National Treasury on Defence Department's Strategic Plan & Budget 2010

Meeting report

Briefing by the National Treasury on the Strategic Plan of the Department of Defence
Mr Phillip van Schalkwyk, Director, National Treasury) briefed the Committee on the rationale, format and content of the strategic plans of Government entities as required by the National Treasury (see attached document).

The first part of the briefing gave an overview of the reasons for strategic plans, the strategic planning process and the benefits of strategic plans.  The strategic planning process was a key responsibility of accounting officers in terms of the Public Finance Management Act (PFMA). The strategic plan must cover a period of three years and be updated annually.  The strategic plan must include the Department’s core goals and programme objectives, the key performance measures and indicators and the multi-year projections of revenue and expenditure.  The strategic plans formed the basis for the annual reports of accounting officers and must comply with the requirements of the Public Service Regulations issued in terms of the Public Service Act (PSA).The strategic plan must be used to develop operational plans (i.e. lower-level plans) for achieving the core strategic goals and objectives.

The strategic plan must be linked with the Department’s budget, the performance contract between the Minister and the head of the Department, the performance contracts between the head of the Department and the senior executives, the Department’s service delivery programme and the Department’s annual reports.  The format of strategic plans must include a strategic overview with a foreword and official sign-off, the vision, mission, value statement, legislative and other mandates, the situational analysis and the strategic goals of the Department.  The strategic plan must include details of the strategic objectives and links to any other infrastructure plans, capital plans and public/private partnership plans.  An example of the required format of a strategic goal (e.g. Landward Defence) and the underlying strategic objectives was included in the presentation.

The second part of the briefing covered the National Treasury’s comments on the Strategic Plan of the Department of Defence for the period 2010 to 2013.  The plan submitted lacked focus on the higher order outcomes, lacked strategic goals and objectives and included far too much detail on the outputs of sub-programmes.  No credible vision of what the Defence Force should be doing was provided.  The operational plans at the lower levels focused on support functions rather than the core strategic objectives and responsibilities.

The strategic plan was based on the 1996 White Paper on Defence, which was fourteen years out of date but was the only approved policy document on Defence in existence.  The White Paper stated that “the Government of National Unity recognised that the greatest threat facing the people of South Africa were socio-economic problems such as poverty, unemployment, poor education, lack of housing, lack of social services and crime and violence”.  The White Paper further stated that “the vast majority of armed conflicts were within rather than between states and the absence of a foreseeable military threat provided considerable space for the rationalisation of the Defence Force”.  The National Treasury did not know what the design of the Defence Force should be.  The White Paper recommended that the Defence Force should include a relatively small (unspecified) regular force and a larger part-time (i.e. reserve) force in order to provide a cost-effective operation.  The National Treasury had however noted a steady growth in the number of people in the Defence Force in recent years but was unable to determine what the number should be.  The National Treasury took these issues into account when considering the budget of a Department.

Other comments concerned the number of core objectives, the inclusion of administrative support functions that should not be in the strategic plans, the exclusion of Ministerial direction from the plan, excessive detail on operational plans and the need for non-civilian military strategists in the Defence Force.  Additional explanations concerning the legislative mandates, the situational analysis, resource considerations and risk management were included in the briefing.

The Department of Military Veterans needed to submit a separate Strategic Plan.

Discussion
The Chairperson invited comment on the presentation from the Ministry.

Ms Sue Rabkin, Special Adviser to the Minister of Defence, Ministry of Defence (MOD) agreed that the comments made by the National Treasury were fair.

Mr D Maynier (DA) said that the National Treasury had made what could be considered a “devastating critique” of the strategic plan of the Department of Defence.  He wondered what options were available to the Committee.  He had noted that the Minister of Public Works had withdrawn the strategic plan submitted by the Department of Public Works, presumably to allow for the review, re-working and re-submission of the plan.  He suggested that the Committee recommended to the Minister of Defence that the strategic plan submitted by the Department of Defence was withdrawn, which would allow the Minister to review the plan and for the Department to re-work and re-submit the strategic plans.

Mr D Smiles (DA) observed that both the strategic and operational plans had to be included.  He supported Mr Maynier’s suggestion that the Minister was advised to withdraw the strategic plan.

Mr Thabiso Ratsomo, Chief Director: Strategic Support, MOD advised that the Minister were not allowed sufficient time to review the plan as she had only received it one week prior to the deadline.  He was of the opinion that the Minister would welcome the opportunity for a more thorough review of the plan.

Mr Maynier observed that there was little time available and that the Committee needed to make a decision that same day on whether or not the strategic plan should be withdrawn or not.  It was clear that the Minister would welcome the move and he thought that the Department should be in a position to re-work and to re-submit the strategic plan in a short period of time. He suggested that the plan submitted was withdrawn and replaced by two plans from the Department of Defence and the Department of Military Veterans.

Mr A Mlangeni (ANC) had some difficulty in following the presentation.  For example, he was not clear on what was meant by the need to provide the justification for a strategic objective in the example on page 13 of the presentation document.

Mr Van Schalkwyk explained that the Department needed to indicate the reasons why a particular objective was important, for example the objective was set to allow the Department to achieve its mandate.  He said that the plans submitted by the Department of Defence contained a lot of information that could be used.  He suggested that the Department was requested to submit an additional document outlining only the core objectives and strategic priorities.

The Chairperson was reluctant to discuss matters without the Department being present to provide explanations.  The purpose of the briefing was to inform the Committee on the requirements for a strategic plan.  He felt that the Committee should only discuss the matter in hand and should refrain from entering into discussion on other matters that should be raised in the presence of the Department.

Mr Smiles was concerned that the suggestions made by the Committee would not be acted on by the Department if the briefing to the Committee was considered to be a workshop.

The Chairperson replied that representatives of the Ministry of Defence were present at the meeting and were aware of the concerns raised by the Members.  He felt that it would be improper if the Members discussed concerns and made suggestions without the Department being present to provide an explanation.

Mr Mfana Hlatshwayo, Deputy Director, MOD felt that it would be confusing if the operational plans and strategic objectives were in different documents.

The Chairperson explained that the strategic plan submitted by the Department was incomplete and the National Treasury required additional information on the core objectives.  He hoped that the Department would have an opportunity to address the concerns raised by the National Treasury before the Committee was briefed by the Department on its budget.

Mr Maynier reiterated his earlier request that the strategic plan be withdrawn.  He hoped that the Minister would pre-empt a request by the Committee and withdrew the plan prior to the budget briefing.

Briefing by the National Treasury on the Budget of the Department of Defence
Mr Van Schalkwyk briefed the Committee on the budget of the Department of Defence for the Medium Term Expenditure Framework period 2010/11 to 2012/13.  (Note that three zeros must be added to the amounts indicated in the attached presentation document for the fiscal years 2006/07 to 2012/13).  The briefing included the comments of the National Treasury on the budget for each programme.

The budget for 2010/11 for the Administration programme amounted to R3.247 billion, an increase of 12.1% over the previous year. The budget made provision for the cost of office premises taken over from the Department of Public Works, Military Veterans and the implementation of occupational specific dispensation.

The budget for 2010/11 for the Force Employment programme amounted to R1.908 billion, representing 6.2% of the Department’s total budget and increasing at an average rate of 5.6% p.a.  National Treasury had recently become aware of the transferring of funds from one budget item to another.  Departments were allowed virements of less than 8% of the budget and had to inform the National Treasury within one month. The briefing document included details of the virements for the current fiscal year.  The transfer of funds from the budgets for fuel and for contractors carrying out maintenance and repairs to the travel and subsistence budget was highlighted.  National Treasury was unable to provide the reasons for the virements.

The budget for 2010/11 for the Landward Defence programme amounted to R9.982 billion, representing 29% of the Department’s total budget and increasing at an average rate of 9.5% p.a.  An amount of R35 million was transferred from the fuel budget to the budget for travel and subsistence.

The budget for 2010/11 for Air Defence amounted to R6.059 billion, representing 26.2% of the Department’s total expenditure and decreasing at an average annual rate of 2.6%.  The reason for the decrease was the termination of the Airbus A400 contract and the finalisation of the Hawk and maritime helicopter acquisitions.  Funds were again transferred during 2009/10 from the fuel budget to the travel and subsistence budget and insufficient provision was made for the maintenance and repair of aircraft and facilities.  A substantial portion of the budget was for payment to consultants and contractors for the maintenance of aircraft.  A meeting had been scheduled for the following week to discuss the problems of the Air Force with the Minister of Finance.

The budget for 2010/11 for the Maritime Defence programme amounted to R2.179 billion, representing 7.8% of the total expenditure.  The decrease in the budget between 2006/07 and 2009/10 was as a result of the finalisation of the acquisition of frigates and submarines.  The budget was increased over the MTEF to make provision for the acquisition of hydrographic vessels. As for the other programmes, funds were transferred from the fuel budget to travel and subsistence and to consultants and contractors.  As a result, boats had to remain in the harbours because of a lack of fuel.

The budget for 2010/11 for the Military Health Support programme amounted to R2.770 billion, representing 8.1% of the total expenditure and increasing at an average annual rate of 11.1%.  During 2009/10, amounts of R29.9 million were transferred from the budget for medical supplies, R8.6 million from the fuel budget and R47.9 million from the information and communication technology budget to the consultant and contractor budget.

The 2010/11 budget for Defence Intelligence amounted to R631 million, representing 1.9% of the total budget and increasing at an average rate of 12% p.a.  (The information on the budget amounts provided in the briefing document on the budget for General Support Services was incorrect. The figures appear to be a duplication of the amounts for Defence Intelligence).

The presentation was concluded with a summary of expenditure items, which included an overview of the actual expenditure for the period 2005/06 to 2008/09, the adjusted budget for 2009/10 and the percentage of change year-on-year for certain items.  The National Treasury presumed that the expenditure on the Entertainment item was the costs incurred by executive management while the expenditure on Catering included the costs related to messes.  The National Treasury was aware that services in many messes were contracted out. The expenditure on local and foreign travel included the hiring of aircraft.  The National Treasury was unable to provide further information on the expenditure on local travel (R428 million), foreign travel (R255 million) and performance awards (R115 million) and suggested that the Committee approached the Department for the details.

Discussion
The Chairperson and Mr Maynier asked questions for clarity during the presentation.  Mr Van Schalkwyk’s responses were included above.

Mr Hlatshwayo suggested that a detailed analysis of the expenditure items and the rationale behind the virements were obtained before the expenditure and budget was discussed further.

Mr Van Schalkwyk replied that the reasons for the transferring of funds were not provided to the National Treasury.

Mr Maynier asked if the ratio between the capital expenditure and the operational expenditure of the Department and of the Defence Force was available.

Mr Van Schalkwyk replied that the information could be provided by the Department.

Mr Smiles commented on the significant increase in the expenditure on consultants and contractors.  He saw little evidence of the development of in-house expertise.  The budget did not include an item for training and he wanted to know why the expenditure on external consultants had increased by such a large percentage.

The Chairperson requested further clarity on the expenditure items for catering and entertainment.  He asked what the difference was between external consultants, contractors and executive contractors and the reasons why so much work was being contracted out.  He had taken note of a recent report in the media that the army had assisted a community by building a bridge.  He expected the armed forces to focus on improving their own systems during times of peace.  He requested a breakdown of the expenditure on local and foreign travel and subsistence and wanted to know who was traveling and why so much was being spent on local travel.  He asked for details of the expenditure on performance rewards.  The Committee needed the information before the issues were discussed with the Department.

Mr Van Schalkwyk advised that training would be a separate programme.  He understood that the travel expenditure was incurred by Departmental officials.  The contractors and consultants had technical expertise and were used by the Department to carry out the specialised maintenance of aircraft and other equipment.  The National Treasury had encouraged an increase in the maintenance budget for buildings and equipment during recent years.  Many of the barracks and structures were in a dilapidated state.  The upgrading of the buildings and runways at the Waterkloof Air Force Base had been completed and had cost a significant amount.  The National Treasury was unable to provide the detailed information requested by the Committee but the Department should be able to provide the necessary details.

Mr Maynier agreed that the Members needed to examine the details of the expenditure before jumping to conclusions.  For example, the expenditure on travel could include the cost of military operations.

The Chairperson advised that the Committee would meet with the Department on 24 March 2010.  He requested that the more detailed information was obtained from the Department and the National Treasury before the meeting.

A Member referred to the need to evaluate the performance of management in attaining the core goals and objectives.  He remarked that the lower ranks were unwilling to comment on the performance of the executives.  He asked how the Committee could evaluate the performance of the managers.  He said that the Defence Force needed to carry out certain operations on behalf of the United Nations (UN) and the African Union (AU).  He asked if those organisations contributed to the costs of the operations.

Mr Van Schalkwyk replied that the Accounting Officer had to explain the strategic plan and its execution to the Committee.  The Accounting Officer had to compile monthly reports for the higher levels in the organisation.  The National Treasury did not have the detailed information available on whether or not the expenditure on travel included meeting the UN or AU obligations.

Mr Mlangeni requested an explanation of the percentages in the summary of the spending items (see page 18 of the briefing document).  He asked where the costs incurred by the peacekeeping missions deployed to other countries were reflected and whether the peacekeeping efforts were successful.

Mr Van Schalkwyk replied that the National Treasury had knowledge of the total allocation for peacekeeping operations and was able to track the expenditure on these programmes.  Only the Department and the UN could comment on how effective the South African peacekeeping operations were.  He explained that the percentages indicated the average annual increase or decrease in expenditure over the period 2005/06 to 2008/09.

The Chairperson said that the Committee expected to obtain more information during the meeting scheduled for 24 March 2010.  He thanked the National Treasury and Mr Van Schalkwyk for the briefing.

The meeting was adjourned.