DENEL update on financial situation, turnaround plan SIU investigations and related matters, with Deputy Minister

Meeting report

The Chairperson mentioned that Denel has received a disclaimer audit opinion for the third consecutive year, with irregular expenditure increasing to R3.2 billion, while fruitless and wasteful expenditure increased to R169 million. Amongst others, the Auditor-General (AG) identified significant weaknesses in internal controls as the main driver for the audit outcome. In the absence of a strong internal control environment, management was unable to produce credible financial statements.

The 2019/20 Annual Report reflected a dire and deteriorating financial situation, with revenue falling by 20% to R2.7 billion. A loss of R1.9 billion was also incurred in the same period. Moreover, it was reported that the entity was insolvent and had a debt position of R3.4 billion.

On the 14th of March the Committee was briefed by the National Treasury (NT) on State-owned entity (SOE) bailouts and government guarantees. Denel, it was said, received nearly R9 billion in the past five financial years. In addition, the Minister of Public Enterprises confirmed in Parliament that the government had provided over R233.6 billion in bailouts to SOEs over the past five years and has not yet received a dividend from them except R1 million from South African Forestry Company.

Both the 2020/21 and 2021/22 annual reports are yet to be tabled by Denel. The delay in submission of the annual financial statements (AFS) for auditing was due to the continued operational insolvency challenges, including the exodus of critical skills, with the latest AFS being those submitted in 2019/2020.

The Chairperson then indicated that the Committee would receive a briefing from Denel on the progress in addressing these challenges. Thereafter, he handed over to the Deputy Minister (DM) of the department.

Mr Obed Bapela, Deputy Minister of Public Enterprises, acknowledged that Denel has faced several challenges, but the Department has noted certain improvements following the adoption of the turnaround strategy. As a result, the Department was confident that the entity was moving in the right direction.

He informed Members that Denel’s Intellectual Property (IP) was still in demand across the world, despite the large exodus of its skilled officials to other countries. In addition, he explained that the previous chairperson of the Board at Denel had been replaced.

The Chairperson highlighted that the Committee decided not to proceed with the previous week’s meeting because the Board was not present. Further to that, he asked the Department why the prior chairperson was removed.

Ms Gloria Serobe, Interim Board Chairperson, Denel, introduced herself to the Committee. Thereafter, she explained that prior to the previous week, the Board had never missed a Committee Sitting. She apologised for the Board’s absence at the meeting, which, she explained, was due to the late notice sent by the Committee. Moreover, she stressed that the entity respected both the Committee and the Department and would not deliberately ignore them.

The briefing, she indicated, includes the turnaround plan, the entity’s current financial situation, and what steps have been taken to bring about reforms.

Denel was aware that many of its skilled employees were being poached by other countries, and has taken measures to better retain them. While she was pleased that the Group Chief Executive Officer (GCEO) is an engineer, she felt that one or two non-executive members with engineering skills still needed to be added. Nonetheless, she was pleased with the overall state of the Board.

As the entity has managed to gain relative stability, it has initiated the process to appoint the CEO and Chief Financial Officer (CFO), she mentioned.

Denel, she assured the Committee, supported the findings and recommendations made by the Zondo Commission. A process has been instituted to address them. None of the Board Members, nor the CEO and CFO, are the subject of the SIU investigation. In addition, she told Members that there has been consistent communication between the entity and the SIU.

The Chairperson pleaded with the Department to timeously communicate Parliament’s invitations to its SOEs. This is a matter that has been mentioned by the Committee on several occasions, he stressed. If the issue continues, the Committee would bypass the Department and go straight to the SOEs when sending out its communication, he added. Thereafter, he asked who would bear the costs for the shortened sitting that took place the previous week.

Mr S Somyo (ANC) reminded all present that the Board Chairperson had sent a communication that while she would not be present at the meeting, other board members would attend the sitting.

He asked the Department why there has been a consistent change in the Board and Management at Denel.

The Chairperson asked when a permanent board would be appointed.

Deputy Minister Bapela stated that the current Board was permanently appointed recently, after acting in an interim role for two years since 2021.

The Chairperson highlighted that in a letter sent by the current Board Chairperson to the Committee, she indicated her interim status.

Ms Serobe clarified that the Board has been permanently appointed and only her position is yet to be filled. She further explained that she was placed in the role after the exodus of seven Board members.

The Chairperson asked how many members were still on the Board.

Ms Serobe said that the Board currently has six members and did meet a quorum.

Mr B Hadebe (ANC) asked if the entity was certain if it quorated, as it only has six out of a total of thirteen members left. Furthermore, he asked how long the current chairperson has been acting in the role.

Ms Maryna Gie, Group Company Secretary, Denel, indicated that the entity’s memorandum of incorporation (MOI) stated that the Board required a minimum of three and a maximum of thirteen members, however, this has been changed to a maximum of ten – and the MOI is currently with the Department. The Board has eight members, including two non-executive members, with a further two requested.

Mr Hadebe repeated his question on how long the chairperson has been acting in her position.

Deputy Minister Bapela confirmed that the Department approved two additional Board members.

Mr Hadebe asked why a permanent chairperson is yet to be appointed, considering the Board’s status.

The Chairperson explained that Members have asked questions about the status of the chairperson because they were concerned about the stability of the SOE.

Mr Somyo asked if the Board had to appoint a chairperson amongst themselves or did the responsibility lie with the Department. Further to that, he asked why a permanent appointment was yet to be made.

Deputy Minister Bapela replied that Ms Serobe was appointed as the interim chairperson on the 25th of February 2021. The Department agreed with the Committee that a permanent chairperson had to be appointed as soon as possible to ensure stability at Denel.

The Chairperson reminded the Department that the Committee last engaged with the SOE in August 2021. After that, he asked for the department to provide a written submission on when each Board member was appointed, as well as the interim chairperson.

Mr Michael Kgobe, Interim GCEO, Denel, informed the Committee that he was appointed as interim GCEO in September 2022.

The Chairperson asked if another individual was acting in his prior role.

Mr Kgobe confirmed that this was the case.

Briefing on progress made at Denel

Mr Kgobe and Ms Thandeka Sabela, Acting GCFO, Denel, briefed the Committee.

Mr Kgobe indicated that the Board had approved a turnaround plan, which was first presented to it in August 2021. Multiple stakeholders were consulted during the drafting of the plan, to ensure that key input on all matters faced by Denel was addressed. The key issues identified during the discussions were the lack of quality leadership at Denel and poor organisational stability.

The Denel Medical Benefits Trust (DMBT) was tapped into by the entity so that it could pay outstanding salaries to its workers and historical debt. Denel is currently transitioning from a stabilised phase into a sustainment one, as at the end of May. Part of the sustainment phase looks into the recapitalisation of the business as well as growth in its exports, he said.

Previously, six entities within the entity were acting in a semi-autonomous manner. However, with the implementation of the July 2022 approved operational model, these have been reduced.

Denel still retains a 30% stake in Helsoldt Optronics, 49% in Rhenmetall Denel Munition, and 49% of Pioneer Land Systems, which it established in the United Arab Emirates (UAE) with Edge Group.

Over the years, Denel has lost several employees, with the missile and precision-guided munitions business being the worst hit. Part of the rebuilding of the institution includes the permanent appointment of skilled individuals to fill the vacancies, or contracting previous employees on fixed terms, he mentioned.

Ms Sabela reported that in 2021 Denel was in an insolvent position which continued into 2022. In-between that time, Denel received R3.6 billion funds from the NT. Those funds were strictly utilised for the repayment of bonds which were guaranteed by the government. While this improved the insolvency position, it did not deal with the fundamental operational challenges faced by Denel.

Both Management and Board ascertained that Denel required R5.2 billion to resuscitate the business, with R1.8 billion coming from the sale of non-core assets, while the remainder would come from the budget recapitalisation. All outstanding salaries were paid and some of the liquidation applications from critical suppliers and labour were resolved with the R3.6 billion provided, she added.

Denel last tabled its AFS in 2020. In the intervening years, the entity has seen revenues reduce to R2.3 billion and R1.4 billion. The entity also reduced its staff from 2500 in 2021 to 1670 at the end of March of this year. Furthermore, in 2020 Denel recorded a loss of R1.5 billion, while in 2023 it will record earnings of R390 million before interest and tax, illustrating improvement, she noted.

The 2021 AFS was only submitted to the AG in November 2022, while the 2022 AFS on 31 January 2023. Upon submission of the financials, the AG was unable to commence with the audit due to the outstanding fees. Denel then had to table a payment plan to the AG and has since made payments. It was agreed with the AG that it will audit all of the outstanding years concurrently.

Irregular expenditure, including historical expenditure, amounted to R3.2 billion. Much of this was incurred by the misinterpretation of regulations by officials at Denel and their misalignment to supply chain policies. However, both have been resolved. Since 2018, irregular expenditure has decreased by 98%, with irregular expenditure amounting to R20 million for the 2023 financial year (FY). No fraud and criminal activity have been linked with the irregular expenditure.

(See Presentation)

Discussion

Mr Somyo asked why the current GCFO was acting in two positions, and whether the Board had considered the risks posed by this.

Thereafter, he asked if Denel had shared its IP with the UAE company it is currently working with, particularly as it is the minority partner in the relationship.

While he was pleased with the visible progress made by Denel, he remained concerned by the entity’s solvency position. As such, he asked what effect Denel’s solvency position has had on its ability to implement reforms.

In his final question, he asked if the Board had disagreed with the SIU on some of the findings it made in its investigation; what exactly the members disagreed on; and what impact it has had.

Ms Serobe, responding to the question on the GCFO. She confirmed that the GCFO post has not yet been permanently filled due to the unavailability of funds. For some time, the entity had been unable to pay salaries, and could not fill the GCFO, GCEO, and Human Resources (HR) Director posts until it was certain that it could provide financial security to potential appointees. Now that it has managed to complete and submit all of its outstanding AFS, through the assistance of the private sector, the entity is in a position to appoint the three positions on a permanent basis.

Referring to the question of whether it has shared its IP with the UAE, she said that Denel has had issues with the partnerships it has had with companies in the UAE. To better manage the relationships, Denel, with the assistance of the SIU, has employed a strategy. Further to that, to resolve some of the challenges, the entity has entrusted one of its non-executive Board members, who has a legal background, with the monitoring of joint ventures.

Regarding the solvency position of Denel, she assured the Committee that the solvency position is currently stable. The DMBT is a benefit fund that has a surplus of R2 billion, with 50% belonging to Denel and the other 50% to the members of the fund. However, it was structured in such a way that Denel did not have access to the trust. As a consequence, the entity had to restructure the fund. Nothing untoward was done to the members of the fund, she stressed.

To protect the members, Denel appointed three sets of actuaries, one for the company, one for the pensioners, and one for the fund itself. The pensioner forum gave the Board full support on the restructuring of the fund, she indicated. Many of the challenges related to pensions were historical and predated 1990.

In response to the question on whether there had been disagreement within the Board on the SIU’s findings, she said that the Board kept regular contact with the SIU. In fact, it was Denel which requested the SIU to assist it with the investigations as it did not have its own capacity to do so. All other questions relating to the investigations would have to be responded to by the SIU during its briefing, she added.

Adv Andy Mothibi, Head, SIU, confirmed that the SIU has had regular communication with Denel, particularly the Board. In the last engagement between the two, in March, a progress update was provided by the SIU on the investigations. He told Members that all information relating to the investigations would be outlined during its presentation to the Committee.

Ms T Siweya (ANC) asked when the GCEO was suspended and when the acting GCEO assumed the position. Furthermore, she asked how far along the disciplinary process was; and for the entity to confirm if the GCEO had vacated his position before the process was instituted. Thereafter, she asked what the term of the Board was. If it was nearing its end, she asked if the Department had started the process of appointing a new board and whether it would do so through a parliamentary process.

After that, she asked how the entity planned to retrench 890 of its current staff complement.

It seemed, she noted, that employees at Denel had deliberately ignored the Public Finance Management Act (PFMA)’s guidelines when making financial decisions. On this, she asked what actions would be taken to ensure that the PFMA guidelines were strictly followed.

Touching on the disciplinary processes instituted against staff members, she asked if the remaining processes had been finalised or not.

Ms Serobe indicated that the term of the Board and the chairperson was nine years.

Despite the fact that she has been appointed on an interim basis, she has carried out her responsibilities in line with the requirements of the position. Nonetheless, she was confident that the Department would finalise the process of appointing a permanent chairperson. 

Eight resignations have been recorded since 2018, with the majority occurring in February 2021. Four of the six Board members were appointed in 2018, and the other two, the non-executive members, in 2021. Both the GCFO and GCEO have been acting in their positions since 2021 and 2022 respectively. The process of filling both positions should be completed by the end of this year, she assured Members.

Regarding the question of the suspended GCEO, she mentioned that the matter was dealt with some time ago, with two permanent GCEOs being appointed since then. Meaning that the current GCEO was not appointed because of the former GCEO’s suspension.

Mr Kgobe, responding to the question on retrenching staff and highlighted that Denel has begun restructuring its staff complement, in terms of Section 189 of the Labour Relations Act, with the assistance of the Commission for Conciliation, Mediation and Arbitration (CCMA). To achieve its envisaged staff headcount of 1306 from 2206, Denel instituted a voluntary severance package and natural attrition. At present, the entity was sitting with 1670 employees, which is inclusive of contract workers.

The Chairperson said it remained unclear whether the current Board was appointed on a permanent or interim basis, as the Minister’s appointment letter in 2018 stated that he had decided to appoint an interim board. He asked what the true status of the Board was.

Deputy Minister Bapela indicated that the Minister, through Cabinet processes, will appoint a Board. Once Cabinet makes an approval the Minister must announce the board. Following the appointment of the interim board in 2018, an Annual General Meeting was conducted by the Board in 2019. Thereafter, the Minister took that to Cabinet for approval, and subsequently the Board was permanently appointed. A complete timeline, he assured Members, will be provided in a written submission.

Touching on the financial position of the SOE, he explained that because the R3.4 billion announced by the Minister of Finance as part of the recapitalisation in the 2022 Medium-Term Budget Policy Statement had only been received by Denel in March of this year, it has been unable to fill in the GCEO, GCFO positions. Had it not been for the intervention of the DPE earlier in the year, the money would have been attained at a later stage and a liquidation process might have been instituted.

Regardless, he remained confident that the appointment of both positions would be completed before the end of the year.

Mr Kgobe, responding to the question on the disciplinary charges and indicated that out of four disciplinary cases, two were disciplined and the other two were cleared. All details relating to the cases would be submitted to the Committee.

Ms Sabela indicated that processes were underway to strengthen internal controls so as to prevent irregular expenditure. Denel, she added, has a combined assurance model, part of which includes recapitalising the procurement function. In addition, due to liquidity challenges, the entity has been unable to hold regular training for the past three years.

In line with the assurance model, the Board took a decision to recruit a Chief Audit Executive, to bolster the internal control environment.

Mr Hadebe was concerned by the instability created by not appointing a permanent chairperson. He asked if the Committee was furnished with the reasons for the resignations of the seven board members.

The Chairperson said that the Committee had not been.

Mr Hadebe asked if the Board was able to complete its tasks with only six members out of thirteen available.

In the presentation, it was stated that the entity expected to fill the GCEO and GCFO positions by October 2023. He asked why it would take nine months for the entity to fill the vacancies when the usual timeframe is three months. Furthermore, he asked what the entity’s project plan for the appointment of these positions was.

Thereafter, he asked whether Denel had passed the solvency and liquidity test provided for in Section Four of the Companies Act (CA). This, he said, was an important question given that Section of the CA prohibits companies from trading recklessly, which Denel had done for two consecutive years.

Referring to slide 27 of the presentation – which spoke to irregular expenditure for the 2023 FY – he asked why there had been a refusal from certain service providers to issue their tax clearance certificates to Denel. Moreover, he wondered if such conduct would have been tolerated if the companies listed were domestic ones.

Ms Serobe assured the Committee that all committees on the Board were functioning well, with each member having to serve in two committees. While the audit and social committees were statutorily required, she continued, the HR committee was needed for the functionality of the Board, such as the nomination of board members.

Ms Tryphosa Ramano, Non-Executive Denel Board Director, Denel, on whether Denel had passed the insolvency and liquidity test, clarified that the Board is required by the law to conduct an assessment of its liquidity and solvency at year-end – an assessment of the 2022/23 AFS was done. She confirmed that Denel’s solvency status stabilised after the money provided by the NT through the budget recapitalisation.

Ms Sabela confirmed that the assessment of Denel’s liquidity and solvency position had been done. Resolving the solvency crisis, she continued, required the restructuring of the balance sheet and resolving the debt in the intervening period. In the 2021-22 FY, Denel managed to pay off R3.1 billion of the debt, which further improved the solvency position. As of 2023, Denel’s assets exceeded its liabilities.

Mr Hadebe asked if Denel was able to pay its debts on time and if the total assets exceeded the total liability presently.

Ms Sabela confirmed that the total assets did exceed the liabilities at present. Based on the projections for the next twelve months for liquidity, Denel will be able to meet its obligations as they are due.

Touching on the question related to the refusal of certain service providers to submit tax clearance, she indicated that Denel had an original equipment manufacturer (OEM), who is the provider for seats of the Oryx Aircraft, but the entity’s order value is far less than its client base. As such, the OEM has less of an appreciation for the country’s regulatory framework and is reluctant to meet Denel’s timeframes.

At the same time, if the entity does not take the orders from the OEM it cannot deliver to its clients – for instance, this company provides seats for the Oryx, and if Denel cannot provide them, the vehicle will be grounded, affecting the South African Defence Force.

Mr Hadebe said that the OEM was essentially taking advantage of the entity’s lack of choice in suppliers.

Ms Sabela agreed that this was indeed the case, as the OEM is the sole provider.

The Chairperson admitted that the issue of separate jurisdictions has posed several challenges. Nevertheless, he encouraged the entity to provide better clarity on these matters going forward.

Mr Thami Gamazi, Board Member, Denel, told the Committee that the Board did not want to rush the appointment of the two positions, as they are critical for the functioning of the entity. He further explained that Denel had to search for people with specialist skills.

Mr Hadebe asked Denel to provide a project plan for the recruitment of the two positions.

The Chairperson asked if there was a project plan.

Mr Gamazi admitted that he did not have the information on hand, but he could obtain it from management. Recently the Board sent the shortlist back to management.

The Chairperson asked why this had occurred.

Mr Gamazi said that the Board questioned the level of demonstrable performance of the applicants and asked for management to go back to the market. He committed to submitting a written project plan to the Committee.

Mr Hadebe asked if the entity had a Board-approved project plan with timelines.

Mr Gamazi admitted that no project plan has been approved by the Board.

Mr Hadebe questioned how the Board managed to decide on a final date of October for the filling of both positions without a project plan.

Mr Gamazi asked that the Committee allow for Denel to provide an answer in writing.

The Chairperson pointed out that the response did not answer the Member’s question.

Mr Gamazi confirmed that the project plan does exist.

The Chairperson asked if Denel had it on hand.

Mr Gamazi remarked that a plan has been submitted by the HR committee.

The Chairperson took issue with the fact that the Board did not know whether it had its project plan on hand or not, considering the importance.

Ms Serobe highlighted that October 2023 was the projected Board deadline for the appointment of both positions. The appointment process, she continued, required Denel to comply with the PFMA.

The Chairperson pointed out that Treasury Note Three, which the Committee did not support, provides the entity with room to deviate from the usual processes, with reasons.

Ms Siweya advised the Board not to lie to the Committee regarding whether it has a project plan or not. Instead, it could admit the truth and be given time to draft one.

Ms Serobe said that the October 2023 deadline is one sanctioned by the Board. However, given that the processes have been delayed, she was unsure if this would be met.

Mr Magaza admitted that the Board did not have the project plan on hand.

The Chairperson tasked the Board with submitting the project plan by the following Friday. Thereafter, he handed over to the SIU for its presentation.

Briefing by the SIU on its investigation into Denel

Adv Mothibi and Ms Zodwa Xesibe, Eastern Cape Regional Executive Manager, SIU, briefed the Committee on the SIU’s investigation into Denel.

He told Members that the investigation emanated from a complaint received regarding allegations that emerged from Denel’s 2018/19 findings. After some time, the SIU attained a proclamation from the office of the President to investigate serious malpractices and maladministration that took place in Denel prior to 1 January 2015 or after 8 November 2019.

During its investigations, the SIU found irregularities in several transactions completed with services providers, which related to Information Technology (IT), the appointment of a firm of attorneys, and the manufacturing of Hoefyster vehicles, by Hulls (A Gupta-linked company), despite the strategic requisition of LMT by Denel for the manufacturing of the Hoefysters.

Further to that, the investigations implicated both the GCEO and GCFO for irregularly awarding Pilots Bursaries in February 2017 for R1.15 million and in May of the same year for R793 308. While other officials were implicated in the misappropriation of Denel’s IP.

The SIU, he stated, submitted a disciplinary file to Denel for its consideration.

(See Presentation)

The Chairperson felt that the report showed the extent to which the collapse of systems creates a conducive and enabling environment for corruption. Two, when individuals have total control of the systems there is a heightened manipulation of processes.

Thereafter, he opened the floor for discussion.

Discussion

Ms Siweya asked if Hulls was a Gupta-linked company.

Mr Hadebe asked if the same officials were responsible for the irregular awarding of the pilot bursaries.

Ms Xesibe confirmed that this was the case and that the awards were done in the same year.

Mr Hadebe was disappointed that the number of implicated officials involved was not mentioned.

Ms Xesibe explained that both GCEO and GCFO were the main culprits.

Mr Hadebe asked if they were also involved in the irregular awarding of the Chad Contract – where a Chinese company, Sinotruk China, was irregularly appointed, for R15 million, to manufacture Casspir vehicles.

Ms Xesibe confirmed that the Chad Contract was concluded by the same two officials, but it also extended to the division as it was responsible for appointing certain companies for certain activities in the contract.

Mr Hadebe asked if the two officials were the main culprits for most of the irregularly awarded contracts.

Ms Xesibe confirmed that the two officials were the main culprits, however, other officials were involved.

Mr Hadebe noted that the presentation stated that seven officials were referred for criminal investigations.

The Chairperson repeated the same point.

Ms Xesibe confirmed that the SIU covered all seven officials involved in the contract, but it could only track two of them for disciplinary charges.

Many of the officials found to be involved, especially those representing Denel on behalf of the shareholder, as well as the TD Board, had since left and are working for companies in the UAE.

Mr Hadebe asked what had been done to the official who demanded Denel’s IP.

Ms Xesibe stated that he has since been appointed by a company in the UAE.

Mr Hadebe asked how long the implicated officials were employed by Denel.

Ms Xesibe explained that one of the implicated officials who was previously absorbed after the merger between Denel and BA System, resigned and went to work for a company in the UAE. Other officials had been long time employees of Denel.

Mr Hadebe asked if their appointment was pre-1994.

Ms Xesibe said she was unsure.

The Chairperson asked that the SIU provide a written submission on the implicated officials.

Mr Hadebe mentioned that such a written submission would assist in fully uncovering the corruption in Denel.

The Chairperson asked if the SIU could also include, in its submission, a vetting status of all the implicated officials. The vetting of officials in SOEs remained a challenge and is something that the Committee was concerned with.

Mr Hadebe asked if the companies which have employed these implicated officials were aware of the allegations surrounding them. Moreover, he asked whose responsibility it was to inform the companies on the allegations.

Ms Xesibe explained that as the SIU uncovered evidence of misconduct, it referred a disciplinary file to both Denel and South African Airways (SAA).

The Chairperson asked if Denel had instituted the disciplinary processes recommended by the SIU. Furthermore, he asked if the individual who left SAA under a dark cloud to Denel had been disciplined.

Ms Xesibe clarified that two individuals were part of the Hulls Contract. One is working for SAA while the other for Denel. As such, the SIU referred a DC to SAA and copied Denel, as well as the Minister.

The Chairperson asked what action had been taken against the official who left SAA for Denel.

Ms Serobe confirmed that the SIU had referred the file to Denel two weeks back. The Board, she added, was currently applying its mind to the file and would revert back to the SIU on the action it planned to take.

The Board was concerned by the systemic nature of the corruption that has taken place at Denel. 300 employees have since been lost to the UAE over time, which required the entity to carefully observe how it engages with companies in the country.

The Chairperson added that diplomatic considerations had to be noted.

Ms Serobe agreed. Managing and taking action on the Hoefyster matter will be easier following the submission of the referral by the SIU. However, the one issue will be that the individual involved in the irregularities was not an appointed official but a contractor, she said.

Deputy Minister Bapela indicated that the Minister has referred back a list of people to the SIU, two to three weeks, to be declared as delinquents, so that going forward they would be unable to be appointed by the government.

Mr Hadebe asked if all 300 officials who had left Denel for the UAE were not implicated in allegations of wrongdoing.

Ms Serobe said that the report showed that some officials were implicated.

Mr Hadebe asked if Denel had a breakdown of the number.

Ms Serobe responded that she could not provide the answer, only that many of the officials were implicated.

The Chairperson asked who had assisted Denel in compiling its AFS, what the costs were, and if there had been a skills transfer.

Ms Serobe explained that accounting firms were contracted to assist the entity while it still had challenges with salaries. Denel, she stressed, intended to replace the firms with permanent appointments, now that it was able to pay salaries.

The Chairperson asked how much it had cost the entity.

Ms Serobe said that the cost was not high.

Ms Sabela reported that it cost Denel R10 million.

The Chairperson asked over how long a period this was.

Ms Sabela mentioned that they were contracted in September 2022, and will be until November of this year. In 2016 Denel had 200 permanent employees across all of its finance departments, but this has been reduced to 60 over the years. As a result of the reduction, the entity lacked technical expertise and had to outsource the firms.

Ms Siweya asked why the department was not looking to fill all the vacancies on the Board.

Deputy Minister Bapela highlighted that it was explained earlier. Nonetheless, he mentioned that at least three members were needed for the Board to function. It was up to the Board to decide if it required a full complement of members. However, the Department was pleased that the Board had three members with financial expertise.

Additional steps would have to be taken by Management to fill the remaining 140 vacancies in the finance departments.

Mr Hadebe requested that the Committee be provided with the terms of reference for the composition of the Board’s committees.

Deputy Minister Bapela asked Members to acknowledge that the Department, with the assistance of the Board, was rebuilding Denel from the bottom.

The Chairperson thanked Denel, the SIU, and the Department for their input in the meeting. The purpose of the meeting was to help clarify certain information for the Committee on the financial stability and current audit status of Denel.

There are certain areas of concern, such as the key vacancies in the entity and the implementation of consequence management. He encouraged the entity to, over time, rely less on private consultants to assist in compiling the AFS.

He reminded the Department that it had to consider who would have to take responsibility for the costs incurred after the non-appearance of the Board in the previous week’s meeting, due to the Department’s delay in forwarding the invite to Denel. He asked for the Department to improve on its performance going forward.

Thereafter, he notified Members that they would conduct an oversight visit on Eskom, the National Treasury, and Road Accident Fund in Johannesburg for a week. Subsequently, the Committee will meet with officials from the Passenger Rail of South Africa on 4 and 5 July.

The meeting was adjourned.