Auditor-General on using Annual and Quarterly Reports as oversight tools, Private Members' Defence Amendment Bill : Further deliberations, Motion of Desirability rejected

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Defence and Military Veterans

03 September 2014
Chairperson: Mr M Motimele (ANC)
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Meeting Summary

The Auditor-General South Africa (AGSA) briefed the Committee on the role of the AGSA, as mandated by the Constitution, the Public Audit Act and the Public Finance Management Act. The importance of oversight was highlighted throughout the presentation. The Combined Assurance Model was explained, and the presenters highlighted the need for development of mechanisms to ensure that there would be consequences for poor performance and transgressions. It was noted that AGSA itself was accountable to Parliament, in terms of the Public Audit Act, through the Standing Committee on the Auditor-General that oversaw its performance. AGSA, however, also continued to extend its visibility to all other departments, beyond its limited mandate, through giving briefings to oversight committees, through various programmes to enhance financial performance and management, and a consultation with a wide range of stakeholders. The work that it performed was described, with the difference explained between the regulatory audits, information systems audits, performance audits, investigations, and special audits. Good administration generated from an audit would mean that the financial statements were free from material mis-statements, that there would be no material findings on compliance with laws and regulations, and that there were no material findings on the Performance Report. AGSA then identified what this Committee would be looking at when considering the Annual Reports of the Department of Defence, pointing out what information it gave. AGSA gave some recommendations around  the assurance level and how it would apply to identified deficiencies ion the reports.

Member of the Committee, Mr David Maynier, had tabled his Private Member’s Defence Amendment Bill in the Fourth Parliament and it was deferred to this Parliament for responses to be given by Mr Maynier to the points raised by the Department of Defence on the Bill. His Bill sought to ensure that information on defence acquisitions would be presented to Parliament, because no such information had been laid before the Fourth Parliament, despite request. The Civilian Secretariat for Defence had denied that there had been serious maladministration by the Department in relation to defence acquisitions, but Mr Maynier asserted that the opposite was the case, relying on an affidavit lodged by the Minister in a particular court case, which cited significant cost overruns in various defence projects, which were said to compromise the operational capability of the defence force. He believed the current Commission of Inquiry into the arms deal also supported that point. He noted that the Minister had argued that the Bill raised a serious risk that information would be disclosed to the detriment of the country, but pointed out in response that his proposed Bill specified that only the project name, description of the armaments being procured, the period, the timeline, and the cost would have to be disclosed, and no detailed information that could compromise national security was to be presented. The intention was to alert Parliament, in advance, to projects where there was the risk of major cost overruns. It was even possible to go into closed session to discuss the merits of any defence programme. He asserted that so far from compromising security, this disclosure would actually ensure that future challenges to operational capacity were averted. He maintained that in other projects, information had been provided without risk, and another Member added that other countries had similar legislation which was shown to work effectively. Mr Maynier asserted that had his Bill been in force already, the very problems that arose in recent matters could have been questioned and avoided. His Bill was aimed simply at improving Parliament’s oversight capacity on defence acquisitions. Members discussed whether it was helpful to discuss the Commission of Inquiry at this point, since it had not finalised its work, and some felt that the reasons behind the DOD’s failure to submit reports had not been properly explored.

Members were, in general, agreed that the Bill posed no problems in constitutionality, but questioned whether it was necessary because other legislation seemed to cover the same points, said that Parliament should be wary of over-legislating and were not convinced that this Bill would not compromise national security, and that attempts to “micro-manage” the DOD were unwise and outside Parliament’s functions. They wondered whether wide enough consultation was held with other sectors. The EFF Member suggested that perhaps a decision on the Bill should be postponed pending the decision of the Commission of Inquiry, but other Members countered that this was not necessary as another Bill could be proposed later if necessary. Mr Maynier responded that he believed that there was no other comparable legislation, reminded Members that only limited information was to be provided, to Parliament, and not for public consumption, and said that at present there was no oversight because the Committee never had sight of the facts. The Chairperson countered that there was a need then to consider whether failure to report was because of some shortcoming in the legislation that had to be corrected by this Bill, or lack of capacity in the DOD, which this Bill would not correct. On this basis, the ANC majority of the Committee resolved not to support the Motion of Desirability, although two DA Members and one EFF Member indicated their support for that Motion. Because the Motion of Desirability had not succeeded, the Bill would not be pursued.


Meeting report

Oversight function of Committee : Annual Report and Quarterly Reports: Office of the Auditor-General of South Africa (AGSA) Briefing
Mr Musa Hlongwa, Business Executive, Auditor-General South Africa, stated that the purpose of the presentation was to introduce the Members to the processes of this office (AGSA) and also to help the Members understand their oversight responsibilities.

He noted that the AGSA aimed to strengthen the country’s democracy by enabling oversight, accountability and good governance in the public sector, thereby building confidence in the country. The Auditor-General received its mandate from the Constitution. When looking at the role of oversight, it was important to look at the Combined Assurance Model and the contribution of the AGSA to oversight. Oversight responsibility was divided into four different categories: oversight over strategic planning, over budget and operational planning, oversight over implementation, and oversight over year-end responsibility and year-end reporting.

When conducting oversight over departments’ strategic planning, the Parliamentary committees needed to consider whether the strategic plan presented was in line with the legislative requirements, and furthermore should ensure that the strategic plan was aligned with government initiatives and government priorities, the National Plan of Action and the Medium Term Expenditure Framework (MTEF). Additionally, the strategic plan should identify challenges to meeting the strategic initiatives, and put forward proposals to address them. Lastly, there should be indicators to evaluate how success would be measured.

When a strategic plan had been implemented, the department must then undertake a budget preparation to ensure that the budget was in line with the strategic plan, that adequate resources were channelled to the priority areas, that budget constraints were identified and dealt with, and focus was given to budget changes on a yearly basis. After the budget was implemented, monitoring then had to take place, through the consideration of several critical questions, which included looking at reports, keeping management accountable and determining whether there was compliance with reporting responsibilities as set out in the Public Finance Management Act (PFMA) and with the Appropriation Act.

The Combined Assurance Model was noted as important, since this gave consideration to the roles of all parties involved in giving assurances, and ensured independent access. There were three main roles: namely, management assurance, oversight assurance, and independent assurance. Management assurance, the first tier of the model, considered the role of senior management, accounting officers and the executive authority, all of whom were responsible for addressing specific recommendations, and for ensuring adherence to financial management and internal control systems, as well as implementation of internal controls. Quarterly and annual progress reports were required, monitoring the progress of performance and enforcing accountability respectively. The oversight assurance role, at the second tier, dealt with coordination, internal audit and the audit committee. The third tier, of independent assurance, tackled the issue of oversight and the role of Public Accounts Committees.

Mr Hlongwa explained that AGSA derived its mandate from three pieces of legislation: namely, the Constitution, the Public Audit Act (PAA) and the Public Finance Management Act (PFMA). Section 188 of the Constitution required the AGSA to audit and report on accounts, financial statements, financial management of government institutions and report to Parliament  or the relevant legislature that had a direct interest in the report. Section 20 of the Public Audit Act provided that AGSA must prepare an audit report containing conclusions or opinions on financial statements and the financial position, compliance and financial management, and predetermined objectives. Section 40 of the PFMA directed AGSA to audit the financial statements and submit a report to the accounting officer. In addition to what was set out in the PAA, AGSA may audit and report on the accounts, financial statements and financial management of all entities funded from the national revenue or provincial revenue fund, or any institution authorised by legislation to receive funds for public purposes.

AGSA aspired for professionalism in the public sector, through robust financial management systems, oversight and accountability, commitment and ethical behavior by all players, and competent value addition by the Office of the Auditor General. AGSA was concerned that, insofar as oversight and accountability were concerned, there were major weaknesses in applying consequences for transgressions and poor performance. Addressing these concerns would resolve some of the negative findings on accountability.
The Standing Committee on the Auditor General (SCoAG) established in terms of section 10(3) of the PAA, oversaw the performance of the AGSA on behalf of the National Assembly, to which the AGSA was accountable in terms of section 10 of the PAA. AGSA had to report on its activities and performance to SCoAG.

The visibility of the AGSA extended beyond this direct reporting mandate to SCoAG, as AGSA in fact provided briefings to all oversight committees in Parliament and all legislatures, and developed the necessary leadership competencies through mentoring, coaching and leadership programmes, as well as holding wide consultations with stakeholders in the executive and legislature prior to the tabling of general reports.

Mr Jans Steenkamp, Senior Manager, AGSA, gave the Committee an overview of the work of AGSA and its products from its processes. AGSA firstly conducted a regulatory audit, which verified that there was no information omitted from the financial statements. This regulatory audit was supported by an information systems audit on the information systems environment, which was a computer based audit conducted using Computer Assisted Audit Techniques (CATT). The regulatory audit was further supported by three discretionary audits - the Performance Audit, a Special Audit and the Investigation.

The performance audit was conducted in terms of section 20(3) of the PAA and essentially evaluated the “three E’s” of economy, efficiency and effectiveness. Investigations served as an independent process to prevent and detect fraud or crime in the public sector, more specifically in the areas of financial misconduct, maladministration and impropriety. Special audits could be conducted on agreed procedures and processes such as donor funding certificates. Performance auditing focused on a specific government policy or management policy to ensure there was value for money and service delivery.

The regularity audit provided assurance that the annual financial statements were free from misstatements, reported on the usefulness and reliability of the information in the Annual Report, reported whether there had been any material non-compliance with relevant laws, and identified key internal control deficiencies. The regularity audit did not serve the purpose of identifying fraud, but its systems were designed in a way that could unearth fraud.

The requirements for good administration warranted that the audited financial statements were free from financial mis-statements, had no material findings on compliance with laws and regulations, and no material findings on the performance report. An audit was intended to look at three main criteria - compliance with regulatory requirements, usefulness, and reliability. In terms of the briefing process, six tools could be identified, and these were the Annual Report, including the performance report, AGSA briefing notes, Accounting Officer and Audit Committee reports, Estimates of National Expenditure, State of the Nation Address and budget speeches.

Mr Steenkamp then turned to the particular position of the Department of Defence (DOD or the Department) and said that when considering the financial position of this Department and its entities, a Parliamentary Committee would need to look firstly at its Annual Report, which consisted of general information, information on predetermined objectives and programme performance, human resource management and annual financial statements. A three year audit outcome was given, followed by a breakdown on the audit outcomes.  For the period from 2012/3, key control assessments could be given on leadership, financial management and governance. On the point of leadership, for instance, it could be seen that this Department did not exercise sufficient oversight responsibility in relation to capital assets, reliability of performance information, compliance and related internal controls. In addition, management did not always have approved policies and procedures to guide management at the lower level, to ensure compliance with National Treasury requirements, and the Framework for managing performance information. In terms of financial management, it could be seen that the existing manual and automated controls were not designed to ensure adequate record keeping to support accurate and complete financial reporting on assets and reliability of performance reporting which was accessible and available. On the point of governance, the Department was still in the process of capacitating the internal audit control.

Recommendations were given in line with assurance level. In terms of management assurance, it was noted that daily checks and balances should be carried out to ensure credible monthly and quarterly reporting, consequences for poor/non-performance, implementation and continued monitoring of action plans, and to capacitate an internal audit. On the point of oversight assurance, it was recommended that monthly and quarterly financials should be fully checked, before final signoff by executive and submission to the Portfolio Committee. The Audit Committee should monitor risks and the implementation of commitments on the corrective action made by management. In terms of independent assurance, the DOD should be reviewing and monitoring quarterly progress on the implementation of the action plans to address deficiencies reported.

The Chairperson made a proposal that since this presentation formed the basis of the committee’s oversight activity, an invitation be extended to the AGSA to make a further presentation at the forthcoming session on strategic planning, and suggested that Members should in the meantime study the supporting documents.

Mr J Skosana (ANC) indicated that his understanding was that the AGSA would form part of the proceedings in the two days set aside for the strategic planning workshop, and this view was supported also by Mr D Gamede (ANC).

The Chairperson thanked AGSA and extended an invitation to it to attend the strategic workshop.

Defence Amendment Bill: Maynier’s Private Member’s Bill: response by proposer to views expressed by the Department of Defence and Parliamentary Legal Adviser
Mr D Maynier, the proposer of the Private Member’s Defence Amendment Bill, noted that the Department of Defence had raised several points in relation to his private Bill, which he believed did not have merit, and wanted to give his response.

He noted that the Civilian Secretariat for Defence had denied that there had been serious maladministration by the Department in relation to defence acquisitions. However, he believed the opposite was true, based on the Ministers own affidavit relating to defence acquisitions, which was lodged in the matter of Natal v The State. The affidavit cited numerous examples of significant cost overruns in various defence projects, which, according to the Minister of Defence, compromised operational capability of the defence force. He also added that the inquiry by the Judicial Commission into the Arms Deal further supported his contention.

He highlighted that the arguments made by the Minister about this Bill and its potential for disclosure were generalised arguments. He noted that his Private Member’s Bill specified which information could be disclosed in the various proposed reports, in its four sections. The information was simply limited to the project name, description of the armaments being procured, the period, the timeline, and the cost. There was no obligation on the Department to disclose any detailed information. The purpose of his Bill was simply to draw Parliament’s attention to defence acquisition projects where there were major cost overruns or significant cost slips. Parliament would thus be alerted to defence projects that had been compromised and could then decide how to deal with the matter. One way of going about that would be to go into a closed meeting to discuss what may be wrong with a particular defence programme, and to debate the litigation options that might be necessary to correct the matter.

The Minister had raised an argument about the possible compromise to national security. However, the converse argument could be considered, that if there were defence contracts where there were significant cost overruns, which compromised the operational capability of the South African National Defence Force (SANDF), which would actually constitute a threat to national security. That was precisely the kind of information needed by Parliament to conduct its oversight. Furthermore, the Department of Defence was required by legislation to submit annual reports to Parliament although this was never done in the Fourth democratic Parliament. The DOD had argued that it would be happy to submit the reports to a properly constituted meeting of the Joint Committee on Defence.

Mr Maynier assured the Members of the Committee that his Private Member’s Bill would not result in unwarranted disclosure of information. Information would in fact be protected, since the Bill specifically made stipulations on what kind of information could be disclosed. He alluded to the fact that in existing projects, wide information had already been given to the public, and cited the example of Project Hoof Ester, where wide information had been given to the public and the project had not been compromised. He cautioned the Members that this was a delicate matter of great importance and urged them to seek an opinion on the case of Minister of Defence v Natal and others (which had to do with the ARMSCOR deal). The purpose of the private Member’s Bill was to alert Parliament of delays, some of which had extended to 36 months and had cost the DOD up to R70 million, as was stated in the Minister’s affidavit. He then hypothesized that had his Bill already been passed into law and had the Fourth Parliament been aware of the delays and cost overruns, Parliament could have intervened and put some tough questions to ARMSCOR that could have averted the situation.

In conclusion, Mr Maynier urged members to seriously consider approving his private Member’s Bill. He reiterated that it would help to improve Parliament’s oversight on defence acquisitions, and would ensure that the operational capability of SANDF was not compromised.

The Chairperson asked Mr Maynier to clarify which Commission of Inquiry he had referred to in his response.

Mr Maynier responded that this was the current Judicial Commission enquiry into the arms deal.

The Chairperson then indicated that since this Commission had not yet completed its work, it would not be helpful for the committee to refer to it. In terms of previous Constitutional Court judgments, it would have been useful to be able to refer to what lead to the judge’s decision, which it was submitted had been  poor management and/or because of poor legislation.

The Chairperson also asked the reasons why the DOD had failed to submit the necessary reports to the Joint Standing Committee on Defence, and said that this was a grey area that should have been more fully covered. He also stated that Mr Maynier should also have considered the basis for his distribution of the information pertaining to project Hoof Esther.

Mr B Bongo (ANC) indicated that there had been two presentations concerning the private Member’s Bill. It seemed that this Bill was constitutional, but he felt that two further questions should be posed. The first was whether this Bill was desirable or not. The second question went to whether there was other legislation in existence or proposed that dealt with the same matters, and the answer to that was affirmative and there was other existing legislation that dealt with what was proposed in the private Member’s Bill, and it seemed to duplicate other legislation. He cautioned that Parliament should be wary of over-legislating, and advised that existing legislation needed to be housed under one roof. He also stated that this Bill would highly compromise national security. He stated that early warning systems such as those proposed in the Bill may amount to attempting to “micro-manage”  the DOD and depart from the Parliamentary mandate of providing oversight. He felt that, for the reasons stated, the Bill should be rejected.

Mr Maynier responded that there was no other legislation that dealt with cost overruns and delays in defense acquisition projects. In relation to the assertion that the Bill could compromise national security, he said that only limited information would be provided, and that would not compromise national security. He agreed with the general contention that in theory there should be no need for an early warning system, but also contended that there could not be oversight in a situation where there was in fact no sight allowed.

Mr S Booi (ANC) responded to Mr Maynier by stating that Mr Maynier was well aware of the systems in place to inform Parliament about defence projects.

Ms N Mnisi (ANC) stated that she did not believe that the Private Member’s Bill was desirable or acceptable. She referred to the arguments raised by the Minister of Defence. She said that from a Constitutional standpoint, this Committee could not allow the Bill to pass, and asserted finally that this Bill was a duplication of existing legislature.
Mr Maynier responded that the Bill was constitutional, and there was a need to accept that viewpoint.

Mr J Skosana (ANC) concurred with previous speakers that the Bill should not be accepted. He claimed that, firstly, the Bill did not fall within the Committee’s mandate, and furthermore that when initiating a Bill, wide consultation with various other sectors, and that did not seem to have happened. He too pointed out that this Bill appeared to duplication existing legislation.

Mr R Ramakatsa (EFF) indicated that the Commission that was set to inquire into the Arms Deal indicated that there were several loopholes and discrepancies. He also noted the Committee’s responsibility to advise Parliament on any such issues that the Committee became aware of. The most important question was thus what led to the arms deal. He proposed that, instead of brushing aside this Bill, it should rather be postponed whilst awaiting the deliberation of the Arms Deal Commission.

Mr D Gamede (ANC) said that there was no need to wait for the decision of the Commission, and that all that was needed was for the Members of this Committee to be convinced. He then indicated that at that specific point in time, he did not think the proposals in the Bill were convincing, but in future other Members might want to table other proposals.

Mr S Booi (ANC) (non-voting member) said that there was a need to look at what the Bill would bring that would be new and innovative. He noted that any Bill should aim to address the weaknesses in existing legislation, and enhance functionality. He believed that this Bill would make no contribution to enhance oversight capability and had no basis in the law.

Mr Maynier responded that the cost overruns and the failure to execute defence acquisitions timeously generated a need for the Bill. He noted that since the DOD was unwilling to disclose information about defense acquisitions to Parliament, there was a need to compel it to do so. He reminded Members that there had been no disclosure in the Fourth Parliament.

Mr Booi responded that this contention by Mr Maynier was not true and was based on incorrect information.

The Chairperson responded that there was a need, if this was the case, to investigate why the DOD had not been reporting, and whether this was because there was no legislation or whether it was because the DOD had no capacity.

Mr S Esau (DA) asserted that the Bill was not unconstitutional and did not conflict with existing legislation, but rather enhanced existing legislation. He said that the point raised by Mr Maynier around procurement of defence acquisitions was one rather of enforcement of policy than of legislation, and that made it even more suitable for the policy to be made into law to enhance compliance. He also made reference to the United Kingdom as an example of international best practice, saying that this country did not have any problem in identifying the name of the project, and name of the item, although specifications were not provided. He noted that the main details were not for public consumption but for Parliament, as the main oversight body. He stated the DOD had a duty to report on why it was not performing and there was a need to enhance reporting structures currently in place.

The Chairperson then stated, for the record, that the constitutionality of the Bill was not a matter for contention.

Mr Skosana stated there was nothing abnormal that would suggest that things within the DOD were not moving. The matter should thus be concluded, and the Bill should not succeed.

Mr Maynier responded to Mr Skosana that there was indeed abnormality in DOD in the sense that the Fourth Parliament had not received any information about slip ups and cost overruns on defence acquisition projects.

Mr B Bongo (ANC) stated that Mr Maynier had received an opportunity to convince Members of the Committee, and that he believed that the discussions could now be wrapped up.

The Chairperson said that Mr Maynier should directly respond to what had been stated. He believed that the issue was whether there was indeed a need for further legislation, whatever the weaknesses or strengths of the particular Bill before the Committee, or whether the problem identified was rather lack of capacity within the DOD, which would not be solved by legislation. He indicated that he was not prepared to allow the Members to be held to “ransom” by the suggestion that the work of the Inquiry Commission first had to be completed, but felt that at this stage it was necessary to formally consider the desirability of the Bill.

He put a motion of desirability for the Private Member’s Bill to the Committee.

Mr S Esau (DA), Mr D Maynier (DA) and Mr R Ramakatsa (EFF) indicated their support for the Motion of Desirability.

Those indicating that they were not in support of the Motion of Desirability were Mr B Bongo (ANC), Mr J Skosana (ANC), Ms N Mnisi (ANC), Mr D Gamede (ANC), Mr S Booi (ANC) (non-voting member),and Mr V Smith (ANC).

The Chairperson therefore declared that the Motion of Desirability had not succeeded, and the Bill would not be pursued.

The meeting was adjourned.


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