Issues on Armscor Annual Report; defence Department Annual Report: briefing

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Defence and Military Veterans

12 March 2007
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Meeting report

DEFENCE PORTFOLIO COMMITTEE
13 March 2007
ISSUES ON ARMSCOR ANNUAL REPORT: BRIEFING; DEFENCE DEPARTMENT ANNUAL REPORT: BRIEFING

Acting Chairperson:
Mr J Schippers (ANC)

Relevant Documents:
Presentation on Issues Emanating From Armscor’s Annual Report 2005/06
Department of Defence Annual Report 2005/06

Audio recording of the meeting

SUMMARY
Issues were discussed regarding the letter sent by the Committee on Armscor’s Annual Report for the 2005/06 financial year. Issues were based on the budget, performance against their operational goals, management and the Auditor General’s report.

The Department of Defence briefing focused on its
integrated management system, its efforts to address the lack of capacity within the Department and the alignment of the Department’s rejuvenation strategy with the Human Resources 2010 policy. During the discussion Members raised concern with the skill shortages within the Department and the rejuvenation of reserves.
 
MINUTES
Armscor Presentation
Mr Sipho Thomo (CEO, Armscor) addressed an issue on the Armscor Group Operational Budget for 2005/06. He stated that there was a need to build the skills base within Armscor. A briefing on re-skilling would be held in six months. The Committee needed a report which provided information on the frame and technology renewal. Clarification was needed on the issue of why Armscor spent 72% of its budget on salaries. He requested that
Mr Xolani Magojo (General Manager Human Resources, Armscor) outline how Armscor had built a skills base.

Mr Magojo mentioned that there were three categories of staff - support staff (human resources, corporate affairs and finance); the non-technical (registry management; legal and financial) and technical personnel. The first two categories were available, however the third category of technical personnel was scarce. The third category consisted of personnel that had tertiary qualifications and these people were not readily available.

Concerns relating to core functions were mentioned. There were transformation challenges as a result of people from the designated groups (women, black people and people with disabilities) being in short supply since the market paid a premium for them which led them to be more mobile. More experienced people were needed as mentors and coaches. There was an aging workforce whose average age was 45 years and associated retirements.

The interventions suggested included improving the salary of the employees; initiating bursaries and trainee programmes; encouraging financial investment for trainees; making provision for continuity so monitoring pending retirements and termination trends.

Mr Mike Matibe (Acting General Manager- Quality and IT, Armscor) presented on the replacement of the main frame and technology renewal. He stated that the project to transform the application systems of Armsco commenced in 2005 with the main objective being technology renewal and cost reduction. He further remarked that main frame was expensive to maintain since it was developed twenty years ago. This meant that the technology was outdated. The shrinking defence budget also resulted in the need to replace the main frame. It was mentioned that the application system used by the Human Resources would stop operating in April 2007 and this would be a problem for the Human Resources.

The reason for the non-achievement of the replacement of the framework was the delayed approval by the Board of the project and the finalisation of the enterprise architecture. The project would be completed by 2009-2012.

The ICT equipment needed to be replaced regularly. The laptops, desktops and computers were to be changed after three years.  The situation has been improved by identifying potential cost reduction, guidelines to managers on equipment and consolidating servers to reduce maintenance and support costs.

Mr Thomo addressed the issue of why Armscor spent 72% of the budget on salaries. He stated that they had an operational budget for 2005/06. Armscor required operational investment reflected in a skill profile. Armscor needed an organizational structure. He then stated that Mr Magojo would address the issue of why most of the money went to the people.

Mr Magojo stated that Armscor invested in developing staff capacity. He mentioned that they operated in a technical complex environment which required highly skilled people who required higher salaries.

Mr Thomo addressed the issue of strategic defence packages in terms of marine defence.
He stated that there had been a three month delay in the submarine programme due to the delay in the completion of the sea acceptance trials as a result of Denel Landward Systems Lyttleton (DLSL) which encountered various problems with the functioning of the gun segments.

Mr D Griesel (Assistant FM Acquisition, Armscor) answered the issue of what the technical problem with the helicopters was since seven out of twelve had been delivered. He stated that they acquired the helicopters from Italy and that they had delayed because of the certification requirement of the helicopters.

Mr Griesel mentioned that the airbus program was a unique program and that the acquisition had been approved by the financial authority.

SANDF’s (South African National Defence Force) operational support was discussed in terms of disposal of stock and setting up a forum to discuss stock sales issues. The Committee enquired about the R2.7m net loss on IMT and underspending issues concerning Alkantpan and Protechnik. DOD had supplied additional funding of R16m per year from 2006/07.

Transformation challenges such as loss of personnel because of limited career opportunities. The Committee stated that it needs a presentation by April 2007 on transformation policy focussing on affirmative action, gender and race in managerial position.

The Committee recommended that details on development of a trainee programme should be provided. Armscor’s bursary scheme criteria includes academic merit; parental support throughout the student’s studies and a specific selection of subject fields such as computer science and commercial science.

The Committee required a report on a formal information systems change control policy; data backup and security policy for accessing an information system. These aspects had not been formally approved in the Auditor General’s report.

It was stated that the IT policy had been revised in October/November 2006 and subsequently approved in early 2007.

Regarding the underspending of R51m in IT, this was explained by factors such as personnel vacancies not being filled; projected post retirement benefits; postponement of a computer services project; and not utilising contractor services.

Other issues mentioned were the unexplained saving of R12m; the report on the outcome of the suspension of the CEO and how R126m and R21m was lost and then R3.4b as yet unspent money.

Discussion
Mr P Groenewald (FFP) remarked that the report was very disturbing and that it seemed that Armscor was falling apart because they did not have the required highly qualified people. These post required higher salaries. There were also reports on the suspension of the CEO and others.

Mr Thomo stated that this crisis would be addressed when they submitted the budget to the Department and the National Treasury.

Mr Groenewald asked what the effect of affirmative action was.

Mr Thomo replied that affirmative action required the employment of black people and other previously disadvantaged people. He stated that they needed to employ people that were skilled taking into account the affirmative action requirement of the country.

Mr G Koornhof (ANC) asked why it had taken three years to negotiate with Denel. Were there no cheaper vehicle systems internationally?

Mr Griesel answered that there was the cost structure to consider since the vehicle was developed and bought locally. He stated that the prices were therefore comparable when one looked at the unit cost and the production cost.

Mr Thomo remarked that it was important for the Committee to remember to support the local industry.

Mr S Ntuli (ANC) asked what the figures were for the bursaries mentioned.

Mr Griesel replied that there were six bursaries per annum and that this fed into the trainee program.

Mr Ntuli asked which department assessed the specific programs of Armscor.
 
Mr Thomo replied that the Armscor Act which was written by the Department of Defence stated that the Auditor General would check the records. This meant there was no need to have a specific assessor because the Board also checked whether they kept their mandate. They worked with the DoD each year and wrote the service agreement, delivery and measurement performance.
 
Mr Botha enquired about the skills gap.

Mr Thomo replied that they had not relaxed their policies in terms of getting a number of women in the technical positions. They had doubled their efforts in this respect.

Mr Griesel responded that the financing of employees to become more skilled was initiated by them through requesting bursaries. This would then be considered according to the available resources in terms of the budget.

Ms Daniels remarked that a balance should have been struck regarding the salaries, affirmative action and the equipment. This meant that the short term and long term budgets should have detected this.

Mr Thomo states that as regards the issue of short term and long term budgets on women, they requested Ms Daniels to kindly help them to find the women with the qualifications. 

Mr M Booi (ANC) asked what the state of the relationship between DoD and Armscor was because he felt that it was not truly reflected in the presentation.

Mr Thomo replied that the report reflected the things that happened in 2005/06 and that the problem with the relationship had been resolved and that the current report did not reflect that anymore.

Department of Defence Presentation
Mr T Mofumi (CEO, DoD) remarked that the defence administration showed an integrated management system. The National Treasury delivered a plan which acted as part of the adjudicating team. The issues of finance were also addressed by the National Treasury.

In 2007 the government program of action was identified. There was a need to capture the level two plans of gejima, the planning tool used by the Department. There was the second training of reporters and they identified specific people within the divisions. They ensured that there was quarterly reporting. The customer requirements were accommodated.

In terms of the feedback of the issue of lack of capacity on the sixth month period, it was due to the resignation of members.

Brigadier General A Fakir (D Plan, DoD) stated that in terms of employment there was a rejuvenation strategy which was based on the Human Resources 2010. They had two military systems imperatives. In 2003 there was improved rankage compliance. In terms of intelligence there were twelve people identified who were waiting for security clearance.

Ms C Mutloane (Acting CEO, DOD) stated that there were deviations from the National Treasury. Only minor enhancements could be done.

Discussion
Mr Botha stated that skill shortages were a major problem.

Mr Monareng (ANC) asked when ranks were reviewed and how the reserves were rejuvenated.

Mr Mofumi (Chief Policy Planner, DoD) replied that rank review was a process. The issue was flagged by the Auditor General and that during the time there were no proper records of procedures and that it was an issue being dealt with.

Ms Daniels asked how the balance was made in terms of the Military Skills Development System (MSDS) into intelligence.

Mr A Visser (CDSM, DoD) replied that the budget was significant, but the Department would have liked to repay more. Human resources 2010 would retain 40% rejuvenation, and the reserve force would be 50%. He further remarked that the more the regulars were kept the more money they put into the human resources reserve.

The meeting was adjourned.

 

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