Department of Defence: interrogation of Audit Reports 2005/2006

Public Accounts (SCOPA)

09 March 2007
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report


9 March 2007

Mr T N Godi (ANC)

Relevant Documents:
Department of Defence 2005/2006 Annual Report
Department of Defence Audit Reports 2005/2006

Audio recording of the meeting Part 1 & Part 2

The Committee interrogated the
2005/6 report of the Auditor General of the Department of Defence. Committee sought clarity regarding the delays n some of the strategic defence packages, the progress made in the improvements in the system of registration for intellectual property and the reported weaknesses in information systems. Members also raised key concerns, which included the poor record keeping, inadequate management of inventories of machinery as well as the poor reporting on the maintenance of buildings and land. Questions were asked about the systems when sending equipment to foreign countries, the plans to reduce the staff in line with the White Paper, the loss of skills, the review process into rank,  the outcome of the investigations in this regard,  Members expressed the view that the delays in achieving compatability between the accounting system used by the Department and the standards relied upon by the AG was unacceptable and said that National Treasury should look more closely at the system of granting exemptions. Further questions related to the management of the National Arms Convention Control Commissioner, trips undertaken by the Minister that were not reflected in the report, the costs of administration, problems with the management of buildings, progress on addressing the weaknesses in the information systems, the registration of intellectual property assets and the operational budget, which had resulted in certain cuts and changes to the types of aircraft and equipment utilised. 
The Chairperson noted that the Department of Defence (DoD) was, in terms of financial management, one of the poorly performing departments. The complexity of the problems within the Department was appreciated, but the lack of adequate compliance with the legislation governing the management of public finances was a cause of concern. DoD needed to find creative ways to deal with these complex issues.

The Chairperson noted that the internal auditing committee had confirmed the findings of the Auditor General (AG). The findings included lack of reporting of losses, inadequate recovery of losses; the failure to conduct regular follow-ups; files not being able to be located for auditing purposes, and absence of an register of losses and damages. He asked the DOD to comment.

Mr January Masilela, Secretary for Defence stressed the complex nature of the Department, which was compounded by the magnitude of its annual budget of R90 billion. He explained that the observations made related only to the 2004/2005 and 2005/2006 financial years. DoD had acted on the observations. The inadequate management of losses was reduced to a matter of emphasis, rather than a qualification.

The Chairperson said that the Committee would explore both the issues of qualification and emphases of matter. These findings suggested that although improvements had been made, DoD was still plagued by critical problems. He asked if the issues in the 2004/2005 AG’s report were accurately captured.

Mr Masilela confirmed the accuracy of the issues in the 2004/2005 AG report. Although problems had persisted into the next year,  DoD had made significant improvements in the 2005/2006 financial year.

The Chairperson requested DoD to explain the changes and improvements made.

Mr Masilela clarified that neither Chiefs of Services nor Divisional Chiefs were required to account for losses and irregularities in units in the past. The line of accountability and reporting had been expanded and improved. These officials were now also accountable for losses and recovery. The Chief Financial Officer (CFO) was no longer working directly with functionaries within the divisions of services, as this had been problematic in the past.

The Chairperson wanted to know what the impact of these changes had been on the functioning of the Department.

Mr Masilela answered that both Chiefs of Services and Divisional Chiefs had adopted a more hands-on approach and that these accounting officers were more visible in the day-to-day management of the different parts of the Department. Accountability had been improved, hence the reduction of these problems to an emphasis of matter in the AG reports.

The Chairperson reiterated that DoD needed to explain the particular measures employed to improve management of losses. He asked in particular if there had been a change in the number of cases reported and the recovery of such losses, whether regular follow-ups were conducted and if the lost files could be recovered. It was stressed that these problems should not appear in the next audit report.

Mr Masilela agreed with this. There was better accountability by key accounting officers and both an accountability monitoring policy and action plan had been developed.

The Chairperson asked whether files could be located on the day they were requested.

Mr Masilela confirmed that they could, since the correct mechanisms and processes to retrieve these files were currently in place. The improved management of losses and recovery was work in progress. A detailed action plan had been developed and such information could be made available to Committee. Losses and recovery were monitored every month and scrutinised by an accountability management committee. Moreover, Chiefs of Services had instituted Boards of Enquiry to investigate the critical problem areas related to losses and recovery.

The Chairperson stressed that the Department should appreciate that the level of compliance was critical,  not merely the institution and development of policies and procedures. He asked if the DoD could ensure compliance with these policies and procedures.

Mr Masilela replied that the Department regularly conducted independent reconciliations and reviews; improving command and control, and continuously improved the lines of accountability. These were the main areas of focus.

The Chairperson noted that the management of prepayments and advances was also problematic. The AG’s report included an observation that insufficient information and supporting were filed, as well as reporting on a backlog in filing.

Mr Masilela explained that these logistical problems were linked to the current challenges facing the interfacing of the Government payroll system PERSAL,  and National Treasury’s (NT’s)integrated finance management system. The training needed to enhance these systems was a great challenge. The AG’s report had noted the skills shortages and the need for training a significant number of officials. A detailed action plan in this regard had been developed and should be implemented by 31 March 2008.

The Chairperson wondered why the Department had not identified this lack of capacity beforehand.

Mr Masilela responded that although this had been a priority area, the measures had been intensified subsequent to the AG’s observations. The interface between the two systems needed immediate attention.

The Chairperson commented that although measures to improve systems were appreciated, the oversight responsibilities of the Committee required that persistent problems needed to be explored. It became more problematic when management, given its responsibility to provide leadership, identified problematic areas only subsequent to the AG report. It was critical that the management of the Department took proactive measures to ensure that persistent issues were resolved. The deadline for the resolution of these issues was much too far in the future, given the urgency and basic nature of the issues.

Mr V Smith (ANC) said that the Chapter 1 of the Public Finance Management Act (PFMA) stated that this legislation was applicable to all national departments. However, given the nature of the work done by the National Intelligence Agency (NIA), parliament was forced to legislate that this Department be exempt from accounting to parliament. It was presumed that similar exemptions were relevant to the DoD due to the nature of its work. He asked, where NT had granted approval to deviate, the period of time for which these deviations were granted. He also asked if NT would continue to grant deviations. He wondered if this matter should not be legislated for to ensure clarity on how SCOPA needed to perform its oversight duties on these departments. It was feared that these departments would also receive qualified audit reports because of limitations imposed by these exemptions. He asked if NT could clarify whether exemptions would be granted to DoD indefinitely.

Mr Msulwa Daca, Chief Director: Accounting Policies and Standards, NT explained that deviations were granted in extremely rare circumstances. Requests for exemptions were received from departments annually, in terms of some of the sections in the PFMA. Every request was considered and NT made a decision on which departments would be granted exemptions. These deviations were valid for one year only and a clear instruction was given to develop a plan to ensure compliance with the PFMA. The same process was followed with the granting of deviation to the Department of Defence, and the link between the requirements of the NT and what DoD’s systems could produce was investigated. The Department could not produce the required information for reporting purposes, and therefore the deviation was granted. The AG report had grouped together those issues on which the department received permission for deviation of and this was therefore made clear.

Mr Smith emphasised that deviations were granted to the department,  with conditions attached to improve its compliance with the relevant sections of the legislation. He asked the Department to indicate its plans for compliance with the legislation.  The motivation for granting deviations was worrisome since the department did not have systems. This was not a sufficient answer and greater steps needed to be taken to ensure improvement of these systems. Permission to deviate for lack of systems made a mockery of the PFMA. The bias should rather be to have the DoD to improve its systems in order to comply with the PFMA. If there were special areas such as the special defence tasks, separate legislation dealing with oversight needed to be developed. Both NT and the DoD needed to consider this possibility.

Mr Smith said that most problems had been detected in the basic financial management systems pertaining to physical assets and accrual. He asked if the Department anticipated the improvement of these systems soon.

Mr Masilela answered that a very detailed plan had been developed to ensure the adequate operation of these financial management systems, subsequent to a thorough analysis of the problem. A joint Asset Management Task Team with NT’s had been set up for this purpose. He added that accruals would be approved through the integrated asset management. Detailed plans were also developed by the Department and changes would be implemented over a three-year period. The fundamental challenges related to the fragmentation of the accounting systems in the department. This included the clean up of data and specific interventions had been identified and put in place, in collaboration with the Sector Education and Training Authority. DoD was not merely waiting on the completion of the integration of financial systems. He emphasised that improvements would be made over a period of three years, and had been implemented since 2006.

Mr Smith commented that basic IT management should require that a programmer could not have access to the production and end user side of the system, and anything to the contrary was indicative of weak controls. He asked if this situation had been rectified, and, if not, when did the department envisage rectifying it.

Major General Otto Schrier, Chief Director: Acquisitions, DOD explained electronic interventions were needed to achieve strong control over the IT system, and the Department was currently moving into that direction. Oversight by management and regiment officials was relied upon, in the context of the disparate systems of the transactions. Responsibilities were segregated as far as possible between the person operating the system and the person who made approvals. Great strides had been made to improve and achieve total control of the IT systems. This was also within the three-year time frame.

Mr Smith stressed that this matter was too critical to wait and needed to be urgently addressed. The explanation of manual controls provided by the Department was noted. He requested the Department to supply the Committee with a written description of the kinds of manual controls instituted.

Mr Smith noted that the DoD was integrating all its logistic systems and wondered whether this integration was still on track, and if the deadline of 31 March 2008 would be reached.

Mr Masilela answered that the overall target was 2010, but DoD was currently in track with the integration process. The Department would tackle issues as they appeared during this process and would also inform the Committee on these issues. A key challenge was to migrate to the Oasis system baseline to ensure that systems interfaced with the Integrated Financial Management System (IFMS). An ongoing debate within the Department was whether it should integrate directly to the National Treasury’s systems or interface with Oasis.

Mr Smith appealed to NT and the Department to keep the Committee informed about progress made. The Committee needed to see a normalization of the matter as soon as possible, particularly because of the size of its budget as well as the strategic nature of the DoD’s work.

The Chairperson added that SCOPA was gravely concerned that the DoD had only recently been paying attention to these persisting problems.

The Chairperson also expressed his dissatisfaction that the NT, when considering deviation, did not stress the importance of compliance with legislation. This may be a subjective analysis, but he cautioned that deviations should not be granted to Departments that continuously failed to comply with legislation. NT had the responsibility to ensure compliance and had an obligation to ensure that all Departments adhered to legislation such as the PFMA.

Mr R Mofokeng (ANC) expressed his dissatisfaction with the responses provided by the DoD. The failure to reach the goals set was unacceptable. He noted that current management may no longer be in office by 31 March 2008. The current Secretary of Defence’s contract would expire soon, and he was worried that a new appointee would not be able to account for the possible failure of these action plans and remedial efforts.

Mr Masilela stated that his appointment or reappointment depended on the prerogative of the Minister of Defence.

Mr Mofokeng noted that the Department did not seem to be concerned about its inability to account for R567 million in the 2005/2006 financial year. Moreover, it could not account for R 577 million in the 2004/2005 financial year. He quoted the AG’s report to the effect that this lack of accountability was attributed to the deficiencies in the financial management systems. The validity of the expenditure on subsistence and travel could not be tested and the relevant supporting documentation could not be supplied. He asked the Department to provide greater clarity on why this money could not be accounted for.

Mr Masilela clarified that although the R567 million could not be accounted for, the Department did not suffer a loss.

The Chairperson explained that the focus was not whether there was the possibility of loss, but rather on the lack of proper accounting practices. The Department needed to explain why proper accounting practices were not followed.

Mr Masilela said that the Chairperson had already posed this particular question and he believed that the Department had provided a response. DoD disagreed with the Chairperson’s assertion that the NT was very lenient in granting a deviation to the Department. NT vigorously scrutinised the financial management of Department on a consistent basis. Meetings with the AG, as well as the internal auditing committee, were regularly conducted and audit plans had been collaboratively developed. Mr Masilela could personally attest to the dynamic interactions with NT and the AG. Four of the qualifications by the AG had been subsequently eliminated. The impression that DoD was continuously deteriorating was incorrect. It would deal with challenges as they emerged, and representatives of the AG’s office could attest to this.

The Chairperson stated that this was, as stated earlier, a possibly subjective observation. He reiterated that persistent qualifications noted by the AG were a cause of concern. These indicated that despite the corrective measures employed, different problems appeared. Measures needed to be employed to avoid any qualifications.

Mr Masilela reiterated that the detailed action plan could be made available to Members. He stated that the reasons for the problematic accounting of travel and subsistence expenditure were largely that there no interface between the Financial Management System (FMS) and the Persal System. The DoD had relied primarily on a manual system of accounting. As a corrective measure, the Department had to enhance the interface between FMS and Persal and this was currently underway. The number of people deployed to focus on improving the system had strained the DoD’s capacity. Additional people were currently being trained. He was confident that all challenges would be adequately dealt with, and that the next AG’s report would reflect this improvement.

Mr Mofokeng commented that SCOPA needed to see Departments account and deliver. Persistently qualified or disclaimed audit reports were therefore unacceptable.

Mr Mofokeng noted that the AG could not reach any conclusion on the validity of the R123 million housing loan guarantees and asked for an explanation.

Mr Masilela explained that this issue was also highlighted in the 2005/2006 Annual Report but was not considered a major problem. It was related to the individual, the Department and the financial institution. The guarantees could not take into account the changes in the value of properties or the impact of other external factors, and records were not regularly updated due to inadequate links to the relevant banking institutions.

Brigadier General A De Wit, Director, Human Resources Planning, DOD confirmed that proper linkages between the financial institution granting the loan to the individual and the records of the Department needed to be established. There was poor communication between the Department and the financial institutions at the time of re-evaluating the housing bond. This was being improved to ensure regular feedback, and proper communication linkages would be finalised by May 2007. This would set up monthly feedback to ensure that the Department was made aware of re-evaluations or changes in home loan conditions.

The Chairperson enquired whether the implementation of this plan was continuing successfully.

Brigadier- General De Wit explained that the challenge was to ensure compliance with the programme. Two subsections had been established to ensure compliance and to foster better communication between the Department, financial institution and the individual. This remained work in progress.

The Chairperson noted that files on the housing loan guarantees were not available for audit purposes, and asked how this was being dealt with.

Brigadier General De Wit explained that the better communication between the Department, financial institution and the individual would ensure that the information and files containing this information were readily accessible. Documentation could also be more regularly updated.

Mr Mofokeng asked if the Department could confirm whether these housing loans were issued to individuals who did not hold title deeds on properties.

Mr Masilela could not verify this observation. Two units had been established in July 2006, to investigate and verify information. DoD would report to the Committee in due course about the outcomes of the work of the units.

The Chairperson commented that it was assumed that the Department had scrutinised the AG report and had read the management letters sent. It was the responsibility of DoD to respond to those management letter and the findings. Since the department had agreed with the findings of the AG’s report, the housing loan guarantees were problematic.

Mr Masilela agreed. Files had been checked and reconciled. In cases where no title deeds were documented, the DoD conducted further investigation.

Mr Mofokeng enquired whether the DOD was aware of the root causes of these problems.

The Chairperson commented that the problem was both a management and systemic problem.

Mr Masilela reiterated that the Department had already admitted to the causes of this problem. He added that these challenges had a direct impact on the pension funds of individuals. A degree of command and control had been re-established.

Ms A Dreyer (DA) focused attention on the South African National Defence Force’s (SANDF) foreign operations on the continent. SCOPA had noted that appropriate procedures and policies governing asset management of foreign military operations were not in place. Due to this internal weakness, the inventory of assets to and from foreign operations lacked formal supporting documentation. Equipment had therefore been sent to incorrect destinations. This caused embarrassment to the SANDF and exposed the Department to unnecessary high levels of risk. She asked if this this situation had not impacted negatively on the effectiveness of these operations.

Mr Masilela admitted that serious logistical challenges had been experienced. The participation in peacekeeping operations was a new security field in which SANDF was involved. A board of enquiry had been instituted to explore how these logistics could be improved. In countries lacking basic infrastructure, it was very difficult to set up specialised logistic systems. These problems were also related broader systemic issues.

The Chairperson wanted to know how the lack of basic infrastructure on foreign countries related to the equipment being sent to wrong destinations.

Mr Masilela said that this was a rare occurrence and recalled that equipment destined for the operations in DRC was accidentally sent to Uganda. This problem had subsequently been resolved. DoD had developed a detailed plan and this could be made available to Members.

Ms Dreyer said that the Committee was interested in the detailed measures to enable SANDF to operate in those countries lacking proper infrastructure. She noted that although plans were easy to develop, the question was whether the department had adequately skilled staff to enforce these plans. SCOPA was interested in the implementation of policies and plans.

Mr Masilela confirmed that measures had been put in place at all departure points, including Waterkloof Airforce base. These included joint coordinating committees. Logistics and accounting systems accounted for all materials sent out and received. These systems would be continuously improved upon as troops were deployed and the areas of deployment increased.

Ms Dreyer asked whether the Department was able to provide the necessary logistical support, if troops were immediately and unexpectedly deployed to a country with poor or no basic infrastructure.

Mr Masilela expressed his confidence that despite the challenges the Department would be able to provide this support. SANDF would be able to account for the equipment sent out to this destination. However, DoD could not guarantee the quality of the logistical support in the other country, given the lack of basic infrastructure and systems. DoD was doing as best it could under very tough circumstances.

Ms Dreyer noted that the AG had identified the deteriorating human resource management as part of its emphases of matter in the 2005/2006 audit report. DoD’s “Human Resource Plan 2010” envisaged a full human resource composition of 70 000 members to support the force design and structure, as visualised in the White Paper and Defence Review. The Minister of Defence considered this plan a strategic priority. However, the process of establishing an improved structure had not been finalised and an increase of posts and appointments to 120 000 was recorded. She asked the Department to explain this contradictory trend.

Ms Masilela confirmed that that the 1996 and 1998 White Paper and Defence Review had cited a 70 000- strong staff composition. DoD had been updating the White Paper and Defence Review over the past three years and re-evaluating the missions and enforcement levels and had reviewed the figure to 85 000 posts. There were currently 77 000 people employed. There were 92 000 posts in the establishment, of which 4500 were training posts.

Ms Dreyer wondered how the DoD would achieve this revised target given the increase in the number of posts. Minister Lekota had granted approval for the voluntary exit of 553 members. However, the Department continued to absorb rather than decrease the number of employees.

Brigadier General De Wit responded that the Department had reduced its full-time human resource component from 109 000 members to the current 77 000, which included the improvements in the new military skills system of a staff complement of 8 000. The Department would move beyond the Defence Review system and the staff complement would reflect this. The sudden increase in staff was due to the capacity needed to implement the new military skills development component. The management of the system would take into account and deal with a decrease in staff. DoD was the only department that managed its human resources budget within the consumer price index figure and the increase in that budget had been only 5.4% for the last ten years. The 77 000 reflected was merely the number of posts that the department could currently afford.

Ms Dreyer expressed her confusion as it seemed the Department and Committee were reading different figures. She asked the Department to explain how the current staff complement of 102 000 could be addressed.

Brigadier General De Wit said that the full time staff members were currently at 102 000. There were 9925 administrative student posts. This figure needed to be subtracted in order to calculate the current full time posts. DoD aimed to reduce this 85 000, plus 9 000 training posts, to reach a total of 95 300. The Department should have reduced its staff numbers to 95 300 by mid-2007. A restructuring process was currently under way,  which included the closure of general support basis and other units.

Ms Dreyer expressed her concern over the impact of the voluntary exit policy on the SANDF’s ability to retain valuable skills and institutional memory. This was critical especially in light of the skills scarcity throughout the public service.

Mr Masilela explained that DoD was not suffering a general skills shortage, but had experienced capacity problems in two specific areas. Action plans were in place to deal with this matter.

The Chairperson wanted to know to what extent the shortage of skills affected the operation of the SANDF.

Mr Masilela answered that DoD had made significant strides in retaining its skills capacity. The objective of its 2010 Human Resource Strategy was to addresses the skills problem, rejuvenation, representativity and age profile of the Department. Since 2003, 18100 trainees had been trained to fit into the core system of the Department, which represented very good progress.

The Chairperson asked whether the military establishment was losing any skills.

Mr Masilela answered that the Department was not suffering any losses. He added that the voluntary exit scheme was not responsible for the loss of certain skills. The Department had become integrated from the start of the integration system. The Department was still faced with challenges of representativity and Colonels should not be stagnating at middle management level. The Department of Public Service and Administration (DPSA) and the government cluster had been consulted to assist in rationalisation of the DoD. This process was employer-initiated and was carefully exercised. An individual with a scarce skill could be refused voluntary exit.

The Chairperson clarified that that the airforce faced a 21% vacancy rate and joint support’s vacancy rate was 33%. It would not be prudent for a Department to allow the voluntary exit of staff when there were such vacancy rates.

Ms Dreyer expressed the view that Mr Masilela’s responses seemed defensive. She was not convinced that the Department had dealt sufficiently with the questions posed. The DoD was more concerned about the age profile and representativity especially amongst white Colonels. The Colonels were also the officials with the most specialised skills.

Mr Smith was not satisfied with the direction that the interaction between Members and SCOPA had taken. The Committee should interrogate whether the DoD had adequate levels of financial management skills. He cautioned that SCOPA should not be reduced to a political arena.

The Chairperson noted Mr Smith’s concerns but explained that the challenges faced by DoD extended across all levels of the Department.

Mr G Koornof (ANC) noted the errors in the introduction to the 2005/2006 Annual Report and requested the Department to check the document before it was signed off.

Mr Masilela said that these errors had been dealt with.

Mr Koornof noted that the rank review was the basis of one of the four qualifications in the AG report. This was also an emphasis of matter in the previous year. The AG had observed that the rank review was a potential irregular expenditure. The salary costs had accumulated over the last two and a half years. The AG observed that the criteria set by the Minister had not been met and that the relevant files were not available for auditing purposes. He asked how DoD would resolve these issues. He said that it could consider reporting the matter to NT or may opt to recover the money that was irregularly spent over the period.

Mr Masilela admitted that this matter was very challenging to resolve. Complaints had been received that officials were not ranked fairly. A task team had been created to investigate the matter and, using a sample of 384 members, it was found that ranking had been done prejudicially. This was linked to the challenge of the integration processes. It also impacted on the reliability of supporting documentation. The remedial action had to be based on a clear Ministerial instruction to ensure the rank review process was capable of audit. It was not financially feasible for the Department to start the rank review process afresh but mechanisms had been put in place to ensure that the integrity of the process was not compromised again.

Mr Masilela added that since the AG had studied the files of each of the 384 individuals, the sheer complexity and scope of the problem hampered the speedy resolution. The Department had two options. It could contact some of the non-statutory forces to request reconstruction of some of the documentation, or it could request that the procedures followed on those 384 cases be condoned. The salary costs could be recalculated on the re-ranking of these officials.

The Chairperson said that this response did not indicate that the Department had worked extensively on the matter. He asked where all these files were stored, given the challenge of integration of the liberation forces? He asked if the criteria developed by the Department were in line with the complexity of the endeavour. He would imagine that no member of the liberation forces would be integrated without a service certificate. He therefore asked who was in charge of the files at a unit level. He also asked how the commanding officers had accounted for the missing documentation, and what disciplinary steps were taken against those officers who failed to exercise effective control and authority. He queried whether the loss of documentation was due to negligence or deliberate vandalisation of the files. The human resources (HR) officials of the Department had to respond to this matter. He asked specifically whether the HR department were able to generate sufficient documentation to satisfy the auditing needs of the AG.

Lieutenant General Themba Matanzima, Chief of Corporate Staff, DOD answered that as this issue related to the broader processes of transformation; its resolution was a challenge. The Department was doing its best to reconstruct the necessary documentation. The Committee needed to appreciate the efforts of the DoD to transform the representation of middle management, as it was a key strategic priority. The integration of the non-statutory forces of the liberation armies into the SANDF contributed to the pace of transformation. Although financial challenges were faced in this regard, the broad strides made should be appreciated. The task team mandated by the Secretary of Defence had developed some solutions and it had until 30 April to produce the reconstructed and auditable files. These would be made available to the AG. All units were instructed to cooperate with this task team and to make all files available for this audit team.

The Chairperson asked whether those individuals responsible for the files had been held accountable.

Lieutenant General Matanzima answered that steps would be taken after completion of the task team’s investigation.

Mr Koornof said that although this was a sensitive matter, it needed to be adequately addressed. The DoD had provided reassurance that the task team would reconstruct auditable files by 30 April 2007. It needed to engage with the AG to ensure a speedy resolution. The main objective of the AG was to ensure that each case matched the criteria set by Minister of Defence.

Mr Barry Wheeler , Business Executive: Defence, AG added that this investigation had already been ongoing for two years and confirmed that it had not been trouble-free. However, it merely focused on a limited and fixed number of cases and the shortcomings of these files against the set criteria were significant. The AG considered the unavailability of those files as unacceptable. The reconstructed files made available to the AG were also flawed as important information was lacking. There were still deficiencies in terms of meeting the set criteria. Although the AG understood the complexity of the matter, the time taken to reconstruct the files was unacceptably long. The AG had informed the Department that it would abandon the audit of these files until the completion of the investigation, as this was the only financially feasible option. The AG had therefore decided to report this matter as fruitless or irregular expenditure. The Department needed to further engage with National Treasury or must inform the Minister that the criteria set could not be met.

Brigadier General De Wit reminded Members of the deadline of 30 April to complete the investigation and to submit the reconstructed files to the AG and National Treasury.

Mr Koornof noted the inability of the AG to report fully on the revenue of the Department. This aspect had been the basis of qualifications and emphasis of matter over the past five years. In a meeting of SCOPA two years ago, the Department had stated that the revenue management policy had been revised and promulgated and also stated that the responsibility for revenue collection was included in the performance agreements of Chiefs of Services and Divisions. He asked if indeed these aspects had been implemented.

Mr Masilela answered that this was a challenge and confirmed that the revenue policy had been promulgated. The DoD had ensured that Chiefs of Services were accountable for the collection of revenue. Delegations had also been instituted to ensure maximum accountability in all areas of operations. Programming for accounting for revenue had been completed on 23 February 2007.

The Chairperson noted that the success of the new measures would be highlighted in the next Annual Report.

Mr Koornof asked what measures were in place to ensure compliance with these policies.

Mr Masilela answered that the officials needed to submit monthly accounts of expenditure to the Accounting Management Committee (AMC).

Mr Koornof expressed his satisfaction that the Secretary of Defence was personally taking responsibility for the financial management of the Department. He suggested that the Chief of SANDF needed to take responsibility for the financial management of this body and also needed to attend AMC meetings. This would change the management processes of the Department.

Mr Masilela answered that this issue had been discussed in the last AMC. It was agreed that the attendance of both accounting officers should be required.

Mr Koornof asked whether uniformed personnel managed the finances of different departments effectively.

Mr Masilela responded that since the directive of the Minister that the chief of the SANDF should account for all essential services of the Department to the Secretary of Defence, the situation had improved greatly. The accounting officers had to account to the Audit Planning Committee. Final accountability rested with chiefs of divisions and not junior personnel.

Mr Koornof asked if the Department was confident that there would be no qualifications on this issue in the next audit report. It was a serious matter that needed urgent resolution.

Mr Masilela expressed his commitment that this would be resolved to the best of DoD’s ability.

Mr Koornof moved on to DoD’s employee benefit commission, which had been the third aspect of qualification. The AG observed the lack of internal controls in the granting of leave credit in the Department.  This had been reported on for the last five years. The leave entitlement amounted to R309 million. This situation posed a serious threat to the viability of the Department. He asked how the Department was resolving this matter.

Mr Masilela said that efforts had been made to resolve this very challenging matter. Although the qualification given on this matter in the 2004/2005 Annual Report had been removed, more needed to be done to achieve full control. Suitable systems were in place and issues of command and control were currently being addressed. This included proper record keeping. The Department was considering ‘naming and shaming’ those division who were performing poorly in this regard. Chiefs of both Services and Divisions could also be held directly accountable. Support material for the management of registers had been developed and distributed to all units.

Mr Koornof cautioned that a movement from a qualified audit report to an emphasis of matter did not necessary mean that these weaknesses had been resolved. The emphases of matter highlighted the risks posed by these weaknesses.

Mr Koornhof stated that the audit conducted by the Inspector General determined the level of compliance with internal policies, but did not look at the financial controls of the Department. This was a very significant weakness, and could be interpreted as non compliance with the PFMA. The inspector –general had not exercised all the duties as stipulated by National Treasury and the relevant regulations. He asked if in future the DOD would ensure that the internal audit also focused on the systems of financial controls.

Mr Masilela answered that this was being prioritised and had been discussed at the last audit committee meeting. A company had been contracted to enhance the skills capacity of employees in order to detect and identify weaknesses in these systems.

Mr Koornof enquired about the disciplinary action against the inspector-general.

Mr Masilela clarified that the inspector-general had been under investigation, but had been acquitted.

Mr Koornof recalled that the inspector-general had allegedly purchased luxury vehicles for personal use on a generous discount. He asked for comment.

Mr Masilela clarified that the Inspector General had not purchased these vehicles for personal use. The office, at a total cost of R1.8 million, had purchased five Mercedes-Benz vehicles to transport VIPs and delegations. Actions had been instituted and a task team had been set up to investigate the most cost-effective way of acquiring new vehicles. These vehicles had subsequently been confiscated. Disciplinary action would be taken against the Inspector General on this aspect.

Mr Koornof suggested that the Committee hold further discussion with the Department on this matter and must also engage with National Treasury. He added that the budget had not been spent adequately and the DoD needed to clarify what types of vehicles were being purchased.

Mr Koornhof noted that although the National Conventional Arms Control Committee (NCACC) reported to the Minister of Defence, the DoD provided its directorate and was responsible for its administrative management. He asked whether the DOD had finalised the investigative report cited in the AG’s report, and whether feedback had been given to the AG. The AG had reported that the NCACC directorate did not follow proper work methodology nor adequate record keeping.

Mr Masilela assured that the Committee that this investigative report would be made available to the AG. A disciplinary case was currently underway, and its outcome would also be submitted to the AG. A Director had been appointed to the NCACC in November 2006, who was very competent in developing and ensuring the operation of the necessary systems to  adequately deal with the past challenges. Mr Masilela explained that a meeting to discuss the methodology informing the work of the directorate had taken place between representatives of the office of the AG and the directorate. Challenges related to this process were being addressed. He emphasised that the work of the directorate was methodical.

Mr Wheeler (AG) clarified that the meeting was scheduled for that day, but had been postponed until the following week. The discussions would focus on the specific work of the directorate and the improvement of compliance with the NCACC Act, through proper work methodology and proper documentation of any work of the Committee.

The Chairperson expressed his dissatisfaction that these basic systems were still not in place. He asked what had hampered the implementation of these systems.

Mr Wheeler added that the AG also needed clarification on this.

Mr P Gerber (ANC) was pleased that the work of the DOD could be interrogated by this Committee. He commented on the inadequate management of its financial affairs. He referred to the international trips made by Minister Lekota in the 2005/2006 financial years and requested an explanation for the Ministers trip to United Arab Emirates (UAE), which was not reflected in the report. He then asked for confirmation on the total cost of the precautionary suspensions made during the 2005/2006 financial year.

Brigadier-general De Wit answered that the total cost of these suspensions was R312 000.

Mr P Gerber enquired how the average daily cost could be calculated.

Mr Masilela expressed his regret that this information could not be readily supplied to the Committee. He requested permission to provide this information within seven days.

Mr Gerber reminded the Department had on a previous occasion promised to supply the Committee with information, but this had never happened. This commitment was captured in the minutes of that meeting. He warned that Members needed this information in order to make sense of the statistics in the Annual Report.

Mr Gerber further requested clarity on the Departmental expenditure reflected on page 48 of the 2005/2006 Annual Report, and asked if the Department could clarify the exact cost of administration as well as the virements.

Mr Masilela clarified that the total administrative costs were R685 million and virements R99 000.

Mr Gerber noted that the Annual Report incorrectly reported the total departmental expenditure as R764 000 and not R764 million. Such inaccuracies made it difficult for members to scrutinise Departments  expenditure. The 0.2% under expenditure reported by the Department would automatically be questioned.  The integrity of the figures needed to be ensured.

Mr Gerber wanted to know whether the catering services and bar facilities were still subsidised by the DOD, and he noted that the Annual Report reflected a 102% percent increase in disciplinary cases relating to drunkenness.

Mr Masilela confirmed that these facilities were not subsidised. The high figure on drunkenness also reflected a societal problem.

Mr Gerber said that the AG had reported several serious problems in the management of buildings. These included unauthorised sub-leasing and rental of state property to private business, that buildings could not be inspected since the precise location could not be identified and that some buildings were declared as inhabitable due to the major health and safety risks these posed. In its recommendations the previous year, SCOPA recommended the completion of an asset register and that monthly meetings must be held to ensure that facilities were properly maintained. SCOPA was not satisfied that this state of affairs was being properly managed, given the fact that currently only 25% of the facilities register system could be confirmed.

Mr Gerber noted that the fixed asset register and the repair and maintenance programme and cash flow projections had been completed towards the end of the financial year, and an additional R10 million had been received to address the backlogs in repair and maintenance and a tender process had been initiated. Moreover, although R79 million capital expenditure had been reported for the 2004/2005 financial year, this expenditure had reduced significantly in 2005/2006. The Department seemed to pass responsibility to Department of Public Works (DPW) for the maintenance of buildings, as apparent during a meeting with the Secretary of Parliament. He asked whether the DoD could not manage some of the maintenance issues, and to explain how it intended to maintain these buildings.

Mr Masilela answered that a joint task team had been set up between DOD, and Departments of Land Affairs and Public Works to verify the DoDs assets and their condition. This was a work in progress. Both DOD and DPW faced a serious challenge of reconciling assets recorded in their respective registers.

Brigadier general Justice Nkonyane, Acting Chief: Logistics, DOD explained that the management of fixed assets depended heavily on the interactions between DOD and DPW. The asset registers of DOD and DPW were contradictory and regular interactions were taking place to ensure that periodical reconciliations were  done. A ministerial agenda regarding this matter had been set up to guide the improvement of the asset register system.

Mr T Bonhomme (ANC) requested the Department to report on the progress made on each of the weaknesses of the information systems identified in the AG report.

Brigadier Ray Cummings, Manager: Information Systems, DOD explained that although not ideal, interim manual systems had been established. The steering committee would provide the necessary guidance for the improvement of all information systems in the Department. The various stages of the disaster recovery plan had been rationalised,  standardised, and integrated. A disaster recovery exercise was planned for October or November 2007. He added, in relation to improved access to production data, that although registers had been established, the segregation of duties between the data base administrators and the Oracle Unix operators remained a challenge. Officials had been appointed to assist with the delegation of duties. Manual systems were being used at this stage.

He reported further that the security systems had been improved. The software used required rotational changes to the security setting when logging into the system. Physical access to the data centre had been improved through the use of sophisticated access methods, which included the vistors
register as well as the recording of the movement of equipment.

Brigadier Cummings added that the DOD, the DPW and the contractors jointly managed the improvement of Occupational Health and Safety equipment, particularly the fire equipment. This included electrification and fire extinguishers. It was necessary to ensure that the flow of information from one contractor to the next was maintained.

Mr Bonhomme asked the Department to indicate which items would be addressed to the satisfaction of auditors at the close of the current financial year on 31 March 2007. He asked if the Department could provide deadlines for addressing all other outstanding issues.

Brigadier Cummings requested permission to respond in writing. DOD needed to consult with the Portfolio Committee on Defence regarding the time lines for capital investment for the next financial year, given the challenges in the built and infrastructure environment. This would provide an indicator of when the challenges observed by the AG could be addressed.

The Chairperson granted permission, but stated that the information should be directed to SCOPA and not the Portfolio Committee of Defence.

Mr Bonhomme wanted the Department to explain the processes in place to identify all invoices for accrual, of all sections of the Department, before and on 31 March 2007.

The Chief Financial Officer, DoD answered that due to the change in the logistic systems and the vastness of the organisation such information could not be supplied manually. DoD had been granted deviation from the National Treasury. She stressed that the capturing of the information was dependent on having an integrated system and this would ensure accurate accrual.

Mr Bonhomme expressed his surprise at this response as he was under the impression that much of this information could have been captured manually.

Mr Bonhomme noted the AGs observation that proper rules and procedures regarding intellectual property had not been implemented. DoD also did not have a complete register of Defence intellectual property. Although Armscor was responsible for this register, the DoD remained accountable. He asked whether this register was up to date and available for auditing purposes.

Major-general Schrier responded that the register had been operational for more than thirty years. With the implementation of the PFMA the Department had issued a policy on intellectual property, which had subsequently been applied. The Department was currently addressing the contradictions within that policy, and he reminded the Committee that the Department was for the moment unable to account effectively for intellectual property assets. He had been instructed to manage the improved accounting process. This was a very complex exercise due to the history of neglect. Formal engagements were held with Armscor. An implementation programme had been finalised, without a formal budget allocation. Three pilot projects to test various levels of intellectual property had launched relating to foreground intellectual property (IP), background IP and shared IP. Particular types of IP created particular difficulties. The separation agreements between Armscor and Denel created a further complexity as Denel were authorised free access to all military IPs. The Department had created the framework for an IT system that would capture intellectual property and running programmes had been utilised to provide access to all data created. Formal project teams had been set up to regularly manage and report on this project. This database could be ready for audit by the end of March 2008.

Mr Gerber focused attention on DODs Special Defence Account. He noted that the Department had reported an under spending due to a surplus on the strategic defence packages. Furthermore 98% of purchase contracts were in place,  there had been delivery of 98% of materials, and the numbers of irregularities were less than 0.5%. He asked the Department to explain the challenges experienced with the remaining 4% percent of contracts.

Major-general Schrier answered that this delay was due to the difficulties in defining the needed equipment. Although the vessels and aircraft had been reported and audited, the remaining logistical supplies still needed to be defined. Technical deviations were also identified during trial exercises. A request was made to for a roll-over of these funds, but these contracts were subsequently audited.

Mr Gerber wanted to know how much money had been rolled over.

Major-general Schrier answered that R1.5 billion had been rolled-over, of which R950 million was a provision set aside for changes in exchange rates.

Mr Gerber expressed his shock at the phasing out of certain vehicles and aircraft and the reduction of flying hours, that partially due to the replacement of obsolete equipment. He said that that DOD had expressed concern about the impact of under funding, which caused the South African Airforce to operate its air services at sub-optimum level. The under funding of the operating budget was likely to force the combat system group to operate a strategic defence aircraft at utilisation levels below the optimum. He asked for explanation.

Mr Masilela confirmed that the incorporation of the strategic defence packages was challenging and the DOD had been very honest about these challenges. These problems were noted when considering the updating of the force design and structure. The Department would need a specific budget to enable the operation of these packages.

The Chairperson enquired what these challenges were.

Mr Masilela replied that the DOD needed to provide a balanced capability to meet immediate operational requirements. The current need for combat aircraft support for joint operations was very low because there was no real threat. The Department was mainly focusing on transport capabilities and the training of new pilots as preparation for future operations. The budget allocated for combat systems had been deliberately reduced to ensure that other systems could provide the output that was expected to meet the audit task teams commitments. Operating costs for the Hawke aircraft were roughly equivalent to the Impalas costs and DOD would continue to fly the former aircraft at about 2000 hours per year. The Cheetah systems would operate for about 1000 hours per year. The budget for combat systems would be increased if the threat to national security increased. DOD had been able to meet its outputs through utilising its spare reserves, but could only be reliant on this method for a limited time. The Airforce was implementing a very stringent recovery processes, and the Oryx helicopters should be serviced in due course. Capital funds had been ring-fenced for this purpose and the inherent integrity of the systems was being addressed systematically. This would limit outputs in the short-term.

Ms T Tobias (ANC), Chairperson of the Portfolio Committee on Defence informed members that her committee had established nine sub-committees to tackle any challenges in each of the nine programmes in the DOD. The improvements made by the Department were appreciated. The Portfolio Committee had noted all the issues and would engage the Department in this regard. It anticipated another qualified audit report as the particular challenges faced by the DOD could not be resolved over one financial year.

The Chairperson noted that one of the SCOPA’s strategic objectives was to achieve synergy between its work and that of the Portfolio Committee. The continuous presence of representatives of the office of the AG and NT was appreciated. He was confident that DOD had taken due note of the concerns and issues raised, and that it would realise the commitments made to SCOPA. He summarised that the discussions had highlighted concerns around the poor record keeping; the command at unit level; and the challenges of the transformation process and skills capacity at middle management level. The Department needed to ensure adequate levels of compliance with policies and procedures.

The meeting was adjourned.



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