AGSA on DoD status of records review; DoD on Operation Thusano; with Deputy Minister

Meeting report

AGSA on DOD audit findings

Ms Mbali Tsotetsi, Corporate Executive, Auditor-General of South Africa (AGSA), said that in the past two financial years, the Department of Defence (DOD) was qualified on the completeness of irregular expenditure. Based on the review of the action plans provided by the Department, it had noted no specific actions had been developed to address this recurring finding. If not addressed, this matter might result in irregular expenditure once again being qualified in the current year.

Supply chain management (SCM) remained a concern due to instances of non-adherence to SCM legislation, as well as the evident failure of the current preventative controls to mitigate this. In the current and previous financial years, we reported on various instances of non-compliance with SCM legislation that resulted in irregular expenditure being incurred by the Department.

Some findings reported in the prior year relating to non-compliance with procurement and contract management legislation had resulted in material irregularities, which were included in the audit report. Despite these significant findings, action plans for procurement and contract management were not finalised in time to be implemented to address the matters identified in the prior year audit. AGSA had also confirmed that the Department was still updating its SCM policy.

The SCM function remained within the logistics environment, contrary to the requirements of Treasury regulation 16A4.1, which states that the SCM function must be under the direction of the chief financial officer (CFO).

On the matter of material irregularities (MIs), assets and inventory verification contracts were not awarded only to the bidder with the highest points. This MI was identified during 2018-19 and was reported in the 2019-20 audit report, along with recommendations for the accounting officer to implement by 30 November 2020. The accounting officer had not implemented some of these recommendations, as the investigation, which confirmed non-compliance and quantified the irregular expenditure, was finalised only by that date. Disciplinary steps had not been taken against the officials involved.

The AGSA had notified the accounting officer of the MIs involving rental payments for unoccupied office buildings during the 2019‒20 audit, and the DOD had committed to take the necessary actions to address this. AGSA had therefore reported this in the audit report. However, following the conclusion of the investigation, which confirmed the financial loss and responsible units, the accounting officer had not taken disciplinary steps or recovered the loss.

The AGSA had notified the accounting officer of the MI involving the unfair award of a fuel contract during the 2019‒20 audit, and the Department had committed to take the necessary actions to address this. AGSA had therefore reported this in the audit report. However, the internal investigation concluded that there was no non-compliance and therefore no financial loss. AGSA had identified gaps in the manner in which conclusions were reached without supporting evidence, and the lack of consideration for transparency and fairness in the process followed.

The Department was taking a long time to begin investigating matters pertaining to irregular, fruitless and wasteful expenditure, alleged fraud and financial misconduct. Where such investigations had started, they remained in progress for a long period, resulting in consequence management not being implemented in a timely manner. In the past few years, AGSA had highlighted some of the key items that required investigation to the accounting officer, and had reported some to the Minister.

Apart from these key items, as at 31 December 2020, there were 473 cases of irregular expenditure on the register and a significant number of these cases had not been investigated and finalised. There were also 71 cases of fruitless and wasteful expenditure recorded on the register, many of which must still be investigated.

Based on the review of the progress report on fraud and corruption cases under investigation by the Department (Military Police Division), most of the cases were expected to be finalised by 31 March 2025. These significant delays in performing investigations may adversely affect the Department's ability to take appropriate action against implicated individuals. The Department may also fail to recover financial losses from officials, as required by Treasury regulation 12.7. In some instances, AGSA was struggling to obtain the investigation reports and documentation it had requested from the Department.

The AGSA noted that the continued budget reductions mostly affected the compensation of employees (COE), which had a shortfall of R1.97 billion for the current year under review. In the prior years, the Department used the money appropriated for the Special Defence Account (SDA) projects to fund the shortfall, which resulted in irregular expenditure.

The allocation for the SDA amounted to R5.4 billion in 2020/21, R1.3 billion in 2021/22, and R1.4 billion in the 2022/23 financial year. This reduction in the allocation for the SDA in the medium‒term expenditure framework (MTEF) indicated that the Department was likely to have difficulty meeting its contractual obligations and may even have to scale down or stop some projects before completion. This may result in financial losses and potential litigation for the Department, and would also negatively affect the Department’s ability to expand its defence capabilities.

Based on AGSA's assessment of the action plans and progress made to address prior-year audit findings, it noted that the Department had not implemented adequate preventative controls to ensure that performance reporting was reliable.

The investigations into irregular, fruitless and wasteful expenditure incurred in prior years were not yet concluded. As a result, AGSA could not confirm whether appropriate consequence management had been applied, as required by section 38(1)(h)(iii) of the Public Finance Management Act 1 of 1999 (PFMA) and Treasury regulation 4.1.2. During the follow-up work performed as part of this review, no supporting evidence could be provided to confirm the implementation of recommendations made by the Department of Planning, Monitoring and Evaluation (DPME) as part of the initial investigation into prior years’ irregular expenditure.

As at 31 December 2020, the overall vacancy rate at the Department stood at 20%. AGSA noted with concern the following long-outstanding vacancies: Accounting Officer (vacant since 1 August 2015); Deputy Director-General: Socioeconomic Support (vacant since January 2017); and Deputy Director-General: Corporate Services (vacant since 1 September 2019).

The review of the organisational structure was still in progress. The Department had planned to finalise the review in March 2019, but the process had not yet been completed. As a result, the Department had had to use contract workers at a higher cost to supplement the current structure.

The Department was unable to locate the skills audit report for submission to the AGSA on request. This resulted in the Department having to disclose the cost paid to the service provider for this audit as fruitless and wasteful expenditure under determination in the 31 March 2020 financial statements.

Discussion

The Chairperson asked Mr Siphiwe Sokhela, CFO of the DOD, if he wanted to ask any questions of clarity or comments after the presentation.

Mr Sokhela replied that he did not have any questions of clarity. He said the report was sent to the Department around December, and they had been working hard to make changes that had been requested by the AGSA. The issue of irregular expenditure was being taken seriously, and they would provide more feedback later.

The Chairperson asked if he accepted the report.

Mr Sokhela responded that he did accept the report..

Mr S Marais (DA) said he was aware that he had to ask only questions of clarity. He wanted to know if the AGSA was referring to a transaction that was formalised, and if the resolution was in the previous financial year, he wanted to know what was included.

Ms A Beukes (ANC) wanted a comment from the AGSA on the non-adherence issues. She was concerned about the process followed once the AGSA reported cases to the Minister of Defence. What was their experience with the delays in giving decisions on some of the pending cases, because some of the cases were set to be concluded only in 2025?

Mr W Mafanya (EFF) asked for clarity on the internal board report, because it was not in line with the AGSA office. He said that the Committee still had to wait for the report from the internal audit, but was concerned at the lack of compliance from the Department.

Mr Marais requested that when the Committee interacted with the Department, they must make sure that those who were responsible for answering questions must be present.

The Chairperson agreed with Mr Marais’s suggestion, and said that the Committee would try to schedule another meeting with the accounting officer from the Department.

AGSA's response and further discussion

Ms Tsotetsi said that the cases being referred to by the AGSA involved the previous financial years, because the irregular and fruitless expenditure dated back to then.

Mr Marais said that his question had been misunderstood. His question was about the resolutions and the actual payments that had been resolved in the current financial year, and if they were specific to medicine only.

Ms Tsotetsi said that she was not sure if she understood the question, but responded that there were still follow-ups being done on the current financial year, and better feedback could be provided later.

The Chairperson said that he understood the question as a matter from the 2020/21 financial year.

Ms Tsotestsi agreed with the Chairperson, and said that they were busy with the audit.

The Chairperson was concerned about the issues raised in the AGSA report, because it showed that there was no plan from the DOD to deal with the problems. Other issues included the procurement problems, because there were no action plans from the Department to address the weaknesses. He asked the chief of logistics to make a comment.

Lt Gen Morris Moadira, Chief of Logistics, DOD told the Committee that the matters raised by the AGSA report were acknowledged by the Department, and they were looking into ways to resolve them. It might look like the Department had taken time to act, but procurement was decentralised within the Department and there were different components to be taken into consideration. Investigations were under way. They had approached the Chief of Defence on how to move forward, because some of the members implicated in these issues could not be part of the process of determining what must be done.

The Chairperson welcomed Mr Thabang Makwetla, Deputy Minister, DOD, to the meeting and asked for his comments.

Mr Makwetla said that he had received the report from the AGSA the previous week, and he was under the assumption that the meeting was to involve the accounting officers from the Department of Military Veterans (DMV) so that they could provide further information on the matters raised by the report. He was of the view that the AGSA should come back for another meeting so that the matters could be discussed in the presence of all parties involved. He would reserve his inputs on the report until another meeting was scheduled.

The Chairperson agreed with the Deputy Minister, and said that another meeting would be scheduled with the Department and AGSA because the issues raised in the report were serious, and the Department must be afforded an opportunity to present and answer the report. It was important that both parties be present when the meeting was held so that the Committee did not continue moving in circles, where they continued talking about the same issues all the time and the Department was not responding to the questions. He thanked Mr Makwetla for his contribution.

The Chairperson said there would never be adequate time to accommodate the meeting, but it had to be done. He asked Ms Tsotestsi to respond to the other questions, and that Committee secretary should look into available dates to schedule a meeting.

Ms Tsotetsi said that the status of records review’s objective was to provide an early warning mechanism so that they could highlight areas where they may effect legislation. For this current financial year, the review had been done in the fourth quarter because of the impact of Covid. Once the review was done, they had asked the accounting officer to account. AGSA followed up on a regular basis with the Department and also engaged with the Minister, but they did not engage directly with the Minister all the time because they dealt with the accounting officers. If they needed information, they requested it from the accounting officer.

The Chairperson said there was a meeting scheduled for 2 June with the Chief of Logistics, and Members should attend the meeting so that they could engage with him and hear the answers to their questions. He asked if Members agreed to do a follow-up on the matter.

Mr Marais fully supported the proposal by the Chairperson, and said that the matters being raised by the AGSA were the same and it would be important to have the Department to respond. He referred the Committee to page 16 of the presentation, and said that the Department should respond on that matter.

The Chairperson said that Members should not mix the issues, and deal only with the report. Other issues would be dealt with later on.

Mr Marais said that his input was based on the report, and the Department should respond.

The Chairperson replied that the Department would be invited to present their case and give the Committee an update on the issues. The Department should back their conclusions with facts and not merely just present to the Committee, because the issues raised by the AGSA were very serious and needed to be dealt with.

The Chairperson thanked the AGSA team, and asked for the next presentation.

Report on Project Thusano  

Lt Gen Moadira said that since the year 2000, the South African National Defence Force (SANDF), just like any other state department, had started experiencing huge budget cuts due to the declining gross domestic product (GDP) and the current economic climate.  This had affected the SANDF’s ability to ensure that Prime Mission Equipment (PME) was maintained optimally.  As a result, this had had an adverse impact on the SANDF's ability to fulfil its mandate, since it negatively impacted force readiness.

The decline in serviceability of the PME because of budget cuts had led to an exodus of scarce skills.  Most of the SANDF’s skilled members had been poached by the private sector, who enticed them with lucrative packages. As a result, the DOD leadership had had to devise new initiatives intended at improving the declining serviceability of PME.

He referred to Contract T1 17-002, which entailed the provision of vocational learning to South African students in Cuba.  When a new requirement from a service arose, it would be forwarded to the director of Project Thusano. A needs assessment would then be carried out, and a request would be forwarded to the military attaché in Cuba. The military attaché would then be a nodal point to ensure that a supplement to the contract was drafted and agreed upon by both parties.

The training and skills transfer of members of the SANDF was done in the hope of creating its own capability within the SANDF. This capability would enhance the formation of the DOD workshop, which would be situated in Tek Base, Lyttleton, and regional workshops in all nine provinces. These workshops would be self-reliant in terms of expertise, skills and knowledge. Furthermore, this would serve as a good platform to apply skills acquired during the training in Cuba.

Achievements of the SA Army include:

• Vehicles with maintenance and repairs: 13 092;
• Completed vehicles: 11 623;
• Repaired components: 12 691;
• Restored: 30 workshops and 168 work stations;
• Workshop equipment, such as battery chargers, compressors, test benches, lathes, drills, hoists and cargo handling equipment, had been repaired;
• Ten technical training workshops had been carried out;
• A total of ten overhead cranes were repaired in workshops.

These figures included the work performed in the Army, Special Forces and B-Vehicles maintenance and repair teams under the SAMHS and the Navy. The project had furthermore rendered services to the Military Police. Also, in the SA Army and the SA Military Health Service (SAMHS), A and B vehicles' preservation had been carried out. So far, 1 683 works were in this field. The Thusano team had carried out maintenance and preservation of 600 788 infantry weapons.

During 2020, many of the preserved vehicles had been de-preserved, because the SANDF needed to use them to support Operations Corona and Notlela. For this reason, at this moment there were only 246 preserved vehicles in the hangars.

Maintenance and repair had been provided to different kinds of vehicles: Samils, recoveries, water and fuel bunkers, SAMAGs, trailers, Ratels, Mambas, Mfezi, Casspirs, D-vehicles, and C-Vehicles

To date, 34 Rooikat armoured vehicles had been repaired, as had 91 tanks (84 Oliphant Mk1 and seven Oliphant Mk2). The preservation of 51 tanks, 32 Oliphant Mk1 and 19 Oliphant Mk2 had been achieved. Six Oliphant Mk1 power packs and one Rooikat power pack had been repaired. A test bench for testing the tanks´ electrical components and the stabiliser had been manufactured. The Project Thusano team had also manufactured a device for cleaning the air filters.

In 81 Depot, general physical stock-taking continued to be carried out by a Cuban and the SANDF team. The team had counted 31 211 ledgers and 6 971 712 parts. Many of them had been reorganised and relocated. It included 1 420 bins and 73 202 items. In total, the Thusano team had reorganised 17 warehouses.

Project Thusano had developed a methodological guide for conducting the stock taking at 81 Depot, as well as a computer programme for facilitating the process of searching for parts by car brand. A proposal to modify three documents involved in the counting process had been drafted, and the storage standards for the SANDF had been developed.

The Thusano team had drafted and submitted for approval the policies for an integrated technical support system and its structure, as well as the policies for preservation and deactivation. They had also developed the standards for SA Army workshops. Meanwhile, they were transferring skills in the repair, maintenance and preservation of armoured vehicles through a pilot project.

The electro-medical team had inspected 4 136 items of medical equipment, repaired 2 458 and rendered maintenance to 3 544. Meanwhile, the military health advisor had drafted a proposal for training military doctors in South Africa.

As part of operation Notlela, the Thusano specialists had repaired and recovered 31 ambulances earmarked for disposal. Although the operation was finished, they continued working in this field.

The SAMIL 20 PC combat driving simulator had been developed. It was in the mass production stage. Seven had been finished and 17 were in process. By the end of this year, the 24 driving simulators agreed in contract must be manufactured. The deployment phase had started.  Currently, there were four simulators deployed: two to the SA Army Infantry School, and one each to the SA Army Engineering School and the SA Army Technical Training Centre. Special skills had been transferred to 28 South African specialists

An infantry shooting demonstration had been carried out at the SA Army Infantry School, following Cuban experiences and standards. A R4 rifle simulator prototype and an automated shooting range was displayed. The Thusano team was working on finishing the development of the R4 rifle simulator and adapting the automated shooting range to the South African climate and electro-magnetic conditions.

In conclusion, Project Thusano continued its development, following the elements agreed upon in the contract signed between both parties. Its objectives were being fulfilled, and the DOD continued moving forward despite the challenges imposed by the current pandemic situation. To undertake training and to meet assigned missions safely and successfully, military equipment had to be kept in good working condition and be ready for action at short notice. This would ensure that the Department of Defence and Military Veterans’ mandate was successfully carried out.

An invitation was forwarded to the Portfolio Committee to visit the DOD's Mobile Centre at Walmansthal to physically view the achievements of Project Thusano.

Discussion

Mr Marais asked about the expenses that had been presented, and wanted to know the difference between the type of expenses, with clarity on the costs on how they were structured and written. He also asked about the transport costs, and wanted to know who the non-employees were because he was under the impression that everything referred to the Cubans. He asked why the Department had a high cost of toilet paper. He did not want to go into the justification of the money spent, but right at the beginning of the project it was meant to be for five years, but now the five years had passed. Was there any indication of a sunset clause?

He said that if one listened to the presentation, it painted a picture that the Department had zero capacity to do anything, but it was not the actual picture, although everything seemed to be focused on Project Thusano. He wanted to know the status of the people who had been trained by the Cubans, because they were supposed to be doing most of the work now. He asked about the issue of the reserves, and what role they were playing at the moment. What would the situation look like without the Cubans -- and with the help of the Cubans, was there any difference?  

He was concerned about the presentation encouraging Members to visit different sites, because he had been disappointed by the last Committee visit. He asked about the number of success stories that had been achieved by the project, because it meat that only 150 people had been trained per year, and this was not a good result. He was concerned that the Department might be paying more and receiving less. The chief of logistics was just giving numbers, and it looked as if the Department was committing for a longer period without any benefits from the project. He asked about the training under Thusano, and wanted to know if the qualifications obtained in Cuba were recognised by the South African Qualifications Authority (SAQA), because these people needed to undergo some training before they could be employed.

The Chairperson asked the DOD team to respond to the questions raised by Mr Marais, and said that he would ask his questions afterwards.

DOD's response

Lt Gen Moadira said that when the Department engaged in a contract, the financial authority also assisted because there were certain deliverables to be achieved, and this could be determined only by results. There were things that were involved in a contract, for instance travelling, and these required an order from the Department to be processed. Everything was approved in different departments, and money was paid later after the approval.

Thusano had not taken over other projects because the structures were one and the same, but what the Department was saying was that they wanted to restructure the different sectors because they had lost work to the private sector. The reason why regions had been established was so that there could be a clear view on what Thusano would bring to these different regions, and whether the DOD had the industrial capacity to deal with matters. The training of members was still ongoing, and it was according to the requirements of the DOD, because the chief of services had asked for their members to be trained.

Lt Gen Moadira told the Committee that the DOD did not want to extend the memorandum, but the date for Thusano was fixed, and the supplements that were requirements from the different services must be completed. However, the memorandum would not be extended.

On the matter of qualifications from Cuba, the Committee was told that doctors, for instance, did community service, and it was the same with military doctors. These matters were handled by the human resources (HR) department, and applied to everyone who was qualified in Cuba.

He said the technical members of the DOD were still within the system, and most of the equipment was working. Those who had already gained experience from the Cubans were working under Project Thusano, and the DOD had been able to revive more projects.

The Chairperson wanted to know how many contracts involving performance activities were active at the moment. Could the Committee get an indication of the contracts that had been supplemented? He said that one of the contracts had been extended to enable the Department to procure a Covid drug, and he wanted to know which contract this was, and if it was the same contract used to procure the medical services of doctors from Cuba. The presentation had not included the spending on the drug, and he wanted to know why the spending was omitted.

Mr Marais said that some of his questions were not answered, and he would like to ask them again.

The Chairperson responded that Mr Marais would be afforded another opportunity to ask his questions.

Lt Gen Moadira said that the DOD had two contracts. One involved the technical issues, which were the skills transfer, and the other dealt with the vocational training that was being received by the DOD in Cuba. The supplement of contracts came from a requirement of the chief of service, and only after that had been fulfilled could the contract be concluded. Only the chief of staff had the authority to do so. When the chief of services had visited and seen the simulators, that was when they had decided to extend the contract so that the simulators could be used by the SANDF and manufactured in the country.

On the matter of the expenditure not reflecting some of the information, Lt Gen Moadira said that they did not present a full report -- they dealt only with the Thusano items, and were reporting to the Committee on how the project was done. However, they could update the presentation to show the required information.

The Chairperson asked if the Committee could be provided with all the expenditures under Thusano so that they got a picture of what activities were going on, since the presentation did not cover everything.

Lt Gen Moadira responded that more information could be provided to the Committee.

The Chairperson wanted to know if other activities were being conducted under Project Thusano.

Lt Gen Moadira responded that there was nothing different, apart from the mechanical and technical stuff.

The Chairperson asked if the only thing omitted was the expenditure. Could the DOD respond on the expenditure issue, because the budget that was presented to the Committee was for 2021, and he wanted to know the full expenditure?

Lt Gen Moadira responded that the services were still ongoing, and the expenditure for 2020/21 was R250 million. This figure did not include all the operations.

The Chairperson asked for a detailed breakdown of all the projects and their expenses.

The Committee heard that if the amount was adjusted, it would increase by R35 million because of the inclusion of other initiatives. The bulk of the money had been used for the drug Interferon.

The Chairperson asked Mr Marais if he wanted to ask any more questions.

Mr Marais wanted to know about the Interferon procurement, because it was supposed to be reflected under Project Thusano. He also asked for the details of the contract which covered the importation of the medicine. He wanted to know if there were no sunset clauses on the contracts that were signed by the Department.

The Chairperson encouraged Mr Marais not to take long.

Mr Marais continued asking his questions, and wanted to know the number of staff that were being trained and how many had qualified per year.

Lt Gen Moadira said that the qualifications from Cuba issue was dealt with by the HR department. They handle all the matters and compare the curriculum to check if it was up to date.

Mr Marais said that he did not know what the response meant, because it did not address his question.

Lt Gen Moadira replied that those who obtained qualifications from Cuba were well qualified to work in South Africa. The figures in the presentation projected the students who had finished their training, but not all numbers were included for this year.

The meeting was adjourned.