Department of Defence & Armscor 2020/21 Annual Report; with the Minister

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Defence and Military Veterans

17 November 2021
Chairperson: Mr C Xaba (ANC)
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Meeting Summary

Annual Reports 2020/21

The Committee convened in a virtual meeting to received presentations from the Department of Defence (DOD) and Armscor on their annual reports for the 2020/21 financial year.

The Committee expressed its concerns at the reduction in air force flying hours, and how this was having a negative impact on the defence force, and said that the issue of reimbursements from the United Nations needed to be addressed as soon as possible. It was told that the administration of the Department was being negatively impacted by legacy information communication technology (ICT) systems. The DOD did not have the resources to modernise and align its ICT framework to the demands of sound administration of government business pertaining to defence.

The DOD said it was working hard on ensuring that consequence management issues were dealt with and that irregular expenditure was reduced so that there would be less of a financial burden on the Department. The Minister assured Members that she would provide detailed feedback on the matters they had raised once she had gathered all the relevant information and completed some consultations.

Armscor told the Committee that the Dockyard was on a continuous drive to renew its capabilities, and continuous improvements in opportunities were being identified and implemented on an ongoing basis to deliver the required support to the SA Navy. Considerable progress had also been made during the past few years, and the results were visible in the Dockyard in the renewal of people, equipment, processes, facilities and technologies, amongst others. Members asked about the position of Armscor with regard to the remuneration of employees, since it had indicated previously that there would be no bonuses as a way of cutting expenditure. They also wanted to know if there had been any progress with attempts to expand the work of Armscor in order to assist with the efforts to reduce the high rate of unemployment in the country. Due to time constraints, Armscor would provide written responses to questions raised by the Committee. 

Meeting report

Department of Defence (DOD) Annual Report 2020/21

Ms Sonto Kudjoe, Secretary for Defence, said that the annual report sought to provide the civil oversight committees of Parliament and the people of SA an overview of the performance of the Department of Defence (DOD) during the financial year under review.

The AGSA audit strategy dated 31 March 2021 had stated that the 2020/21 audit had commenced two months late due to delays in finalising the 2019/20 audit, and that due to challenges caused by the pandemic and the late start of the audit, AGSA anticipated the audit to be delayed by two months

The DOD's annual report year reflected on the contribution defence made over the 2019 to 2024 medium term strategic framework (MTSF) to the sovereignty of South Africa and the authority of the state. The year under review was unprecedented – the pandemic had defined the Department’s entire year. Whilst the fiscal circumstances that South Africa was facing were well understood, it must also be appreciated that the dramatic reductions to the defence allocation over time had severely impacted the ability of the DOD to meet its mandate. This had impacted negatively on the South African National Defence Force's (SANDF’s) ability to defend and protect SA and its people, but also for the Defence secretariat to maintain sufficient departmental governance capacity.

The compensation of employee (CoE) allocation had skewed the budget balance in the Department. Consequently, the budget allocation to operations and to capital or equipment renewal had also been significantly reduced over time. The baseline reduction imposed on the DOD posed serious financial constraints on the Department and its ability to defend and protect the country, and to rapidly intervene during crises on the continent. The baseline reduction also impacted on the contribution to the Special Defence Account (SDA), which in turn impacts on arresting the decline, by replacing and maintaining the aging DOD assets.

Ms Kudjoe said that the administration of the Department was negatively impacted by legacy information communication technology (ICT) systems. The DOD had not had the resources to modernise and align the ICT framework to the demands of sound administration of government business pertaining to defence. The financial management system (FMS) was disconnected from the supply chain and logistic systems, and would have to be rectified if the DOD was to reduce the current audit findings. The defence and defence-related industry in SA was a force multiplier in growing the country's economy. The public-private growth initiative placed the industry within the top ten economic sectors that could catalyse growth in the SA economy. The Secretary for Defence, as the chairperson of the National Defence Industry Council (NDIC), had been able to engage on matters that should lead to a more sustainable future for the sector.

Although the COVID-19 pandemic did not have a major impact on planned DOD MTSF interventions, the spread of the Coronavirus had impacted negatively on the full time availability of personnel due to the adherence to lockdown regulations, absence for medical examinations, positive cases registered, cases under investigation and decontamination of office accommodation at regular intervals.

The Committee heard that the drafting of the Military Discipline Bill had commenced during the 2000/01 financial year with the aim of regulating the administration of military discipline; to align it with current SANDF requirements in order to improve the military discipline system; and to enhance the effective functioning of a disciplined military force of the SANDF. The draft Bill had been withdrawn from Parliament during the 2020/21 financial year for further consultation within the Department and with the public. The DOD was in the process of reviewing all the submissions received during the consultation process, and it was envisaged that it would be resubmitted to Parliament during the 2021/22 financial year.

During the year under review, in pursuance of its constitutional and legislative mandate, the DOD had continued to provide support to the National Development Plan (NDP) “Vision 2030” priorities relevant to the defence mandate within the parameters of the DOD results-based model, for implementation through subsequent departmental planning instruments.

The DOD continued executing border safeguarding operations in terms of Section 18(1)(d) of the Defence Act by deploying 15 sub-units to execute resourced border safeguarding (Op CORONA) in Limpopo, Mpumalanga, KwaZulu-Natal, Free State, Eastern Cape, Northern Cape and North West Provinces, to safeguard and maintain the integrity of the country’s borderline.

The DOD was not able to conduct the required number of maritime coastal patrols as planned, due to underfunding, the turnaround time to get spares from industry, and the resultant serviceability of naval vessels. Naval vessels were alongside and therefore not available for the deployment of anti-piracy operations, and could conduct only three of the four planned coastal patrols along the RSA’s maritime border.

During Q1 of the 2020/21 financial year, the DOD had implemented and reported on the DOD annual performance plan (APP) for 2020, which had been tabled on 12 Mar 2020. The impact of the COVID-19 national state of disaster, the nationwide lockdown and the resultant special adjustment budget (including stimulus/relief packages) of 24 June 2020, had necessitated the alignment of government’s planning, budgeting and performance reporting processes. This had led to the re-tabling of the DOD adjusted APP for 2020 on 20 July 2020, in order for the Department to incorporate the adjusted budget and COVID-19 interventions to respond to the pandemic.

The President had directed the SANDF to deploy, in cooperation with the South African Police Service (SAPS) and in support of other government departments, to ensure that the measures as announced were implemented throughout the country. The SANDF was deployed under Operation NOTLELA in various parts of the country from 26 March 2020.

The SANDF had deployed up to 8 429 personnel in August 2020, constituting members from the regular force, reserve force and auxiliary services. The deployed force levels varied according to the levels of the State of National Disaster, within the available force level of 20 000. Capabilities deployed included lockdown enforcement elements, health care practitioners, engineers, air and maritime capabilities, with multiple tasks to assist frontline departments.

Tasks executed by deployed soldiers included roadblocks, vehicle check points, foot patrols in cooperation with the SAPS, as well as operations against criminal elements which had undermined the lockdown regulations. Other coordinated operations included the deployment of soldiers for humanitarian assistance, primary healthcare, water purification and water provision, bridge building, mass education about COVID-19, screening, testing, scanning and quarantining, amongst others.

Accountability for performance was upheld by the accounting officer, who further delegated execution of specific responsibilities to service and divisional heads. Respective quarterly and annual reports were discussed and tabled at the Secretariat Council and the Military Command Council, mandated as DOD oversight structures. Organisational performance was continuously monitored against approved plans, and reporting was appropriately aligned for the development of corrective measures.

During the 2019/20 financial year statutory audit, the improvement of internal controls effected by the Department resulted in a reduction in matters affecting the audit opinion of the AGSA. Improvements regarding the disclosure of assets, project related work-in-progress, and limitations relating to intangible assets, were some of the areas where operational control was exercised.

The DOD conducted both enterprise and strategic risk assessments to identify and analyse risks which have the potential to hamper the Departmental strategic objectives. New and emerging risks were regularly identified and monitored through appropriate Departmental reporting channels. The DOD audit committee provided assurance regarding the Departmental risk management system. During the year under review, dedicated efforts and commitment by management were made towards an improved and effective Departmental risk management approach.

Human resources were employed in military operations, missions and ordered commitments. The SANDF was employed to support other government departments, for instance with the SAPS and the national Department of Health (NDoH) during Operation NOTLELA and Operation LICGOLO, as part of the government’s efforts to curtail the spread of the COVID-19 pandemic.

The Department endeavoured to find a funding solution, and had continued engagements with all role players. These engagements had propelled consideration to reduce the cost of human resources, as the Department shared the concern of the fiscal position of the government.

The DOD would continue its engagement with primary stakeholders in order to reach consensus on the defence mandate and function for SA.

In the audit report from the Auditor-General of South Africa (AGSA), the Department accounts for non-sensitive and sensitive projects' expenditure in connection with special defence activities, as per section 2(2)(a) of the Defence Special Account Act of South Africa, 1974 (Act No. 6 of 1974), as amended. This qualification was based on the limitations placed on full access to the sensitive projects expenditure and related investments. This was mainly due to the sensitivity of the environment and the circumstances under which the related transactions were incurred and recorded.

The Department had 73 procurement units across the country. There were inadequate systems to detect, record and appropriately disclose all irregular expenditure in the financial records of the Department, which had resulted in not all non-compliances with supply chain management (SCM) regulations being identified and recorded.

The control weaknesses with regard to this qualification had also resulted in numerous non-compliances with SCM legislation and policies.

In July 2019, the Department had awarded a contract worth R13.9 million for the supply and delivery of fuel to a supplier using evaluation criteria that differed from those stipulated in the original request for quotations. The original request for quotations had stipulated that the award would be made to a bidder with a lower price, but the Department used the rotation of suppliers as the criterion to award this contract. The mode of transport was also changed after the award, which had resulted in a further price increase. The non-compliance had caused a material financial loss of R2.57 million due to a higher price being paid for the fuel. The Department did not regard this as a financial loss and had provided evidence as to why it had awarded the contract to the winning bidder.

Discussion

Mr S Marais (DA) was disappointed by the presentation. He was of the view that the strategic overview of the Secretary for Defence was good, but what had been presented was different and it seemed as if the Department had gone backwards because there had been no progress. He raised the issue of the cost of employees, and did not agree with the SANDF's complement of 73 000 active members, referring to the previous Committee meetings where the Department had described the CoE as unsustainable because of the huge wages. He was not happy that the Secretary for Defence had not made any reference to how she was going to deal with the financial management system, because it had been dysfunctional for some time. He welcomed the measures taken on consequence management, but suggested that more needed to be done, especially at the border posts, because there had been lots of ill-discipline. Another concern was that the Department received funds, but when it was time to report to the Committee, it states that the funds are classified, and this makes it impossible for the Committee to do its oversight. He asked for a comment on slide 52 that dealt with the targets, highlighting that most targets were not met, and it was concerning especially when it affected the funding from the United Nations. There were no reports detailing why the targets had not been met.

Mr Marais asked for feedback on progress with the submarines, and wanted to know what the Department was doing about the matter because the Committee had not heard anything. He read some of the targets that were not achieved by the Department, and asked for reasons. He was concerned about the strength of the Defence Force, considering the budget cuts, and asked if the Committee would deliberate on the matter. He was of the view that there were people within the Department who did not follow orders from the National Treasury and did as they pleased because there were no consequence management measures. He asked if the Secretary for Defence would provide the Committee with more information on the standby forces, and also whether there had been any new equipment that had been procured to assist soldiers.

Ms A Beukes (ANC) referred to programme 1, which focused on the money spent by the Department in advertising. She wanted to know why the Department was advertising while the country was under lockdown. With regard to programme 3, she asked for some clarity on the compensation of employees, she and why the Department had taken such measures if they were not certain. Her last question was focused on the lack of compliance and control within the Department, because (AGSA) had raised these issues.

DOD's response

Ms Kudjoe responded that the Department was in the process of implementing a new financial management system, but the Committee would have to understand that the changes would take some time. The current system had risks that were visible, and that could not be denied, so the Department was working hard to get a new system. The capturing of invoices had been affected by the slow system that was currently being used by the Department, and they acknowledged that the asset management was overburdened and there needed to be a solution. The DOD also needed to follow the proper procurement processes and keep records so that there were no issues that may arise because due processes were not followed by the Department. She said that the flying hours for the Air Force had been affected by the national lockdown last year, but the conditions had now changed, considering the relaxed restrictions.

The Committee was told that the Department was trying to cover more ground, although they faced a financial burden, and they would do their best so that when they made their next presentation to the Committee there would be notable differences. Soldiers had been deployed in KwaZulu-Natal (KZN) during the looting period, and they were able to conduct their duties although it had been difficult because of the financial constraints.  

She said that the purpose of having the standby force was to have people ready to assist.

(At this stage, the audio feed was interrupted by internet issues)

Mr Marais said that the new reimbursements were based on the serviceability of the equipment. The serviceability percentage of other countries was much higher than that of South Africa, and it was a management issue to make sure that serviceability was achieved.

Mr Eric Sokhela, CFO, DOD, responded that the Department was working on making sure that the equipment was up to date and that they could receive better reimbursements.

The Chairperson suggested that Members not ask questions about consequence management and irregular expenditure since there was going to be another meeting with the Department, and they would engage on these matters. He asked if Members were interested in discussing the control environment within the Department. This was important since in the last meeting it was reported that the internal audit committee had not complete their tasks because of capacity constraints.

Mr Marais requested that the Secretary for Defence respond in writing to the question on the statements on strategic responses.

The Chairperson added on to the question, asking if the Military Ombudsman was going to confirm what the Secretary for Defence had said about having an independent vote.

Ms Kudjoe responded that she had made an error in her statement about the Military Ombudsman, and that she would provide a written response to Mr Marais on his questions.

The Chairperson thanked the team for making their presentation to the Committee and asked the Minister to give comments.

Minister's comments

Ms Thandi Modise, Minister of Defence and Military Veterans, welcomed the report and said that the Department was grateful for working with the Committee and how they engaged. She was also concerned about the flying hours and the reimbursements from the United Nations, and promised that she would investigate the matters and come back with detailed feedback. She assured the Committee that they would get the desired answers from the Department.

Mr Marais asked the Minister about consequence management and the cooperation with the private defence industry to assist with the shortcomings in the Defence Forces. He added that the Minister could also provide a comment on the upgrade of the submarines.

The Chairperson suggested that because of time, the Minister would respond another time, and since they were operational issues the Secretary of Defence would be in a better position to respond.

Mr Marais agreed that maybe the Minister was not yet fully briefed on the matters, but he would like to hear her views.

The Minister responded that she would come back to the Committee, since she did not have all the information. However, there was an undertaking to make sure that the Department dealt with all the issues that had been consistently raised, but the Committee would have to be a little patient since they were working on the matters. It would be bad to give it half baked-responses.

The Chairperson said that he would ask the research team to draft all the questions that had been recurring so that they could be given to the Minister for her consideration.

The Chairperson asked Armscor to make their presentation to the Committee.

Armscor Annual Report 2020/21

Adv Solomzi Mbada, Chief Executive Officer (CEO), Armscor, said the aim of this presentation was to highlight the performance of Armscor during the 2020/21 financial year, as contained in its annual report.

The financing of Armscor was mainly through income appropriated by Parliament and received via the Defence budget, which consisted of an allocation and payment for services rendered to the DOD, making up 76% of its budget. The funding was not sufficient to sustain the capability required, and was supplemented by income from commercial services rendered (13%), investment income (6%) and other income (5%).

The core function of Armscor was to acquire defence material and related services, primarily for the SANDF, but also for other government departments and services, with permission from the Minister of Defence and Military Veterans. During the financial year under review, Armscor managed and executed contracts to a total value of R12.41 billion for the DOD. There had been a significant decrease in the Special Defence Account (Capital Budget), and although a total of 31 projects were active, only 15 projects had received a budgetary allocation for the 2020/21 financial year. The number of projects with a budgetary allocation would decrease to six during 2021/22.

The following projects or sub-projects were successfully completed, and new capabilities were delivered to, and taken into operation by, the SANDF:

  • Mass Field Feeding System. Delivered and completed while the first number of the transport trailers were delivered to the SA Army.
  • Mobile Tented Accommodation System. Project was nearing completion and delivered, amongst others, the full requirement of small, medium and large accommodation and amenities tents, vehicle tents, ablution facilities, and shower facilities to the SA Army.
  • Mobile Road Construction and Earth Moving System. Project completed with the delivery of the last of the sub-project deliverables which included truck-tractors, low-bed semi-trailers and truck tractor and trailer combinations.
  • Mobile Water Purification and Bottling System. Project completed with delivery of the total requirement for mobile water purifiers. Officially handed over to the Chief of the SA Army on 31 March 2021.
  • 40mm Automatic Grenade Launcher Weapons System. System formally handed over to the Chief of the SA Army on 7 October 2020.
  • Aviation Rescue and Fire Fighting Vehicles. Project completed with the delivery of the full requirement for medium crash tenders. Official handover would take place during the 2021/22 financial year.

Adv Mbada said the research and development business unit ensured that strategic capabilities and facilities under its control continued to grow in accordance with the mandate and corporate goals of Armscor. This included defence operational and scientiļ¬c research, test and evaluation services and technology management, analysis, and innovation management services.

The Institute of Maritime Technology provided services to the SANDF (primarily to the SA Navy), government departments, the defence industry, the broader maritime community, and other clients as part of its commercial initiatives.

The Dockyard was on a continuous drive to renew its capabilities, and continuous improvement opportunities were being identified and implemented on an ongoing basis to deliver the required support to the SA Navy. Considerable progress had been made during the past few years, and the results were visible in the Dockyard in terms of the renewal of people, equipment, processes, facilities and technologies, amongst others.

Armscor, as a socially responsible organisation, supported the communities in which it operates. The focus was on education, to assist learners from previously disadvantaged communities to improve their performance and results in science, technology, engineering and mathematics (STEM) subjects.

Challenges faced by Armscor were insufficient funding to service the maintenance and procurement requirements of the DOD, resulting in an inability to maintain DOD systems to the required availability levels, supply risks, industry performance and decline, and legacy systems.

Discussion

Mr Marais acknowledged the difficulties that were being encountered by Armscor. He asked about the salary increases and bonuses, considering that a commitment was made last year, and if Armscor was keeping to its undertakings. He asked about the business unit, wanting to know if Armscor could furnish the Committee with more information on the progress of its relations with the British Army.  Who had the jurisdiction in the Overberg, and could the Armscor team provide a more detailed report with timelines on the submarines and the Dockyard upgrades? Mr Marais was concerned about the lack of information on the progress at the Dockyard, and if there were any procurement fraud investigations currently ongoing, and if management was also being investigated. He asked for a comment on Denel, because he was concerned about the dynamics at this SOE and how Armscor was looking at resolving the Denel issues.

Mr T Mmutle (ANC) asked Armscor for a comment on the employment equity plan, where the Committee had asked it to expand on the report on representation. He also asked Armscor to respond on the progress of relations between the DOD and Armscor, because projects needed to be completed.

The Chairperson added that in 2020, Armscor was managing projects on behalf of the DOD amounting to R12 billion, and in the current financial year the same figure had been given to the Committee. He wanted to know why it had been the same figure, because not all the projects were funded. He said that the number of funded projects had decreased, and asked for a comment.

Mr Marais also asked about the unfunded projects, and wanted to know if it was viable to continue with them. He also asked if Armscor had sold any personal protective equipment (PPE) to the DOD and, if possible, to provide the Committee with figures.

The Chairperson suggested that Armscor should provide a written response to the Committee, because the meeting had exceeded its time.

Armscor agreed to provide the Committee with a written response within a week.

The Chairperson thanked everyone who had made presentations, and asked the Committee to move to the next item on the agenda.

Adoption of minutes

The Committee considered the minutes of 10 November 2021, which were adopted.

The meeting was adjourned.

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