Use of consultants in the Department of Defence and Military Veterans - performance audit findings: Office of the Auditor General of South Africa (AGSA) and Department briefings

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Defence and Military Veterans

06 March 2013
Chairperson: Mr M Motimele (ANC)
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Meeting Summary

The Office of the Auditor-General of South Africa (AGSA) briefed the Committee on the findings of its performance audit of the use of consultants at the Department of Defence and Military Veterans (DoD). Subsequently, the DoD briefed Members on the AGSA’s performance audit findings.
The AGSA stressed that the audit was strictly a performance audit, not an investigative audit. The performance audit focused on 3 Es, namely: economy, efficiency and effectiveness.
The AGSA categorised its reasons for the performance audit on the use of consultants by government: a significant expenditure of R102 billion over three years, South Africa’s skills crisis, ‘a relationship of national importance’, the public sector could benefit if consultants were used correctly, and a follow-up on progress since the previous performance audits.
The AGSA summarised the scope of the audit and described in detail the three focus areas of economy, efficiency and effectiveness. The Department’s key challenges were categorised as planning and appointment process, internal capacity, training and transfer of skills, performance management and monitoring, extension of contracts, and closing and finalising of projects.

The AGSA summarised audit findings by consultants per contract, value of contracts, period of service, type of consultancy - individual consultant, contract or agency, and whether each use of a consultant was economical, efficient and effective. The variations per contract and contract specific challenges were summarised in detail.
The AGSA highlighted key recommendations as follows: compliance with legal frameworks, laws, regulations and policies; address of the internal control and deficiencies; creation of sufficient internal capacity; improved planning for the use of consultants; managing and monitoring performance; and training and transfer of skills. The AGSA mentioned the combined assurances model to ensure value for money.
The DoD’s presentation was to inform the Committee on the ASGA’s findings and the Department’s rectification plans on its management consultants. The Department summarised the names of the consultants, the services delivered, and the amount paid to each. It then summarised in detail the findings, corrective measures, and comments. The Department admitted that contracts were not always effectively and efficiently managed. It was implementing internal measures to address the deficiencies as identified on a continuous basis.
The newly established internal audit division would help the Department in addressing the contract management issues that the AGSA had raised.
Members asked a number of questions on challenges such as training and transfer of skills, internal capacity, management, and appointment processes, and the Aero Manpower Group (AMG) contract. They asked about the Department’s plans to turn things around. The DA Member stressed that the failure might not lay only with the Department but with the Committee itself as it knew about the problems but had done so little to address them. The Chairperson noted that the Department would submit a transitional contract and plan to the Committee next week, and then the Department would make a presentation on 20 March 2013.

Meeting report

AGSA Performance Audit of the Use of Consultants at the Department of Defence Presentation
Mr Naeem Seedat, Corporate Executive: Special Audits, Auditor General South Africa (AGSA), noted, by the way of background that the AGSA had a constitutional mandate, and as the supreme audit institution of South Africa, it was there to strengthen the country’s democracy by enabling oversight, accountability, and governance in the public sector through auditing, thereby building public confidence. Performance audit was described as an independent auditing process to evaluate the measures put in place by management to ensure that resources had been procured economically and used efficiently and effectively. The audit on the DoD was strictly performance audit, not investigative audit. The aim of the performance audit on the use of consultants by the Department was described, ranging from the audit on significant expenditure of R102 billion over 3 years, looked at the skills crisis within the department, the relationship of national importance, how public sector could benefit if consultants were used correctly, and looked at the previous performance audits which was a follow up on progress.

Mr Seedat said that performance audit differed from other audits, and it focused on 3 Es, namely – economy, efficiency and effectiveness. Performance audit was done when problems were identified. The AGSA audited the Department from the following financial years, namely, 2008/9, 2009/10 and 2010/11, and national and provincial expenditures were revealed (see attached document for more details). 20% of the national departments represented 74% of the total expenditure on consultants over the 3 years. The consultants were used because the Department did not have skills, and it was believed that the consultants would transfer some skills to the Department’s employee.

Mr Seedat then said that the key focused areas of the audit were, namely; economy, efficient and effectiveness. In each of these key focused areas, the audit looked at planning and appointment process, internal capacity at the department, training and transfer of skills from consultants to the department’s employees, performance management and monitoring of consultants, extension of contracts and finally, closing and finalising of projects.

Mr Seedat said that key challenges across the Department were identified. Under planning and appointment process, it was found that there was lack of comprehensive needs assessment, competitive procurement process was not followed, and expectations on milestones, timelines and cost were not clearly specified. Under internal capacity, it was found that consultants were appointed because the Department lacked some skills and capacity, but consultants appointed did not really created permanent capacity. Under training and transfer of skills, it was found that skills transfer was not effective. As for performance management and monitoring, it was found that effective oversight and internal control was not executed prior to payments, there was lack of project management and monitoring, and cost overruns were not motivated and approved. Under extension of contracts, it was found that contracts were extended due to lack of project management and monitoring. Finally, under closing and finalising of project, there was a failure to retrospectively analyse projects. The Department’s total expenditure on consultants from 2008-9 to 2010-11 was shown which was R10.4 billion. The number of projects audited was 12, and the value of projects audited was R1.153 billion. The average vacancy rate indicated at 10.6% (see document).

Mr Shaunil Maharaj, AGSA Manager: Performance Audit, mentioned the audit findings about consultants. Consultants per contract audited were listed. For example, Aero Manpower Group (AMG) was responsible for supplementing skills in the South African Air Force, and the value of contract was R859 912 536, and the period of the service was from January 1986 and its ongoing, and it was classified as agency service. Origin Exchange Consulting was responsible for clearance of exploded ordinance and was classified as a consultant. (See table, slide 10).

Mr Maharaj mentioned specific challenges for each contract or consultant, and the amount of money allocated for each contract or consultant. (See attached document for more details).

Mr Seedat then mentioned key recommendations as to how government could solve the current situation.  It was recommended that there should be compliance with legal frameworks, laws, regulations and policies. Terms of reference and deliverables for all contracts should communicate to all end users. Internal control deficiencies should be addressed, sufficient internal capacity should be created, planning on the use of consultants should be improved, management and monitoring should be improved, and training and transfer of skills should take place. Combined assurances such as management assurance, oversight assurance, and independent assurance were needed. The commitment of the Minister, Department, Portfolio Committee, National Treasury and the Department of Public Service and Administration (DPSA) was needed. All of these would help to achieve value for money from the use of consultants. The private sector also needed to come to the party and help the public sector.

The Chairperson thanked the AGSA for its presentation, and he advised the Department to include recommendations of the AGSA in its report. It was stressed that the use of consultants was not a bad thing at all as long as it was used in the context of economy, efficiency and effectiveness.

DoD on the ASGA’s Performance Audit on the use of Consultants in the Department Presentation

Dr Sam Gulube, Secretary for Defence and Military Veterans, DoD, described the objective of the presentation as to inform the Committee on the ASGA findings and the Department’s rectification plans.

Dr Gulube mentioned the findings and corrective measures for each consultant.  He also highlighted findings, such an open ended contract, lack of internal capacity, staff recruitment not prioritised – hence an extension in the use of consultants, deficiencies in managing the AMG contract, cost/benefits analysis not provided, lack of monitoring, stopping of a project and intended results not achieved, evidence of full costing not provided, competitive bidding process not followed, and internal expertise not created (see attached document for more details).

Mr Gulube said that the Department came up with corrective measures to address those challenges. Some of the corrective measures included the following; the Department had finalised alternative ways to close the gap that may affect the service delivery through the service agreement between the Department and Denel that would be compliant with relevant legislative prescripts; the Department had developed plans for the medium and long term but the plans was hindered by both current funding levels as well as the limitations of current dispensation; the short term skills gap was addressed, all the monitoring processes were corrected in accordance with the Operation Clean Audit and AGSA recommendations; the documentation and formulation of the cost/benefits analysis would be formalised and filed to ensure that it was available as part of the contracting performance; the Department had established a new audit division; and a proper deployment of trained staff members had been done.

Mr Gulube said that the Department admitted that contracts were not always effectively and efficiently managed. Internal measures were being implemented to address the deficiencies as identified on a continuous basis throughout the Department. The newly established internal audit division would help the Department in addressing the contract management issues raised.

Discussion on AGSA presentation
The Chairperson suggested that Members did not have to ask the AGSA questions related to the open-ended contract of 1986, and why the Department was not capacitated, but questions of clarity could be asked.  Those questions were relevant to the Department. It was noted that all the deficiencies mentioned by the AGSA cut across departments. He asked what constituted robust planning.

Ms P Daniels (ANC) thanked the AGSA for clean audit, and noted that the Department operated in a unique environment, and the AGSA mentioned some guidelines. She wanted clarity on the guidelines provided by the AGSA. 

Mr J Maake (ANC) noted that the Department listed some challenges such as lack of skills, training and skills transfer, the problem of maintenance of Limpopo fence, and unavailability of contracts. He wanted clarity on maintenance of Limpopo fence, training and transfer of skills and on unavailability of contracts.

Mr D Maynier (DA) wanted clarity on who in fact own these companies, and if there was any conflict of interest identified by the AGSA.

Mr L Diale (ANC) wanted clarity on lack of internal capacity and on internal expertise not created.

Ms H Mgabadeli (ANC) wanted clarity on the monitoring issues, and asked what the AGSA could do to address the monitoring issue.

Ms N Mabedla (ANC) asked when the Public Finance Management System was implemented, and she wanted clarity on why there was now an audit of the Department. She asked who benefited from those consultants.

Mr E Mlambo (ANC) thought that the AGSA did not really do its work so much in the past years, and he wanted clarity on what brought the Department to the attention of the AGSA. He asked where it all went wrong.

Mr S Esau (DA) raised a concern around the management of each department, and he stressed that these problems were not really the responsibility of the AGSA office, but the management and leadership responsibility. He asked about the management reports that went to AGSA office, and what was the intervention by the National Treasury. He asked what actually had happened over the years.

Mr Maynier stressed that Aero Manpower Group (AMG) was a subject of a huge inquiry. The challenges presented were not really the failure of the Department or The AGSA, but the failure of the Portfolio Committee on Defence and Military Veterans.

Mr Seedat replied that robust planning was provided in the comprehensive audit report provided to Members, and it was clearly outlined on page 108. He agreed that it was important to create skills, monitor and control projects to ensure values for money. Some of the challenges talked to management and administration issues. Contract was extend because the Department saw the need to do so, and the extension of contract should be done with proper planning and appointment. The intergovernmental skills transfer was very important, and intergovernmental corporation needed to be strengthened. There was lack of skills due to the fact that there were no people to place in respective positions or area of expertise. He agreed that there should be a contract signed between consultants and the Department to avoid unnecessary results. Any findings identified by the AGSA did not warrant prosecution because the audit was not an investigative audit but a performance audit. There were no names of people who owned consultant companies, and conflict of interest was not identified. It was highlighted that this report was not the first such report from the AGSA. AGSA conducted audit on different things such as supply chain management, expenditures and performance of management.

Mr Maharaj replied that the maintenance of the Limpopo border was the responsibility of the Department and the contract was liquidated which resulted in the illegal immigrants moving into South Africa.

Discussion on Department of Defence’s presentation
Mr Maynier raised concerns around the termination of AMG contract, skills transfer, the border fencing in Limpopo, and Sanabo Demil (Pty) consortium. He asked whether the Department had done assessment of the termination of AMG contract on the capability of the South African Air Force, and asked as to who was maintaining the border fence and what the state of the fence was. He asked the name of the director-general who signed the Sanabo contract.

Mr M Mncwango (IFP) wanted clarity on the length of the period of transitional contract.

Ms Daniels raised concerns around AMG contract, labour issue and laws mentioned by the Department of Defence, and she requested that the Department provide full report on the South African Air Force. She then asked about the beneficiaries, the level of skills in the Air Force, and the demographic population.

Mr M Booi (ANC) wanted clarity on total expenditure on consultants, challenges with current findings, scarce skills, compliance with legal framework and laws, and a clarity on the statement that the Department was operating under a different governance regime.

Mr P Groenewald (FF+) apologised for being late. He then wanted clarity on the AMG contract, specifically on the feasibility study conducted by the Department, and he requested the copy of the study. He asked if the Department was still fully operational in these gaps.

Ms Mgabadeli (ANC) raised a concern about older employees at the Department who got old and are on the process of taking pension. He stressed that the Department had done little do skill upcoming young generations. She asked if the Department had done something to transfer skills.

Mr Esau wanted clarity on the contingency plan, and 139 posts. He asked if the Department would advertise those posts

Mr M Nhanha (COPE) apologised for being late, and raised concern about the amount of publicity those contracts had enjoyed.

Mr Gulube replied that the border fence was a big challenge for the Department. It was responsible for ensuring that no one crossed the borders illegally. The status of the fence was not good, and the Department’s budget was limited. There was no Sanabo information available for Members. The Department had military police, intelligent unit and other bodies that deal with different issues. There was board of inquiry responsible for monitoring the AMG contract, and whoever found guilty of mismanagement would face serious punishment. The Department would provide a full report on the South African Air Force, and so far the Department had done better in compliance with the Public Finance Management Act (No. 1 of 1999) (PFMA). There had always been issues of labour relations.

The Department replied that it had a robust way of addressing the consequences of the termination of contract. The Department still needed skill people, and there was no risk. There was a comprehensive plan in place to address the issue of the AMG contract. The Department was the highest training institution in the country. He replied that feasibility study would be provided, and young people had been developed, but some left the Department to other companies.

The Chairperson suggested that the Department should submit the transitional plan next week, and by 20 March 2013, there should be presentation on the transitional plan.

The meeting was adjourned


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