Defence Procurement Package Investigation: Progress Report by the Deputy Auditor General

Meeting report

STANDING COMMITTEE ON PUBLIC ACCOUNTS
7 February 2001
DEFENCE PROCUREMENT PACKAGE INVESTIGATION: PROGRESS REPORT BY THE DEPUTY AUDITOR GENERAL

Chair: Mr Gavin Woods (IFP)

Documents handed out
Strategic Defence Packages: Progress Report & Investigation (See Appendix 1)

Present: MrTerence Nombembe, Deputy Auditor General; Etienne Smith of the Office of the Auditor General; Advocate Meyer, Parliamentary Law Advisor; committee members.

SUMMARY
The Office of the Auditor General briefed the committee on progress made in the investigation of the defence procurement package and its budget of R13 million. Discussion centred around why it was decided by the investigation team that it could manage without the skills of the Heath Unit and what funding role the Department of Defence was playing in the investigation.

MINUTES
[Editor's Note: What follows is an edited first person account of the meeting]

Nombembe: Three agencies are involved in investigating the defence procurement package: the Auditor General's Office, the Public Protector and the Independent Directorate for Serious Economic Offences. The agencies have different mandates and reporting requirements, but are working closely together. We will produce a joint report by the end of July on what has been investigated and the status of remaining matters. It was decided after the SCOPA meeting on 13 November that the Auditor General would coordinate the skills, legal mandates and report back. Meetings were held on 16 November and 1 December.

The estimated cost of the investigation is R13 million, including R3 million to the Heath Special Investigating Unit which has now been transferred to the other agencies. It is possible that additional funding may be required.

The personnel resources and core team of 10 persons consists of:
Auditor General 2 chartered accountants 1 advocate
IDSEO 2 advocates 3 investigators
PP 1 advocate 1 investigator

An office has been established in Pretoria, and computers have been acquired. The Auditor General coordinates the work, but other skills will be contracted-in: Chartered accountants, forensic accountants, technical experts on naval matters, etc. These costs are covered in the R13 million budget.

The investigation will include:
Alleged irregularities -- 68 entities, interviews, state agencies, bank statements of 24 entities/individuals.
Cost to the State of BAe/Saab Gripens and Hawks.
Selection of sub-contractors.
LIFT programme.
Review of selection systems.
Review of final offset contracts -- NIP and DIP.

Access to documents has been secured by the Departments of Defence, Finance, Trade and Industry and Public Enterprises, and the Cabinet. That approval is being set up with logistical arrangements - including documentation to SCOPA. We will report back by July, but would prefer no further briefings so that we can concentrate on the investigation.

Beukman (NNP): The Heath Special Investigating Unit (HSIU) has special skills, and required SCOPA to apply for a presidential proclamation. Do you have the special skills of the Heath Unit, or are they lacking?

Nombembe: At the time the President announced that a proclamation would not be issued, we have reassessed our capacity, and made sure that we do have those skills. We are transferring personnel to the Auditor General's Office.

Beukman: What terms of reference do the three agencies not have in terms of the authority/power of the Heath Unit?

Nombembe: We are comfortable that the three agencies can cover the work.

Green (ACDP): The allocation and transfer of R3 million from the HSIU makes it clear that it was intended that the HSIU would be part of the investigation. Why the complete change of mind? Has the President's Office pressured the Auditor General's Office regarding the R3 million allocation for the HSIU? Please explain the changed circumstances?

Nombembe: On November 13 there was no clarity regarding the proclamation. I am not in any way party to the President's decision.

Taljaard (DP): Mr Van Heerden raised concern that the Auditor General's jurisdiction does not include the merits of sub-contracts. Are the sub-contract investigations now severely compromised?

Nombembe: It was agreed that at the time of planning, the HSIU capacities were needed. But we have since carefully considered that we will not compromise on the investigation despite the absence of Heath.

Woods: There is a question in the minds of MPs why Heath is now no longer needed? How will his exclusion affect the quality and proof of the investigation?

Doidge (ANC): Is it correct that the Department of Defence (DoD) originally requested the investigation? What is the DoD contributing to the funding? Is the Deputy Auditor General aware of any attempts to hamper this investigation?

Nombembe: The allegations led to a DoD request for investigation, and the DoD will make funding available. We are comfortable that after meetings that the Executive has given commitments to give us documentation. We have still to set up the logistical arrangements as the documentation is bulky.

Koornhof (UDM): I refer to Act 74. How and where will the powers of the Act now be vested? What correspondence have you entered into regarding reallocation of the Heath budget? Do you envisage any interim reports before July? When did the change of opinion occur that the HSIU was not necessary?

Nombembe: Having realised that Judge Heath would be excluded, we satisfied ourselves that IDSEO can cover its work. The reallocation of budget has not been discussed with SCOPA. We would prefer to report when we make significant progress, and ask that we be allowed to report at the end of July. The relationship with SCOPA has nothing to do with Heath's exclusion.

Doidge: We don't want to get our wires crossed. What will be reported in July, or will some legal requirements arise that the Executive must first be informed? We need to reassure the public.

Woods: The Units have responsibility to Parliament as well as IDSEO reporting to the Minister. We need a brief to the units, but not as an instruction.

Holomisa (UDM): Has SCOPA cleared the misunderstanding with the Speaker regarding sub-contracting? Is the investigation being conducted under SCOPA or the Executive? If Heath is not part of the investigation, can Parliament give the same powers to the Auditor General? Who is "driving" this investigation?

Smith (ANC): I propose that the coordinator of the three units has answered the public that a full investigation will proceed. There is no added value in interrogating the Auditor General's Office. I propose to close the meeting now.

Holomisa: What is SCOPA's mandate, or the Executive's? The Deputy President and the Speaker have questioned this committee. Where is the proclamation? We need clarity before we go any further. When will the interim reported be handed over?

Woods: The Speaker agrees that we have not sub-contracted. The three units will take all acts into consideration.

Bruce (DP): When the Auditor General's Office changed its mind -- did it do so because it was faced with a fait accompli, or did it reconsider its powers after Heath was excluded? I question the DoD contribution to the funding since the DoD is also being investigated.

Woods: We have had classified documents from the DoD. The DoD has advised us that we are holding these documents illegally -- they are now being held in safekeeping in Parliament. The Auditor General has never suggested that Heath should be excluded. It was up to the President to decide whether to exclude Heath. Should the Special Investigating Unit without Heath himself be granted the proclamation, then they would still be part of the investigation.

Taljaard: The impression that SCOPA is satisfied that the three units have adequate capacity is problematic in the extreme. The Parliamentary resolution includes…"any other appropriate bodies." What discussions have occurred around other bodies? Did anyone raise the question whether the legal powers of the HSIU could be taken over by the three units? If so, could SCOPA have sight of that opinion? Our legal opinion finds that Chapter 9 bodies will allow ongoing reports. [She referred to the Corder Report on Accountability regarding Chapter 9 bodies].

Nombembe: Having analysed the November 13 meeting, we haven't deemed it necessary to bring in other organisations. We are not opposed to gaining a legal opinion.

Beukman: Chapter 9 of the Constitution provides that no organisation or function of State can interfere. The Deputy President has criticised SCOPA. Did he put pressure on you?

Nombembe: The Auditor General's press statement declares that there had been no pressure from the Executive.

Holomisa: I propose that SCOPA takes note of the Deputy Auditor General's report.

The meeting closed at 10:45am

Appendix 1

PROGRESS REPORT & INVESTIGATION: STRATEGIC DEFENCE PACKAGES

PREAMBLE
This is a joint report by the Office of the Auditor General, the National Director of Public Prosecutions and the Office of the Public Protector.

It is given to SCOPA as a report back after the meeting of 13 November 2000.

The uniqueness of this joint investigation is noted in that though they have different mandates and reporting requirements the agencies are co-operating and working very closely together in this investigation. In view of the nature and extent of the investigation we have agreed to produce a joint report to SCOPA towards the end of July 2001. This report will contain the findings of any investigation that will be finalised at that time and also the status of matters still in progress at that time.

1.BACKGROUND
1.1 Having considered the special review by the auditor-general of the selection process of the strategic defence packages at the Department of Defence, as well as certain documentation referred to it, and having heard evidence, the Standing Committee on Public Accounts recommended an independent and expert forensic investigation into the matter.

I .2 An investigation team comprising of IDSEO (Directorate Special Operations), the Office of the Auditor- General and the Office of the Public Protector was formed to investigate the matter after an explanatory meeting convened by SCOPA on 13 November 2000. It was decided at this meeting that the auditor- general would be the co-ordinator of the proposed investigation in order to facilitate the combination of skills, legal mandates and resources and report back to SCOPA as when requested.

An investigation charter giving a clear description of the investigation team's functions, modus operandi and other relevant detail pertaining to the investigation was compiled by the auditor- general, after meetings held between the above agencies on 16 November 2000 and 1 December 2000.

2. OBJECTIVE
The objective of this document is to brief the subgroup of SCOPA dealing with this matter on the progress made with the investigation.

3. FINANCE
The original estimated cost for the investigation was R13.5m. However this amount included R3.35m for the Heath Special Investigating Unit (SIU). As a proclamation was not granted to the SIU, the responsibilities and costs relating to the SIU had to be transferred to the other agencies. As this stage the auditor-general has taken over the responsibilities of the SIU which will have the effect that additional funds will, most likely, be required by the auditor-general.

The costs presented above are at best described as a guess-estimate. It is very difficult at this stage to determine an accurate figure. The possibility of additional funds being required as the investigation progresses is a reality. More accurate figures will be available as the scope of the investigation becomes clearer.

4. RESOURCES
The skills, legal mandates and resources of the different agencies have been effectively facilitated. The investigation team currently consists of the following core members which were allocated to the task team:
- Three members from the Auditor-General (Two CA's and one advocate).
- Five members from IDSEO/Scorpions (Two advocates and three investigators).
- Two senior investigators from the Public Protector (One advocate and one attorney- one of them with military expertise).
Additional resources can be tapped from the different agencies as and when required.

5. ADMINISTRATIVE ARRANGEMENTS
- A central office for the use of the three agencies has been set up.
- Computer hardware, a network system and a data base computer package have been acquired (notebooks have been provided for each team member).
- Telephone and fax facilities have been installed.
- All other logistical and administrative arrangements have been finalised.
- Steps have been taken to secure the central office.

6. PROCESS TO BE FOLLOWED IN INVESTIGATION
The basic process to be followed during the investigation is as follows:
- Obtaining access to all documentation.
- Perusing all documentation.
- Interviewing sources/ individuals both under oath and informally (Locally and Overseas).
- Mapping the different processes.
- Evaluating the allegations.
- Formulating conclusions.

7.CONTRACTING OF EXPERTISE
The following expertise will be contracted to assist with the investigation:
-Chartered Accountants and auditors
-Forensic auditors/ accountants
-Legal expertise.
-Technical experts (naval and aeronautical).
It has been decided to make use of outside audit firms with the necessary skills and international contacts. The cost of these contracts will be born by the auditor- general.

8.BROAD FRAMEWORK OF INVESTIGATION
8.1 Alleged irregularities
- Documentation from the various departments, Parliament and Cabinet have been requested.
- The statutory records of 68 entities have been requested.
- Three audit firms of specific companies have been summonsed for documentation.
- Some informal interviews have already been conducted.
- One formal questioning has been conducted.
- The bank statements / information of 24 entities and individuals have been requested.
- A proposal has been received from an audit firm with respect to the compilation of company structures, the flow of funds between bank accounts and the capacity of the entities. An appointment will be made soon.

8.2 Cost to the state of the Gripen and Hawk deals.
8.3 Selection of prime contractors for the LIFT programme (Hawk)
8.4 Selection of sub- contractors for all the programmes
8.5 Review of the arms procurements process and system
8.6 Review of all final contracts (NIP and DIP)

9. DOCUMENTATION
Access to documentation held by the following entities has been agreed to by the Executive.
Department of Defence (DOD)
Department of Finance
Department Trade and Industry (DTI)
Department Public Enterprises.
Cabinet

We are currently in the process of finalising the logistical arrangements regarding the handling and access to the documentation including documentation in SCOPA's possession.