DOD Quarter 2 & 3 2021/22 Performance; Update on fraud and consequence management; with Minister

Meeting report

DOD's Q2 and Q3 performance reports

Dr Thobekile Gamede, Deputy Director-General (DDG): Policy Strategy and Planning, Department of Defence and Military Veterans (DODMV), said the purpose of the presentation was to appraise the Committee about the Department's financial and non-financial performance.

The Department of Military Veterans (DMV) had a mandate to provide national policy and standards on socio-economic support to military veterans and their dependents, including benefits and entitlements to help realise a dignified, unified, empowered and self-sufficient community of military veterans. The budget of the DMV had been reduced by nearly R50 million, from R654.3 million to R607 million, due to budget adjustments across government. The quarter 3 cumulative spending had been R290.6 million against a targeted spend of R455.2 million from the annual allocation of R607 million. Of the total expenditure of R290.6 million, R86.6 million was for the cost of employment (CoE), R116.5 million was for goods and services, R74 million was for transfers and subsidies; and R13.4 million was payment for capital assets.

The Department of Defence's (DOD's) initial CoE allocation for the 2021/22 financial year had been R29.347 billion. It had been allocated a special Adjusted Estimates of National Expenditure (AENE) towards the CoE of R354.442 million for Operation Prosper and Operation VIKELA, and an additional AENE allocation of R1.313 billion for the improvement of conditions of service.

Delivery dates of spares had been shifted to the right by contractors. This negatively affected the availability of spares required for the maintenance and repair (M&R) of vessels, which in turn had a direct impact on the availability and readiness of navy platforms. The reduction in Operation Copper deployments had resulted in lower expenditure within the Maritime Security Strategy during Q3. The SA Navy intended to reprioritise the funding to maintain and repair the naval platforms required for Operation VIKELA deployments. Tender delays in regard to bidders not meeting mandatory requirements and, in some instances, exorbitant quotes/bids being received had affected the cash flow, resulting in the procurement process having to be restarted afresh.

Over-expenditure was mainly due to transactions that created or increased outstanding debtors’ amounts, as well as foreign exchange losses, thefts and other losses, etc. It should be noted that the Department did not make provision during the budget allocation for unforeseen expenditure such as foreign exchange losses, thefts and other losses. However, funds had been reserved to clear these transactions at the financial year-end. Most irregular expenditure cases from Services and Divisions were under the board of inquiry investigations. Some of these cases were taking longer than others due to the lack of investigation officers within Services and Divisions.

The internal audit division was currently busy conducting audits on the completeness of the recorded irregular expenditure at DOD procurement centres. Progress reports were presented to role players and the final reports would be issued in due course. The internal audit division would continue to assess the effectiveness of controls in other environments, such as finance, information technology (IT) and reported performance information. Action plans were compiled and presented on a monthly basis at the accountability management committee, where the Accounting Officer scrutinised progress made.

The deployment of Defence attachés abroad was inextricably linked to the existence of SA foreign missions and was dependent on the appropriation of the required annual funding from the National Treasury for this purpose.

(Please see attached document for details)

DOD progress on cases of fraud, corruption and consequence management

Mr Edem Abotsi, Chief Director: Compliance, DOD, said the investigation into the asset management contract had been finalised internally. The report had been provided to the Chief of Logistics to implement the recommendations.

On the matter of information communication technology (ICT) service and licences, bids were not evaluated according to the criteria stipulated in the bid documentation. Cases had been registered with the Waterkloof Military Police, and the Special Investigating Unit (SIU) and the HAWKS were currently busy with the investigations. The service provider had conceded that they overcharged the Department by R41 million, and had entered into a mutual agreement with the SIU to pay back the R41 million, and an acknowledgement of debt had been issued.  The SIU was in the process of collecting the R41 million, with interest.  An investigation was in process against the relevant role players.

On 14 October 2020, the director of Umkhombe Marine (Pty) Ltd was arrested after a warrant of arrest was issued. The accused appeared in the Special Commercial Crime Court and was released on R80 000 bail. The case was postponed to 9 December 2020 for disclosure and again postponed to 12 April 2021. It was again postponed to 6 December 2021, then postponed to 28 February 2022, and postponed to 29 April.

The SIU investigation into fraud and corruption in relation to personal protective equipment (PPE) procurement had been completed, with the findings confirming the allegations. They came with recommendations that DoD officials -- both uniformed members in the South African National Defence Force (SANDF) and the Public Service Act personnel (PSAP) who were reported to have been involved in wrongdoing, must face criminal or disciplinary action.

The Secretary for Defence had commenced with disciplinary procedures in the case of PSAP officials, and the SANDF had also instructed the Service or Divisional chiefs where members were involved, to implement disciplinary action and where necessary open cases with the Military Police. These processes were ongoing, whilst all criminal matters had been referred to the NPA and the HAWKS for further action.

(Please see attached document for details).

Discussion

The Chairperson asked Members to engage with the presentations. He suggested that one of the presentations be postponed because of the time constraints, as Members had to attend meetings at Parliament.

Mr S Marais (DA) was concerned about the documents being sent late to Members and was of the view that the Department must not continue with such tendencies. He supported the postponement of the presentation, but was not pleased with the conduct of the Department, questioning if it was a case of strategy or poor administration.

The Chairperson noted the concerns raised by Mr Marais. He asked the Secretary for Defence to take note of the matter because the Committee must receive documents before the meeting and asked her to make a comment.

Ms Sonto Kudjoe, Secretary for Defence, apologised and said that they did not mean to undermine the authority of the Committee. She added that the matter would be discussed in the following meetings.

The Chairperson reminded her that there was going to be a closed session the following week, and asked if she had a comment.

Ms Kudjoe confirmed that everything was in order for the meeting.

The Chairperson commended the Department on transparency that had been shown in the presentation.

Mr Marais was concerned about the Air Force spares, and urged the Department to tell the Committee what was happening so that they could have a better understanding since it was a direct threat to the country. He also referred to slide 21 of the presentation and said that it was not complete because the Auditor-General (AG) had said that all the projects were irregular and that the Department had been wrong to include the information in the presentation.

He touched on the Heberon medication procured from Cuba, saying he was concerned as to whether there were any financial implications, and that he did not agree with the view taken by the Department. He was concerned about the refund given to the SANDF by the United Nations since the SANDF depended on the serviceability of those funds because of the management issues, and there must be more information provided to the Committee for clarity. The actual expenses for Operation Vikela were not provided in the presentation, and he wanted to know if any amounts were paid to Cuba. It was concerning that the navy hours were still low and that it was because of the management. He added that he was not convinced by the presentation as to how it was going to resolve the Department's CoE problems.

Mr T Mmutle (ANC) asked for clarity on the matters that had been raised by the Auditor General (AG), especially on the inability of the Department to pay invoices within the stipulated period, because it continued to cost the department irregular expenditure, and it was an ongoing issue. What was the Department doing to curb these issues of irregular expenditure?

The Chairperson said the Committee was still to schedule a meeting for the AG’s report, and that the Heberon issue was to be also discussed. He added that there were questions before Parliament that dealt with Heberon, and the Minister would deal with them in Parliament.

Mr Marais said that the presentation was before the Committee, and their work should not be restricted with what was happening in Parliament. The Committee was entitled to get a response from the Department. He had been expecting a better presentation from the Department.

The Chairperson said that the finalisation of the matter on Heberon was within the control of the Committee, and asked the Department to respond to the questions raised by Members.

Department's response

Ms Kudjoe said the DOD was likely to overspend on the CoE, and that they had been trying to deal with the matter of overspending on the chief executive officer (CEO). The Department had also approached the Portfolio Committee for assistance.

She said that they were projecting to save over R550 million in the financial year if they could implement all the provisions. The Department was not looking at cutting any budget from goods and services but may look at this as an option if there were no other alternatives. The long procurement contracts had been making it difficult for procurement, especially for spares, but now they were in a position to get the spares in the country.

She asked if the Department could report back to the Committee with the figures on Operation Vikela.

The Department may estimate how much they could receive from the United Nations, but it was out of their control because sometimes the funds took longer than expected.

She said no money had been paid to the Cuban government on the matter of Heberon, and that the Department may provide better feedback to the Committee if they were given time.

Mr Eric Sokhela, Chief Financial Officer (CFO), DOD, referred to the 30-days payment problem and said the Department had engaged with other stakeholders on how to improve the system because the current one was manual and there was a need for an upgrade.

The Chairperson thanked the DOD team and requested the Minister to add her comments on the automation system because the current system was affecting how the Department conducted their work, especially when it came to paying invoices because it was unacceptable for it to exceed the 30 days. He requested the Department to look into other alternatives of dealing with the payment of invoices because it was a historical matter which needed to be resolved.

On the matter of serviceability, he added that a closed meeting would be held so that they could discuss everything in a controlled environment.

He asked if the Secretary of Defence would present on Operation VIKELA in the next presentation.

Mr Marais agreed that there were more issues that needed to be discussed that had not been resolved, and even in a closed session, they had to be discussed so that the Committee would be in a position to assist the Department.

The Chairperson said that the audit matter would be discussed by the Auditor-General (AG) since they were in the meeting. The Audit Committee had a duty to review the plans, and was requested by the Committee to make a presentation. He requested that the audit unit be reinforced because of its sensitivity within the Department. He asked the Minister to give her comments.

Minister's comments

Ms Thandi Modise, Minister of Defence, said that good audits were achievable, but asked for some time to familiarise herself with the audit committee. The Department was committed to having a working and efficient system, and there was no excuse for a bad audit because if records were kept and were accurate, this would result in a clean audit.

She was grateful that Parliament was going to look into the funding issues of the Department. There were commitments that had to be fulfilled, but because of the funds provided by the Treasury, this might be difficult, but they would do their best to cover as much ground as possible. She added that the wage bill must be reduced, but it must not be taken for granted that there would not be emergencies and they might have to deploy members. The Department must look into the contracts when they purchase equipment because it was important to know how the contracts were structured and the implications for the maintenance plan.

The Department was looking forward to having a closed session with the Committee so that they could have constructive discussions and find a way forward on how to assist the DOD. If the issue of Denel was dealt with at an early stage, there would be no problems.

She apologised for the reports and presentations that had been sent late to the Committee and said they would make sure that all the documents were sent in time for the next meeting.

The meeting was adjourned.