Department of Defence, Armscor and Castle of Good Hope on their 2014/15 Annual Reports

Meeting report

Department of Defence (DOD)

Dr Sam Gulube, Secretary for Defence, said the Department’s medium term strategic framework (MTSF) outcomes aimed to make all people in South Africa feel safe. The defence budget for 2014/15 was R42.8 billion, which was 1.13% of gross domestic product (GDP) and 3.75% of government expenditure. This inadequate budget allocation sustained a declining defence capability, declining supporting commitments, and the rejuvenation of the force. There had been no under- or over-expenditure for the year 2014/15. R42.8 billion had been spent. Landward defence (33%), air defence (9%) and force employment took up the majority of the budget. Defence intelligence took up the least amount. Compensation for employees had been R23 billion (54%), with goods and services at 26%.

There had been under-achievement in the administration and development of military skills and force employment (79% of objectives reached), where not all capabilities could be provided, such as Oryx helicopters, combat support ships, and maritime reaction squadrons. This was due to a limited budget, which was capping both the rejuvenation of the defence force as well as the meeting of its objectives. The number of joint exercises conducted had been five out of nine, due to the change of scope. The number of force employment hours flown and maritime hours flown was also low, due to the limited budget. The net result was 74% achievement of the 148 DOD targets, with 26% partially or not achieved.

The Minister of Defence had provided political direction to make sure all roles had been legally undertaken, with oversight and support. The Minister had overseen the completion of the Defence Review Committee (DRC) document which had been adopted in June 2015 by Parliament. The implementation of this was under way. Governance and accountability had been handled by the Secretary of Defence. There was only a 0.03% under-spending, due to tight financial controls.

The South African National Defence Force (SANDF) had provided strategic military direction and instruction to ensure effective command of forces, looking at stability and security in SA and across Africa. The SANDF had supported the SAPS in a number of areas, including the opening of Parliament, national elections, inaugurations and fighting wild fires. The SANDF had assisted with a number of search and rescue missions, VIP protections and border strengthening.  Operational successes had included the confiscation of 45 weapons, apprehension of 12 141 illegal foreigners, 517 criminals arrested, and contraband to the value of R45 million being confiscated.

There had been a downward trend in the number of qualified audits with only one qualification in 2014/15, which was limited to sensitive projects. On the General Defence Account, a 2014/15 unqualified audit opinion had been achieved. Under the Special Defence Account, there were certain special projects that had not provided all the information, which had led to qualifications from the Auditor General (AG).  He asked that Parliament assist in this area of special projects to ensure a clean audit next time.

Discussion

Mr S Marias (DA) said that the 1.13% GDP budget for defence was very low, and must affect the defence force. One needed to think whether SA wanted a defence force or if it should just close the doors, as it might be wasteful to pour more money into it. What was the effect of this practically? The presentation slide showing the rand spending at exactly what had been budgeted for was very unbelievable, and he did not buy it. How reliable was this information? Was it because the money had been transferred somewhere else?.  The reserve force days had jumped up by a large amount, requiring increased expenditure -- where had the additional money come from; where had the DOD cut out projects? Expenditure on employees was 54%, which was way beyond the norm in an organisation. Why was it so high? What was the DOD going to do to bring this down to more manageable levels?

Why were the capabilities low in terms of helicopters, support ships, etc -- was it because there were not enough pilots, or equipment or training? Was the equipment old and not maintained? Had the DOD budgeted for all its African involvements -- was the cost known to the DOD? The Committee was involved in the Budgetary Review and Recommendation Report (BRRR), and the DOD must tell the Committee if they needed more money for these projects. It must be more specific, and say whether the capacity problems were skills related or budget related? On air defence, it was difficult to get the flying hours in. What was the practical effect of not having enough hours? It must affect the capacity of the air force. What was the effect of training pilots in Russia, when SA did not have any Russian planes?

The 26% under-achievement was very high -- it could cripple the defence force. The AG had referred to irregular expenditure of R500-odd million -- what was this for? Surely, on the special defence accounts, the AG could use various people that were isolated from each other to provide security for the audit.

Ms N Mnisi (ANC) said that the Committee really appreciated the progress made by the DOD. The R63 000 in fruitless expenditure was still too high. The DOD needed to monitor creditors properly to make sure payments were made on time. Could the DOD tell the Committee if the staff accused of misconduct in the SANDF had been expelled? What was the level of discipline in the SANDF? What was the timeline for the Human Resources Charter to be implemented?

Mr S Esau (DA) asked what was happening with the modernisation of the dockyard and the youth programme. He referred to the revitalisation of the reserves, as a lot of them were not being used and sitting unemployed, and aksed if they could be employed elsewhere. There were a number of critical posts that were missing, affecting air crews, engineers and nurses. Was the DOD winning or losing legal cases, and what was happening with litigation? The number of secondments to international institutions was high -- what was happening there? Which posts had not been filled in mission areas -- were they senior or junior posts? Was the right equipment being used in the right areas? What was happening with the transfer of properties? Military police vehicles were not being used properly. There was a major problem with maintenance and refurbishment, which was not happening. What had prevented the DOD from dealing with all the grievances?

The signing of contracts must be done straight away. What was the strength of internal auditing? Why had more money been spent on employees -- were they contractors or outside consultants? Why had multinational exercises been missed? Why had targets been reduced? Where was the budget for cyber security? Why had two learning courses been cancelled? Why was the number of flying hours so low, as it was fundamental and affected capability? Why does the AG and the Committee not have people vetted to look at the DOD security projects as oversight? The budget needed to be increased, as discussed. Where there was under spending, could this have been prevented -- for example, landward forces? Resignations within the DOD must be explained.

Dr Gulube responded that the consequences of the low budget had been highlighted throughout the report, as it affected the capabilities of the defence force. SA’s borders were porous due to limited funding, and there was limited scope for dealing with piracy. The Defence Force could not implement its strategic goals within the Southern African Development Community (SADEC), and participation within search and rescue was limited. On the budget question, regarding the expenditure matching the budget, mostly it was about moving funds from programmes that were not performing to areas that were performing. The figures provided were reliable and had been audited. The 54% spent on employees was due to the nature of the Defence Force. One needed boots on the ground. It was heavily weighted towards human resources. Should it be 40% or 50% of the budget was still under debate. If the budget was increased, it may then be reduced to 45%. 45% of the forces were from the reserve forces.

The limited capabilities of helicopters etc, was directly due to the limited funds. The re-imbursement from the United Nations (UN) was low. They had requested funds to be provided back to them from the UN. Due to the UN resolution that SANDF must be involved in African conflicts such as the DRC, the expenses had been unexpected and unforeseen. There had been things that could not be budgeted for, such as the floods in Mozambique. Sometimes the multinational exercises did not take place due to issues within other countries, or timing.

The DOD was dealing with the national skills shortage within the SANDF. The DOD did train pilots, and was looking at the engineering and nursing shortage. The training was four to five years within Russia, and the pilots were receiving much better training than they would get at home. The pilots were being trained in mathematics, so it did not matter what language it was in.  

Wasteful and fruitless expenditure had been targeted.

About 50 defence force members had been withdrawn from the Democratic Republic of Congo (DRC). An entertainment area had been abused, and the members have been brought back to SA and were under investigation. The overall level of discipline in the Defence Force was good. The human resources (HR) charter was being implemented.

Armscor would discuss the operations and the dockyard in more detail.

On the legal side, whenever someone got injured or infected under a medical operation, the patients looked to sue doctors. Normal risks and negligence needed to be separated when suing. The DOD was trying to educate the healthcare practitioners to reduce the number of litigation cases. Often they were just normal risks.

The DOD was reducing the number of secondments -- it was a national commitment, though, that needed to be filled. The Minister of Public Works had signed a memorandum that would pass the buildings and facilities under that Department across to the DOD. Only level 3 & 4 were outsourced for maintenance -- level 1 & 2 were done internally. The contracts were being signed more speedily, and the DOD was looking at dealing with grievances. The internal audit team comprised around 39 staff, and was very strong. There was a process for the setting of targets, using scientific processes.

National Treasury did not have the funds available to increase the DOD’s budget due to the economic climate. DOD would recommend that the funds generated from the UN peace keeping missions be plugged back into the Defence Force, along with any sales or disposals of assets. These sales should be ring fenced for the Defence Force; it would allow them to not use the fiscus.

Briefing by Armscor

Mr Kevin Wakeford, CEO of Armscor, said the corporation was a state owned entity. Armscor had to meet its mandate of providing defence materials, technology development, research & development and test evaluation.

Flight test campaigns on A-darter missiles had been successful. Meko A200 frigates, submarines and maritime patrol helicopters had been delivered and taken into use by the SANDF. 24 Oryx helicopters had been upgraded. 217 infantry combat vehicles would be produced locally. Artillery target engagement systems had been commissioned.  New generation tactical communication systems had been developed, including static and mobile communication systems. Armscor had disposed of R40.1 million worth of redundant military stock, and this would hopefully be ring-fenced for military veterans. Technology development included all-weather defence missiles, electronic warfare radio frequency technology and command and control development projects. The intellectual property (IP) of these developments was very important.

Armscor had assisted the DOD in receiving an unqualified audit on intangible assets. The test facilities had received an ISO 14001 environmental standards certificate. Commercial sales had contributed to 82% of the total sales, compared to 62% in 2013/14. Alkantpan test range had increased the number of tests, while clients had contributed 65% of the total sales, compared to 51% in 2013/14. Hazmat L:ogistics sales were R13 million, which had exceeded the budget by 21%.  Flamengro had completed a missile plume analysis.  The Institute for Maritime Technology had developed an ultrasonic broken rail detector.

The SAS Mendi frigate had not had maintenance due to budget constraints. The patrol vessels and tugs had been successfully maintained. The dockyard required a R1 billion injection, and R1 billion for maintenance annually. Currently, it had a R200 million budget. The dockyard was being transferred to Denel.  Two submarines had been maintained, and one submarine was in the process of being maintained. Two independent support vessels had been maintained in 2015.

Transformation had seen a movement from 64% black employees, to 71%. 174 “successors” in the organisation had been identified, against 153 positions available. There had been a number of leadership programmes, including 25 under-graduates who had been supported with bursaries.

The majority of the corporate performances and goals had been achieved. Corporate Social Investment (CSI) programmes included Prieska (an upliftment project), the “take a girl to work campaign,” and Mandela Day celebrations. Armscor had established a committee for military veterans’ support. 

Revenue had increased by 15.9%. Net profit had been R84.2 million, a decrease of 18.5%. Armscor had received a clean audit report and had achieved a level 2 Broad-based Black Economic Empowerment (BBBEE) rating.

Discussion

The Chairperson asked what had informed the CSI project decisions.

Mr Esau asked about the hydrographic vessels, shark detectors, submarine equipment and domain awareness projects. What was the R960 million Defence Industrialisation Programme (DIP) for? A number of research projects had not been mentioned. Should the dockyard not move to the SA Navy? Why had more people not been trained at the dockyard? Delayed maintenance had led to the missing of international exercises, and this was not acceptable. Had the service catalogue been developed? He asked for clarification on the deficit and other income within the financials, as well as three issues raised by the AG. He asked for an additional explanation of the four key performance indicators (KPIs).

Mr D Gamede (ANC) asked about the training in the US. What kind of training was this? What about other provinces benefiting from the CSI?

Mr Wakeford responded to the Members’ questions. Project Byro, one of the research projects, had been closed. Modernisation of the dockyard involved a lot of equipment upgrading. Armscor had been working with Denel and the DOD to look at sovereign capabilities, indigenous design and transformation to make sure they were developing SA’s economic strengths. Armscor had looked at the broader continent too. It was reviewing the entire process regarding the Procurement Act, and had asked for exemption going forward. It was not progressive enough to get the job done.

Armscor’s mandate had not changed, but the funding had been reduced by Treasury. The income vs expenditure had been tight. The reserves would be used up by 2019. It would be a great disservice to the country if employees were laid off to meet the budget. Armscor was looking to get support for a new budget, or a special dispensation which they would look to get passed through Parliament and the Cabinet.

Mr Sam Mkwanazi, General Manager: Acquisitions, said that when missiles were bought, there were some discussions over this to upgrade them from block 2 to block 3. This would cost too much, hence the DIP amount was allocated. It also came from the upgrading of air defence capabilities. Armscor was still working on the domain awareness, submarine equipment, hydrographic vessels and shark detector projects. On litigations, Armscor was waiting for a date in court.  

Mr Solomzi Mbada, General Manager: Human Resources, said that the organisation was driven mainly by skills. The emphasis of the budget should revolve around this. Armscor had started partnering with schools, and had visited the technical colleges in the Eastern Cape to attract engineering skills. It had visited 16 high schools in the Western Cape to try to attract talent for the dockyards, and had produced about 50 artisans from those initiatives. These artisans were replenished as they moved into positions.  Armscor would try to get the talent from the schools. Certain skills were found only in the US -- these colleges were specialised, hence the need to send the students there.

Mr Themba Goduka, General Manager: Dockyard, said that the Simonstown area of the dockyard would be focused on for development.

Mr Gerhard Grobler, CFO, saidd that Armscor was investigating the four cases of materiality, and would eliminate them for the next financial year.

Briefing by Castle of Good Hope

Mr Calvyn Gilfellan, CEO: Castle Control Board (CCB) said the board had received an unqualified audit opinion with two findings for 2014/15. It had a R6.2 million budget which was small, but it was multiplied by other stakeholders. R3 million had been allocated for employees, and R350 000 for special public open days, including Freedom Day and Heritage Day celebrations. The AG had not been happy with the mix of qualitative and quantitative targets. The CCB would fix this for 2015/16.

168 574 people had visited the Castle during the year, exceeding the target. The number of people reached through positive media had been 82 million. Expansion and modernisation of internal security systems was under way at a cost of R1.2 million. The CCB had come up with improved human resource components. Renovations were under way.

The CCB had tried to balance the film shoots at the Castle with the renovations. It had MOUs with a number of parties. Conference facilities would be developed. The CCB had employed military veterans on a part-time basis. A United Nations Educational, Scientific and Cultural Organisation (UNESCO) world heritage site application had been submitted. Transformation and equity goals were under way.

Among future goals, commemoration of the 350 years anniversary was being planned, as well as attainment of a UNESCO World Heritage listing, completing an integrated conservation management system, reaching the 200 000 mark in visitors, attaining economic sustainability and entrenching the Castle as an authoritative heritage and tourism site.

Discussion

Mr J Skosana (ANC) asked how the CCB was looking to include rural communities as part of the 200,000 visitor target. He had enjoyed the presentation and how it had shown the development of the Castle and its integration into society.

Mr Esau said the Castle on its own could not support itself. There were a number of renovations under way. A conservation plan needed to be implemented soon -- what was the actual position? What had been put in place to collect additional revenue? Had performance bonuses been received? Had the two vacancies been filled? Why had there been under-spending and over spending? What was being done about the issues raised by the AG?

Mr Gilfellan replied that the CCB was working with institutions to bring rural people in. The interest the CCB had experienced from people for filming, weddings etc, was massive, and this would be their revenue generator. The conservation management plan had been documented and was being implemented. The CCB was working with the Ministry to take into account the expectations of the defence force, and make sure that it focused on tourism. The CCB Act was under review, and the CCB hoped to have the process up and running again. On the media coverage, one must make it worthwhile for the media and this needed to be done correctly, as it could save money. The issues raised by the AG had been radically reduced. No issues had been found in the expenditure, and the income details had been very simple for the CCB. The two vacancies would be advertised in the media.

Mr Mandla Ngewu, CFO, CCB, said that for the rental facilities, the way the National Treasury wanted the CCB to budget was affecting the way it was being shown. This would be addressed.

Lt General Justice Nkonyane, Chairperson: CCB said that the Castle relied on its own revenue, so the CCB did not have any recommendations for the BRRR.

The meeting was adjourned.