Military Veterans, Armscor & Castle Control Board BRRR

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Defence and Military Veterans

17 October 2018
Chairperson: Mr M Motimele (ANC)
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Meeting Summary

Military Veterans, Armscor & Castle Control Board BRRR available at Budget Review & Recommendations Reports

The Committee gave recommendations about Armscor and the Castle Control Board and these were included. They them adopted their Budget Review and Recommendations Reports for the Department of Military Veterans and for Armscor and the Castle Control Board.

Meeting report

The Chairperson noted that the three BRRR reports had been circulated to Members and so far they have not received any proposed amendments to the reports from Members. He will take it that Members agree with the reports unless there is something urgent Members wanted to raise in this meeting.

Mr S Marais (DA) said that he received the reports only yesterday and had no chance to make an input on these reports. His input would be on Armscor. It should be remembered that the questions raised about salaries and bonuses and how this was calculated were not answered. Therefore, those questions do not appear in the report. The only reason he is asking is because Project Hoefyster is very important and it has been delayed by two to three years now, which is a concern for everybody in terms of how it will affect the costs. It seems Armscor is doing the core function of capital acquisition as much as it is supposed to be its core function and deliverables, and with that keeping in mind the salary increases and bonuses.

He does not know if those salary increases include bonuses or if bonuses are additional to that. The question he has asked is what is the basis for the salary increases or is it just ticking the boxes that Armscor has complied. In terms of its core function there was no performance not because of the fault of Armscor but because of the Defence budget and the challenges around that. In terms of the state allocation to Armscor, if they look at the salary increases and the salaries of only the two top people, it shows that 60% of the salary increases went to the two top people. The average annual increase in salaries was between R4 000 and R5 000. Therefore, they need to get clarity on how that was determined. His information is that there were substantial increases in the 2017/18 financial year. And he is wondering where they are going with Armscor and private companies which are going bankrupt because government is not buying from them. This information was not included in the report and it is crucial to how DOD is finding itself in such a position.

The Chairperson asked Mr Marais what he is suggesting.

Mr Marais replied that they must capture that these questions were not answered by Armscor. In terms of their recommendations, Armscor needs to report to the Committee on the justification for increases in salaries and bonuses, especially if DOD had only an increase of 3%. There would be no problem if they had a good Defence budget. However, on the one hand they say they cannot increase there, but there is major increase here of double inflation or triple inflation. At face value people will ask if the Committee does not do oversight.

The Chairperson asked Mr Marais if he is saying there is no increase in the DOD budget but there is an increase in the salaries.

Mr Marais replied that there is increase in salaries, and they want to know if bonuses are included or not because only the two top officials combined increases amount to R900 000 a year. They must understand the logic behind those increases, given the DOD budget.

Mr S Esau (DA) said they should also pose the same question to the Castle Control Board (CCB) because the CEO, CFO and senior staff agreed that they will not take increases this year in terms of bonuses. They are going to waive that in light of the recession and financial constraints and that is in their contracts.

Mr Esau said they should ask all DOD entities what they contributed to the DOD because all of them are taking from DOD, and what it is that they give back to the DOD. It is unfair for CCB to ask for a grant from National Treasury because of the failure of the CEO in terms of his own contract. The day he signed on he said he is going to come up with a strategy to optimise the revenue but he has come up with nothing. He has not proven to the Committee that he will sustain the CCB on the income generated from its activities. But now he is asking for a bailout from National Treasury and the Committee will not agree to that bailout.

The Chairperson asked Mr Esau what he would like to see happening.

Mr Esau replied that they would like to see the Castle being self-sustainable.

The Chairperson said that will be captured because it is in the interest of everybody.

Ms B Dambuza (ANC) said that CCB must submit a plan and there should be a timeframe for that.

The Chairperson said that Armscor needs to submit the answers which Mr Marais is concerned about and that has to be factored into the report.

Mr Marais said that on face value there was irregular expenditure and wasteful expenditure at Armscor which was noted in the Auditor-General’s report. Therefore they need to have in-depth knowledge of the irregular expenditure and the wasteful expenditure at Armscor.

The Chairperson said they should note that the Committee is concerned about the high level of irregular expenditure and should it should be corrected and that they should give feedback to the Committee. They should raise that within the framework of effective and efficient oversight.

Ms Dambuza said that the Auditor-General stated clearly that the monitoring processes were insufficient to prevent these instances. This reflects on the Armscor risk and audit committees in terms of effectiveness and responsibility. The Committee report needs to state that the Armscor risk and audit committees need to be strengthened and it needs to come before the Committee and report on that.

The Chairperson agreed that they must also capture the monitoring concern.

Mr Marais said that Denel could not deliver on time on Project Hoefyster, there was a delay of about 32 months so far. There might be a further four-year delay and Denel needs to come before the Committee to indicate what the implications are for DOD and the implications in terms of costs.

The Chairperson said what they should state that they need to regular feedback on the implications of this delay. As Members they come with good recommendations, but his worry is that that the information gets lost and they need a method of recording this information. Their dashboard method should apply to what they inquire about and what they need to know because their recommendations are very relevant. They need to strengthen their dashboard method of reporting.

Mr Esau said that they need to have a closed session with the Special Defence Account (SDA) and it must report on the future of the projects it is running.

Ms Dambuza said she noticed that in 2017 they had a recommendation on the migration of Denel to Defence. They need to emphasise that and make a recommendation that they need a progress report on that migration process.

Mr Marais said he fully supports that because currently they are so dependent on Denel but they did not know what is going on in Denel.

Mr Marais said on the sweating of assets, they mentioned that no property has been transferred to Armscor. They need to know why it is necessary for the property to be first transferred to Armscor before it can generate income for DOD, because transfer of property might take years and that meant a delay for DOD.

The Chairperson said that the Service Level Agreement between Armscor and DOD has been signed already. What the Committee needs is feedback and to indicate that this process should be fast-tracked.

The Chairperson thanked Members for their inputs. He asked for adoption of the BRRR reports with these amendments.

The Committee agreed to the Committee Reports.

The meeting was adjourned.


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