Castle Control Board on Annual Report & audited Financial Statements of Castle of Good Hope for FY 2012/13

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Defence and Military Veterans

10 October 2013
Chairperson: Mr A Maziya (ANC)
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Meeting Summary

The Castle Control Board had worked diligently at increasing exposure of and access to the Castle, and the number of paying tourists had increased by 3519. On Heritage Day 2012, when there was free access to the Castle, the number of visitors went from 1 795 to 3 265. As pointed out by the Auditor General, supply chain management was still an area the Board needed to work on. For the current year, the Board had not clearly defined its performance indicators according to SMART principles which made it tricky to measure their outcomes. Another objection by the AG was that the CCB did not follow due process with their bookkeeping. Although there was no irregular expenditure it was noted that they failed to apply for approval from National Treasury to retain their surplus. The delay in updating the SCM policy had resulted in challenges and hindrances in a number of areas, but the Board hoped the drafting of the SCM would move along swiftly especially with the appointment of a CFO.

The general tone from Members was congratulatory and they were happy with the vision and work of the Castle Control Board (CCB) throughout the year. Members noted that there was more publicity about the Castle and its significance. Democratic Alliance members had questions about the findings raised by the AG and questioned why the Board did not seem to take the findings seriously. Some Members objected that the Office of the Auditor-General could not clarify some of the issues raised in the audit report when questioned by the Committee. Therefore the Board could not be expected to speak on its behalf. Also Members should be mindful that the presenters were people with emotions, Members of the Committee needed to be mindful of how they addressed them and the comments they made about. The Committee said preserving the legacy of the Castle was important. The CCB had the support of Parliament and should continue doing a great job.

The Committee applauded the Armscor Board on the clean audit again this year. However it was of concern that the CEO vacancy that the Board said it was close to filling was still not filled a year later. The Committee was generally happy with the Board, the work of Armscor was now visible, not only on paper but on the ground as well. The education programme by Armscor deserved a special mention, that was a specific request of the Committee and for Armscor to implement the programme so well and effectively was impressive.
Comments were raised about key objectives, transformation and the gender equity target not being met.

`The DA asserted that the Committee should not be applauding Armscor as there was a major crisis in Armscor; the Minister was in the process of firing the Chairperson of the Armscor Board. Relations between Armscor and the Minister were filled with tension and problematic, and it was clear why – Armscor had no sense of urgency in delivering the goods much needed by South African troops in the DRC. Armscor projects were delayed for years. In addition, claims were made in the document submitted to Parliament that were patently untrue. These included stating the Rooivalk helicopter was ready to be deployed to the DRC despite the Mokopo missile system not being integrated into it yet. The ANC objected saying that the DA was raising matters not pertinent to the Annual Report. The DA said that they were questioning Armscor on this as this was part of the mandate of Armscor and this information was contained in court documents that were in the public domain.

During the meeting a South African National Defence Union organiser was told to leave the meeting after ANC members objected to how he was dressed (in knee-length shorts and flip-flops) at an official session of Parliament. The DA member tried to intervene, reminding MPs that the legislature was a people's Parliament, where the public was free to attend meetings and Members could not comment on how they chose to dress in a democracy. 


Meeting report

Castle Control Board (CCB) Annual Report 2013 on the Castle of Good Hope
Mr Calvyn Gilfellan, Executive Director of CCB, took the Committee through the presentation.

Key Points from the Audit Committee
The unqualified audit report from the Auditor-General (with KPMG), showed good progress. The Audit Committee was in place and in the process of appointing a new internal audit service provider. The Committee was ensuring adherence to all policies and procedures to comply with all Supply Chain Management (SCM) and procurement regulations. The performance management information needed a more precise definition and focus; there was significant progress of R13.9m in accumulated surplus and approval to retain this had now been obtained from National Treasury. The Audit Committee felt that the appointment of a CFO would strengthen the management team and improve delivery.

Executive Summary of Performance against Pre-determined Objectives:
Highly successful Military Tattoo (4000 spectators)
Shell-UK Awards evening with their top 300 executives
Jive Slave marathon with 5000 runners through the Castle
Anglo-Boer War Philatelic Exhibition attracted 3000 visitors
Annual paying tourist figures increased by 3519
Month of Photography (October) attracted more than 3000
Annual trading surplus of R883 000 achieved
Heritage Day 2012 (free access) numbers exploded from 1795 to 3265
Brazilian National Day and Exhibition in September 2012

Programme 1: Administration & Corporate Governance
The performance indicators were met and some far surpassed the targets, except HR Management where the annual target was R1 369 000 and actual performance was R863 829; the supply chain policy was still not approved.

Programme 2: Preservation & Interpretation Of Castle As Heritage Site
The targeted number of learner visitors for the previous financial year was 21 000, the actual number of visiting learners was 29 012.

Programme 3: Maximizing The Castle’s Tourism Potential
The revenue from the number of tourists that visited the Castle was R140 888 which surpassed the target of 136 000.

Programme 4: Increase Castle’s Public Profile and Community Access
For pre-planned events and other activities, the Castle had a target income of R262 500, the actual income for 2012/13 was R426 950. In efforts to bring about more exposure about the Castle to communities R95 234 was spent instead of the planned R93 000.

Financial Year 2012/13: Summary of Financial Performance
Revenue for 2013 increased R3 417 million and the main contributor to revenue was ticket sales and rental. Expenditure for 2013 amounted to R 2 534 million, with staff costs of R864 000. The surplus for the year was R883 000, which was R70 000 higher than that of 2012.

Auditor-General Issues 2012/13
The Auditor General raised a number of issues and turnaround strategies for the Board.

1. Performance indicators and targets not well defined
Corrective Actions: appointed an Executive Director and now to appoint a CFO, trained on the requirements. Board and management will redefine performance indicators to be more specific as to address the required outcomes. Management had engaged with AG & Treasury and it was now ready for new financial year.

2. Strategic Plan incomplete
Corrective Actions: Accounting Officer in consultation with Board will update and ensure that Strategic Plan guidelines were adhered to. This was done and reflected in 2014/15 Annual Performance Plan
3. Budgets: Non-approval from National Treasury to retain surplus
Corrective Actions: Letter was submitted to the new Executive Authority and Treasury, and approval was obtained in September 2013.

4. Expenditure Management: Accounting Authority did not take effective steps to prevent irregular expenditure
Corrective Actions: Internal Controls were being developed to prevent occurrence of irregular expenditure. The Accounting Officer and Accounting Authority would maintain an irregular expenditure register, which would contain detailed schedule for financial year listing and irregular expenditures incurred. This had been done and immediately put in place.

5: Internal Audit Function: No Internal Audit function for some part of the year
Corrective Action: Internal procurement process was aborted due to SCM challenges, a new process had been initiated, however the appointment of a CFO would also assist.

6. Procurement and Contract Management:
Corrective Actions: Issues raised by the Auditor-General were assimilated and addressed by the newly appointed Accounting Officer. The SCM policy was being amended to address these issues.

7. Annual Financial Statements
Corrective Action: Material misstatements were corrected resulting in the financial statements receiving an unqualified opinion.

8. Leadership:
Corrective Actions: Shortcomings in the SCM policy were being addressed, a new draft was updated. The appointment of the CFO would ensure all procurement was done in terms of Public Finance Management Act (PFMA) regulations and Treasury prescripts.

9.  Financial And Performance Reporting:
Corrective Actions: Internal control mechanisms in place were inadequate as they were determined by a SCM policy not fully compliant with the PFMA. Misstatements in the financial statements occurred in the draft, the submitted for audit and adjustments were made after deliberation between management and the Auditor-General.

10. Governance:
Corrective Actions: Previous contract with internal auditor expired 31 October 2012 and a new appointment was to follow shortly. The Board initiated a process but was aborted due to SCM contradictions. A new advert had been already placed and appointment imminent

The Board’s New Vision and Strategy
The Board had come up with a ten-point Heritage Tourism Action Plan and it was adopted, the Castle had to be repositioned as a living, vibrant and inclusive heritage precinct. There were Seven strategic themes identified dealing with: (1) protecting the cultural significance of the site, (2) exploiting the full tourism potential, (3) marketing, public relations & communication, (4) human resource development, (5) a customer-focus, (6) heritage enterprise development and (7) demonstrate leadership with partners in the heritage and tourism field.

Mr S Esau (DA) said the Committee had heard a report by the Auditor-General (AG) where a graphic presentation had shown the areas of concern, effectiveness and where intervention was required in green, yellow and red. The Department, specifically the CCB, had a green for effective leadership which was good. Now according to the report there were issues raised regarding the accounting authority where they had not fulfilled their role, and that was recorded in the report and in the presentation done by the Executive Director of the CCB. Mr Esau asked about this contradiction in terms of effective leadership. Also he was not clear on the upgrades, phase one was almost complete and there was an amount of R13.8 million outstanding. Phase two was R38 million, further down the report there was an amount of R51 million. Was that what was left of phase one plus phase two. If not, why was it recorded that it was R50 million for phase two that must be completed in 2014/15. What was of concern was when the Auditor General made a determination to say there was irregular expenditure . The AG still held the view that there was irregular expenditure that had taken place. The Board stated in two places in its report that it did not agree with the AG regarding the matter. There was a due process that was followed and that was the finding, why would the Board then contradict the finding of the AG?

Mr M Booi (ANC) said the Committee had raised a number of issues in its meeting with the Office of the AG that it was unable to answer. When the Committee sought clarity from the Office of the AG, it could not sustain its position. Even when the Committee had asked about the issue with leadership, it could not clarify this. Therefore that report could not be used as a point of departure.

Mr Esau referred to the CCB report where it spoke on the issue of leadership, and admitted being “guilty” as found by the AG. There was acknowledgement by the CCB that there were shortcomings, it was not that the AG was incorrect in reporting on the matter - it was reported by the current Board before the report was finalised. Also the SCM policy had to be reviewed in 2011/12. However, a year later they were still sitting with drafts. What were the actual problematic amendments that had taken more than two years to finalise the SCM which was fundamental for any government institution to function as it involved tenders and procurement, and that was where one could find fraud, corruption, and irregularity. It was a very critical area for government that those policies be in place, so that unnecessary fraud and corruption and irregular expenditure be prevented. There was a serious concern with the SCM, though measures were taken to address it. The Board had not fulfilled their role in that regard and needed to give an explanation for that.

Also, the chairperson of the Board made the statement that due to rigorous or aggressiveness and good governance, there was a saving of R883 000 in 2012/13. If someone was not appointed for a job which was worth R1 368 million, on that particular post a part time CFO was employed, R863 000 was spent, there was a saving of R504 000 in the delay of the appointment. Also there was a major renovation done to the roof by DPW, from R2.9 million, only R122 000 was spent by another Department that actually did the job. Was this because of aggressive and rigorous management and good corporate governance. The minor saving actually happened in other areas. The issue of the staff complement of eight was supplied by the Department of Defence and nine must be appointed by CCB. There were actually not nine posts but 10. Clarity was requested on this.

Regarding the achievement of targets, could the CCB clarify when the 50% was achieved, were the targets that were not achieved minimal or were they of major concern. On events, there was a target set for R262 500, what was achieved was much more, R426 953. But for 2011/12 there was a target of R503 000, why was the projected target less whereas in the previous year it was higher? These were events that were pre booked so there was a clear idea of minimum income and there were additional ones along the way that added more money to the CCB’s kitty. For the planned events, what were the projected costs so one can see if there was really understatement of the actual target so it would appear that much more was achieved?

An explanation on the appointment of the Executive Director, there was a saving but it was also at the expense of the organisation as a number of policies and procedures were not put in place and that was essentially driven by an Executive Director that understood the environment and tried to execute it, that delay caused problems, why was there a delay? Also there was an appointment of a CFO on a part-time basis and that ended to May, why was there a termination? When would a new one be appointed, what was the role of a CFO on a part time basis? What did he actually do and what was the cost for that part time appointment? Could the Board provide clarity as that was not in the annual report.

Mr Gilfellan said the figure of the first phase was correct and it was almost finished. Regarding the second phase upgrades where there was a figure of R37 million and R50 million, it was a moving figure; it may in fact be more than that. Once you do spec and you invite people to see the building, as an old building built 347 years ago, the procurement process was not completed as yet. The figures were still estimated figures.

Ms Adré Aggenbach, Member of the CCB, said the amount estimated by the Department of Public Works was R37 million. Then after that there was an amount of R58 million, the figure was a moving target, but the current amount for the complete refurbishment of the Castle was R58 million.

Mr Gilfellan referred to the irregular expenditure and the seeming contradiction in the AG’s report. The Board had listed nine areas which they regarded as irregular expenditure. However, to pick out one example; when the CCB advertised for posts or any services, as a national organisations there had to be circulation figures to be looked at, the likelihood that someone would apply for a service or contract post when they picked that up. It was a mixture of that the Castle was located in the Cape, that there was a national mandate, and balancing the two but also be cost effective. The AG would then say go for the Sunday Times and not any other, there would be disagreements. The AG would say if you go for the Sunday Times also put it in the deviation register. The irregular expenditure in advertising for R50 000 was because the CCB did not put the advert in the register and pass it by the Board every quarter. For the CFO services there was a figure of R111 000 which the AG regarded as irregular expenditure because of a minor calculation error, when the CCB received the submission of people for the service as the Board did not have a fulltime CFO and firms were invited, they picked up a calculation in the actual awarding of the services. On technical grounds it was irregular, but no one had stolen the money nor had they been wasteful. The other one is cleaning and IT services, a number of years ago the Board had procured a service for people to clean the toilets and sweep the offices at the cost of around R2 500 a month.

Mr Derek Williams, Secretary of the CCB, continued noting that the in-house cleaning staff had left on pension a few years ago and the Board went through a process to appoint a service provider to provide cleaning services - as clean public toilets was a public image matter. The CCB went through a process, which was concluded a few years ago when the PPPFA was not applicable. What the AG had pointed out subsequently was that the Board had the opportunity to re-advertise for the same services and go through a process now determined by the PPPFA on a scoring basis. However, that would lead to a situation where the CCB would have to decide to suspend cleaning of toilets while the tender process was going on. There was a balancing act that management had to go into and consider the risk involved in not having these services rendered. The matter was being addressed, these were things

of which Mr Gilfellan said they did not mean to make light of, but they needed to demonstrate what type of things the AG regarded as irregularities. For instance, computer services, there was software to manage the heritage assets for R5 000. Again the AG had said that the amount must be captured on the deviation register. There was a whole list from the AG, however, the CCB was not making light of any of the matters nor pretending there were no problems.

Lieutenant General JT Nkonyane, CCB Chief of Logistics and Chairperson, spoke to the leadership issue the AG addressed about updating the supply chain policy and developing internal controls. To look at the issues raised in context, firstly, the Committee would remember in the past two or three years there had been a challenge in terms of the appointment of the Executive Director and the Board had found itself having to deal with operational issues and cooperate governance issues. That had costs associated with it and one of the things that came from that was the development of policies. The Board admitted to not having done supply chain policies and developing internal controls, but with an Executive Director now in place, the Board would now be able focus on corporate governance and development of the necessary policies to direct the operations of the Castle. In essence these were the issues surrounding the leadership finding of the AG’s report. With regard to the decline value as an indicator, there was no deliberate attempt by the Board to try to reduce the numbers. When the plan was presented two years ago, it had to be taken into consideration the global economic environment, most of their visitors were from Europe, therefore it was felt that there would be a decline, hence the decline in projections from 2011/12 to 2012/13. There was in fact a decline, except that the domestic visitors increased with schools and visitors from local communities.

Adv Dave Mitchell, Chairperson of the Audit Committee, said going back to the AG’s report and the four items that it raised, those focused on the retention of surplus and the approval from Treasury for that surplus to be retained. According to the regulations, that first had to go via the Executive Authority and be motivated what the organisation wished to do with the surplus. Where the AG was uncomfortable was that not only did the CCB not have that approval, the accounting authority of the CCB had not been attentive enough in following up to ensure that happened. However, the Board was now pleased to say that with the support and assistance both of executive management under the executive director that was now in place and set the framework for the CCB to now move forward. That surplus retention was so important when it came to longer term contracting and plans.

Other aspects that had been touched on were that of the CFO. Defence felt very strongly that it should not be a consulting position as an ongoing principle, because you need somebody that knew and understood not only the context but the PFMA and could be held accountable. The Audit Committee had also come to understand that as a better approach and the Castle could afford it. Regarding Supply Chain management, it was more of a technical non-compliance. Expenditure had been proper, sound, carefully considered, well contained with a very tight discipline over expenses. For example, the cleaning contract was R20 000 multiplied by 24 months which was a big number. The AG had objected to that and said the decision had to be noted in the Board minutes. It was that kind of subtleness that the CCB understood and accepted where the AG was coming from and would strive to do things as per the requirements and improve the documented supply chain management.

The institution had admitted to not having been able to improve the documented supply chain management policy as much as they had hoped. They had asked for help from the internal auditor at the time, but that had not materialised as strongly as needed, but the focus had been on appointing an executive director. For that post, there were 67 applicants. The appointment process from start to finish took more than one year to get the exercise done and have it done properly. The Board was pleased to have now finished that with a good result. The other aspect was performance reporting. Last year the AG was not able to comment on or cover that aspect of the institution's operations as the performance was reported against a document that was not tabled timeously. The performance audit was now being done by the AG and the AG had encouraged management and the Board to look to SMART principles, that is, performance reporting must have specific, measurable, achievable, relevant, and time-based indicators.

On the internal audit side, the CCB had to make a change as the contract of the appointed internal auditors expired. They were not comfortable that they had got a wide enough response from interested parties for this contract. The Audit Committee decided that they needed to be strict according to supply chain management and so should rather hold back from making an appointment that the Board would not be comfortable with. They should rather get the executive director in place and be more careful on what they wanted the internal auditor to cover, so that has led to delays. The R883 000 saved did not take into account the cost of a salaries for museum staff and office staff as that was covered by the Defence Force. That was not coming through in the CCB’s own numbers. That further illustrated that the CCB remained at risk of being qualified as 'not a going concern' because it was dependent on the support of the Defence Force. One had to be more thorough and more diligent and develop one's own methodologies and revenue generating capacity to be able to stand on one's own feet. He was pleased that that process was now happening.

The Chairperson cautioned that when institutions of government come to report to the Committee, Members should not suggest their activities as possibly being hampered by corruption. That was the wrong impression and assumption. The Committee should be careful, whatever was said to government entities, it should be constructive in assisting them to do their work properly. Once you start to pose suspicion about corruption, it came across as though one knew something that was unknown to the rest of the Committee. The Chairperson said Members should be careful of what they were saying and treated the management of the Castle Board with due respect.

Mr E Mlambo (ANC) commended the good work of the Board, in filling the critical posts and the relations they had developed with the Department of Public Works. When looking at the revenue, you see that there is a vision of what the CCB wanted to achieve. They hoped to put Cape Town and the Castle on a par with France and the Eiffel Tower, as the Executive Director mentioned. Negativity aside, the CCB was doing a good job; they were willing to overcome the shortcomings. When the Committee dealt with the AG’s report, they could tell that the AG was also not focused.

Mr Booi also said that the CCB was doing a good job and the Committee was conscious that the new Director was a hands-on man and was doing his job well. He was full of praise about the improvements that had taken place at the Castle. The Board’s comments were respected, and he took the points raised about internal auditing being outsourced. Mr Booi had 20 years of experience of looking at all the institutions established under the democracy. The Office of the AG was respected as all other institutions created during this period, but the capacity problems that were beginning to face the AG to the extent where they had to outsource work to KPMG was apparent. The priority was to get the Castle to be able to deal with the issues and the history of all military institutions in our country. The sustainability and the role of the Defence Force is something that was always welcomed and their being central in assisting the Castle, but it seemed these experiences were not being transferred to the AG. There was an element between the AG and the Defence Force of not understanding how the Defence Force was structured. There was a battle with the AG on the issue of assets in the Castle, the AG did not have much knowledge of the assets that were in the Castle and did not report on them. That was a thorny problem for the people that dealt with assets in the Defence Force. Quite clearly to improve our democracy, the Office of the AG needed to be assisted to understand o that it did not become a continuous problem between the Defence Force and the AG. It needed to be communicated to the AG that they had to understand the the assets of the SANDF and the relevance they carried.

Ms H Mgabadeli (ANC) said it was nice seeing the CCB team putting the inputs of Parliament into practice . The appointment of the executive director was something that the Committee was very happy about. The photographs that were shown to the Committee should be on the walls in the Castle - they were proof of transformation in action. She referred to the documentary about the Castle shown on SABC on Heritage Day. People in the township never before spoke of the Castle of Good Hope and did not even know what those walls were. But now the documentary had been seen by the people in townships. The CCB should keep up the good work. The Executive Director said something about taking the Castle to the people; the Committee wished him all the success as not everyone could come to Cape Town. She was happy with the work to improve the tourism profile at the Castle. If the new vision and strategic force was fully implemented, South Africa could be the best and even surpass France's attractions. Overall the Board was doing a good job and should keep it up.

Mr A Mlangeni (ANC) said he was from the old Transvaal (today Gauteng) and knew nothing about the Castle. When he was in primary school in the 1940s during the war they read about the Castle in History, but were never taught about what was in the Castle, and its importance. He had been in Parliament for 20 years and every year there was a report about it but he had never asked about its significance and importance today. There was still ignorance. He asked what was its history and why was money spent on it. Why was it under the care of the Defence Force and not the City of Cape Town?

Mr Gilfellan said it was difficult giving Mr Mlambo a brief history without putting it in context and not getting emotional. Most people today ask if asked about the significance of the Castle, they would not spiritually connect to it for many reasons, but one of them could be how the stories of the Castle were told. But if you were to take the Castle away and talk about the land it was situated on and look at the original inhabitants and how they interacted with the ships that came from the West and the East, how they battled and how the Castle was formed out of those battles, this was a different approach. For instance, in 1510 (more than a 100 years before Jan Van Riebeek came to the Castle in 1652) when the Khoi and the San people were on the coast, they traded with the Portuguese, and one of the first battles of resistance was of the Khoi managing to overcome the guns of the Portuguese, of whom between 50 to 60 were killed during the battle. Then fast-forward to 1652 with Jan Van Riebeek and the VOC (probably the first multinational company in the world), how what was supposed to be a temporary station became the Castle, became Cape Town, became the Western Cape, became South Africa and became Southern Africa. That significance you could learn from the Castle, it also had original artefacts from that period, and the Dutch even want to contribute to enhancing the Castle and its heritage. It was a huge job changing how the history of the Castle was narrated to people so they could understand its significance.

Mr Esau said he had further questions regarding the finances. What were the reasons behind the bad debt of R66 000? Also there was an increase of 100% in bonuses paid, could there be justification and an explanation for that. There were also variations in reporting in the Annual Report and the Annual Performance Plan (APP) in terms of HR and management, and one was in percentages and the other was different, why was there a change? There was also a reduction in communication and consultants, which was welcomed, but as per Mr Gilfellan’s explanation it was expected that there would be an exponential increase in the communication. However, he was extremely happy about the consultant expenditure being reduced. Also what did Other Expenses mean? As the Castle was a military base, why did one need to employ security services when one had soldiers? He asked about the status of the fire control system, which was mentioned in the 2011/12 annual report but there was no mention of it in the current report. Regarding the decrease in students and the issue of concession, students had to pay a minimum fee but according to the report there was a reduction in the number of students that visited the Castle.

The Committee had requested during a previous engagement with the CCB that the different types of visitors should be categorised, why had that not been implemented so there was clarity on who accessed the Castle and also how we can reach out to the marginalised, those who were unemployed and did not have money but would like to have access to the institution. Also there was mention in the strategic plan of the research capability of the CCB, had there been any progress or plans made by the Board regarding that capability. On the formalisation of stakeholder relationships, there were MOUs that had to be drafted. What was the progress of MOUs with stakeholders. Also bank charges were not reported on. They were approximately R329 000, could the finance person give an explanation on the actual bank charges and, if they were high, why were they so high. He noted the CCB was trying to pursue very rigorously the issue of the restaurant. What was the progress and current status of the restaurant, the revenue generated by the restaurant, and how was it used?

Mr Williams explained the bad debt of R66 000. The restaurant was managed by a private company which was a separate institution to the De Goewerneur restaurant. The restaurant provided a service to the visitors of the Castle, due to circumstances and loss of profitability on their side, they scaled down the offering to a takeout kiosk. As they scaled down their revenue, they could not maintain the rental amount originally agreed on. They approached the CCB to look at outsourcing the restaurant to a private company, which the CCB was in the process of doing. The Board felt it important that the Castle had a restaurant or café. The restaurant has been advertised and there had been some responses to which there was a process to see if the applicants would be a fit. From a bookkeeping view, the amount could not be kept as outstanding income, as they did not have the finances to pay the rental. This the amount they could not pay was written off. The R66 000 did not harm the financial position of the Board. Bank charges had come down from the previous year. They were under R15 000 which was due to having an ATM at the Castle, so there was no need to pay the bank any cash deposit fees. Security was provided on site by the SANDF, however there was an alarm system linked to armed response with ADT, that was paid annually. The Castle did not physically employ any people for security to monitor the site.

Mr Gilfellan said the issue of target marketing was very important; the highest value clients were the tourists, and they paid R30. For pensioners and students it was R15. R5 for scholars in groups, the institution wanted people to value heritage, therefore they would tell teachers even if the student paid only R1 or R2, allow them to come so that no one was excluded because they could not afford it. This year World Tourism Day had been added on 27 September, where everyone gets free access. The Executive Director had also asked that the categories be broken down when reporting as it became important to provide the Committee with a pie chart of all the categories of visitors, so that the Committee could see the balance between the Castle attracting tourism to the Castle and granting access, as the two mandates of the Castle.

Regarding the CO2 system, Mr Williams said that an electrical and chemical engineer had been included as consultants in the new phase to start in April next year. They would look at and evaluate the system, its current usefulness and would make proposals to DPW concerning the necessity for an upgrade. Traditionally employees of the Board would receive a single small bonus. At last year’s Board meeting, the Board asked why a bonus was not given to the staff based on their monthly income as with any other organisation. It was voted to increase that bonus to the equivalent of a 13th cheque. There has been a proactive attempt not to use consultants and do as much as possible in-house. However consultants were used for the appointment of the Executive Director to drive the process and were a once-off expense. Regarding the APP reporting, Mr Williams apologised on behalf of management. Originally when lambasted by the AG about the lack of SMART principles, the change between percentages and actual numbers was due to this.

Mr Gilfellan said, regarding the research capability, the core objectives were around the preservation and the maintenance of the heritage site. Fortunately there was South African Heritage Resources Agency (SAHRA) and Iziko on site, organisations with significant research capabilities, that the Castle could go to. With phase two, it was one thing to restore a building and quite another maintaining the restored investment.

Lieutenant General Nkonyane Chief of Logistics thanked the Committee for their comments. It was fulfilling when you were in management to get a pat on the back for a job well done. The words of encouragement were inspirational and the CCB would work to improve on corporate governance and do their best to accomplish the objectives as stated in the Act. The Board also extended an invitation to Mr Mlangeni to have lunch at the Castle.

The Chairperson asked Ms Mgabadeli to thank the CCB on behalf of the Committee.

Ms Mgabadeli once more thanked the Board for availing themselves to the Committee, answering not only answer technical questions about the report but also answering the questions raised by Mr Mlangeni. This showed that the CCB was not only there to do a job, but also cared about the environment they worked in and the significance of their jobs.

Armscor briefing on its Annual Report 2012/13
Mr Sipho Mkwanazi, Acting CEO of Armscor, took the Committee through the presentation.

- Clean Audit
- Achieved level 3 BBBEE rating from level 7
- Dockyard obtained ISO 9001: 2008 accreditation
- Achieved a surplus of R84.6m (2012/13) against R70.2m in 2011/12
- 51% improvement on results of Corporate Social Investment (CSI) Flagship programme – Learner Enhancement Programme

Maritime Systems
Following the delivery and commissioning of three submarines, engineering changes were made to meet operational, safety and support related requirements. There were initially omitted due to financial constraints. The Department of Public Works to complete escape training facility by end September 2013 and availability of submarine to carry out final on-board qualification was in April 2013.

Airborne Systems
LUH - All 30 Helicopters had been delivered to SAAF and updated with latest production standards.
Gripen – there were nine dual seat aircraft. 17 single seat aircraft delivered to SAAF. The aircrafts were in full functionality, electronic          warfare and datalink capability were completed in September 2013. The Integration of the A-Darter Missile was completed and delivered in November 2012.
Hawk – Operational flight trainer had been upgraded to the same standard as the fleet. The fleet exceeded 10 000 flying training hours in October 2012.
Rooivalk - Rooivalk fleet was upgraded to the MK1deployment baseline. A depot level support was also established
39 Oryx Medium Transport Helicopter (MTH’s) - the development of avionics upgrade was completed, and the modification on the first four helicopters was progressing.
A-Darter Missile development – this was jointly funded with the Brazilian Air Force. The programme was progressing well despite some technical delays experienced and the seeker head had reached an acceptable level of technology maturity.

Ground Based Air Defence System – the new Local Warning Segment of the Ground Based Air Defence System has been completed. Phase two of the GBADS programme which entailed upgrading of fire-control system of the 35 mm anti – aircraft guns had commenced.
New Generation Infantry Combat Vehicle – the locally developed 30mm Camgun was undergoing final environmental test and evaluation. Advanced development was completed in December 2012 and testing commenced in February 2013. The development of an insensitive munition-compliant missile will be further explored in the next two years.

Test & Evaluation Facilities
- 28% funded from DoD transfer payment
- Relying on commercial business to fund shortfall
> Alkantpan
- 33% funded from DoD transfer payment
- 67% operations funded from local and foreign business

Defence Science And Technology Institute
>Armour Development
- DoD transfer payment funds basic capability – 95%
- Relying on commercial business to fund shortfall
>Defence Decision Support Institute (DDSI)
- 100% funded from DoD transfer payment
>Ergonomics Technologies (Ergotech)
- 95% funded from DoD transfer payment
- 5% funded from commercial contracts
- 75% funded from DoD transfer payment
- Funded 25% of operations from local business contracts

Defence Science And Technology Institutes
- 100% of income generated from local commercial contract
>Institute of Maritime Technology (IMT)
- 88% funded from DoD transfer payment
- 12% from local commercial work
• 98% funded from DoD transfer payment
• 2% from commercial contracts

Performance Of Operational Functions - Dockyard
- Armscor finally obtained its ISO 9001:2008 accreditation
- For the current financial year focus was on SHE matters
 - Funding was based on a fixed transfer payment to deliver predetermined capabilities
- Current capacity insufficient to deliver full requirements
- Received R30.6m additional funding for capacity rejuvenation
- Insufficient and sustainable funding remains
- Re-modernisation study completed in July 2013
- Despite challenges, overall achievement 92% compared to the 90% original target

Planned and unplanned maintenance projects
            SAS Spioenkop experience challenges, eventually completed in March 2013
Patrol Vessels:
SAS ISSAC Dyoba started maintenance in March 2013 for collision damage repairs which was successfully completed
            SAS Umhloti, unscheduled maintenance and repairs completed on time
            SAS Umzimkulu, successfully completed unplanned maintenance
            Tug Indlovu       
            Tug Demist        All work successfully completed on time
            Tug Tshukudu
            Tug Umalusi , unscheduled maintenance planned for completion in April 2013
Planned and unplanned maintenance projects (cont.)
            SAS Manthatisi OEM executing refit at Dockyard, to be completed in July 2014
            SAS Charlotte Maxeke completed within revised date due to unforeseen damage
            SAS Queen Mojaji, activities completed within planned schedule
Independent Vessels:
SAS Protea completed in Feb 2013 vs. planned October 2012 due to unanticipated damage of valves to be removed, repaired and replaced
            SAS Drankensberg completed within revised date

Human Resource
Improvement in overall transformation, esp. from mid management to top management

Human Resources
- Improvement in employee satisfaction survey – 66.5% (2012/13) from 62.9% (2011/12)
- 90 young engineers and scientist were identified for succession planning
- Skills Development Programmes
• Armscor Senior Management Leadership Programme
• Functional training
• Dockyard training centre
• Adult Basic Education and Training (ABET)
• Talent Development Programme
- CSI Flagship programme – “Learner Enhancement Programme” in support of Maths and Science in schools
resulted to an average of 51% improvement in these subjects

Financial Overview
- Armscor received an unqualified Audit Report
- Net asset value (Shareholder’s interest) increased by 187% to R1 792m million due to revaluation of land and buildings
- Profit of R84.6m realised against R70.2m in 2012
- Total revenue increased by 1% to R308.2 million
- Personnel costs remains main contributor at 74.4% of total operating cost

Armscor Challenges
- Insufficient Funding
- Resourcing of the organisation
- Operational inefficiencies and effectiveness
- Local Industry Support.

Mr Mlambo brought it to the Chairperson’s attention and to address the fact that there needed to be respect about where we were. There was a young man in the meeting that needed to be excused from the meeting before it continued as Parliament was not a place for children, like a crèche.

The Chairperson asked the Member to be explicit as he was not clear about what was going on.

Ms P Daniels (ANC) said they were disciplined members of the public representing the masses who voted them into power and Armscor was there to give the Committee a report. In had come "a male child in shorts and tattoos". Member’s own children could not do that, as much as they would like to come to Parliament, the Rules of the Committee needed to be enforced.

Mr D Maynier (DA) objected to how a member of the public was being addressed. The reality was that the public was free to attend meetings and it was not appropriate that the Committee attack a member of the public or make a comment on his or her dress. It was most inappropriate and the Member should apologise and not be distracted from the work of the Committee at hand. A Member may choose to dress differently, but it was a democracy and people dressed how they wished.

The Chairperson said he did not have a problem with what Mr Maynier was saying, but if the individual was especially wearing shorts he would have a problem. This person was an elderly person not a child or a student, the individual was an organiser of a trade union. The Chairperson said it was his responsibility to make a decision on the matter. As a member of a trade union, the individual knew he was attending an official session of Parliament, not a rally or public hearing, therefore he would ask that the member of the public to excuse himself from the meeting.

Mr Maynier objected and said the incident was un-parliamentary.

The Chairperson told the Committee to get back to the issue at hand and deal with the Armscor report.

Ms Daniels said another financial year has come and congratulations to Armscor for a clean audit, a job well done. Without necessarily downplaying the clean audit of Armscor, the last time the Armscor board interacted with the Committee, they had said the process of the appointment of the CEO was at an end, but still there had not been an appointment of a CEO. In terms of the report, there was a decline in contracting and actual spending in terms of acquisition, there were explanations given in the report. Between Armscor and the Department of Defence (DoD) they needed to deal with the issue timeously, when the Department placed an order all the other processes must be followed timeously.

Ms Daniels said she was very pleased with what she had seen on the Annual Report; at least Members could see they were going forward. For example with the succession plan in place in the areas mentioned. Regarding the dockyard, in the last interaction with Armscor when the Committee was on an oversight tour, they were shown a graph on what happened on the maintenance side of things. In terms of what had been said in the Annual Report, even though everything was done on time in the year under review, that was still an area of concern that needed to improve. Again in the report on the IT strategy, the strategy was in its first phase and the Committee was told that there were three phases, the Committee wanted to see that happening. The IT strategy was a challenge; it was one challenge that was giving the Department of Defence a qualified report. It was difficult to track ammunition and other assets without it so Armscor needed to deal with that.

Another matter, the DoD was deployed in the DRC and the DoD had placed an order with Armscor. The Committee would like to know what was entailed in the order, what was it that Armscor did not deliver on and why did they fail to deliver. It was important for the Committee to get a full report on that, so that they could understand. It was important that when the South African force was deployed, they had the backup, the equipment and the material to be able to fulfil their deployment. In terms of the dockyard again, did Armscor have a turnaround strategy. The Committee had heard about the financial strategy, there needed to be focus on the dockyard. On the vessels mentioned in the Annual Report, some of those that were not serviced or service done only partially but not in time - this was a matter of concern. In as much as she was saying good job, she hoped that Armscor could maintain a clean audit.

Ms Mgabadeli applauded the Armscor clean audit and the succession plan; big international companies had failed to do that. On page four there was mention of a leaner enhancement programme, she saw it for herself on 28 August 2013 when Armscor was awarding students in Pretoria, and it was a humbling experience. It was beginning to be a state owned entity with an interest in people. When the Committee saw for itself the work of Armscor and could report to Parliament that the Annual Report was not there for mere decoration but actual work was being done, credit needed to be given where it was due. And when they failed to deliver, they would reprimanded as such. Regarding the Syria case, and with South Africa being a member of the United Nations, how come South Africa was not invited to assist? Was it such a big animal that Armscor could not be called on or was South Africa as a country being undermined? To conclude, the work of Armscor was being seen throughout the country and she hoped that it continued to spread.

Ms N Mabedla (ANC) followed suit and congratulated Armscor for the good report and the clean audit. To the acting CEO, a job well done indeed. He had risen above the challenges and led a productive Board which without its leadership, there would have no clean audit. So many good practices had come from Armscor, the strategic and critical posts had been filled, also the Board had responded to the mandate of education by the Committee, the Committee was impressed with the 90 engineers that had been identified. The Committee bore witness to the work of Armscor, starting with the library facilities it had. However, turning to page 91, out of 32 objectives for the year, nine were not achieved and these were some that were fundamental to the democracy of South Africa. First one was the equity plan, could the Committee know what were the action plans to correct that. The country should not still be talking about male-dominated institutions. Armscor had 954 males and 440 females. The second one was the review policies for transformation. The Committee was very concerned with transformation and did not compromise on it, until it was achieved.

Mr Maynier said the Committee needed to recognise the context and the context was that there was a major crisis in Armscor; the Minister was in the process of firing the Chairperson of the Armscor Board.

The Chairperson interrupted and said what Mr Maynier was talking about was not in the report. The meeting was about discussing the report tabled by Armscor.

Mr Maynier said the point he was making had bearing on the issues that were in the report. In his opinion the Minister was doing the right thing. One of the primary reasons that led the Minister to take such action was that Armscor was not fulfilling its core functions, which was the acquisition of defence material, and if one looked at the court papers that were now in the public domain, the Minister had summarised the sentiments of the military command very well when she said “we are stuck because of Armscor”. The Minister went on to talk about the soldiers that were deployed in DRC, these soldiers did not have tents, no parachute equipment, and there was a whole list given to her. She had concluded by saying that it was inhumane that our soldiers were deployed in a problematic area without the necessary equipment. He agreed that it was inhumane. What the Minister was saying was that Armscor was compromising the military capacity of the SANDF in the DRC. The Minister used two unclassified projects to clarify herself, the first was Project Swatch and the second was Project Portal. In Project Swatch, which was about acquiring a portable camping system, there was 36 months delay for which Armscor was responsible. With Project Portal, which was about the acquisition of a specialised parachute system for use by Special Forces, there had been a 34 months delay for which Armscor was responsible. He agreed with the Minister that there could not be a situation where Armscor was compromising the operational capabilities of the SANDF. To the Armscor Board in respect to these two projects, exactly why had there been a delay and what had been done about it and when were those goods going to be supplied to the SANDF?

Again with acquisitions, Armscor said the integration of the A-data missile had been completed and delivered in November 2012, but in the same report it said there had been significant delays and technical difficulties and the missile was still being developed. How was it possible that a missile plagued with difficulties was still being developed had been fully integrated to the system. Regarding the Rooivalk combat helicopters to be deployed to the DRC, the Board said the fleet had been completed and was ready for operational deployment, but according to his understanding that was not correct as the Mokopo missile system had not been incorporated into the aircraft. Another controversial acquisition venture was that of Project Vagrant which was to acquire a system that would provide physical security to air force bases. That project seemed to have been delayed by 24 months and there had be absolutely no resolution. The project seemed to be hampered by paper shuffling between the Department of Defence, Armscor and the Ministry and what was being compromised was the security of South African air force bases.

Moving on to regulations, in the Annual Report the Board said that the disposal of defence material was carried out in accordance with the requirements of the DoD and regulating authorities. That was plainly untrue and a misleading statement, if one referred to a meeting between the Armscor Board and the Minister on 11 July; there was a whole section on non-compliance. There was evidence that there was major non-compliance and now the Board was stating that there was compliance. The Board had misled Parliament and there needed to be clarity on the matter.

Mr Mkwanazi said when developing a missile system there were different phases that went into testing it and it being delivered as a qualified product. By integrated, there were many requirements that had to be met, it had to be integrated with the wiring and the software in order for the tests to go ahead. There was no contradiction in the report, it was an ongoing process.

Regarding the Rooivalk helicopters, there was a deployable baseline that had to be met and that was what the Board was reporting on, it had met the baseline; because the Mokopo missile was missing, it did not mean the baseline was not met.

Mr Mlangeni also congratulated Armscor on receiving a clean bill of health from the AG. He said Mr Mkhwanazi had been acting for a long time; the issue must be taken up with the Minister as to why he was not made permanent. He was doing well; if the Minister was not impressed with his work then he should have been dismissed. Mr Mlangeni asked what was meant by independent vessels, what were they independent of.

Dr Ralph Mgijima, Armscor Board Director and Chairman of the Acquisition Committee, said regarding the appointment of the CEO, the last time they were in front of the Committee they did say soon a CEO would be appointed. On its part, the Board had done everything it needed to do and had submitted its recommendations to the Minister. About the inconvenience to the soldiers in the DRC, regarding the programmes mentioned by Mr Maynier, unfortunately Armscor was before the court and was therefore hesitant to speak about them. But to give an overview in terms of acquisition and the role of Armscor, the mandate of Armscor was to acquire assets on behalf of the Department. Between Armscor and the Department there were policies in place, and these provided for structured interaction between the two entities. Recently Armscor had reviewed the policies to align the interactions and to ensure decisions were taken frequently and at the right level. There were also national policies that Armscor had to observe.

The Chairperson asked that there be no interruption when Armscor was still putting forward their responses.

Dr Mgijima said the reason why the policies and processes were reviewed was to ensure alignment took place. Armscor had to observe these policies, and there were avenues to deal with these emergencies as they arise. Armscor did not take the requirements of the DoD based on what was going on in the DRC. Armscor made decisions in the interests of the client (the DoD) and the national policies of which Armscor was a custodian.

Mr Mkwanazi said regarding the turnaround strategy of the dockyard, there had been an in-depth of its weaknesses and there had been recommendations on how to improve. During the next financial year there would be implementation of such recommendations to ensure there was turnaround. A quality management system had been implemented as a short-term turnaround strategy. There was a service level agreement (SLA) with the navy in terms of what had to be delivered and they were ensuring that things were delivered accordingly. On the issue of insufficient funding, the navy provided additional funding to ensure the critical areas were covered and met the requirements of the SA Navy.

Gender transformation was still one area that was a struggle, but there were programmes in place. The intake had mainly female engineers to ensure that there was some improvement in the gender equity target.
On the important policies that needed to be worked on, Armscor was busy with the review and also taking into account the introduction of the Preferential Procurement Policy Framework Act, which also had an impact on the current review of the policy. The Board was continually taking into account the lessons from the previous terms. There was a delay with the review of the SLA and signing with the Department. The current SLA was in the process of being finalised and would probably be finalised in the course of the current month.

Mr Themba Goduka, General Manager of the Dockyard, said the independent vessels were primarily support vessels that the SANDF did not reply on.

Mr Booi said Members had come from a level where they have had no knowledge of Armscor to now being able to engage with the entity. All the things raised by the report were not raised by the AG, which was perplexing. Armscor had done well, they had improved, and had stabilised the institution. Mr Booi urged the Committee to give credit when credit was due.

Mr Maynier said he understood the Minister's frustration. There was no sense of urgency about the issues raised.

Mr Mlangeni proposed that the meeting be closed.

Mr Esau said the APP and Strategic Plan may not be recorded in the report but they were part of responsibilities of the entity and the Committee had a right to question the information. He asked about the decrease in revenue.

Mr Gerhard Grobler, Chief Financial Officer, said revenue did increase slightly. There was no irregular expenditure.

Ms Daniels said if analysts did research before the annual report, Members tend to ask questions raised by the analyst before the annual research was written up instead of focusing on what was on the report.

Mr Mkwanazi reiterated that the study to turn around the dockyard had been completed. Mainly, all the high level vacancies have been filled. Some were to increase the required capacity in the dockyards.

Mr Mgoduka said they would continue to fill the vacancies, but they were still not fully funded to satisfy the full capacity requirements.

Armscor was thanked and the meeting adjourned.


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