The Castle Control Board (CCB) presented its 2013/14 Annual Report and Financial Statements to the Committee. The presentation focused on the overview of overall expenditure for the financial year 2013/14, outlined the programme performance, indicated that certain programmes required more funding, and set out the challenges that impacted on the achievements, also giving the reasons for underperformance. CCB also noted the plans and resources needed to address such challenges. The vision of the CCB was to be a centre of global significance that was the embodiment of social, cultural and military heritage of South African citizens and beyond. CCB sought to preserve and protect the military and cultural heritage at the Castle while maximising the Castle’s tourism potential through optimisation of public access. The four focus areas that required more funding were specifically described, and these were the expansion of heritage exchange programme, development of the Integrated Conservation Management Plan, increased funding for marketing and increased resources for security. Of the nine pre-determined objectives set out in the Annual Performance Plan, only three were not met. There were challenges, which were more fully described, which impacted on the failure to achieve all targets. One of the matters that caused concern to the Committee was that one of the Audit and Risk Committee meetings had been missed, and engagements with the Auditor-General were not all recorded as such .The targets for repairs and maintenance of the Castle of Good Hope had been missed by R679 482. Lastly, the total expected number of visitors to the Castle of Good Hope had also been missed by 2.7%, which was ascribed to the passing of former President Nelson Mandela in December 2013. Plans to address some of the problems the CCB faced were outlined. Underspending on repairs and maintenance would be addressed through a renovations programme, and a tourism coordinator was to be appointed to increase marketing, whilst the newly-appointed Chief Executive Officer was a marketing specialist who had already reviewed all material and made new proposals.
Members asked how the performance reward was being implemented, and questioned to whom, and why, the amount of R28 00 was paid .They commented that the Castle still did not cater for visitors or employees with disbility. They questioned why certain clauses allowing for contracts for only one year were still in place and suggested this must be reviewed. Other matters addressed included the role of the audit Committee, the position of war veterans and how they would be employed, the need to tighten up security measures, the engagement with the Chief of Army to increase reserve guards, leave pay, and the possibility of Parliament holding meetings at the Castle. Members asked for more specifics on the time frames and visitors to the Castle.
In the afternoon session, Armscor briefed the Committee on its 2013/14 Annual Report and audited financial statements, focusing on performance of operational functions dealing with acquisition, research and development, and dockyard. The presentation highlighted the achievements and those where it fell short by partially achieving. The key challenges were named as insufficient funding, outdated IT and infrastructure, human resources and Armscor brand positioning. The presentation stated that Armscor had achieved a "clean"audit but this was later amended to reflect the correct position of an unqualified audit but with findings.
Much of the disucssion centred on the point that the presentation focused on achievements, but did not address what Armscor would do to face its challenges. One main issue of concern amongst the Committee was the failure still to finalise the appointment of the CEO of Armscor, with most Members expressing their frustration at the drawn-out processes, which was using taxpayers' money. They noted that the new Minister had wanted the process to commence from scratch but it was hoped to appoint the incumbent early in 2015. Members were also concenred about insufficient capacity and funding on the dockyard, pointing out that maintenance remained a challenge and that because the dockyard was based in Simons Town, it would be restricted to assisting those from Western Cape. The major point of contention was whether opposition members should be allowed to pursue questions on matters that were not specifically dealt with in the Annual Report- such as questions around the President's private jet, offshore vessel and others, but although the DA strenuously argued the point that this was relevant, the ANC believed that it was proper to discuss projects, but not to distinguish between them on the basis of linkages to individuals. The Committee Chairperson firstly ruled that such questions could not be entertained, but later stated that it would be necessary for the Committee to discuss the principles in more depth.
Castle Control Board: 2013/14 Annual Report
Chairperson's introductory remarks
The Chairperson noted that the Committee would do whatever it could to assist the Castle Control Board (CCB) and ensure that the Castle of Good Hope could preserve and protect its cultural and military heritage by elevating it to UNESCO World Heritage Status.
Lt. Gen Mbatha, Department of Defence and Military Veterans made some introductory remarks and noted, jokingly, that the Castle's security officers were having some problems with the ghosts in the Castle. He noted the vision of the CCB was to be a centre of global significance that was the embodiment of social, cultural and military heritage of South African citizens and beyond. CCB sought to preserve and protect the military and cultural heritage at the Castle while maximising the Castle’s tourism potential through optimisation of public access.
Mr Calvyn Gilfellan, Chief Executive Officer, Castle Control Board, tabled the 2013/14 CCB Annual Report and Financial Statements. This highlighted that there were four areas which needed more funding to realise their full potential, and the amounts that were needed, as follows:
- The expansion of heritage exchange programme (R298 000)
- The development of the Integrated Conservation Management Plan (710 000)~
- More funding was needed for marketing (978 000)
- Increased resources were required for security (760 000).
He noted some of the key achievements for the year under review.
- The number of Castle Control Board Meetings was actually exceeded, with two extra-ordinary Board meetings which finalised the recent appointment and contract
- The expected target for number of learners visiting the Castle of Good Hope was exceeded by 4 191. CCB’s partnership with Iziko was attributed to such a healthy increase
- The target for the Expenditure for Maintenance and development of displays at the Military Museum was met, with a surplus of R3 764
- The R5 605 on expenditure to ensure a clean and safe environment indicated a major achievement
- Projected income from events, film and fashion shoots generated R585 200, thereby exceeding the target by R309 575
He noted that the CCB was still faced with some challenges.
- Administration and good corporate governance was lagging behind. For instance, the engagements with the Auditor-General South Africa (AGSA) were not recorded properly
- There was significant under-spending on Repairs and Maintenance of the Castle of Good Hope
- There was also a sharp decrease on the total expected number of visitors to the Castle of Good Hope, mainly due to the passing-on of former President Nelson Mandela, in December last year.
Mr Gilfellan assured the members that CCB was hoping, in the future, is to attain UNESCO World Heritage Listing. It was also aiming to achieve unqualified and clean audits. Noting that the Chairperson had previously suggested that CCB must make use of flyers and pamphlets, Mr Gilfellan also pointed out that other and more cost effective tools of marketing, such as e-marketing and social media marketing must also be utilised. The Castle of Good Hope has been used to host the National Heritage Day celebrations. Last month, it marked the meeting of almost 10 000 people to celebrate the National Heritage Day. There was also a greater need to protect the invaluable assets.
Ms N Mnisi (ANC) asked for clarity on the performance rewards, asking to whom they were paid, and whether they were awarded to those who had qualified for performace rewards. She also wanted to know who had received the R28 000, and why. She questioned the current status of the restaurant, the amount of revenue it generated in the period 2013/14 and how it had declined. She asked what led to the increase of expenses in running Chapter 2 to R145 000 in 2013/14, from R44 000 in 2012/13.
Mr S Esau (DA) said that the income generated was not break-even, and asked why this was so. If there had not been the issue of maintenance, there would be a deficit of R520 000, hence the projection was lagging behind. He also talked about programmes 2 and 4. He asked how the marketing proposed would l actually transcend into a cost effective budget. He queried the time frame when the research environment would be fully capacitated, and within the theme of CCB. He raised the issue of staff, and pointed out that depending on which method of counting was used, the staff complement appeared to range between 18 and 20, and wanted to know which was the correct figure. He raised the point that there was no expenditure on training and staff development. However, on page 93 in the Annual Report, there was an allocation of R16 000. He asked what the correlation was between investment and the impact it had on visitors who came to the Castle.
Mr J Skosana (ANC) said that the CCB had received an unqualified report from the auditors, but made the point that under-spending had to be linked with performance. He wanted clarity on whether proper performance could be achieved, if the CCB was under-spending.
Mr D Gamede (ANC) raised a very important challenge of disability, noting that the Castle did not cater for workers or visitors who were disabled. He asked for clarity on what was being done to address this challenge, particularly in order to employ people with disability. He also raised the issue of procurement of goods, and the clause which expired annually, and suggested that it was necessary to amend that, for convenience and accommodation. He questioned the low targets set on programme 4. He said that CCB over-achieved only because the targets were very low, and questioned the motivation behind that. He argued that the number of visitors was slowly but surely increasing. He asked if CCB had ever considered the sale of historical merchandise, so that visitors could take something back to their countries, as a way of marketing South Africa in the global space. He was not convinced by the reasons given as to why the engagement with the Auditor-General was not recorded, saying that he needed better reasons on that point.
Mr Gilfellan said that some of the questions asked by the Committee had to with the sustainability and profitability of the two restaurants. He said that the revenues were low due to the fact that there were no profits generated from the facility, since it was run by a non-public fund. However, negotiations were in place between CCB and Officer Commander of the Western Cape to let the facility for rental, thereby generating income. There was a plan, which was already in progress, to commercialise the museum shopb
Mr Dave Mitchell, Castle Control Board Member said that performance bonuses had not been awarded to some staff members. He said the performance structure actually made the organisation stronger than before. There were also low salaried members showing reasonable performance, which added up to the maximum of 20% which was a particular staffing strategy which encouraged hard work within the organisation.
Maj-Gen J Nkonyane, Chair, Castle Control Board, added to the question on performance bonuses by referring to appendix A of the Annual Report. He said that the income statement must be read within the context of the target which had been set. He said that Management and Policy promotion and Corporate Governance targets were kept out were bonuses which were meant to support CCB staff. The Board deemed these bonuses to be a motivational tool for good performance for the staff.
Mr Gilfellan further alluded to the need to develop an organisational and staff performance strategy, which CCB already had as a performance contract.
Maj-Gen Nkonyane said that the oversight of the Board had everything to do with sustainability, especially the HR budget and all the promotions relevant to the Castle. He raised the fact that the performance statement was not a fully true reflection of the challenges CCB encountered. Defence Forces also had the responsibility to protect the Castle; hence a dual responsibility existed between CCB and South AFrican National Defence Force (SANDF). The performance statement must be read within the context of the Castle Management Act. He said CCB wanted to be autonomous so that it would not solely depend on the finances from SANDF and then it would be able to sustain its internal HR budget. The employment of the Chief Operations Officer and Managing Director were done on the basis that they were trained towards sustainability of the sector, thus able to attend to promotion of internal tourism.
Mr Mitchell said that the employment of the Chief FInancial Officer had proved successful. Although he had limited knowledge, the board saw him as having the potential, determination and desire to do accounts of an organisation in which he had no involvement in. He gave credit for and applauded the CFO on his performance, also showing how the management applied itself in preparing moving the organisation forward.
Mr Gilfellan said that Members had previously asked for the strategies put in place by CCB in going forward, and the role of audit committees and National Treasury. They also wanted to know the role of war veterans at the castle. Mr Gilfellan took full responsibility for not taking such questions in account in the presentation he had given.
Mr Mr Motimele (ANC) asked whether CCB wanted to turn the castle into a refugee camp.
Mr Gilfellan said the problem of venues was not only a housing problem, but a socio-economic problem as well. War veterans were not abandoned. He assured Committee Members that war veterans played a tutorial philosophy role to the Castle and were shining emblems.
The Chairperson asked if there were any queries from the Auditor-General (AG) on bonuses.
Maj-Gen Nkonyane said there were not.
Maj-Gen Nkonyane pointed out that there was a need to tighten up security measures and CCB must be assisted by SANDF. The reserve security deployed by SANDF on operational schemes gave the Castle last priority. He feared that CCTV may be uprooted any time. The security must be strengthened by engaging in the expansion of technology.
Lt Gen Mbatha pledged to engage with the Chief of Army to increase reserve guards, to avert the risk of theft of the lights surrounding the Castle.
In answer to a question from Members about the basis of the leave pay of R28 000, Mr Derek Williams, Bookkeeper, Castle Control Board, said that the leave pay was simply an accounting provision. No physical payment had been made. He said the increase in expenditure and programme 4 posed difficulties, when relying on the corporate unit wanting to use the space. There was no regular monthly income derived from rentals and there were no fixed contracts in place. This posed the difficulty of planning for the unforeseeable. He stressed that CCB advertised in the media, and last year it over-achieved, while this year it had only generated about R115 000 in the last six months.
Mr Gamede was still not convinced by the remarks of Mr Williams, and said that the reasons advanced did not justify why CCB should set 2013/14 targets much lower it had in 2012/13. He said CCB should have maintained last year’s targets, at least, for only then would CCB be able to progress.
Maj-Gen Nkonyane acknowledged that the targets were very low and said the situation would be rectified in the future.
Committee members said that the Parliament was not spacious enough to accommodate officials at each and every meeting. However, Members encouraged CCB to liaise with the Parliament so that Committee Members couldl utilise the castle when holding their meetings.
Mr Williams said that there were new contracts which rolled for one year.
Mr Gilfellan said the research capacity was readily available, although it may be limited. He said that in the event there was none for a particular task, then the South African Heritage Resources Agency (SAHRA) would come into play.
Mr Gilfellan said that there was an "unwritten investment" in marketing, and more must be done in this regard. Under-spending was due to the fact that there was a need to use cost effective tools of marketing such as e-marketing. He said the surplus was not used for operational costs and this was the reason for under-spending.
Lt Gen Mbatha further discussed veterans’ participation. He said the need to involve war veterans in all areas of interest was being viewed as a bigger picture and some projects were already put place.
The Chairperson asked the time-frame and the waiting period before such projects would start.
Lt Gen Mbatha assured the Committee that progress would be reported in the next meeting. He pointed out that it was possible that war veterans could be utilised for security posts.
Mr S Esau (DA) asked about the system for replacement of staff. He also wanted the figures of visitors who came to the castle in December 2012 and December 2013. He said maintenance was normally scheduled, and he wanted to know how often the CCB would schedule with the Provincial Department of Works.
The response was not audible.
The Chairperson urged the Committee to support CCB and thanked the CCB for meeting with the Committee.
Armscor briefing on its 2013/14 Annual Report and audited financial statements
Mr Sipho Mhkwanazi, Acting Chief Executive Officer, Armscor, took the Committee through the presentation of the annual report and audited financial statements.
The key highlights were:
-Clean audit (as listed in the presentation, but please note that later discussions showed that this should have read "unqualified audit")
- Armscor had retained its level on the Broad Based Black Economic Empowerment (BBBEE) rating
-Exceeded all acquisition and R&D performance goals in terms of SLA
-Best result in five years on financial performance of acquisition projects
-Dockyard obtained ISO 9001 certificate
-Contracted Denel for Phase 2 of the Infantry Combat Vehicle programme
Under the corporate performance and goals, he noted that:
Objectives 1-3, to measure effectiveness of the acquisition functions, were exceeded
Objective 4 to schedule placement was exceeded
Objective 5 on management of defence industrial participation was exceeded
Objective 6 on management and execution of defence technology, test and evaluation requirements for DOD was exceeded
Objective 7 on the dockyard was achieved, except for one partially achieved project
Mr Mhkwanazi went on to describe the strategic objectives, which he set out as follows:
Objective 1 of funding and growth were all achieved, with some later than planned
Objective 2 of people and capabilities was achieved, but with one partially achieved and some later than planned
Objective 3 of organisational effectiveness and efficiencies were achieved, except for one and some taking place later than planned
Objective 4 of stakeholder relationships was mostly achieved, with one partially achieved
He then set out the main impact of the financial results:
-Shareholders’ equity increased by 5.7%
-Total revenue increased by 16.4%
-Expenditure increased by 18.5% due to increased depreciation and higher personnel costs
-Net income before gain on property revaluation decreased by 6%, to R103.3m. He explained that if the contribution from the Medical Benefit Fund was excluded the net result was R76.9m (2013 – R85.4m)
Ms N Mnisi (ANC) said that Armscor received an unqualified audit. She noted her concerns on expenditure, and wanted to check with Armscor if there were any measures put in place to prevent irregular expenditure from happening. The year under review continued to be marred by challenges of insufficient capacity and insufficient funding gaps, both with human and technical capabilities. Therefore, she wanted to know what Armscor was doing to address these problems related to the funding model.
Ms Mnisi noted that that the Armscor board had made attempts to analyse the underlying gaps and potential opportunities, to turn the situation around, in order to assist in the transformation processes. She asked what the main findings from the study had been, and what plans there were to address the challenges observed. She said that she wanted to know, for example, what might be the reason for the decrease in revenue by the dockyard, and what the challenges of Armscor were in achieving its target of 90%. For the human resources challenges, she asked what measures had been put in place to turn that situation around. In relation to the key performance indicators, for those that were not achieved during the 2013-2014 financial year, she wanted to know what the answer would be. She noted that the objective for employee satisfaction was not achieved and instead had regressed, and thus enquired about the reasons. Finally, there were key performance indicators that were partially achieved, and she enquired what measures were in place to ensure that the indicators would be achieved in 2014 and beyond?
Mr D Maynier (DA) quipped that he always enjoyed these meetings because he got the chance to revisit and catch up on his favourite defence development project, the female court shoes. He wanted to deal with five categories of questions. The first category related to the appointment of the CEO. Armscor needed to clarify this process, but perhaps another member of the board could choose to reply to this so that it would be fair. The current status of the process needs to be clarified, and an expected date that the minister would make the appointment was needed.
Mr Maynier's second point dealt with the Armscor’s core businesses: acquisition. Every year the annual report traversed many projects, but he was interested in the existing projects that were not in the Annual Report. He wanted information for the projects to acquire a new VIP jet for President Jacob Zuma, the offshore control vessel, the transport aircraft, and UAVs. For these projects, Mr Maynier specified that he wanted the project name, status, and total budget for each project.
Thirdly, Mr Maynier said that, in relation to the dockyard, he wanted the Acting CEO to explain why, if the project was underfunded, there was a decision to allocate the work for the “refit” of the SAS Amatola valued at R355 million, and why, in particular, that work had been allocated to a company in Durban and not the dockyard in Simon’s Town.
Mr Maynier noted that, in relation to wasteful expenditure, it was known that he had “butted heads” with Armscor about expenses for travel. Again, he wanted to know the total expenditure for the year under review on travel, and to hear if there were any plans to reduce that expenditure?
Mr Maynier wanted to discuss what he termed "mad and sad" items. He asked for an update on the development of the female court shoe. Speaking to the project on earmuffs, he asked if earmuffs were not commercially available, e "and why then they could not simply be purchased. Those, he said, were the "mad" items. The "sad" referred to body armour. He noted that South Africa had soldiers deployed in conflict zones in at least two areas on the African Continent, where they were vulnerable, and he noted that it was commonly known that soldiers' body armour was not up to scratch, and asked why Armscor was bothering to test, instead of simply sourcing and buying the best body armour from elsewhere in the world.
An ANC Committee Member asked Mr Maynier which acquisition project was for President Zuma.
Mr J Skosana (ANC) said he did not see any logic in discussing projects attached to individuals, unless it was clarified. He also wanted Mr Maynier to explain which project was linked to whom?
Mr Maynier replied that he wanted to clarify, since he knew that his colleagues in the Committee "got jittery" when he started to discuss "Nkandla in the Sky".
Mr B Bongo (ANC), raised a point of order, and stated that Mr Maynier was not helping the Committee, and the Committee should be dealing with the reports. It was also unfair to ask officials of Armscor to discuss the projects if they had not prepared anything on them.
Mr Maynier started to reply, reiterating that his colleagues do “get jittery.”
The Chairperson interrupted, clarifying that what the Committee was trying to do was to make a point about not linking projects to individuals and this was not related to "getting jittery".
Mr Maynier thanked the Chairperson for giving him the opportunity to clarify. He stated that it was stated, two years ago, that there was a project under way for a new VIP jet for the President. That was common cause. It was also common cause that there was a project, in the late phases, to acquire an offshore control vessel, and to acquire UAV, though that may not be as well known. Mr Maynier was interested to know if there actually were such projects, because there was evidence of budgeting for that project. He wanted the CEO of Armscor to shed light on that.
Mr D Gamede (ANC) stated that he wanted to make a point about procedure. The Members were here today for the discussion on the Annual Report of Armscor, should deal with that alone, and confine their questions to matters raised in that report. If there was a need to deal with other things, then those were for another time. If MPs had any questions on matters outside the report, then they should be dealt with other than at this meeting.
Mr Maynier replied by saying that Parliament in South Africa was not yet akin to "North Korea, yet”. It was not for another Member to prescribe to him what may or may not be asked. The projects that he discussed were current projects, like the UAVs, that would have been dealt with under the year for review, so all he wanted was the name, status, and budgeting for the projects.
The Chairperson responded that no Members were trying to prescribe to any other Member how to ask a question. There had been a presentation on an annual report and that should be dealt with. The Chairperson would not tolerate any form of prescription from anyone.
Mr Skosana stated that in this meeting, the Members should not be singling out something and attaching it to the President. To attach something to the President was not right, and to fail to clarify it was very wrong. Mr Maynier still needed to clarify which project he was talking about. The Committee was not discussing the President, so he still wanted to know why Mr Maynier was asking questions about the President.
The Chairperson said that this had been clarified, and that nobody was attempting to attach a project to anyone. Members had agreed on that matter and must continue with the meeting.
Mr Maynier, on a point of order, said that this was a newly established committee, and there could not be such a precedent set.
Mr M Booi (ANC) interrupted on a point of order, and said that the way Mr Maynier was pointing out projects was not helping. The main difficulty with this Committee was that it spent time in the Members fighting each other, instead of trying to assist the entities.
The Chairperson wanted to move on, and said he would rule on points of orders.
Mr Maynier continued to speak, reiterating that he did not see that the Committee could set a precedent where a department produced a report, that was a high level report, and the Committee was confined to discussing only matters in that report. There were other matters that were of concern, and Members should be allowed to raise these concerns in the public interest.
The Chairperson thanked Mr Maynier and stated that he had made his point.
Mr Skosana said that Armscor’s presentation did not show a lot of achievements. He wanted to ask Armscor what challenges it had, to enable the Committee to assist the entity. He asked what Armscor’s needs were in relation to human resources, especially in terms of the undergraduate programme.
Mr Gamede stated that the Annual Report was a public document, and in the highlights, Armscor said there was a clean audit. However, he pointed out that this was incorrect; the audit had been unqualified. Armscor must not mislead the public.
Mr Gamede referred to the figures for human resources, and asked how Armscor received 964 of the employees instead of 904, and how they were dealt with given the limitations in the budget.
Mr Gamede asked about the dockyard, which he presumed would be in the Western Cape. If so, then only people from the Western Cape will benefit, since it was aligned to a Western Cape Department. He raised his concerns that his constituency would have interests in the dockyard, but it was confined to the Western Cape. Also, it had been said that it was not easy for historically disadvantaged individuals (HDI) to go through procurement and participate in Armscor. He wondered what legislative changes had to be made. The priority of government was radical economic transformation. Finally, he asked what would have to be done to strengthen the relationship between Armscor and the Portfolio Committee.
Mr S Esau (DA) also asked about the dockyard. There was insufficient funding and capacity to offer that service. The concern of this Committee was that South Africa had the commitment to peace and security on the Continent, and anti-piracy initiatives, especially since Tanzania had withdrawn from that agreement, so there was a greater demand on the South African navy, and the ships were to service those objectives. However, if South Africa was being undermined it clearly would not be able to fulfil its obligations to SADC and the region.
Mr Esau expressed concern that the performance was 75% out of the 90% that was targeted. He asked whether Armscor had projects that were delayed, and wanted to know if there could be a regular report back to the Committee so it could monitor what Armscor actually was doing. There were implications arising from any delays, on costs, and impact performance.
Mr Esau further wanted to raise questions about litigation. There had been one case, claiming R192 million euros, against Armscor, and he wanted to know the impact of this on budgeting, and what contingency budgeting was taking place. The projected budget at the beginning of the year showed a great deficit. What contingencies were in place to deal with litigation against Armscor?
Mr Esau also asked about the vacancy rate and the retention rate. Much money had been invested in in engineers, students, and artisans, and different programmes. He wondered why not more candidates were taken into the programme, if there were challenges in regard to the funding, and cautioned that Armscor would lose young engineers, particularly as a gap had been created through ageing, and leaving discrepancies. Young people were not tending to be encouraged to fill the gaps created by the ageing workforce. He wanted to know if Armscor was engaging with youth on these points. He asked about the average age profile of Armscor staff, working gap. He also noted that many engineers were being poached across to the private sector. He asked if Armscor was engaging with the youth on any of these points.
Mr Esau asked for an explanation on the fruitless and wasteful expenditure, and wanted to know exactly how it arose, in relation to which contracts, whether there had been other delivery on those programmes, and why matters were not paid on time, and what interest Armscor was bearing. He asked for specifics on why the contracts were delayed, and whether interest was payable. There were also leadership and management problems in Armscor. He asked what measures had been put in place to address these?
Mr Mhkwanazi replied to these issues. He stated that some of the questions would be answered in writing, because of their nature; the answers may need details and numbers. He also said that other Board members would help answer questions as well. First, he apologised for the error in the report that stated it was a clean audit instead of unqualified audit. This was not intentional.
Mr Gerhard Grobler, Chief Financial Officer, Armscor responded to the question on irregular expenditures. The irregular expenditure referred to one instance, and it was irregular because it was an ongoing process and there were proper controls within Armscor, with the Board. Unfortunately it was impossible to get the answers in time, but the situation had since been normalised.
Mr Themba Goduka, General Manager of the Dockyard, replied to the question on insufficient capacity and funding. This was an issue on which there had been engagement with the Navy and it had tried to address regularly, such as how to improve the financial health of the dock itself. To make sure that Armscor was not compromised, for instance in maintenance, the funding was treated as "project funds per project" and the organisation outsourced some but in-sourced other work, including contract labour. The Department would deliver in accordance with what funds were available, and in accordance with the Navy requirements. Capacity remained a challenge that would still need to be addressed. Over time, the Navy would be providing some additional funding but there were problems around its sustainability. For upkeep, the funding this entity would achieve would execute different projects without compromising the Navy’s programmes or those of the country.
Mr Solomzi Mbada, General Manager of Human Resources, Armscor, assessed the issue of the employment satisfaction survey. The survey was started in 2010, where the study was commissioned. The findings at that stage showed there were a lot of actions the board needed to take, in terms of career discussions, since it had been identified that there were too many acting positions, and the positioning of the CEO needed more work. Since 2010, progress had been made, such as the decision not to include dockyards as part of the assessment, but there were challenges to transferring employees of dockyards into Armscor conditions. It had not been specifically mentioned in this Report, but even the dockyard results of employees created pleasant surprised and showed significant improvement. Employees had, however, voiced concerns about their future as employees at Armscor, and on the position of the CEO.
Mr Bethuel Mobu, Non-executive Director, Armscor Board, added to this, saying that the organisation has been undergoing a terrible situation". The recent period had been unsettling for the organisation, which had impacted negatively on the satisfaction of the employees.
Mr Mobu also responded to the question on the appointment of the CEO , noting that Armscor had a new Board, and one of the commitments that the Board had taken was to restore stability in organisation, including the shareholders, and he stressed that Armscor would not cut corners. The service providers to help Armscor with its processes were to be identified and by the first quarter, Armscor believed that it should be possible to have a full-time CEO running the organisation; as a new commitment. That would be taken as a solid achievement. Armscor believed that the appointment would be attainable if the organisation ran correctly. He noted that this was a solid commitment.
Mr Mobu said he could answer the question on acquisition, but was unsure if there was finality on the matter of Mr Maynier’s questions on the projects.
Mr Booi wanted to ask when there would be a CEO, and said he needed an answer although he was aware that the question had been asked before.
Mr Mobu responded that it was a pity that the Committee had to ask this question so many times, but pointed that there were difficulties around any change of team. He noted that Armscor had an action-orientated team who would definitely deliver on its commitment. The process had already started. When referring to the first quarter of next year that meant January or February, by which time there would be a CEO. There would be interviews, and a short-list, and once there was a candidate proposed, sufficient time was needed to allow that candidate to make a decision on the offer. It was impossible to say with absolute certainty whether this would be January or February, but it was hoped it would happen around then.
Mr Esau noted that, from the correspondence between Armscor and the Committee, it was thought that Armscor was at an advanced stage of this process but now suddenly there was a new team and a new process. He asked what had happened, and why these processes had been jettisoned.
Mr Mobu replied that when the Minister looked at everything that had been happening in the organisation, she made a determination that this process should be re-initiated and implemented by the current board. The current board appreciated this because this meant they could take full accountability for the process and monitor it every step of the way. Although it seemed the process had been jettisoned, it still allowed for all the elements to be incorporated. The new board would be focusing on the key elements of transparency, tight governance and accountability.
Mr Booi said that the issue was the money being spent on this revised process. He agreed that whilst it was not an easy issue, it was important to talk about the expenditure, which was being met out of taxpayers' money, and this was why he was so concerned on the point. In three months time, he feared that Armscor might tell the Committee something else again.
Mr Bongo added that this was very frustrating, because the process should not be as complex as it was made out to be. He wanted to see the whole thing finalised before year-end. He added, with reference to the projects, that he felt that it would be unfair to ask the board for the details of the projects if the Board had not prepared to speak to them.
Mr Maynier shared the sentiments already expressed about the appointment and asked the board to look into whether this process could be fast-tracked, provided that this happen within the prescripts. He wanted the board to provide the Committee with a written report by 15 December, so that the Members could be informed of the monitoring process before the summer recess. The questions on the acquisition projects were ,high level but he was sure that the Armscor team could reply to them, even if they could respond to the specifics in writing.
Mr Mobu stated that the message was very clear and would be conveyed to the Board, suggesting that the process must be fast-tracked and the board must provide feedback as Members required.
Mr Mhkwanazi replied to the question on the dockyard in Durban. Armscor had an agreement with the Navy in terms of requirements. In situations where Armscor could not handle the amount of work that was sent to the dockyard, it could outsource the work to the industry, to ensure the service was rendered. For employment of artisans, Armscor had increased capacity, as required by the Navy. However, he pointed out that this would not produce results overnight; Armscor had to ensure that systems were in position to do the required work, in the industry, rather than the dockyard at the moment. Armscor was working jointly with South African Navy, and was getting additional funding from the Navy to ensure it was building capacity as required by the Navy.
He moved on to the questions on the key performance areas and said that whilst some dates were not met on time, they were met later, so there was still achievement on those, albeit later than planned because of the logistics. Armscor had done a study, but realised the study was not adequate, so changed the internal study for an external study, and broadened the sample to be able to make decisions. The date deadline, however, was not met
Mr Mhkwanazi said that whilst he noted the question on travel, he was not in a position to speak to the figures. Armscor was, however, very strict about sticking to the budget. He did not have the budget figures with him but mentioned that Armscor was looking at fine-tuning the budget and prioritisation, with a view to identifying those of areas where it could save expenditures.
Mr Maynier said that there was substantial evidence, in respect of the previous board, that its members went to a large number of defence shows, travelling business and first class, and used 4 or 5 star hotels and limousine services. He would like a commitment from this new board to look into cost containment measures, because it was the fault of the board itself if it ran short of funding. Acquisition was core to the mission of Armscor, and it was necessary for key officials to attend international defence shows, but he wanted the Board nonetheless to look into this and try to achieve more cost containment. It had been a major issue a few years ago.
Mr Mobu replied that the board did make a commitment in the beginning, and would ensure that it complied with that.
Mr Mhkwanazi then replied to the armour testing question. The process of acquiring such armour was explained. When a product was acquired, as soon as the entity was given the requirements, a visibility study was done. Based on analysis, there might be a choice taken whether to buy the product off the shelf, to upgrade, or to develop it. All products went through this process. There were, however, a number of reasons why Armscor might need to develop certain items; a track that was commercial was not the same as a track that was military. When it came to protection of the forces, profiling of the South Africa armed forces was not the same elsewhere around the world, - and the same applied to, for example, male armour. South Africa had a diverse population with many different sizes on the clothing and it was not true that anything would fit. Armscor would do its research and analysis to make sure that the user environment was tested. There was a stringent process before deciding to buy, develop or upgrade.
Mr Mbada replied to the question on employment and retention. Armscor received money from additional resources, such as from the Navy to appoint artisans, so it was an opportunistic decision to have 964 artisans instead of 904. In terms of bursaries, there had been improvement and increasing numbers since 2010. It was realised that it would be better to attract engineers from schools but then Armscor had to develop them as well. Armscor did lose some people competitors, but it was a normal amount. It sent people overseas and they were locked into long term contracts. Responding to the question on the age profile, he confirmed that the average age ranged from 50 to 65, and agreed that this was a concern and tat Armscor was coming up with interventions.
Mr Mhkwanazi replied to the question on procurement of the commercial vehicles. Armscor had to restructure to maximize local manufacturing, although he was not 100% sure on this point.
Mr Goduka explained that the dockyard in the Western Cape was in the first phase, but there was an attempt to expand it to be broader throughout the country, and to attract people from all over the country. It would not be confined to the Western Cape alone.
Mr Grobler responded to the question on litigation issues against Armscor, noting that it did make provision for this in the financial statements and budgets.
Mr Mobu stated that the board had answered all the questions, except for those of Mr Maynier on the defence acquisition.
Mr Maynier replied that because he asked a question, he wanted it to be answered. He said that there was no reason why the board could not reply to it. It would be “unconstitutional to not disclose that information to the public.”
Mr Booi replied that he did not think that the Board did not want to answer but it was a matter of principle whether the Committee should deal with matters that were not set out in the Annual Report. Mr Maynier could not just make up his own methodology.
Mr Maynier replied if Armscor could not answer the question, then he needed to know the reasons why, and the legal basis for not answering.
Mr Gamede stated that there was nothing wrong with the question posed by Mr Maynier, but the issue was that it was not in the Annual Report. Armscor must reply if it could, even if no detail was available.
Mr Mhkwanazi replied that he was not in a positon to answer the question on the budget, because he had not prepared anything on that. He could confirm that Armscor was in the process of processing requirements. He was not sure whether the VIP jet fell under Armscor or not. The same applied to the offshore vessel, and the transport vessel. The Department of Defence must finalize the requirement, and then it was given to Armscor. Armscor was not in a position to provide a budget, although there were estimates, and once the IFO had been completed, it would be in a position to start budgeting.
The Chairperson stated that next time, the Committee needed to sit down and determine how it would deal with matters that were not specifically dealt with in the report. For example, he said that individual members might be asked to submit questions for onward transmission to the Board.
Mr Esau reiterated his question on fruitless and wasteful expenditure, and said that the Committee had every right to interrogate any department, in the interests of the country.
Mr Maynier asked follow up questions on acquisition.
The Chairperson requested that Mr Maynier submit the questions to him personally.
The meeting was adjourned.
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