Department of Military Veterans, with Minister: hearing on irregular, fruitless & wasteful expenditure

Meeting report

The Chairperson thanked the Minister of Defence and Military Veterans, in particular, for being present. He explained that the reason irregular, fruitless and wasteful expenditure was picked up on in the Audit Report by the Committee, was because it was a serious issue and required special attention. He said there needs to be movement in how the Committee holds departments accountable for financial mismanagement. He specified the need for people being held responsible for wrongdoing.

Mr C Ross (DA) asked the Acting Director General if he had the required efficient systems in place in the Department of Military Veterans (DMV), if DMV had a functional Audit Committee, and if DMV had a procurement system.

Mr Max Ozinsky DMV Acting Director General, explained that DMV had a new top management, which would be taking steps to put proper systems in place. He responded that DMV did have a functioning Audit Committee.

Mr Ross said that DMV was the worst performing department in terms of irregular expenditure and adherence to Supply Chain Management (SCM), he asked if the Mr Ozinsky agreed.

Mr Ozinsky said he agreed.

Mr Ross explained that one third of DMV budget for the 2015/16 financial year was returned to National Treasury, while 21.5% of the budget was irregular expenditure. He said this was a serious indictment on DMV, and asked Mr Ozinsky if there should be consequences for the officials responsible for this.

Mr Ozinsky responded that he does agree with officials being punished for wrongdoing. He mentioned that some of the irregular expenditure was technical in nature.

Mr Ross mentioned the R123 million in irregular expenditure had increased from the previous financial year. He asked if Mr Ozinsky thought this was a worrying trend.

Mr Ozinsky responded that it was a worrying trend, but 61% of that amount was a result of financial delegations not being in place.

Mr Ross said that the delivery of goods and services was one of the key areas in which irregular expenditure occurred, which is an area directly affecting military veterans. He asked what the cost of loss would be for military veterans.

Mr Ozinsky replied most of the issues around goods and services have to do with contract management and delegation.

Mr Ross asked what was being done to root out irregular expenditure. He said transgressors should be prosecuted. He asked if Mr Ozinsky agreed.

Mr Ozinsky agreed and said over the next few months, processes and consequences would be looked at. He said that some warning letters have been sent, with certain cases likely to end up in court.

Mr Ross asked if the Committee will be supplied with names of transgressors, and whether it was now time for external investigations to be conducted, instead of internal investigations.

Mr Ozinsky replied that certain cases were referred to the state for legal action, while one has been served to the Public Service Commission.

The Chairperson asked which one was sent to the Public Service Commission.

Minister of Defence, Nosiviwe Mapisa-Nqakula, responded that it is the Zeal contract. Once the investigation is completed it will be handed over to the Special Investigatings Unit (SIU) or the Hawks, depending on the outcome.

The Chairperson asked why the Zeal contract was not in the report and asked for details of the transaction.

Mr Sibongiseni Ndlovu, DMV Chief Financial Officer, replied that the reason the Zeal contract was probed was because the value of the amount was concerning, despite all processes being followed. DMV did not have the necessary funds to pay for the contract, hence it was withdrawn. This was the reason for the litigation.

Mr Ozinsky mentioned another contract which was referred for litigation, Fetolo Mogopolo. Two other contracts on page 9 of the report were also being referred for litigation, B&M Catering and Zwitto Cleaning Services.

Mr Ross said it was difficult for the Committee to accept the lack of consequence management, and disciplinary action. There must be consequences for past transgressions. He questioned what occurred when the former CFO resigned, and power was decentralised, which saw major problems regarding SCM. He asked what the consequence of the delegating of the CFO’s powers to lower levels in DMV was.

The Minister responded that the summary of irregular expenditure was a result of DMV’s own investigations. Attention was brought to these transgressions through whistleblowing and due to noticeable irregularities. She said that the CFO who was the whistleblower, who said that threats were made against him. Attempts were made to protect him, yet he decided to not come to work. Subsequently he lost his job. She said irregularities occurred and DMV takes responsibility for that. As there was no CFO, and problems occurred with the delegation of the CFO’s responsibilities, the Department of Defence (DOD) which transfers a part of its budget to DMV had to intervene to deal with all the confusion.

Mr Ozinsky noted that for the three investigations relating to irregular expenditure, warning letters have been issued. DMV had signed off on its new financial delegations.

Mr Ross said that all corruption investigations where people are found guilty should be criminally followed up

Mr T Brauteseth (DA) asked if it was correct that when investigations are done, there will be condonation.

Mr Ozinsky responded that this will be considered.

Mr Brauteseth asked how the financial delegation for the R106 million happened, given that there was no CFO for a long time.

Mr Ndlovu, DMV CFO, responded that the previous CFO had no trust in the senior officials so he centralised all signing off of payments. When the previous CFO left the job, the acting CFO was swamped with work and was asked to fast-track the decentralisation of the signing off process.

Mr Brauteseth asked if there was any study of the details of the R106 million, how much of the R106 million was irregular.

The CFO responded that the information will be made available in writing. A large amount was for education support, medical support and general delivery of services.

Mr Brauteseth requested a detailed list of all expenditure of the R106 million, as well as details on irregular expenditure and what was being done to combat the irregular expenditure. It was concerning that in the report on irregular expenditure there were categories for a sum as large as R15 million. He asked that in future reports not to use “Other” as it was unacceptable, and asked for the details of the R15 million.

Mr M Booi (ANC) said the use of the term “Miscellaneous matters” on page 6 of the report when referring to irregular expenditure was not acceptable. He asked what the term “ageing” in the turnaround strategy section of the report implied.

Mr Ozinksy responded that a Financial Mismanagement panel had been established, which will meet monthly to determine which cases to deal with. Higher value cases will be dealt with first. The older cases will be second priority and that is what was meant by “ageing”.

Mr Booi asked at what cost the panel would be put together, given that the Hawks have the resources and capacity.

Mr Ozinsky replied there was no cost to DMV as all those on the panel, besides one person from the DOD, were from DMV.

Ms N Mente (EFF) said the report was very vague. On page 6 of the report, the irregular expenditure totals for the 2013/14 and 2014/15 financial years did not match the breakdown of spending below the totals, with close to half not being accounted for. She asked about the remaining expenditure.

Mr Ozinsky responded that the amounts not accounted for are small amounts.

The Chairperson rejected the idea that these were small amounts and therefore did not need to be included. He asked that the details be sent to the Committee.

The Minister said more information will be provided to the Committee in writing, and apologised for the vagueness of the report.

Ms Mente pointed out that on page 9 of the report there was a table with a column which indicated if investigations were complete or not. The table indicated that most investigations were complete, but there was no column to indicate who was responsible and if they were held accountable. She asked that such a column or the information be provided.

Mr Ozinsky responded that three investigations were being conducted, and that the CFO would respond to questions on the summary of irregular expenditure and investigations.

The CFO reported that letters were sent to all those who were delegated responsibility by the accounting officer for signing off. The letters clarified the documents they can and cannot sign off on, as well as the monetary value of the contracts they can and cannot sign off on.

Ms Mente said there was a problem with no follow up on internal investigations, in terms of who was held responsible. She demanded that there be accountability.

Mr Ozinsky replied that investigations were being conducted but that it would take months to complete them.

Ms Mente said that it cannot take months.

Mr Ozinsky responded that he cannot commit to the investigations being completed by January, as DMV had set itself targets for the end of the financial year.

The Minister said she understood the request and that the column for the table was readily available. All that was required was for decisions to be taken on what steps would be taken based on the findings of the reports compiled by the investigators. She said that when the Committee sits in late January, DMV will report to the Committee on the investigations.

Ms Lydia Meso, DMV Internal Audit Director, reported that PWC was appointed to investigate matters of irregular expenditure where four contracts were reported, as well as other cases of irregular expenditure.

The Chairperson asked what the state of the internal audit was in terms of capacity and fulfilling its duty.

Ms Meso replied that the internal audit structure comprises of four people. Annually there is an audit plan approved by the Audit Committee.

The Chairperson asked what would be necessary capacity for the structure.

Ms Meso responded that in terms of the new proposed structure submitted to the executive for approval, 22 people are being proposed.

The Chairperson asked the Chairperson of the Audit Committee to respond to the need for 22 people in the Internal Audit structure while there were only four currently.

Mr Victor Nondabula, DMV Audit Committee chairperson, replied that the Audit Committee found that the capacity of the internal audit structure needed to be strengthened. Commitments had been made for a new team.

Mr Booi cautioned the Acting DG that he is the Accounting Officer not the Minister, and that it is worrying that the Minister is answering more questions than he is. The Acting DG must be held accountable. Additional information on these reports must be given to the Committee.

Mr Ross said that “prioritising internal investigations” was not acceptable. He proposed that the Chief Procurement Office that deals with contract management assist the Acting DG in evaluating irregular contracts.

The Chairperson requested that the additional information should include all information requested by the Committee. He noted that the only contracts that were facing litigation were minor contracts in terms of their monetary value. He requested that all transgressions are handled equally. He pointed out that it was worrying that the previous CFO was threatened, and it was a serious issue that the CFO was threatened. It suggests there is a situation where there is a free-for-all and people feel aggrieved that they are singled out. He asked what measures were taken to protect the previous CFO, and if the matter was reported to the police. He asked what tenders did the people who threatened the CFO, have an interest in.

The Minister responded that efforts were made to assist the CFO and investigate the matters he raised. When she requested details on the threats, he was unable to provide plausible information so that measures could be put in place to protect him. The Minister wanted the Military Police to protect him, but at that point he would not cooperate with the Minister. At which point he did not return for work for a number of months. Following a number of attempts to work with him, he simply disappeared.

Mr Booi welcomed the information provided.

The Chairperson asked for the background and information on the Zeal deal.

The Minister said that when she heard about the value of the Zeal contract and that Zeal had taken DMV to court, she asked for a copy of the contract. She said that the contract was for healthcare provision for military veterans at an extremely high monthly charge. When she studied the contract along with her legal adviser, it was found that the contract was not properly drawn up. She explained how she cancelled all payments until a proper explanation was given by the legal team which drafted the contract. At that point this information was leaked to Zeal, and they took it straight to court. The Minister mentioned that she rejected that health services should be outsourced, given that the DOD had its own capacity and facilities.

The Chairperson asked who signed it off.

The Minister responded that it was the DMV legal team.

The Chairperson asked if the SCM process was followed, and if a tender was advertised.

The Minister’s legal adviser responded that the matter was referred to the Public Service Commission because DMV did not have the capacity to investigate the matter. Since the matter was still under investigation not much information could be provided. She said there were two parts to this case, one was finding out who must be held accountable, and the second part is setting the contract aside legally.

Mr E Kekana (ANC) welcomed the fact that there was an Accounting Officer in DMV. He pointed out that there was no breakdown of the R800 000 fruitless and wasteful expenditure average for 2013/14, 2014/15 and 2015/16. It was frustrating that there was no breakdown, as the Committee deals with figures.

Mr Ozinsky replied that the full figures will be made available in writing.

Mr Kekana asked for an explanation of the fruitless and wasteful expenditure on page 12 of the report, involving damage of hired vehicles by DMV officials and stakeholders.

Mr Ozinsky responded that at times DMV hired vehicles for its officials and stakeholders and sometimes there were accidents. There was a debt recovery policy to retrieve the money lost.

Mr Kekana asked if there were details immediately available to the Committee of the officials and stakeholders implicated.

Mr Ozinsky replied he did not have the details with him.

Mr Kekana asked what was being done about these implicated officials and stakeholders.

Mr Ozinsky responded that R361 000 was recovered from officials while officials who had not responded were being dealt with in terms of the debt recovery policy. Meetings are scheduled with the outside stakeholders to recover the money.

The Chairperson suggested that the matter be ignored for now, until details were provided.

Mr Kekana agreed with this suggestion, as he needed details.

Mr Booi said that the National General Council (NGC) of the South African Military Veterans’ Association (SAMVA) seemed to have no understanding of the law and that they must account to Parliament and not abuse funds. It seemed that MKMVA was masquerading as SAMVA side-lining all other military veterans. The Committee had its eyes on SAMVA. The money spent on the NGC could have been used to support service delivery for military veterans.

Ms Mente said it was worrying that money was lost when there were military veterans without homes and medical care, especially those in rural areas. She appreciated the steps taken with the Zeal contract, for the person who approved that contract is a criminal, given that that the military has capacity and hospitals of its own. She mentioned that she hopes that the Minister does not get reshuffled. She said the CFO issue needs to be properly investigated.

The Chairperson said the Hawks need to follow up on the issue of the CFO, and that it would be interesting to know on which contracts he blew the whistle. The Chairperson emphasised that stability of leadership was needed in the DMV.

Mr Kekana requested that there be clear timelines on the turnaround strategies that are developed.

The Minister said that when the extent of the challenges within DMV became clear, a process was initiated for putting together a turnaround team, which would first diagnose the challenges of DMV, and then determine what are the quick wins and what are long term solutions, to the problems faced. One of the biggest problems DMV faced is that the department was established before there was legislation in place to determine how the department would be run. This has led to a misalignment between what DMV is meant to be doing and what it is actually doing. Turnarounds take time to effect change, but if one looks at the Department of Home Affairs one can see that eventually turnarounds do work. Remedial action will be taken to address problems, along with consequence management. One of the key quick wins was stabilising the leadership and management of DMV. In the turnaround report which was not yet released, there is a reference to a new organisational structure for DMV. When DMV next appears before SCOPA, a list of remedial steps and actions taken will be presented. When DMV comes to report in January, there should be a permanent Director General.

Mr Kekana asked that, along with the additional information that will be supplied to the Committee, the turnaround strategy also be provided.

The Chairperson thanked the Minister and adjourned the meeting.