Department of Defence Audit Action Implementation Plan: AG feedback on progress; Military Discipline Bill: response to public submissions

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Defence and Military Veterans

19 February 2020
Chairperson: Mr V Xaba (ANC)
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Meeting Summary

The office of the Auditor-General provided feedback on the Department of Defence’s Audit Action plans and the progress of implementation. The SANDF representatives were also present to discuss and comment on the Military Discipline Bill.

The office of the Auditor-General highlighted from the status of records review, which was conducted from the 01 April 2019 to 30 September 2019, the key focus areas of concern for the Department of Defence which has had no improvement. The main concern revolved around irregular expenditure and compliance by the Department with laws and regulations as well as standards set by various stakeholders. Members asked for clarity regarding the template from the National Treasury and how it truly affected the Departments inability to disclose fully; and how the Department planned on resolving its issues of assets and inventory. The Committee discussed the issue of the template and said that if the template was incorrect then it should have been corrected by the office of the Auditor-General. They emphasised that the root problem of the template has to be identified whether it was National Treasury’s fault or a misinterpretation by the Department.

The Parliamentary Support Staff provided an analysis of the submissions made by the Department of Defence and other stakeholders. The submissions received mainly focused on the requested omissions from the Disciplinary Bill by the Reserve Force Council which was considered irrelevant, the issue on the sexual misconduct in the Army and the disciplinary actions taken against perpetrators, the issue on who appoints the Judge Advocate General and the disciplinary process in dealing with issues.

Members of the Committee raised concerns about the continuous non-compliance of the Department, as well the extent of the irregular expenditure. Regarding the submissions, Members were particularly concerned with the involvement of the unions in the disciplinary process and expressed dissatisfaction about the number of submissions that were made and the quality of the comments that were provided.

Meeting report

Opening remarks from the Chairperson

The Chairperson stated that two items on the agenda would be discussed. Firstly, the feedback from the office of the Auditor-General on the Audit Action Plan of the Department of Defence, secondly, the Military Discipline Bill along with the analysis of the comments received from the public.

The Chairperson mentioned that the office of the Auditor-General was invited to provide feedback on the Audit Action Plan and the overall performance for the past financial year 2018/19 of the Department of Defence. The Chairperson highlighted that the Department of Defence had not disclosed its capital working progress for the past two years and that some of the Department’s capital assets were not classified. According to the Chairperson, the office of the Auditor-General has previously noted that the Department’s intangible assets were not accounted for and that irregular expenditure by the Department was not recorded. The Chairperson also noted that the decrease of the Special Defence Account has been an issue for the Department of Defence.

The Chairperson emphasised that the Audit Action Plan of the Department of Defence should provide the Department’s progress in dealing with the existing issues. The Chairperson stated that the main purpose of the implementation of the Audit Action Plan is to ensure that action plans are developed and effectively implemented.

A resolution was taken by the Portfolio Committee to invite the office of the Auditor-General to provide a technical analysis on the Department’s willingness to improve financial reporting, assurance of the Department’s compliance with the legislature, proper internal control within the Department as well as risk management. The Chairperson stated that the Auditor-General’s feedback would show the extent that the Department of Defence is willing to cooperate with the office of the Auditor-General in resolving issues.

The Chairperson welcomed the office of the Auditor-General to commence with the presentation.

Briefing from the Auditor-General South Africa

Ms Mbali Tsotetsi, Deputy Business Executive from AGSA, outlined the existing mandate of strengthening the country’s democracy by enabling oversight, accountability and governance in the public sector through auditing and building public confidence that the Supreme Audit Institution (SAI) of South Africa has. She also explained that the purpose of the presentation and document was to provide an overview of the key issues identified during the status of records review which was conducted for the Department of Defence. The overview of the Department, its mandate and objectives were also included in the document.

Ms Tsotetsi explained that the purpose of the status of records review was part of the office of the Auditor-General’s commitment to assisting the Department of Defence. She mentioned that the assessment was conducted over a period of six months, 01 April 2019 to 30 September 2019. The aim of the status of record review is to:

  • Identify key areas of concern that could affect the Department’s progress and performance in preparing financial reports while ensuring compliance with the legislation;
  • Providing an accurate assessment of review key focus areas that may affect key performance;
  • Properly assessing progress made by the department when implementing audit action plans or carrying out commitments to resolving and addressing prevalent key concern areas; and
  • Identifying value-adding measures that can assist with ensuring proper management of risks that may result from issues.

Assessments include observing records from the Department that support financial performance reporting. She mentioned that the assessments assist the Department’s Accounting Officer to identify barriers to addressing prior audit issues, and that the matters highlighted in the review are not in the form of detailed findings but it was thought to be appropriate to present them to the Portfolio Committee.

Ms Tsotetsi stated that the key focus areas of the status of records review are:

  1. Oversight and Monitoring
  2. Financial Management
  3. Performance Management
  4. Procurement and Contract Management
  5. Compliance Management
  6. HR Management
  7. IT Management
  8. Financial Health

She highlighted that most of the Department of Defence’s key focus areas were in a concerning state and that they had remained unchanged and unimproved except for Performance Management.

Ms Tsotetsi mentioned that Oversight and Monitoring includes the audit action plans for addressing prior year audit findings. She emphasised that it is important that the Department of Defence develops the action plan and ensures that the issues are resolved. She highlighted that when the reviews were conducted by the office of the Auditor-General, the Department of Defence’s audit action plans were finalised thereafter and were provided in December 2019 which is three months before the financial year end. The office of the Auditor-General stressed the Department’s need to monitor progress timeously to ensure adequate measuring of plans. She also mentioned that when the evaluated internal audit findings were conducted, it was identified that the Department had not performed its quality control assessment of the internal audit function as required by the Institute of Internal Auditors (IIA). However, the internal audit function is engaging with the National Treasury to resolve the issue.

Ms Tsotetsi stated that the Financial Management key area would focus on issues that were raised in the previous financial year. Working progress was disclosed by the Department of Defence in the six months during the financial year. However, there is concern that the disclosure was partial instead of a full disclosure as required by the Modified Cash Standards (MCS) which should include opening balances and other narrative information. She mentioned that the partial disclosure was noted by the office of the Auditor-General. When the Department was questioned on the reason behind the partial disclosure, which it was aware of, the reason was that the template received from the National Treasury did not allow the Department to do so. Ms Tsotetsi made the Portfolio Committee that there are currently ongoing engagements with the National Treasury to amend the template to allow the Department to fully disclose. The engagement should be finalised before the submission of the Department’s financial statements.

Another area of concern was capital assets which were incorrectly classified as inventory and were not disclosed by the Department of Defence in the 2019 financial statements. She mentioned that during the review the office of the Auditor-General, it was noted that the matter had not been resolved by the Department. As a result, AGSA has met with the Department to discuss the matter and there was a resolution that the Department will meet with the National Treasury to get clarity regarding the technical aspects regarding the disclosure requirements.

Another highlighted matter was in relation to immovable assets where the Department of Defence failed to submit an updated asset register for immovable assets for the period during 01 April 2019 to 30 September 2019. Ms Tsotetsi stated that if the issue was resolved it could have a negative impact on the Department’s audit report. She also mentioned that the Department was in possession of some expired UN mission letters. She explained that if the Department did not have finalised letters of UN missions it would affect the Department’s financial statements such that the Department would disclose a debtor, which according to standards a debtor may not be disclosed or recognised if there is no letter as supporting evidence.

She highlighted the Department’s improvement of intangible capital assets.

Regarding Procurement and Contract Management, in the previous years the Department of Defence has not complied with Supply Chain Management (SCM) laws and regulations. As a result, the Department experienced irregular expenditure. Ms Tsotetsi made the Committee aware that the Department does not have an updated SCM policy in line with the new report issued by the National Treasury resulting in non-compliance and irregular expenditure. She emphasised the importance of compliance with SCM policy.

There was a deviation from the normal procurement process by the Department of Defence according to the SCM legislation. She highlighted that there are factors that can result in deviation. As part of interim audit, there will be a detailed review regarding the nature and justification of the deviations will be performed. The deviations have not yet been audited to ensure compliance with legislation.

She mentioned that the Department of Defence was qualified in the completeness of irregular expenditure, however the action plans to address the matter were not finalised yet at the time when the review was conducted.

The Department of Defence continues to incur irregular expenditure as a result of non-compliance with laws and regulations. She mentioned that there are still deficiencies within the Department to prevent irregular expenditure. Payment to suppliers within thirty days is a concern as invoices increase. The Department reported to the National Treasury that the reason for this increase in invoices was due to the legacy systems that are still used by the Department.

Ms Tsotetsi stated that the Department of Defence was still in a process of investigating cases of irregular expenditure. The report would be finalised and provided to the Accounting Officer on the 28th of February 2020.

Regarding IT Management, there was a significant control weakness during 2018/19 audit cycle. Areas that were affected were Information Technology Governance, IT Security Management, IT Service Continuity, Program Change Management and User Access Management. She highlighted that the weaknesses were not addressed in the Department’s action plan, this would result in the control weaknesses being prevalent in the IT environment of the Department.

Ms Tsotetsi mentioned that the reduction of the Defence budget over the past three financial years 2019/2020/2021 will affect Departmental programmes especially the Special Defence Account. The budget reduction continues to be an area of concern as the Department is having difficulty meeting its financial obligations and may have to decrease key activities due to insufficient funding. The Department of Defence is labour intensive which means that most of its budget is allocated to employee compensation, which totals fifty-nine percent of the budget during the MTEF period and fifty-four percent during the six months of the status record review period. The continuous over-spending will result in irregular expenditure. The Department will in turn not be able to fulfil its mandate.

Ms Tsotetsi mentioned that the status of records review was presented to the Departments Accounting Officer and senior management. As a result, the Accounting Officer promised to ensure that the issues are resolved.     

Comments from the Military Representatives

Major General Eric Mnisi, Adjutant-General of the SANDF, confirmed that the process to resolving issues would be a priority.

Summary of Submissions

Mr Peter Daniels, Content Advisor to the Portfolio Committee on Defence and Military Veterans, gave an analysis of the seven Submissions made by the Department of Defence, namely:

  1. Submissions from the Reserve Force Council
  2. Submissions from the Ministerial Task Team Investigating Sexual Exploitation and Abuse (MTT on SEA)
  3. Submissions from S Thompson
  4. Submissions from the Director Military Prosecutions Directorate
  5. Submissions from Col. L Gernandt and Col. P.T Modipane
  6. Submissions from BRIG. GEN T.S Matjila and LT COL G.G Van Der Niet
  7. Submissions from Dr X

Mr Daniels mentioned that no submissions were received from any military trade union and two of the submissions will be verbal presentations.

The first submission from the Reserve Force Council was concerning time constraints to make a full submission and the final written submission was requested by the 28th of February 2020. The Council has not been consulted on the latest version of the Bill as required by the Defence Act (No. 42 of 2002). The council raised issues regarding the SAPS and the Correctional Services consultation on the Bill and the Bill’s object being reduced. The Council suggested that clauses should be omitted due to irrelevance to subject matters and requested an application of the Act for clause 3.  

Regarding the MTT on SEA, the submission will also be a verbal presentation. Mr Daniels highlighted the overall comments of the MTT on SEA to confirm the military courts structure and for checks and balances to be put in place, criteria for internal candidates for Judge Advocate General (JAG) position, recommendations for parties to review and appeal a decision made by the military court and recommendations that sections should allow victims to be consulted if the perpetrator is acquitted of charges.

Five submissions were received from the Department of Defence from various personnel. Submissions by S Thompson revealed that there was no consultation was provided to internal stakeholders of the Department of Defence and the understanding of the Military Command Council was questioned. The availability of funds for the Department of Defence to implement the Bill will be discussed. The appointment of the JAG was questioned and the appointing power of a JAG especially since the JAG is appointed by the Minister according to the Bill however the constitution provides that the President appoints the JAG.

The second Departmental submission was received from the Director Military Prosecutions Directorate in which the Bill does not address the creation of two new directorates. Multiple clauses were scheduled for discussion.

The next submission was by Col L Gernandt and Col P.T Modipane who argued that the Bill contained amendments that could be addressed in the Defence Act. The style of writing of the clauses has not always been up to standard or consistent and that the Bill does not comply with ‘good legislative drafting principles’ and requires improvement. Comments were drafted on the clauses.

The submission by Dr X would not be discussed because there was a need for a legal advisor to be present in the meeting.

The final submission made by Brig. Gen. T.S Matjila and Lt Col G.G Van Der Niet, the name of the Act is inaccurate because it relates to the concept of the Military Bill. The Bill does not provide for the maintenance of discipline in the Department of Defence. The Bill did not provide for the establishment and regulation of the appointment of Judicial Offices and Court Officials. The aspects that should be included in the preamble were:

  • Inclusion of military powers, functions and duties of the Chief of the Defence Force, Provost Marshal General and Military Police Officials.
  • The establishment and regulation of military disciplinary hearings
  • The repealing and deletion of the Defence Act of 1957
  • Repealing of the rules
  • The amendment of the Defence Act of 2002.

Various definitions were revised by the Department of Defence and clauses were discussed.

Discussion

AGSA

The Chairperson made the Members aware that the Department of Defence was not present to answer questions; however a meeting has been scheduled with the Department’s Accounting Officer on the 26th of February 2020 for the Third Quarterly Report in preparation for the meeting with the Department. 

Mr J Maake (ANC) asked for clarity regarding the template from the National Treasury and how it truly affected the Departments inability to disclose fully. He also questioned the professionalism of the UN to allow the expiration of the letters of employment without noticing that the letters have expired. He commented that the Department of Defence will receive a qualified audit report based on the evidence of over-spending and asked how the Department planned on resolving its issues of assets and inventory.

Mr S Marais (DA) asked that if the template was incorrect then it should have been corrected by the office of the Auditor-General. He emphasised that the root problem of the template has to be identified whether it was National Treasury’s fault or a misinterpretation by the Department. He also asked if there was information on other capital working progress projects and that capital assets and inventory should be properly defined. He also mentioned that he was not convinced that the Department was aware of its possessions especially immovable assets and property. Mr Marais asked if the UN had not sent a confirmation of the letter and if not then DIRCO should get involved to enquire about delay. He also asked how debtors’ amounts are determined by the office of the Auditor-General and the way forward to ensure compliance by the Department of Defence.

Ms T Legwase (ANC) mentioned that her questions will be reserved for the Department of Defence to respond to.

Mr N Matiase (EFF) agreed with Ms Legwase.

Mr M Shelembe (DA) commented on the commitments from the Accounting Officer and asked when the status review was presented to the the Accounting Officer and whether the Accounting Officer has confirmed commitment of irregular expenditure.

Ms A Beukes (ANC) stated that it seemed as though the only commitment was regarding the deviation. She also asked the office of the Auditor-General what the percentage of work done was on the action plan and what the status of previous cases of irregular expenditure were. She mentioned that an updated SCM policy was not in place and asked what the status of the work done was to update the policy.  

Mr Maake asked for further clarification on the legacy systems used by the Department of Defence and asked if the matter can it be resolved.

Submissions

The Chairperson was not satisfied with the number of submissions and quality of the comments. The unions did not provide any comments. He applauded the Department of Defence and various stakeholders for submitting the submissions.

Mr Marais agreed with the Chairperson.

The Chairperson asked for clarity on the consultation that was given to the Council regarding the Bill in 2012. The Chairperson asked if the current consultation was of the 2012 Bill.

Mr Marais also sought clarity on the consultation of the Bill and argued that the Department of Defence may have misled the Portfolio Committee.

Major General Mnisi explained that the consultation of the Bill is the same as the one that was submitted in 2012, the Bill is not as voluminous as the previous one because minor issues were not included. He assured the Portfolio Committee that the SANDF is aware that the Council was consulted for improvement. He raised awareness that the personnel who commented on the Bill were the same people involved who drafted the Bill and was not sure if the Bill was re-drafted. He added that internal stakeholders’ comments were accepted by the Council for the upcoming August Forum and that there will be feedback on the comments made.

Mr Shaun Van Dreda, State Law Advisor, mentioned that the Department of Defence will be assisted in trying to refine the Bill.

Mr Marais mentioned that it would have been wise to deal with the internal structures of all departments in the same manner. Internal processes should be provided to the Portfolio Committee. He emphasised that a Bill should have a uniform version and amended Bills should be updated to prevent different versions of the same Bill existing. Mr Marais argued that seven submissions are not enough and only proves that there are red flags and evident contradictions with the Bill of Rights and the Constitution. He also asked for clarity from the Parliamentary Legal Advisors about whether a military disciplinary process has jurisdiction over civilians.

Mr Maake asked if it was up to the Portfolio Committee to decide whether a submission is sufficient and whether the military command structure usually has control over necessary disciplinary processes since there was no public participation.

The Chairperson mentioned that the Bill is at its parliamentary process and no longer with the Department of Defence. The Council took a decision that the Bill could still be adjusted even in its parliamentary phase and asked that a submission is made. The Chairperson also mentioned that public comments should be accompanied by Council comments. Once comments are submitted to the Portfolio Committee, the Portfolio Committee will regard the amendments without being biased.  

Mr Maake asked why there was no mention of the unions and their existence regarding military discipline and asked whether unions should be reminded of their duties and at what stage do the unions intervene in the disciplinary process.

A proposal was made by the Chairperson to give Members an option to submit their opinions and comments.   

The Chairperson agreed with Mr Maake regarding the intervention of the unions. An arrangement should be scheduled for the Department of Defence to meet with the Unions.  

Major General Mnisi mentioned that sending comments directly to Parliament would be effective; however comments should be solicited by the Department.

Mr Matiase mentioned that the army union was not recognised when the submissions were made. If unions are recognised, they should be allowed to operate independently and openly which is representative.

The Chairperson assured the Members that the concerns raised will be forwarded to the relevant stakeholders and asked if the unions are recognized by the Department of Defence.  

Mr Wilhelm Janse Van Rensburg, Defence Researcher, asked that if the input process is reopened, then the Department of Defence should not challenge the process.  

Responses

Ms Tsotetsi explained that the template is an Excel template. The template had a missing column for special military assets and that it was an omission by the National treasury.

The Chairperson clarified that there was a change in the reporting command such that the template information should be reflected in the books of the Department instead of the Department reporting to ARMSCOR.

Mr Maake argued that it should not take six months for the Department or National Treasury to rectify the template issue since the template is an Excel template, columns could simply be added.

Ms Tsotetsi agreed that a follow up engagement should be done with the National Treasury, which has been done by the office of the Auditor-General and the National Treasury has agreed to amend the template.

The Chairperson asked if there would be a shift in the qualification of the audit report if a delay occurred in the amendment of the template.

Ms Tsotetsi explained that she cannot mention or indicate working progress on capital projects as they are classified. Regarding the comments on the employee costs, the overspending does not result in a qualified audit report, but it simply entails that the overspending is part of irregular expenditure by the Department. Assets and inventory should be in line with standards and a position paper has been developed by the Department which classifies capital assets, most items are identified as capital assets however they were not disclosed as such. There are still technical issues within the Department but there is movement and progress to resolving the issues.

Mr Maake asked for clarification on whether the office of the Auditor-General is allowed to qualify an audit report regardless of what the National Treasury and the Department of Defence discuss and he suggested that the office of the Auditor-General should not qualify a report if there are still ongoing discussions.  

Ms Tsotetsi explained that discussion reasons are not and should not be indicated in an audit report. Regarding property owned, no issues have been raised on the properties however investigations on disclosing information will be investigated by the office of the Auditor-General. She explained that the Department of Defence is the only party involved in the UN mission letters, the office of the Auditor-General is not involved in discussions with the UN. She emphasized on the existence of a contractual arrangement because debtors cannot be recognized in the mission letter. Without a contractual arrangement, the Department cannot classify debtor as debtors but as receivables.

Mr Marais asked who the contracting party with the UN is between the Department of Defence and the Department of International Relations and Cooperation.

Ms Tsotetsi mentioned that there was no certainty of other overriding details on the contractual arrangement.

The Chairperson resolved that the question on the UN mission letters should be reserved for the Department of Defence.

Ms Tsotetsi mentioned that the finalisation stage of the SCM policy has not yet been approved. Regarding the impractical cases of using different standards, the office of the Auditor-General uses the same legislation for all departments, but the Department of Defence can deviate from certain processes should a reason be provided, and the reason should be justified. Unjustified cases should not result in deviation. Irregular expenditure of R77 million should be explained by the Department to provide the circumstance of the expenditure. Regarding the status of investigations on irregular expenditure the office of the Auditor-General has no record of the status but the Department has promised to provide a record next week. The commitments document from the Department’s Accounting Officer was finalised early December in 2019 by the office of the Auditor-General and the document was presented. However, the office of the Auditor-General is still awaiting commitments in writing. The percentage of interim audit coverage is focused on the 6 months period (01 April 2019 to 30 September 2019).   

Mr Maake asked if there have been any changes in the submissions made to the Department.  

Ms Tsotetsi mentioned that the Department’s action plans have been updated in the interim audit report and submitted, and that a real test will be conducted by the office of the Auditor-General for Department of Defence’s status report.

The Chairperson mentioned that if the current issues are not resolved then there will be an occurrence of the same issues. The Chairperson announced that a meeting with the Department has been scheduled for the following week. The Chairperson also enquired whether the Minister is up to date with the information discussed in the meeting and that the main points of discussion should be summarized to assist the Department.

Ms Tsotetsi mentioned that the documents from Accounting Officer were sent to the Minister but there has been no response from the Minister.

The Chairperson announced that a public hearing will be held on the Third and Fourth Quarter for the Department to go through the Military Discipline Bill clause by clause, on the 11th the department would be responding to issues received from the public and to finalise the Bill. Another meeting will be scheduled with the office of the Auditor-General on the final update.

Closing remarks

Mr Bryan Mantyi, Secretary to the Portfolio Committee, announced that the legal advisor to the Committee would no longer be involved in the progression of the Military Discipline Bill and that someone else has been assigned to assist the Committee with the Bill.

The Chairperson thanked the SANDF and the Parliamentary support staff. The next meeting was scheduled for the 26th of February 2020.

The meeting was adjourned.

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