To that end, the newly established SANDF Service Dispensation made it possible for the improvement of  for critical areas within the SANDF.

Establishment of the Department of Military Veterans. The Department of Military Veterans was established and its Director-General appointed by Cabinet. A Task Team on Military Veterans, led by the Deputy Minister of Defence and Military Veterans concluded its work and is finalising the necessary legislation to enable the Department to carry out its mandate.

Policy Framework on the Management of HIV and AIDS in the SANDF. The SANDF HIV and AIDS policy framework has been approved by Cabinet and is currently being implemented by all services in the SANDF.

Returning the SANDF to the Border Safeguarding Function. In 2009, Cabinet approved the SANDF’s return to the border safeguarding function with effect from 1 April 2010.  The SANDF is currently undertaking this function through a phase-in approach. This will remain a priority also for the financial year 2010/11

Corporate Governance Matters. The appointment of incumbents to the posts of Secretary for Defence, Director-General of the Department of Military Veterans and Chief Financial Officer of the Department of Defence was effected from 1 April 2010.

Revitalisation of the Reserves. In the year under review, the Defence Reserve Board monitored the implementation of the Reserve Strategic Plan by the Services and Divisions using Project PHOENIX Phase 3 as a mechanism. This has resulted in the total strength of the Reserves growing by 29% in the FINANCIAL YEAR 2009/10, with a lesser growth of 18% of those classified as "active". This increase has enabled the ongoing external deployment of Reserves in peace support operations.
           
Training and Skills Development. This is an important aspect in the DOD and will be covered in detail in the review of the white paper on defence. The DOD would be positioned as a government institution that contributes towards training of young people for future employment.

Working with the SAPS to Fight Crime. The SANDF continued to work together with the SAPS in internal law enforcement operations, especially during the 2010 FIFA World Cup, Operation Kgwele ensure a most successful World Cup with the Army, Navy, SAMHS and the Airforce playing a most critical role. In order to comply with the 2009 Cabinet decision for the SANDF to return to the border safeguarding function, the Minister ensured the preparedness of the SANDF to effectively undertake such function in Financial Year 2010/11.

The SANDF successfully executed a total of nine joint, interdepartmental and multinational exercises.  One of the priorities was the preparation for and provision of security for the 2009 FIFA Confederations Cup, in collaboration with the South African Police Service.  In order to test the capability and readiness of the Southern Africa Standby Brigade, Exercise GOLFINHO was conducted, involving almost all the armed forces of the SADC region.  This culminated with the holding of the field training exercise in South Africa in September 2009. 

Peace Keeping Operations. The SANDF successfully participated in various external peacekeeping operations. South Africa celebrated 10 years of peace keeping missions on the continent and the President attended the parade in Bloemfontein to mark this occasion. The SANDF successfully participated in external operations by providing operational capabilities to the United Nations and African Union.  It participated in five Peace Support Operations in the Democratic Republic of Congo, Burundi, Sudan, Nepal and Uganda.  The SANDF further participated in two General Military Assistance operations in the DRC and the Central African Republic.  On average, a total of 2 894 members, including 148 Reserve members, were successfully deployed in the various external missions stated above.  Through the deployment of these operational capabilities, the SANDF contributed significantly to the maintenance of peace and security on the continent.

Infrastructure and DOD Works Regiment.  The Minister has held extensive discussions with the Department of Public Works for the DOD to assume the responsibility for the maintenance and repair of its facilities and infrastructure portfolio.  In the meantime, reasonable progress has been made towards the improvement of the DOD's infrastructure and support to the people.  The three bridges built and completed by the SANDF in the Eastern Cape bear testimony to the SANDF’s capability.

Information Technology.  In the year under review, progress was made in the integration of defence Information and Communication Technology systems. The DOD Information Strategy and the Information and Communication System Policy were finalised and promulgated. Obsolescence remains one of the key challenges in the DOD ICT environment.  Purchase of new generation ICT replacement systems requires more money where limited funds are available. Improvement of the DOD ICT environment is also affected by the National Treasury moratorium placed on ICT systems purchase and the slow progress made by the Integrated Financial Management System (IFMS) project as driven by the National Treasury.
 
In the human resources environment, notable achievements during the period were mainly the improvements of the SANDF members' service conditions through a new service dispensation finalised and implemented in December 2009.  This resulted in salary increases ranging from 2% to 65% for all members of the SANDF on salary levels 2 to 12, with effect from 1 December 2009. 

In the MOD’s budget speech of 3 July 2009 the Minister undertook to establish a mechanism for the improvement of service conditions of the SANDF members. The mechanism would provide new service conditions that will replace the current service conditions issued in terms of the Public Service Act. Cabinet approved the Defence Amendment Bill which includes the establishment of the National Defence on 24 March 2010 for certification and is currently before Parliament.

In order to further address the loss of highly skilled SANDF personnel, various measures have been adopted by the DOD aimed at ensuring that recruitment targets are met. These measures include the recruitment of a total of 4 883 Military Skills Development System, or MSDS, members during this financial year.
 
Through the utilization of the SANDF collateral capability, the SA Army Engineer Corps constructed bridges for some Eastern Cape rural communities.  This initiative has, on the one hand, assisted the affected communities with the necessary road infrastructure for ease of access.  On the other hand, it has demonstrated the practical application of the SANDF's support to the people of South Africa.

The AG’s report on the financial statements reveal a marked improvement compared to the previous years outcome. The year under review show that the audit qualifications have reduced from 6 to 1 qualification. The previous year’s qualifications relates to the following issues:
Tangible and Intangible Capital Assets
 Lease Commitments
Irregular Expenditure
Consultant Expenditure – AMG
Departmental Revenue
Inaccurate Accruals Corresponding Figures.

In the period under review, the DOD continued to focus on the improvement of financial management, accountability, risk management, the state of internal controls and the cleaning of the audit report through Operation CLEAN AUDIT.
 
Another challenge is the inadequacy of the budget to cover all the requirements of the DOD.  This budget limitation particularly affects the DOD facilities and infrastructure maintenance, integration and operationalisation of defence capital equipment and the acquisition of military consumables, has an adverse effect on the preparation and employment of the SANDF.
  
On the issues of Corporate Governance, Internal Controls and Audits, the previous audit report has pointed out various weaknesses in the DOD internal control systems.  These have, in some instances, led to audit qualifications.  The DOD is fully seized with these internal control challenges and is committed to reversing such challenges through a thorough action plan.  It is against this background that Operation CLEAN AUDIT has to be seen.  Operation CLEAN AUDIT is a focussed programme to identify root causes of the DOD audit qualifications and to develop internal controls to address such audit qualifications.

In the reporting period, the DOD has conducted extensive work on each of the audit qualification areas with a view to reversing them.  To that end, causes of many of the standing qualifications have been adequately addressed.  In this regard, the following is reported:

Tangible and Intangible Assets.  It has been realised that key to the problem is the issue of the systems that have been used which are geared to address mainly defence industry requirements other than those of the Accounting Standards developed by National Treasury.

In the absence of a proper asset register system, the DOD utilises manual systems and the above-mentioned logistical accounting systems to account for assets.  These logistical systems were developed to manage item quantities according to the NATO prescripts and thus focus on quantities per National Stock Number, or NSN, rather than on values per item, with no segregation between inventory and capital assets.  In addition to the values and segregation problems, other internal control weaknesses have been identified which include non-capturing of acquisition dates in some instances and absence of a unique identifier normally done through the bar coding of assets.

To address these deficiencies, the DOD has undertaken a full inventory and tangible, movable and immovable capital assets verification process. This process involves the identification of these assets, confirmation of ownership, correct valuation, condition assessment and recording these in a manner that meets the requirements of proper asset management.  Similarly, the DOD is continuously engaging the National Treasury to obtain the necessary approvals with regard to implementing system changes and appropriate interfaces that will ensure that the outcome of the plan results in properly constructed asset registers, which meet the unique defence, international and industry standards.

Lease Commitments. Leased assets are spread throughout more than 1 000 Force Structure Elements, or FSEs, across the country, and comprise Land and Buildings, Labour Saving Devices, Cellular Telephones and Gas Bottles.  Challenges include: capacity and skills constraints, lack of internal controls, insufficient systems and the reporting structure of the DOD. In the Financial Year 2007/08, there was no lease register. The value of lease commitments disclosed in the Annual Financial Statements was Rm3.3, and there was a fundamental lack of supporting documentation to confirm any lease commitment within the DOD, particularly relating to Land and Buildings, which is a significant commitment. 
The management of the supporting documents for Land and Buildings resided with the Department of Public Works (DPW) until Financial Year 2008/09.  The current logistics systems do not cater for contract management principles, which is what lease management is based on.  A manual process and system for collecting, verifying and reporting on leased assets was therefore implemented. 

The current logistic information systems are being updated to manage the leased assets, but it still needs to be established whether the system can cater for the requirements of lease management.
 
Irregular Expenditure.  This qualification relates to the incompleteness of irregular expenditure and a lack of documentation to support amounts that were disclosed in the financial statements for the FINANCIAL YEAR 2008/09.  The DOD has developed a policy, process and procedures for the prevention, identification, management and reporting of irregular expenditure.  Cases of irregular expenditure identified and investigated are recorded in the register and appropriate reports are submitted to both the Auditor General and the National Treasury, where applicable, as soon as the matters are identified and determined as such.   In addition, we have also instituted internal controls for the proper management of the consultants' expenditure to ensure that the records and documents required are kept and produced for auditing, recalculations to ensure accuracy of payments made are done, and value for money is realised from services rendered by consultants. Regarding the Aero Manpower Group, or AMG, contract, full details of the actions undertaken have been provided in paragraph 1.1.2.17 of the report of the Accounting Officer in the Annual Financial Statement section. Additional documentation required has been submitted to the AG in this regard. 

Given the involved nature of some of these audit qualifications, the DOD is aware that additional time and effort will be required to reverse such qualifications.  The DOD will continue to work tirelessly on all outstanding audit qualifications in FINANCIAL YEAR 2010/11, in line with the directive of the Minister towards the achievement of financial statements that are free of audit qualifications.
  
One of the key pillars of good corporate governance is robust organisational internal control.  Through the current DOD programme of strengthening of internal controls beyond areas of qualifications, the DOD will make great strides towards the realisation of sound corporate governance.

Management of Performance Information: The challenge that we have been grappling with is how to make our performance information , namely, targets and performance measures SMART. In this regard we are working closely with the Technical Assistance Unit (TAU) of the National Treasury.

Regarding Strategic Capital Acquisition, the year under review saw the cancellation of the A400M strategic airlift capability programme due to excessive timescale slippages, increased cost and technical risks.  The process to recover some of the money invested in the A400M programme is underway. Negotiations between the Airbus and Armscor are progressing well.
 
The delivery of the Strategic Defence Package, or SDP, equipment is nearing completion and progress is according to plan.  Most of the systems acquired through the SDP programme have been delivered to the DOD and accordingly commissioned by the SA Air Force and the SA Navy.
 
Funding for the Rejuvenation and Upgrade of the Landward Programme is what the DOD had to contend with in the year under review.  Despite funding for this being requested yearly from National Treasury, no positive response has been obtained.  The border safeguarding function which commenced in April 2010, will present an additional financial burden to the Landward Programme.  

As far as Defence Diplomacy is concerned, the DOD has, in the year under review, participated in various bilateral and multilateral engagements.  The DOD hosted and visited various countries of defence common interests.  The DOD also participated actively in defence related discussions and dialogue at multilateral institutions like SADC, African Union and United Nations levels.  These engagements have contributed significantly towards the strengthening of defence co-operation between South Africa and other countries and multilateral institutions.  This in turn has fully supported and upheld South African foreign policy.

In conclusion, the DOD's performance in the period under review was marked by significant progress in critical performance areas.  As evident in the report, various challenges arose during the year but such challenges are being carefully addressed by various interventions instituted by the DOD.
 
I wish to express my sincere gratitude to all DOD personnel, stakeholders and the Minister for support to the defence cause in the year under review.