Special Report by the Auditor General on Arms Deal Report: hearing

Public Accounts (SCOPA)

20 August 2003
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report

20 August 2003

Mr Francois Beukman (NNP)

Documents Handed out:
Auditor General's Special Report
Annexure B of the Auditor General's Special Report
Joint Investigation Report into the Strategic Defence Procurement Packages (Nov 2001)

The purpose of this hearing was to hear the Special Report of the Auditor General, in response to allegations made against his office with regard to his conduct around the submission of the Joint Investigation Team (JIT) Arms Deal Report. SCOPA members questioned him on the alleged sanitising of the Final Report tabled to Parliament; on allegations that he had been influenced by the Executive to "heavily edit' that report; on the conduct of the Office of the Auditor General toward a court order on behalf of C2I2, the company bringing charges against his office; and on the giving of gifts. The Democratic Alliance produced a letter stamped by the Office of the Auditor General, in which African Defence Systems (ADS) were allowed to bid for a contract after the closing date for tenders had passed.

At the conclusion of the proceedings, the Auditor General indicated that he stood by the report which he had tabled in Parliament on November 2001, and that he depended on Parliament to uphold the honour and integrity of the Office of the Auditor General.

The Chairperson reminded members of the provision of Rule 66 of the National Assembly, which protects the independence of the Office of the Auditor General, protecting the Auditor General from having to answer potentially incriminating questions.

Auditor General's Opening Remarks
The Auditor General, Mr Shauket Fakie, thanked the SCOPA Committee for the opportunity to present his Special Report, and to elucidate on it. It was the correct forum in which to clear his name, and to restore the credibility and integrity of the Office of the Auditor General.

Notwithstanding the fact that the whole arms deal "saga" had been loaded with politicking, emotions, sensationalism, perceptions, and innuendos, he was hopeful that his report could be dealt with rationally and objectively, in order to bring the present matter to finality.

Criticism against the Auditor General and the Office of the Auditor General indicates that the South African democracy is strengthening and working. However, such criticism must be constructive, and based on facts, or otherwise the democracy is undermined. It is for this reason that Chapter 9 institutions are offered protection and independence by the Constitution. That independence is further entrenched by the provision of Rule 66 of the Rules of National Assembly. The Auditor General said that he was more than willing to answer any questions pertaining to his Special Report, but he had been advised not to answer any questions which might have a bearing on the current litigation against his Office.

The Auditor General explained the process of preparing a report from the first draft to its tabling in Parliament:
(1) A draft report is compiled, based on the audit/ investigation evidence.
(2) The draft is discussed with the management of the institutions concerned to verify the factual correctness of its findings.
(3) Any additional input is verified and considered.
(4) The draft report is amended with the verified additional inputs, should this be necessary.
(5) Should the draft Final Report relate to any of the special accounts mentioned in the Auditor General Act of 1995, a consultation process with the relevant ministers and the President follows.
(6) After this consultation, the audit report is finalised.
(7) The finalised report is tabled in Parliament.
This had been the process followed with the Joint Investigation Team (JIT) Report.

The Auditor General felt that, in attacking his honour and integrity, it was possible that some Members of Parliament might have transgressed Rule 66 of the National Assembly.

He felt it was unfair and "mischievous" to expect the draft to be exactly the same as the Final Report, and then to conclude, since the two reports were not the same, that the draft had been edited as a cover-up. He stood by his statement that the Final Report had not changed in substance from the draft report. Most of the contents of the draft reports alleged to have been edited out of the Final Report, does in fact appear in the Final Report, albeit that some of those contents might appear in different places, for the sake of improved readability. It was the style and format of the report that had changed, and not the substance. When he had first presented the JIT report, the Auditor General had indicated that to Parliament.

The Auditor General informed the Committee that in addressing the complaints of the litigant, the Office of the Auditor General had spent close to R1 million of tax-payers' money.

Mr B Nair (ANC) asked (1) if it was true that draft reports had indeed been sanitised, doctored, or materially changed, as alleged; (2) if the unedited version of the report differed from the report presented to Parliament; (3) if the Executive or the President had influenced the "heavy editing" of the report. The Auditor General had stated in his Final Report that the C2I2 IMS had been the preferred databus of the South African Navy at least up to a point. He asked for comment on Mr R Young's (C2I2 Managing Director) allegation that such information was absent from the draft reports.

The Auditor General responded that the allegations of heavy editing, sanitisation and doctoring of the draft reports, were untrue. However, it was true that the matter of gifts received by certain officials, had been omitted from the Final Report. He would in the course of the hearing, explain why that did not appear in the Final Report.

He agreed that in format and style, the Final Report did differ from the initial draft, but in substance, it was the same. The key findings contained in the draft report were retained in the Final Report.

Neither the President nor the Executive influenced the editing of the report from the draft to the final stage.

The JIT team did not investigate matters further with regard to certain issues relating to the IMS combat suite of C2I2.

Mr Chiba (ANC) asked (1) in connection with the imposition of a risk premium on the IMS of C2I2, why other sub-contractors had not been consulted for questioning by the investigation team; (2) if C2I2's commercial specifications had been released to its competitors.

The Auditor General responded that the reason for not consulting with the other sub-contractors to look into the details of risk premium issues, was because, based on evidence which they already had, they already knew that risk premiums had been placed on other sub-contractors. Knowing that, they concluded that the risk premium that had been placed on C2I2 was not unreasonable. This was also especially in light of the fact that C2I2's product was not really tested, but was a product in design, conceptual phase.

The Auditor General conceded that it appeared that C2I2's commercial specifications had been made available to its competitor, based on the manner in which the administration sub-contract had been dealt with. He concluded by saying that the Final Report includes that concession.

Mr S Blanché (FA) asked why there was such a difference in tone between the first report, and the final one. Had the two reports been done by different people, and had the Auditor General been involved in the drawing up of both reports?

The Auditor General replied that he had been involved quite extensively throughout the process of preparing the report. The draft had been prepared on the basis that each of the three investigating agencies that dealt with the JIT report, submitted their own reports, which were collated into one report, Part A being the Public Protector's section, Part B being the Auditor General's section, and Part C being the National Director of Public Prosecutions (NDPP) section. There was much duplication in the entire report, as the various investigating bodies often interviewed the same people, and received similar information. In bringing the separate reports into one unit, the various parts had to be incorporated. The reports were collated and re-arranged according to subject matter. The Auditor General did not feel that the tone was considerably changed. However, this was a matter of opinion. The message and key findings in the draft report, however, had in no way been watered down in the Final Report. Any change made, was intended to make the report more readable.

Mr Blanché asked how many reports there had been, and on what dates they had been submitted to Cabinet.

The Auditor General responded that there were many earlier drafts, but the only version that was submitted to Cabinet, was the final one before the Committee.

Mr P Gerber asked the Auditor General to indicate what percentage of documents owed to C2I2, had been handed over to them, to what extent C2I2 had actually worked through these documents, and what percentage of documents still had to be handed over.

The Auditor General responded that since the publication of the Auditor General's Special Report, at which point two files had been handed over (page 11), all the drafts, including working drafts which the junior clerk would have worked on, had been released in compliance with the court order. Early in August, an additional thirty-four files had been released to C2I2, of 27 or 28 contained copies of very early drafts. The Auditor General was aware that Mr Young was still in the process of perusing the documents. His Office was convinced that all documents which Mr Young was entitled to, had now been released to him.

Mr Gerber asked, in light of previous attacks on the integrity of the Office of the Auditor General, what prompted him to release a Special Report at this time.

The Auditor General responded that the attack had brought the integrity and name of the Office of the Auditor General into major disrepute. The ferocity of the attacks prompted and warranted that a Special Report be brought to Parliament. Since there had been various discussions and debates taking place informally by Members of Parliament on the subject matter, he thought it appropriate not to deal with the matter through the media, but rather to file a report in Parliament, so that members could be presented with the facts. He reminded Mr Gerber of a previous occasion at which an attack had been against a previous Auditor General, at which time a Special Report had also been submitted. It was not, therefore, the first that such a measure was used. However, he continued, that a Special Report to Parliament would not be required each time that controversial or damaging statements were made in the media. The ferocity of the attack, and the significance of the matter at hand, would generally determine the sort of response necessitated.

Dr Woods (IFP) asked the Auditor General to submit "deeper reasons" than he had provided, for the submission of the Final Report to Executive, which had been done amidst much secrecy. An international auditing firm had advised Mr Woods, that this was not normal procedure in an investigation of a forensic nature. He suggested that the nature of the investigation might have required a different procedure in preparing the report. Had proper normal process taken its course, the Auditor General would have issued a management letter, which would have reconciled issues raised from the first report.

The Auditor General responded, making reference to paragraph 3 on page 4 of his Special Report, that the JIT had indeed followed normal procedure in submitting the report to the Executive. Quoting from his explanation for the procedure of report drafting, he said that, "The normal process ... as followed during any audit remains the same whether it is a regularity audit, performance audit, forensic audit or any other special investigation". The Auditor General took exception to Mr Woods' allegation of secrecy surrounding the submission of the report to the Executive. Had the report been secretly submitted to the Executive, the JIT would not have given notice thereof in the Final Report. He added that there was very little difference between a management letter and a draft report. Although they take different forms, the issues and findings contained therein would be exactly the same.

Mr R Mofokeng (ANC) asked the Auditor General to explain (1) why alleged inaccurate statements made to SCOPA by the Department of Defence had been omitted from the Final Report; (2) if the Cabinet sub-committee chaired by the President had influenced him to omit the information from the Final Report; and (3) if not, if he could show SCOPA where the information was contained in the Final Report; (4) were there any significant changes between the draft report and the Final Report.

The Auditor General responded that he would not go into great detail with those questions which had been previously dealt with. He stated that the inaccurate statements had, in fact, not been omitted from the Final Report. Those statements revolved around:
(1) the ownership of the African Defence System;
(2) that the South African Navy had not indicated its preference for the C2I2 product.

Reference to the ownership of the ADS appears in Item 11.3.1(d) of the Final Report, and is further elaborated in Item The second statement relating to the non-preference of the C2I2 product, appears in Item, which clearly states that, from the investigation, that up to a point, C2I2 IMS was the preferred databus of the SA Navy. Incorrect statements around the Project Control Board (PCB) meeting also appear in the Final Report.

The Auditor General repeated that the Cabinet sub-committee had not influenced changes between the draft and the Final Report. He did not believe that there were any significant changes between the draft and the Final Report.

Mr G Madikiza (ANC) asked how the Auditor General thought that SCOPA could comfortably arrive at the conclusion that there had been no editing of the Final Report, or if there had been editing, that this was not substantial, knowing that they had not been allowed to peruse the actual drafts.

The Auditor General responded that, based on the draft and the Final Report supplied in the Auditor General's Special Report as Annexures A and B, SCOPA had those reports in order to make the comparisons, in order to make such a conclusion. It was that draft, and that Final Report, which had evoked so much controversy in the media. Making all the reports available to SCOPA would have been an enormous task for the Office of the Auditor General.

Mr B Bell (DA) asked the Auditor General to supply the list of allegations handed over by C2I2 to the Directorate of Special Operations (DSO).

The Auditor General responded that a list of those allegations was contained on pages 20, 21 and 22 of the JIT Report. Page 22 indicates all the allegations which the NDPP are currently dealing with.

Mr Bell asked about an earlier draft than the one supplied as Annexure A, in the Auditor General's Special Report, where part of the index listed a heading which mentioned the Cabinet being misled. It also mentioned a long list of inaccuracies that were handed over to SCOPA. He asked why those two indexed items had been omitted from the later reports. He further asked who had made the decision to remove the items on the Cabinet being misled, from the report, and who had decided not to list the inaccuracies to SCOPA, but only to include a few lines to indicate that SCOPA had been misled.

The Auditor General responded that this question related to the second release of documents. The draft which Mr Bell spoke of, was a very early one, and that it was, in fact, a status report, which indicated that there was a whole number of witnesses who were still to be interviewed. The information listed in that draft was therefore very preliminary findings. The testimonies of other witnesses who were subsequently interviewed, impacted considerably on these preliminary findings. Furthermore, every inaccuracy referred to in earlier drafts, is contained somewhere in the Final Report. He repeated that those inaccuracies related mainly to the ownership of ADS, the SA Navy's preference of the C2I2 product, and the PCB meeting.

Mr N Bruce asked the Auditor General, as a hypothetical question, what he would do, should he find that a tenderer had been allowed to change his tender after the closing date for receipt of tenders, and was then allowed to increase his tender.

The Auditor General responded that his normal approach would be to report such an irregularity to Parliament.

Mr Bruce produced a letter addressed to Captain J Kammaman and Mr F Nortje, in which ADS amended their quote from R32 479m to R29 647m. The opposing company quoted for R26 426m. He asked if the Auditor General was familiar with the letter, if he could explain the occurrence, and where in either the first or second report, any reference had been made to this matter.

The Auditor General had no recollection of the letter referred to by Mr Bruce, and asked him to hand over the document, so that he could investigate it, to which Mr Bruce responded that the letter had come from the Office of the Auditor General, and bore the Auditor General's stamp. He could not believe that something as critical as this letter, which could invalidate the purchase of large amounts of naval equipment, could be overlooked.

The Auditor General said that it was not fair to expect him to have a detailed recollection of that letter at this point. He repeated his request for a copy of the letter, whereupon his Office would give a proper and detailed, considered response to it.

Later on in the hearing, the Auditor General reported that, notwithstanding the fact that a particular company was allowed to tender more than once, C2I2 was the successful bidder at the end of the day. Mr Bruce countered that that was, in fact not true. C2I2 had not won the contract

Mr Bruce noted that the original report had 3.5 pages on the giving of gifts. The Final Report contained very little on these gifts. He asked for an explanation on this.

The Auditor General responded that the draft contained, not 3.5 pages, but 2 paragraphs with regard to gifts. The report clearly indicates that the matter was referred to the DSO to pursue further. The Final Report says, under Chapter 11, that "(t)hose allegations that point to criminal conduct form the subject of an investigation by the DSO, the contents of which are, for the reasons explained earlier, not discussed in this report".

Mr D Gumede asked if the Auditor General thought that SCOPA, or any committee formed by Parliament, could have the necessary expertise, resources, capacities, and independence to adequately investigate matters of this particular nature.

The Auditor General responded that, looking at SCOPA's terms of reference, it was definitely within their powers to adequately investigate. However, it was really up to SCOPA to decide if its members had the necessary expertise, since some investigations required a considerable amount of expertise in order to deal with them appropriately. He could not speak on the expertise of other committees, since he had not looked at their terms of reference.

Mr Gumede asked exactly what it was about the giving of gifts, which would make it criminal.

The Auditor General responded that there was an allegation that gifts had been given to two individuals, which would have influenced their decision-making. The JIT was able to confirm that gifts had indeed been received. It was, however, difficult to confirm that those gifts had influenced certain decisions. There is a requirement that gifts had to be disclosed in the Gifts Register, which these particular gifts had not been. However, it had been confirmed that the gifts had been disclosed in the Section Gift Report.

Ms S Dudley (ACDP) asked, in terms of the contract of loan agreements, if they had been scrutinised by Parliament or any independent bodies. She wanted to know what the penalty clauses were, and how bound SA was in terms of agreements made. Finally, she asked if there was any truth in reports that SA had bought helicopter engines from France at a premium, compared to other offers, and why this had been omitted from reports, if indeed it had been omitted.

The Auditor General responded that Chapter 13 in the Final Report deals with the drafting of various contracts, including some of the loan agreement contracts, which had been entered into. The expertise of the Public Protector had been used in scrutinising contracts. The JIT looked into the process followed by Government in finalising a contract. Their view was that the process that was followed, had been reasonably sound.

The Final Report contained information regarding the purchase of helicopter engines from a different supplier. Page 271, paragraph of the JIT Report indicated that this had been done for strategic reasons: "Strategic consideration in some cases also lead to programme managers having to accept technical values that were lower than the parameters in the user specifications, and which carried higher risks".

Mr Vincent Smith (ANC) asked the Auditor General what, in his opinion, the motivation was for people like Mr Richard Young to go to such extreme lengths as to take the Office of the Auditor General to court.

The Auditor General was not eager to speculate on these matters, not having facts to respond appropriately to the question. He ventured, however, to say that Mr Young had been very unhappy about the outcome of the awarding of the tender process. That, in his opinion, was driving his action, which was now causing damage and harm to an institution that was critical in supporting the democracy of this country. The Auditor General looked to Parliament to restore and uphold the dignity and integrity which the institution requires. The Auditor General stated that if he had done something wrong in his personal capacity, then he should be appropriately dealt with. His biggest concern, however, was for the damage which was being done to the institution of the Office of the Auditor General.

Mr Smith asked, during the course of the Arms Deal investigation, if the Auditor General had ever behaved in a manner which justified the question marks attributed to the Auditor General.

The Auditor General gave an absolute assurance that, in fulfilling his constitutional responsibilities as the Auditor General, both in relation to his normal work and the reports which he presents to Parliament, and to the JIT Report, he had acted in the utmost good faith, and in due regard for the constitutional mandate and responsibility that he has. The whole issue of the Arms Deal has been fogged with controversy from the beginning. It was since the Special Investigating Unit had been excluded from the JIT, that there had been mistrust and speculation.

The Chairperson stated that SCOPA had commissioned senior counsel's opinion on the Report, and it was confirmed that most of the allegations had been incorrect. He asked the Auditor General, with regard to the 15th Report adopted by Parliament on 12 December 2001, for his opinion on the role of oversight committees such as SCOPA, in terms of monitoring the parliamentary process.

The Auditor General responded that the key role of Parliament is to oversee the activities of the Executive, a role which must not be underestimated or watered down in any way. All the committees in Parliament have a responsibility in that regard. He cautioned it was important for the Committee to ask itself how it would deal with allegations coming before it. He added that an enormous amount of taxpayers' money was being spent on addressing these allegations.

The Chairperson asked whether the Auditor General thought the existing procedure for investigations was satisfactory, and if he had suggestions for improvements.

In answer to a question on the monitoring of off-sets, the Auditor General felt that the relevant portfolio committees should look to see if the contract schedules are being complied with and evaluate the time-lines and the issues at hand. As much as Parliament may want a progress report, it was quite dangerous, in the light of investigations taking place, to disclose certain details on investigations that were ongoing. Disclosure of such information could undermine the effectiveness of the investigation.

Auditor General's Closing Remarks
The Auditor General said that he was concerned about the attacks that had been made on the Office of the Auditor General. Considering the performance of the Office with regard to the auditing of other departments, especially the Department of Defence, and the issues raised before Parliament in the past, it was clear that the taxpayer had been well-served. In spite of their best efforts, the Office would not achieve perfection. There was always room for improvement. In this specific matter, the Auditor General had not been able to identify any manner in which he had failed to fulfil his duty to Parliament, and the taxpayer. He had always acted in good faith, and with uncompromising integrity. Based on evidence at his disposal, he stood by the JIT Report which he had tabled in Parliament in November 2001. He now relied on Parliament to protect the honour and integrity of the Office of the Auditor General as a constitutional institution.

Everyone but the members of the SCOPA Committee was asked to leave the venue, to allow the Committee members the opportunity to evaluate the hearings.

The Chairperson stated that it was important that the Office of the Auditor General be held in high esteem. He thanked all the participants for their attendance.

Internal Evaluation
An internal evaluation of the hearings produced this four-point decision:
(1) The Committee would further evaluate the hearings and consider legal opinion, in the light of the fact that the report that appeared in the Business Day was incorrect.
(2) Any new allegations would be referred directly to the Director of the NDPP.
(3) Enter into correspondence with all the chairpersons of the relevant committees.
(4) To discuss the affirmation of the integrity of the Auditor General.

The basic idea which emanated from the evaluation, was the need to continue to evaluate what had been heard in the hearings.


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