DefenceBRRR

2.     BUDGET REVIEW AND RECOMMENDATION REPORT OF THE PORTFOLIO COMMITTEE ON DEFENCE AND MILITARY VETERANS ON THE 2016/17 ANNUAL REPORT OF THE DEPARTMENT OF DEFENCE AND MILITARY VETERANS, DATED 12 OCTOBER 2017.

DELAY IN TABLING OF DEPARTMENT OF DEFENCE ANNUAL REPORT FY2016/17

The Portfolio Committee on Defence and Military Veterans took note of the Department’s letter to the Speaker of the National Assembly explaining the reasons for the delay in the tabling of the Annual Report of the Department of Defence for 2016-17, as published in the Announcements, Tablings and Committee Reports (ATC) of Parliament (No. 133 – 2017) dated 28 September 2017.

Note is taken of the difference of opinion between the Department and the Auditor-General on the legal status and accounting of the Special Defence Account (No. 6 of 1974) which led to the audit report not being issued. This impacted on the issuance of the 2016/2017 Audit Report by the Auditor-General which must be incorporated into the Department’s Annual Report.  The Office of the State Law Advisor issued a legal opinion regarding the matter, which is dated 29 August 2017, Reference No. 84/2017/18.

There are specific deadlines that have to be adhered to in the engagements with the annual reports and the subsequent compilation of the Budget Review and Recommendation Reports of Parliament.  The Committee would like to express its discomfort with the delay as it impacts negatively on its planned activities and oversight responsibilities. In particular, the Committee will not be able to provide an assessment of the department’s service delivery performance and the effectiveness and efficiency of the department’s use and forward allocation of available resources as prescribed in Section 5 (2) of the Money Bills Procedures and Related Matters Amendment Act (No. 9 of 2009).

The Portfolio Committee on Defence and Military Veterans therefore recommends that the Minister of Defence and Military Veterans, National Treasury and the Auditor-General resolve the matter within 90 days or earlier, in order for the Portfolio Committee to engage with the Annual Report, as required by legislation.

BUDGET REVIEW AND RECOMMENDATION REPORT OF THE PORTFOLIO COMMITTEE ON DEFENCE AND MILITARY VETERANS ON THE 2016/17 ANNUAL REPORT OF THE DEPARTMENT OF MILITARY VETERANS (DMV), DATED 12 OCTOBER 2017.

The Portfolio Committee on Defence and Military Veterans, having considered the financial and service delivery performance of the Department of Military Veterans (DMV) on 12 October 2017 for the 2016/17 financial year, reports as follows:

             1.         Introduction

1. Description of core functions of the Department

The Department of Military Veterans derives its mandate from the Military Veterans Act (No 18 of 2011), which requires it to provide national policy and standards for administration, socio-economic support, and empowerment and stakeholder management to military veterans and to their dependents, including benefits and entitlements to help realise a dignified, unified, empowered and self-sufficient military veterans community.

1.2       Mandate of Committee

The Portfolio Committee on Defence and Military Veterans (PCDMV) is mandated to oversee the Department of Military Veterans (DMV) to ensure that the Department fulfils its mandate through the monitoring of the implementation of legislation and adherence to policies, such as the Military Veterans Act and the Military Veterans Benefits Regulations and other related legislation. It must scrutinise legislation which supports the activities of Government; the budget and functioning of DMV.

1.3       Purpose of the BRR Report

Section 5 (2) of the Money Bills Procedures and Related Matters Amendment Act (No. 9 of 2009) allows for each Committee to compile a Budgetary Review and Recommendation Report (BRRR) which must be tabled in the National Assembly.  Section 5(3) provides for a budgetary review and recommendation report to contain the following:

• an assessment of the department’s service delivery performance given available resources;
• an assessment on the effectiveness and efficiency of departments use and forward allocation of available resource; and
• recommendations on the forward use of resources.

The above is done in October of each year, and the BRRR is also a source document for the Standing/Select Committees on Appropriations/Finance to make recommendations to the Houses of Parliament on the Medium-Term Budget Policy Statement (MTBPS). The comprehensive review and analysis of the previous financial year’s performance, as well as performance to date, form part of this process.

1.4       Methodology in compiling the report

The Report is compiled from the various activities of the Committee. It is inclusive of the Committee’s meetings, oversight visits, reports on budget votes, strategic plans, annual performance plans, quarterly reports and annual reports, as well as previously published Committee reports.

1.5       Dates of oversight visits

The PCODMV did not conduct any oversight visit related to the DMV in 2016/17.

1.6       Information used to compile the Report

Besides the information on the Oversight visits, other information used in the assessment of the service delivery and financial performance included the:

• Committee reports on the 2016/17 Budget Hearings, Strategic Plans and Annual Performance Plan Reports;
• DMV Quarterly Reports;
• DMV Annual Report 2016/17;
• The National Development Plan;
• The 2016 and 2017 Estimates of National Expenditure;
• The 2016 State of the Nation Address; and
• The Auditor-General of South Africa Report on the DMV.

1.7       Structure of the Report

This report comprises seven sections:

• Section 1: Introduction – sets out the mandate of the Committee, the purpose of this report (BRRR) and the process to develop this report.

• Section 2: Provides an overview of the key relevant policy focus areas.
• Section 3: Provides an overview and summary of previous key financial and performance recommendations of Committee (2016/17).
• Section 4: Provides a broad overview and assessment of financial performance of the Department for 2016/17.
• Section 5: Voted Funds and Planned Expenditure for FY 2017/18
• Section 6: Key Committee findings. 
• Section 7: Key Recommendations

1. Overview of the key relevant policy focus areas

2.1       State of the Nation Address

President Jacob Zuma delivered his State of the Nation Address (SONA) on 11 February 2016. Apart from the recognition of the Defence Force’s peacekeeping role, little emphasis was placed on matters pertaining to the Department of Defence and the Department of Military Veterans. Matters raised by the President relevant to the DMV, include the “Erection of a monument in France representative of the broader South African involvement in World War 1”. The monument will be erected as a true reflection of all South African participants in World War 1 for all racial groups in the country. This links up to Heritage, Memorials, Burials and Honour sub-programme of the Empowerment and Stakeholder Management Programme of the DMV.

2.2       National Development Plan (NDP)

The DMV contributed to the National Development Plan (NDP) through its various programmes for the Financial year 2016/17. The relevant chapters include the following:

Chapter 3: Economy and Employment: Facilitating employment for military veterans contributes to the NDP. 179 military veterans were provided with general advice on business support and development.

Chapter 6: An integral and inclusive rural economy: A monthly allowance of R1 200 was provided to 2 243 military veterans and/ or dependants through Social Relief of Distress (SRD).

Chapter 8: Transforming Human Settlements: 168 newly built houses were handed over to military veterans (five in Free State; 38 in Northern Cape; 19 in North West; 15 in Limpopo; six in Eastern Cape; 48 in Gauteng, one in KwaZulu-Natal and 36 in Mpumalanga). In addition, 104 distressed owners of mortgaged houses were rescued.

Chapter 9: Improving Education, Training and Innovation: 7 146 Military veterans and their dependants were provided with bursaries for higher and basic education, 50 of whom graduated.  Additionally, 1 849 received access to training and skills development.

Chapter 10: Promoting Health: For 2016/17, a total of 1 074 military veterans were authorised to access healthcare, bringing a total number of beneficiaries to 15 740 to date.  Dedicated counselling benefits were provided to 1 593 military veterans and their dependants. Burial support funding was provided to 460 military veterans` families. To date, 105 military veterans were provided with a once-off compensation benefit.

2.3       Medium Term Strategic Framework (MTSF) 2014 - 2019

For 2016/17, the DMV contributed to the following MTSF outcomes:

Outcome 1: Improved-quality basic education. During the 2016/17 period, 7 146 Military veterans and their dependants were provided with bursaries for higher and basic education, 50 of whom graduated.  Additionally, 1 849 received access to training and skills development.

Outcome 2: A long and healthy life for all South Africans. For 2016/17, a total of 1 074 military veterans were authorised to access healthcare, bringing a total number of beneficiaries to 15 740.  Dedicated counselling benefits were provided to 1 593 military veterans and their dependants. Burial support funding was provided to 460 military veterans` families. To date, 105 military veterans were provided with a once-off compensation benefit.

Outcome 4: Decent employment through inclusive economic growth. 179 military veterans were provided with general advice on business support and development.

Outcome 5: A skilled and capable workforce to support an inclusive growth path. 22 letters of support were issued for military veteran-run businesses seeking support from other state organs, submitting tender bids and striving for joint ventures with private business entities. There were 132 military veteran-owned companies for 2016/17. In addition, 179 military veterans provided with general advice on business support and development.

Outcome 7: Vibrant, equitable, sustainable rural communities contributing towards food security for all. A monthly allowance of R1 200 was provided to 2 243 military veterans and/ or dependants with SRD.

Outcome 8: Sustainable human settlements and improved quality of household life.  168 newly built houses were handed over to military veterans (five in Free State; 38 in Northern Cape; 19 in North West; 15 in Limpopo; six in Eastern Cape; 48 in Gauteng, one in KwaZulu-Natal and 36 in Mpumalanga).  In addition, 104 distressed owners of mortgaged houses were rescued.

Outcome 12 - An efficient, effective and development-oriented public service and an empowered, fair and inclusive citizenship. Risk-based audits were conducted from the approved risk management plan. Quarterly risk assessment was conducted as part of the internal auditing and risk management process.  The Department has a fully operational business activity statements (BAS) and payroll systems. All statutory planning, monitoring and evaluation documents were developed and submitted to external stakeholders. The Appeals Board and Advisory Council were operational as well as SANMVA. In addition there is a fully operational Audit Committee.

2.4       Strategic Priorities of Department

The Strategic Priorities of the DMV are closely linked to Government’s medium-term strategies. For 2016/17, they include the following:

• Health: In ensuring a dignified lifestyle, safe and human/ healthy environment for military veterans, the DMV continued to provide needs-based healthcare programmes and services aimed at maintaining the well-being of military veterans. A total of 15 740 military veterans were provided with healthcare services in partnership with SAMHS. In addition, 1 593 military veterans were counselled during the period under review.
• Education: During 2016/17, the Department targeted 4 000 military veterans and their dependants for education support. However, the demand exceeded the targets resulting in the DMV having 7 146 approved applicants.
• Training and skills development: 1 908 military veterans and their dependants received access to training and skills development.
• SRD: The Department implemented the SRD project to alleviate poverty and unemployment amongst military veterans. Although 2 000 veterans were targeted, 2 243 military veterans and their dependants were assisted.

2.5.      Overview of DMV Strategic Plan and Annual Performance Plan

The DMV 2016/17 Annual Performance Plan and the Strategic Plan (2015 - 2020) give effect to the mandate of the DMV which translates into the following programmes:

• Administration

This programme is responsible for the provision of Strategic direction through six sub-programmes, namely; Management; Corporate Services; Financial Administration; Internal Audit; Strategic Planning, Policy Development and Monitoring and Evaluation; and Office Accommodation.

• Socio-Economic Support (SES)

The provision of socio-economic support to both military veterans and their dependants is still a mandate that deserves a greater effort by the Department. During the period under review, 168 newly built houses were handed over to military veterans (five in Free State; 38 in Northern Cape; 19 in North West; 15 in Limpopo; six in Eastern Cape; 48 in Gauteng, one in KwaZulu-Natal and 36 in Mpumalanga).  In addition, 104 distressed owners of mortgaged houses were rescued. 1 074 military veterans were authorised to access healthcare, bringing a total number of beneficiaries to 15 740.  Dedicated counselling benefits were provided to 1 593 military veterans and their dependants. In terms of bursaries, 7 146 military veterans and dependents were funded.

• Empowerment and Stakeholder Management (ESM)

Managing and facilitating the implementation of military veterans’ empowerment and stakeholder management programmes, is a mandate that demands greater effort. Some 1 908 military veterans and their dependants received access to training and skills development. 22 letters of support were issued for military veteran-run businesses seeking support from other state organs, submitting tender bids and striving for joint ventures with private business entities. There were 132 military veteran-owned companies for 2016/17. In addition, 179 military veterans were provided with general advice on business support and development.

3.         Summary of previous recommendations of the Committee

3.1.      2016 BRRR Recommendations

In 2016, the Committee made the following recommendations in its BRR Report on performance of the DMV for the 2015/16 financial year.

3.1.1    Budgetary related recommendations:

• The Committee encouraged the Department to enhance its efforts to address the underspending and underperformance through the TSI and the Acting D-G to improve the lives of military veterans.
• The Department was not putting its weight behind the objective of being independent. The Department was urged to ensure that all systems are in place to ensure that it is able to exist independently from the Department of Defence. The DMV is still not having an independent budget vote.
• The Department should submit a report on progress regarding the MPAT, preferably when it reports on the performance of the Second Quarter for FY 2016/17. This was done using the dashboard developed by the Committee to track progress.
• A Skills Audit is essential to properly plan training and the Department was requested to present a report on this at the next meeting, especially as the vacancies and skills gaps in the service delivery programmes are detracting it from functioning optimally. The Skills Audit Report has not been submitted to the Committee. Vacancies still exist in the Department.  
• Only 72 per cent of Performance Agreements were signed. The Department was urged to ensure that 100 per cent is reached. Only 99 per cent was achieved in 2016/17.
• The Department should report back at the next meeting on the progress made with provincial offices as these are crucial to reach out to military veterans all over the country. It should similarly ensure that these offices are properly staffed to facilitate access to the Department and the various benefits as seamlessly as possible. Provincial offices in most provinces are not in existence.
• The Department should give feedback on efforts to improve the relationship with SITA, inter alia the instruction that IT-related equipment should be procured through it, as well the status of their monthly meetings to improve their relationship. Even though feedback was given, challenges still exist.
• The Department indicated that it is following the normal recruitment processes regarding the appointment of military veterans. The Committee encouraged it to ensure that these processes are strengthened and that the “best person” for the job should be employed.
• The Committee recommended that the Consequence Management regime of the DMV be strengthened and that it should report at the next meeting on the cases and steps taken against persons who were found to be responsible for instances of Irregular and wasteful expenditure and other serious transgressions. Investigations are still being conducted in this regard.
• The Department was requested to report back on progress to overhaul the SCM and Procurement processes in the Department in total with the assistance of National Treasury and the DPSA. The training intervention was welcomed and the Department was urged to report on progress in this regard on a regular basis.
• The Committee was informed that some of the funds “parked” at NSFAS, has since been utilised for the current academic year and it was encouraged to ensure that these funds were properly accounted for and utilised. NSFAS remains a challenge.  
• The Committee wanted clarity on the exact number of the people employed at the DMV and these statistics should be inclusive of contracts workers, interns etc., and it should report back at the next meeting. This was provided in the Annual Report of 2016/17.
• The Committee recommended that the Department should prioritise the Database through enhancing its verification processes with military veteran organisations such as SANMVA and the assistance of the TSI to make progress on this issue. This is crucial since some of the benefit roll-outs seem to rely on an accurate database, and also because an inaccurate database can open the Department to possible litigation. The Database remains a challenge.
• The Department was told to ensure that its reports on SLA’s and MOU’s need to be as complete as possible, thus listing both the in-year numbers as well as the cumulative number of the SLA’s and MOU’s, when it reports to the Committee.
• The Committee encouraged the Department to ensure that interns and contract workers are being treated fairly in particular when they are performing very well in especially service delivery programmes that are struggling to perform.
• The Department should at its next meeting with the Committee report on its disciplinary cases i.e. the numbers, offences, outcomes etc.
• The Department was requested to report to the Committee on its new structure as soon as it has been approved by the Executive Authority.
• The Committee wanted the Department to report on a quarterly basis on progress with housing and the transport benefit, in which the Department performed poorly in previous years. A progress report was provided but these targets were still underachieved.
• The Call Center challenges should be prioritised, especially since the Department has indicated that some of the functions will migrate from SITA to DMV. It should report to the Committee on this, with a view a having a joint meeting with both parties to assist addressing these issues.
• The Committee recommended that the DMV looks into the challenges around the pay-out of Burial support funds as a matter of urgency to ensure that the last respects are paid to military veterans in a dignified manner. This was done and progress has been made.
• The Department was encouraged to improve the performance of the Strategic Planning, Policy Development and Monitoring and Evaluation sub-programme through proper and speedy staffing as well as Management playing a bigger role to take responsibility of their respective policies.
• The Committee recommended that the Department should report back on the outstanding issues at the next meeting and progress regarding the recurring issues to allow the Committee to track progress in this regard.

3.1.2    Response by Department and Minister of Finance:

The Minister of Finance’s response dated 17 May 2016 to the 2015 BRRR recommendations, refers only to the recommendations made on the Department of Defence. No Response was received for the 2016 BRRR.   

3.2.      Committee 2016/17 Budget Report

The Committee made the following recommendations in terms of the 2016 Annual Performance Plan, Strategic Plan (2015 - 2019) and the 2016/17 Budget of the Department of Military Veterans:

• The reasons for the delay in the appointment of an accounting officer were unclear and the Committee urged the speedy appointment of an accounting officer for the Department. The appointment is still outstanding.

• The performance target set for the Management Performance Assessment Tool (MPAT) was very ambitious and the Department was implored to set a more realistic and achievable target that takes into account the practical constraints being experienced.
• The strengthening of the Internal Audit Unit has to be prioritised in order for the Department to ensure compliance with national regulations, and the resolution of audit queries. The Department should also strengthen its monitoring and evaluation, policy, and supply chain management capacity to facilitate good governance which have shown weaknesses over a period of time. The DMV failed in terms of Internal Audit Unit.
• Vacancies ought to be filled responsibly and care must be taken to ensure that the most appropriately skilled and qualified persons are appointed.  The Committee urged the DMV to present the results of the skills audit conducted by the DMV to the Committee. If such a skills audit has not been completed, it should be prioritised and shared with Members. This information has not been shared with the Committee.
• The Committee required more details regarding the State Information Technology Agency’s (SITA) role in modernising the Department’s ICT systems.
• The Department ought to prioritise the payment of invoices within the prescribed 30-day period, given the impact of late payments on SMME’s. This was not achieved.
• The reduction of funding to the military veterans’ database was concerning and the Committee request the DMV to provide it with quarterly updates on the status of the database and to prioritise the urgent finalisation thereof.
• The slow and often lack of service delivery to military veterans is threatening nation building and reconciliation efforts. The Department should therefore enhance its overall efforts to prevent the escalation of protests by military veterans.
• The slow progress made in the provision of housing to military veterans and their dependants, was concerning to the Committee. The Committee proposed that the DMV engage with provincial and local governments as well as the Department of Human Settlement to ensure the speedy delivery of such houses. The Committee also requested quarterly updates on the delivery of housing to military veterans throughout the financial year. This was done but the Department still underachieved. Only 168 houses were newly built instead of the planned 1 000.  

             4.         Overview and assessment of financial AND PROGRAMME performance

4.1.      Overview of Vote allocation and spending trends for 2016/17 FY

In terms of the budget for 2016/17, the DMV spent R504.6 million or 84.5 per cent of its total allocation of R597.6 million. This means that the DMV underspent by 15.5 per cent, which is higher than 8.3 per cent recorded in 2015/16. Although underspending was recorded in all programmes as shown in Table 2; it should be noted that this is an improvement as compared to the expenditure for 2013/14 in which only R165.9 million or 47.2 per cent of its total budget of R351.4 million was spent (see Table 1).

Table 1: Overview of Expenditure per Programme

In terms of programme expenditure, all programmes recorded underspending with the highest being Socio-Economic Support at 22.3 per cent, followed by Empowerment and Stakeholder Management at 17.3 per cent, and Administration at 0.8 per cent.

The three programmes of the DMV had a total of 23 set targets of which 14 were achieved leading to a success rate of 61 per cent as indicated below:

Total targets set:                                    23    

Targets achieved:                                  14/23    

Targets not achieved:                             9/23     

Success rate:                                         61%

Total Budget Spent (%):                                    84.5%

4.1.1    Administration

Total targets set:                                    12     

Targets achieved:                                  8/12    

Targets not achieved:                             4/12     

Success rate:                                         66.7%

Total Budget Spent (%):                                    99.2%

As shown above, Administration had a total of 12 targets of which 8 have been achieved leading to a success rate of 66.7 per cent. The underachieved targets are: Percentage of staff attended training initiatives (43 per cent out of 100 per cent); Percentage of signed Performance Agreement submitted to HRM (99 per cent out of 100 per cent); Percentage staffing of vacant funded posts (79 per cent out of 90 per cent); Percentage of legitimate invoices paid within 30 days of receipt (67 per cent out of 90 per cent).

In terms of budget, this programme has spent R158.06 million of the allocated R159.3 million. This means the DMV recorded an underspending of R1.3 million or 0.8 per cent of the allocated budget as shown in Table 4. No overspending was recorded. Underspending was recorded for Corporate Services (R1.04 million), Internal Audit (R217 000), and Strategic Planning, Policy Development, Monitoring and Evaluation (R18 000).

4.1.2    Socio-Economic Support

Total targets set:                                    5     

Targets achieved:                                  3/5    

Targets not achieved:                             2/5     

Success rate:                                         60%

Total Budget Spent (%):                                    77.7%

As shown above, Socio-Economic Support had a total of 5 targets of which 3 have been achieved leading to a success rate of 60 per cent. In contrast, this programme spent 77.7 per cent of its allocated budget, and 40 per cent of its targets were underachieved. The underachieved targets include the Number of deserving military veterans with decent housing per year (168 out of 1 000 planned); and Average days taken to register and update personal records of Military Veterans on the National Military Veterans database (61 days out of 60 planned).

In terms of budget, this programme has spent R243.5 million of the allocated R313.5 million. This means the DMV recorded an underspending of R70.1 million or 22.3 per cent of the total allocated budget. It is concerning considering that only 60 per cent of the targets were achieved while 77.7 per cent of the budget was spent. In terms of sub programmes, underspending was recorded for all programmes. The largest in terms of percentage was Database and Benefits Management at 77 per cent (R1.98 million underspending), followed by Socio-Economic Support Services at 71.3 per cent (R67.2 million), and Healthcare and Well-being support at 98.7 per cent (R930 000).

4.1.3    Empowerment and Stakeholder Management

Total targets set:                                    6     

Targets achieved:                                  3/6    

Targets not achieved:                             3/6     

Success rate:                                         50%

Total Budget Spent (%):                                    82.7%

As shown above, Empowerment and Stakeholder Management had a total of 6 targets of which 3 have been achieved leading to a success rate of 50 percent. In contrast, this programme spent 82.7 per cent of its allocated budget, and 50 per cent of its targets were underachieved. The underachieved targets include the Number of private sector companies and organs of state in partnership with the Department of Military veterans per year (0 out of 60 planned); Number of deserving Military Veterans to access relevant training and skills development per year (1 908 out of 3 500 planned); and Number of agreements established at continental and international levels per year (0 out of 30 planned).

In terms of budget, this programme has spent R103 million of the allocated R124.7 million. This means the DMV recorded an underspending of R21.6 million or 17.4 per cent of the total allocated budget. The sub programmes with underspending were Provincial offices and stakeholder relations (R11.5 million); Empowerment and Skills Development (R7.6 million); and Heritage, Memorials, Burials and Honours (R2.5 million).

4.2       Financial statements

The financial statements indicate many corrections of the errors made in the previous financial year. These range from incorrect figures of revenues to misclassifications of various items such as salaries and wages, consultants, housing etc. This has been indicated as a major concern by the A-G. Nonetheless, the following should be noted:

• Unauthorised Expenditure: Similar to 2013/14 and 2014/15, no unauthorised expenditure was incurred for 2016/17. The DMV should be commended.

• Irregular Expenditure: In terms of Irregular Expenditure, the closing balance was R82.26 million, which include R65.9 million from the previous years and R16.3 million for the current year.  Incidents of Irregular Expenditure include the following:

• 8 Cases of non-compliance with procurement processes for R694 000. Investigations have commenced with some letters issued to potential transgressors for response.
• 15 Cases of non-compliance with supply Chain Management processes for R12.6 million. Investigations commenced with some letters issued to potential transgressors for response.
• Non-compliance with DMV approved Financial Delegations (period of 01 April to 11 August 2016) for R89.6 million. The Financial Delegations Policy was formalised and signed on the 12 August 2016. The condonement letters were approved by the acting Accounting Officer.
• Non-compliance with Military Veterans Regulations by not applying the Means Test for R247 000. Consequence management will be implemented by the end Quarter 2.
• Non-compliance with SCM processes for R2.9 million. Payments for MV beneficiaries school accommodation and books where the Tender process was avoided. The investigation was outsourced and the Service Provider was appointed. The investigation is underway.
• 6 Cases of non-compliance SCM for R121 000. Deviation for 3 quotations. Investigations commenced with some letters issued to potential transgressors for response.

• Fruitless and Wasteful Expenditure: Fruitless and Wasteful Expenditure awaiting resolution was R3.2 million, which include R2 million for 2015/16, R1.8 million for 2016/17, and R658 000 transferred to receivables for recovery. The incidents contributing to the 2016/17 fruitless and wasteful expenditure include Expenditure incurred by the Department for bookings where the travellers did not cancel if they were unable to travel or attend (R658 0000), LOGIS system payments not yet being used by the Department (R43 000), Catering for a meeting that was subsequently cancelled (R4 000), Fruitless and wasteful of dental fee invoice paid for Military Veteran under investigation (R853 000), Procurement of very expensive computers (R129 000), and Duplicate payments on school fees (R142 000). 

• Contingent Liabilities: The total for Liabilities was R206 million. These include Fetola Mogopolo Construction and Interior Design (R4 million), B & M Catering Services (R2.01 million), Zwiito Cleaning R1.341 million), Zeal Health (R198.15 million), Bakoena Entertainment (R413 000). The AGSA raised concerns about these liabilities.

4.3       Compensation of employees

The Annual Report indicates a vacancy rate of 21 per cent by 31 March 2017 with 133 of the approved 169 posts being filled. The challenge facing the DMV is a high staff turnover. To compensate for personnel, the DMV has created 74 contract posts. This means the DMV had 207 personnel by 31 March 3017. In terms of number of employees by salary band, a total of 240 (not 207 as indicated above) employees are recorded. The costs associated with personnel are indicated below.

Table 2: Comparative Compensation of employees

Table 3: Personnel figures- 2015/16 to 2018/19

4.4       Report of the Auditor-General of South Africa FY 2016/17

4.4.1    Unqualified Audit Opinion

The Department received an unqualified audit opinion. This is an improvement from the qualified of opinion of 2015/16, and the disclaimer received for 2013/14.

4.4.2    Emphasis of matters:

These include:

Uncertainty relating to the future outcome of exceptional litigation: Concern was raised with regard to the outcome of a lawsuit regarding a cancellation of contract. For 2016/17, R413 000 was recorded as liabilities incurred, which involved Bakoena Entertainment. Other service providers involve in litigation with the DMV include Fetola Mogopolo Construction and Interior Design, B & M Catering Services, Zwiito Cleaning, and Zeal Health.  

Additional issues included:

Unaudited supplementary schedules: The supplementary information set out on pages 154 to 161 does not form part of the financial statements and is presented as additional information.  For the 2015/16 Annual Report, supplementary information set out on pages 162 to 168 did not form part of the financial statements and was presented as additional information. Similar to 2013/14, these have not been audited. 

4.4.3    Predetermined Objectives:

The A-G could not obtain evidence about the usefulness and reliability of some of the reported performance information of programmes 2 and 3. This is a re-occurring problem from 2013/14, 2014/15, and 2015/16. The following programmes were affected:

• Programme 2: Socio-Economic Support: Firstly, the reported achievement for the Number of bursaries provided to military veterans and their dependants per year was misstated as the evidence provided indicated 6 193 and not 7 146 as reported.  Secondly, the target for Average days taken to register and update personal records of military veterans on the database was not measurable due to a lack of verifiable processes to measure actual performance. Consequently, reliability of the actual achievement reported could not be verified.

• Programme 3: Empowerment and Stakeholder Management: The reason for the variance between the planned target of 3 500 and the reported achievement of 1 908 was not reported in the annual performance report, as required by the Annual report guide for national and provincial departments. The Department reported on mitigating strategies that will be undertaken to address under-performance going forward instead of reasons for variances. In addition, the reported achievement for the target of deserving military veterans with access for training and skills development was misstated as the evidence provided indicated 2 480 and not 1 908 as reported. In terms of the Number of military veterans’ memorial sites erected per year, the source information for the achievement of the planned indicator was not clearly defined, as required by the FMPPI. Accordingly, the planned performance was not measurable due to inconsistencies with regards to processes used for collection of data for reporting purposes. In addition, evidence provided to substantiate reported targets was not sufficient and appropriate and therefore 50 per cent of the reported achievements could not be validated.

4.4.4    Adjustment of Material Misstatements: Some of the material misstatements were not corrected by management. Thus, the A-G raised material findings on the usefulness and reliability of the reported performance information.

4.4.5    Compliance with legislation:

• Financial Statements, Performance and Annual Reports: The financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework and supported by full and proper records as required by section 40(1)(a) and (b) of the PFMA. Material misstatements in assets and financial statement disclosures identified by the auditors in the submitted financial statements were corrected and the supporting records for goods and services and employee cost were provided subsequently, resulting in the financial statements receiving an unqualified audit opinion.  It should be noted that these are recurring findings which resulted in a disclaimer audit opinion in 2013/14.

• Expenditure Management: Effective steps were not taken to prevent irregular expenditure of almost R106 million, and fruitless expenditure of R1.829 million, as required by the PFMA and Treasury Regulations. Of the irregular expenditure, R86.6 million relates to non-adherence to approved financial delegations, and R11.9 million relates to contracts from the previous financial year.  Similar to the previous years, effective internal controls were not in place for payment approval and processing, as required by Treasury Regulations.  Money was spent without the approval of the accounting officer or a properly authorised official, as required by Treasury Regulations. Contractual obligations or money owed by the department were not met and settled within 30 days, as required by the PFMA and Treasury Regulations.

• Strategic Planning and Performance Management: Specific and appropriate information systems to enable the department to monitor progress made towards achieving the goals, targets and core objectives, as indicated in the annual performance plan, were not implemented and operational as required by public service regulations.

• Procurement and Contract Management: Sufficient appropriate audit evidence could not be obtained that some quotations were awarded to bidders based on points given for criteria that were stipulated in the original invitation for quotations, as required by Treasury Regulation 16A6.3(a) and the Preferential Procurement Regulations. Similar to previous years, goods and services above R500 000 were procured without inviting competitive bids. 

• Internal Control: Several issues regarding internal control have led to an unqualified audit opinion. The issues identified include the following:

• Leadership: The accounting officer did not exercise effective leadership and oversight responsibility regarding financial and performance reporting, compliance and related internal controls. Policies and procedures relating to core benefits paid by the DMV were not documented and approved for implementation. Action plans to address prior year audit matters were not properly documented and monitored, resulting in material adjustments to financial and performance reports and non-compliance with legislation.

• Financial and Performance Management: The lack of proper management systems and inadequate reviews resulted in the failure to implement effective controls to ensure that information in the financial statements and performance report were reliable before submission for audit. Management did not review compliance with laws and regulations and monitoring was not effective as it was not focussed on ensuring adherence to laws and regulations.

• Other Reports: An investigation has been conducted with regard to fraud relating to benefits paid to military veterans.

4.5.      Governance

4.5.1    Effectiveness of Internal Control

For 2016/17, the Audit Committee Report, noted that the system of internal control was effective. However, it also noted that more still needs to be done. Instances of non-compliance and internal control deficiencies identified included the following:

• There were discrepancies with regards the implementation of the prescribed framework for managing programme performance information for selected programmes, and this was also reflected in the AGSA’s audit report.
• Lack of documented and approved internal policies and procedures.
• Irregular expenditure, fruitless and wasteful expenditure.
• Fraud investigations in education.
• Consequence management not implemented.
• Non-compliance with laws and regulations.
• Continuous delays to adequately resource the internal audit function.
• Control weaknesses within the IT environment.

4.5.2    Internal Audit

The Audit Committee found that the internal audit function has not fully discharged its mandate, as the approved plan was not fully implemented. Consequently, the Committee could not receive adequate independent and objective assurance from internal audit on controls, governance and risk management, partly because it was not fully resourced. Internal Audit should be fully staffed as a matter of urgency.  

4.5.3    In-Year Management and Monthly/ Quarterly Report

The Audit Committee noted the timeous submission of all reports. However, an improvement in performance reports is required in relation to the objectives to strictly adhere to the SMART principle. This was also raised by the A-G, and is a recurring challenge.

4.6       Quarterly Reports 2016/17

4.6.1    First Quarterly Report

The Department of Military Veterans presented its First Quarterly Performance to the PCDMV on 30 June 2016.

Non-financial Performance

The Department had committed to 21 performance targets areas over the quarter under review. Of the 21 targeted performance areas which the department reported on, 14 targets were achieved which constitute to 66.7 per cent overall achievement of the targeted performance compared to the performance commitments set for the 1st quarter.

Financial Performance

As at 30 June 2016, the DMV spent R91.2 million of its planned spending of R135.3 million. This translates to a variance of 8 percent. Both the SES and ESM programmes were tracking behind projected spend mainly due slow delivery on Housing Support, Military Pensions, Compensation for injuries and skills development.

Observations

Against the background that there are challenges besetting the Department, it is imperative that the Department turn around its performance to effectively and competently deliver benefits to military veterans. There have been dire challenges regarding the delivery of houses as evidenced by 168 delivered against the planned 1 000 at the end of the financial year. Other areas of slow spending included Healthcare Support, Social Relief of Distress, and Skills Development. 

4.6.2    Second Quarterly Report

The Department of Military Veterans presented its Second Quarterly Performance to the PCDMV on 08 March 2017.

Non-financial Performance

The APP indicates that 22 Annual Targets were set for the financial year, and the Department was committed to 20 performance targets areas over the quarter under review. Of the 20 targeted performance areas which the department reported on, 15 targets were achieved which constitute to 75 per cent overall achievement of the targeted performance compared to the performance commitments set for the Second Quarter.

Financial Performance

As at 30 September 2016, the total spend was 35 per cent (R206 million) against a targeted spend of 49 per cent (R293 million). Cost of Employment was ahead of budget, mainly driven by lack of capacity in service delivery branches (Socio-Economic Support).  

Observations

It is imperative that the Department turn around its performance to effectively and competently deliver benefits to military veterans. Given the budget allocated to the Department, the underspending needs to be addressed and systems should be in place to do this in a proper and effective manner.

4.6.3    Third Quarterly Report

The Department of Military Veterans presented its Third Quarterly Performance to the PCDMV on 9 March 2016.

Non-financial Performance

The Department is committed to 19 performance targets areas over the quarter under review. Of the 19 targeted performance areas which the department reported on, 12 targets were achieved which constitute to 63 per cent overall achievement of the targeted performance compared to the performance commitments set for the 3rd Quarter.

Financial Performance

As at 31 December 2016, the total spend was 49 per cent (R290.8m) against a targeted spend of 75 per cent (R 446.1m). Cost of Employment was ahead of budget, mainly driven by lack of capacity in service delivery branches (mainly Socio-Economic Support). Capital expenditure for administration was impacted by the reclassification of cell phone lease from normal goods and services to financial lease.

Observations

Overspending on Compensation for injury in military service and pension transfer incurred expenditure even though no funds were allocated. Overspending on Education Support and Skills Development were indicated as concerns by members. Burial Support budget was exhausted due to retrospective payments.

4.6.4    Fourth Quarter Report

While the audit opinion for FY 2016/17 was being awaited, the Department submitted its Fourth Quarterly report which was presented to the PCODMV on 10 May 2017. Given that much of the information is taken up in the 2016/17 Annual Report, this section is not further discussed.

5.         VOTED FUNDS AND PLANNED EXPENDITURE FOR FY 2017/18

5.1       Allocated Budget 2017/18

The Department is working towards obtaining its own separate budget vote to ensure that it is accounting for its own budget with its own accounting and budgeting systems. It received a total allocation of R622.1 million for the 2017/18 financial year, increasing from R597.6 million in 2016/17. While this reflects a nominal increase of R24.4 million in allocation, when adjusted for inflation it equates to a real percentage decrease of 2.07 per cent. The largest real percentage decrease is for the Empowerment and Stakeholder Management (2.92 per cent), followed by Administration (1.93 per cent) and Socio Economic Support (1.67 per cent).

Table 4: DMV Increase/decrease per programme from 2016/17 to 2017/18

5.2       DMV selected performance indicators and targets

The DMV Selected Performance Indicators and Targets for FY2016/17 to FY2018/19 form the basis of the DMV contribution to the National Development Plan. Most of these indicators were underachieved. For instance, 1 000 houses were planned; only 168 were delivered. Although there is an improvement, the DMV track record on housing delivery has been problematic. In 2014/15, no houses were delivered. In 2015/16, 130 of the planned 1 000 houses were delivered. For the period under review, 168 of the planned 1 000 houses were delivered. The lack of delivery for houses will lead to the underachievement of the planned 5 000 houses by 2020 as per the strategic plan.

Table 5: selected performance indicators and targets

5.3       Programme 1: Administration

Although the programme received a nominal increase of R6.1 million, in real terms, this amounts to a reduction of R2.1 million, which indicates a real percentage decrease of 1.94 per cent compared to 2016/17. Except for Corporate Services and Financial Management with real percentage increases of 20.82 per cent and 7.51 per cent respectively, all other sub-programmes received decreased allocations in real percentage. The largest reduction is for Sub-programme 4 (Internal Audit) which received a 36,89 per cent real decrease in its allocation. Sub-programme 5 (Strategic Planning, Policy Development, Monitoring and Evaluation) also received a 25,99 per cent real decrease.  Sub-programme 6 (Office Accommodation) and Sub-programme 1 (Management) received 1,45 per cent and 11,91 per cent real reductions respectively.

In terms of economic classifications, two major increases were noted. First, the allocation for Computer services increased from R3.1 million in 2016/17 to R16.1 million in 2017/18. Second, the allocation for Operating Leases increased from R13.6 million in 2016/17 to R18.4 million in 2017/18. In contrast, the allocation for Contractors Business and Advisory Services decreased from R10.9 million in 2016/17 to R1.9 million in 2017/18.

Table 6: Nominal and real increases/decreases in the Administration Programme

Performance Indicators for Programme 1 (Administration)

Programme 1 includes 9 set targets for 2017/18, which is a reduction as compared to 12 set targets for 2016/17. More importantly, 6 of these targets are new. A total of 9 targets from 2016/17 no longer appear in the APP. The three retained targets include Percentage of approved Communication Strategy activities implemented, Percentage of cases from the Presidential Hotline resolved, and Percentage of legitimate invoices paid within 30 days of receipt.

Table 7: Selected performance targets for Programme 1

5.4       Programme 2: Socio-Economic Support Services (SES)     

Programme 2 received a real percentage decrease of 1.67 per cent in its allocation. This should be considered a concern since the programme relates to the core business of the DMV, namely delivering services to veterans. Sub-programme 1 (Database and Benefits Management) and Sub-programme 3 (Socioeconomic Support Management) received reduced allocations of 7,61 per cent and 8,55 per cent respectively. The reduction for Database and Benefits Management is a concern. Nonetheless, there is also an important increase of 26,81 per cent in Sub-programme 2 (Health Care and Wellbeing Support). This shows that emphasis is being place on the provision of health care services for military veterans as per Minister of Defence and Military Veterans priorities. 

In terms of economic classifications, the allocations remained relatively stable. There is an increase in the allocation for Goods and Services from R34.2 million in 2016/17 to R53.4 million in 2017/18. There is also an increase in the allocation for Contractors from R24.5 million in 2016/17 to R34.4 million in 2017/18. Contrary to 2016/17 in which there was a decrease in the allocation for Travel and Subsistence from R6.2 million in 2015/16 to R2.6 million, this year the allocation increases substantially to R10.9 million.

Table 8: Nominal and real increases/decreases in the Socio Economic Support Programme

Performance Indicators for Programme 2 (Socio Economic Support Services)

Programme 2 has four strategic objective annual targets and four annual performance targets. Selected targets which are key to service delivery to military veterans are reflected in the table below. Of specific concern is the targets related to housing and the finalisation of the database, as past performances in this regard has been significantly lower than the set targets.

Table 9: Selected strategic and performance targets for Programme 2

5.5       Programme 3: Empowerment and Stakeholder management (ESM)

Programme 3 received a real percentage reduction of 2.92 per cent. In terms of sub-programmes only Sub-programme 2 (Empowerment and Skills Development) has the reduction of 12.17 per cent as compared to 2016/17. Sub-programme 1 (Provincial Offices and Stakeholder Relations) and Sub-programme 3 (Heritage, Memorials, Burials and Honours) received increases of 4.5 per cent and 37.64 per cent respectively.

In terms of economic classifications, the allocations remained stable between the 2016/17 and 2017/18, with little noticeable variations. Only Stationery received a slightly increased allocation. In contrast, Training and Development, received a decreased allocation of R66.4 million in 2017/18 as compared to R71.3 million in 2016/17. No allocations were made for Machinery and Equipment, and Software and other intangible assets.

Table 10: Nominal and real increases/decreases in the Empowerment and Stakeholder Management Programme

Performance Indicators for Programme 3 (Empowerment and Stakeholder Management)

Programme 3 has five strategic objective annual targets and five annual performance targets.

Table 11: Selected strategic and performance targets for Programme 3

5.6       Personnel information and salaries

Analogous to 2016/17, personnel figures remain at 169 for 2017/18. The total cost associated with employees increases from R102.7 million in 2016/17 to R113.8 million in 2017/18. Personnel figures are expected to remain stable over the MTEF period. It should be noted, however, that a number of additional personnel have been seconded to the DMV from the Department of Defence. The additional personnel numbers are as follows:

• Programme 1: 51
• Programme 2: 21
• Programme 3: 5

Furthermore, Programme 1 has a vacancy rate of 19 per cent while Programmes 2 and 3 have vacancy rates of 10 per cent and 30 per cent respectively. This is of concern as it may hamper service-delivery. In one of the engagement between the DMV and the Standing Committee on Public Accounts (SCOPA), it was made clear that there is a significant capacity shortage in terms of the DMV’s Internal Audit capacity. This was, in part, as a result of personnel limitations.

5.7       Expenditure - Looking forward (1st quarter of the 2017/18 FY)

The Department of Military Veterans received a total allocation of R622.1 million for the 2017/18 financial year, increasing from R597.6 million in 2016/17. While this reflects a nominal increase of R24.4 million in allocation, when adjusted for inflation it equates to a real percentage decrease of 2.07 per cent. The largest real percentage decrease is for the Empowerment and Stakeholder Management (2.92 per cent), followed by Administration (1.93 per cent) and Socio Economic Support (1.67 per cent). The DMV has had significant problems in spending its allocated budget and achieving some of its performance targets in the past. Tracking Quarterly Expenditure is thus essential to ensure delivery on the DMV mandate.

The briefing to the Committee on 16 August 2017 indicated that at the end of the first quarter, DMV spending was at 18 per cent or R109.6m against the target of 25 per cent or R155.5m and a variance of 7 per cent or R45.9 million. Cost of Employment was marginally ahead of budget by 1% mainly due to the imbalances on the DMV organogram. To overcome the imbalance in structure and to ensure continuous delivery of service, it necessitated the utilisation of contractors and interns and hence the noticeable cost pressure on CoE. Overall spend for Administration was behind budget mainly driven by inability of DMV to pay SITA, Gfleet and Public works invoices due to contract documents under query and Central Supplier Database matters on the Public Works account. Both these matters have since been cleared and payments are now taking place.

Slow spending on key performance areas

• Housing at 4 percent.
• Skills development at 8 percent.
• Healthcare at 15 percent.

Areas of high spending

• Education Support at 32 percent.
• Social Relief at 37 percent.
• Burial Support at 43 percent.

Areas of concern: Programme 1 (Administration)

• Percentage of targets achieved against those planned in the APP at 42 per cent against the planned 100 percent.
• Percentage of targets achieved against those planned on approved MPAT Improvement Plan at 20 per cent against the planned 100 percent.

Areas of concern: Programme 2 (Socio-Economic Support)

Total number of military veterans with access to healthcare services at 177 instead of the planned 250.

Areas of concern: Programme 3 (Empowerment and Stakeholder Management)

• Number of military veterans and their dependants provided with approved funding for skills development programmes at 187 instead of the planned 900.
• Number of military veterans’ businesses provided with access to empowerment opportunities at 24 instead of the planned 40.

             5.8       Oversight visit reports: summary of key service delivery issues.

The Committee did not conduct any oversight visit to the DMV in 2016/17.

6.         COMMITTEE KEY FINDINGS: DePARTMENT OF military VETERANS

Appreciation

• The Department was commended for receiving an unqualified audit opinion with findings for the first time since its existence. This is major improvement based on the previous findings.
• The Department was also commended on the strides it made to improve the performance in certain benefits.
• The Committee commended the DMV for ensuring that 7 146 Military veterans and their dependants were provided with bursaries for higher and basic education, 50 of whom have graduated.
• The Committee commended the DMV for authorising, to date, a total of 15 740 military veterans and beneficiaries with access healthcare.
• The Committee welcomed the efforts by the DMV to ensure that a monthly allowance of R1 200 was provided to 2 243 military veterans and/or dependants with SRD. The compassion shown by the Department to alleviate the plight of military veterans is commendable.
• Burial support funding was provided to 460 military veterans is also appreciated. The DMV is commended for this achievement, but concerned regarding the stated high cost of tombstones.
• The Committee commends the DMV for not incurring unauthorised expenditure for 2016/17. 

Technical aspects

The Committee finds the various mistakes and misstatements in the Annual Report unacceptable. These range from mistakes found by the A-G, to mistakes regarding the number and salaries levels of personnel, and the miscalculation of the performance targets reached. 

Financial Performance                            

• The Committee was concerned about the underspending of the DMV. For 2016/17, it underspent by R92.9 million or 15.5 per cent. This is concerning given the fact that military veterans are in dire need of benefits. 
• The Committee was concerned about the Irregular Expenditure. The closing balance was R82.26 million, which include R65.9 million, from the previous years, and R16.3 million for the current year.
• The Committee is concerned about the Fruitless and Wasteful Expenditure awaiting resolution. This was R3.2 million, which include R2 million for 2015/16, R1.8 million for 2016/17, and R658 000 transferred to receivables for recovery.
• The lack of consequence management and the reporting thereof was raised as a concern by the Committee, especially regarding issues such fruitless and wasteful expenditure.

• Particular concern was expressed on the amount of Contingent Liabilities. The total for Liabilities was R206 million, which is about a third of the DMV budget.
• The Committee was concerned about Compliance with legislation with regard to Financial Statements, Performance and Annual Report; Expenditure Management; Procurement and Contract Management; Strategic Planning and Performance Management; and Internal Control. 

Non-financial Performance

• The Committee was concerned that many of the issues are of a recurring nature and that it has previously recommended to the Department to address these issues, but little progress has been made.
• In terms of the three programmes, the DMV had a total of 23 set targets of which 14 were achieved leading to a success rate of 61 per cent. At the same time, 84.5 per cent of the total budget was spent, which is a concern as funds spent do not result in increased performance. 
• For Administration, the Committee is concerned with regard to the achievement of 66.7 per cent of the set targets against 99.8 per cent spending of the total budget.
• For Socio-Economic Support, the Committee is concerned with regard to the achievement of 60 per cent of the set targets against 77.7 per cent spending of the total budget. More concerning is the underachievement of housing target. A target of 1 000 was set and only 168 were achieved.
• For Empowerment and Stakeholder Management, the Committee is concerned with regard to the achievement of 50 per cent of the set targets against 82.7 per cent spending of the total budget.
• The differing totals of staff employed by the DMV was raised as a concern, as it differed from 207 to 240 in terms of compensation as stated in the Annual Report. About 33 were seconded from the DOD.
• The Committee was concerned about beneficiaries that received benefits without being approved for Education Support. In addition, the education benefit is not included in the regulations and there is currently no approved policy. The Committee seeks report on how this occurred.  
• Concern was raised with regard to suppliers paid without rendering services. The Committee request an update regarding how this happened and consequence management instituted against those involved.
• Even though SITA is supporting the DMV, IT Independence is a challenge.
• Payment of invoices within 30 days is a serious concern. 
• The Committee raised its concern with regard to the differing numbers for training and skills development.
• It is concerning that 1 849 veterans were provided with skills development, yet no placements were made.
• The Committee raised concern about the unreliability of the Database, and its impact on the future planning and budget.

7.         COMMITTEE Recommendations

• Internal Audit should be fully staffed as a matter of urgency.
• Plans are needed to remedy the IT challenge.
• Amendment of   Regulations to include Education Support is urgently required. The DMV should ensure this is done as soon as possible.
• Payment of invoices within 30 days should be ensured. Plans should be in place to ensure that this happens.
• The DMV should provide a report with regard to skills provided to military veterans to ensure that they are employable or able to start their own businesses.
• The Database should be cleaned as a matter of urgency to ensure that deserving military veterans and beneficiaries receive their benefits.
• Provincial offices should be established in all provinces as a matter of urgency to ensure that military veterans have access to military veterans’ facilities and services.
• The transport benefit should be finalised as a matter of urgency to ensure that military veterans are able to travel to provincial offices, and other places to seek employment, especially those emanating from rural areas.
• The Department was urged to ensure that all systems are in place to ensure that it is able to exist independently from the Department of Defence.
• A Skills Audit is essential to properly plan training and the Department was requested to present a report on this at the next meeting, especially as the vacancies and skills gaps in the service delivery programmes are detracting it from functioning optimally.
• Only 99 per cent of Performance Agreements were signed. The Department was urged to ensure that 100 per cent is reached. 
• The Department should give feedback on efforts to improve the relationship with SITA, inter alia the instruction that IT-related equipment should be procured through it, as well the status of their monthly meetings to improve their relationship.
• The MPAT report and its outcomes should be provided to the PCODMV.
• Updates on the cases under litigation are needed and should be reported to the PCODMV.
• Competitive bids investigation updates are needed and should be reported to the PCODMV.
• The Communication strategy should stretch to rural areas.
• The Committee informed the DMV to report at the next meeting on the cases and steps taken against persons who were found to be responsible for instances of Irregular and wasteful expenditure and other serious transgressions.
• The Committee recommended that funds allocated to NSFAS for bursaries are utilised and properly accounted for by the DMV. Service providers for education should be expanded.  
• The Department was requested to report to the Committee on its new structure as soon as it has been approved by the Executive Authority.
• The Committee wants the Department to report on a quarterly basis on progress with housing and the transport benefit, in which the Department performed poorly in previous years. 
• The Department was encouraged to improve the performance of the Strategic Planning, Policy Development and Monitoring and Evaluation sub-programme through proper and speedy staffing as well as Management playing a bigger role to take responsibility for their respective policies.
• The Committee recommended that the Department should report back on the outstanding issues at the next meeting and especially progress regarding the recurring issues to allow the Committee to track progress in this regard.

Report to be considered.

1. DRAFT BUDGET REVIEW AND RECOMMENDATION REPORT OF THE PORTFOLIO COMMITTEE ON DEFENCE AND MILITARY VETERANS ON THE 2016/17 ANNUAL REPORT OF THE CASTLE CONTROL BOARD (CCB) AND ARMSCOR, DATED 12 OCTOBER 2017.

This Report consists of two parts, with Part A dealing with the Castle Control Board (CCB) and Part B dealing with the Armaments Corporation of South Africa (ARMSCOR).

The Portfolio Committee on Defence and Military Veterans (PCODMV), having considered the financial and service delivery performance of the Castle Control Board (CCB) and the Armaments Corporation of South Africa (ARMSCOR) on 11 October 2017, for the 2016/17 financial year, reports as follows:

PART A: CASTLE CONTROL BOARD (CCB)

             1.         Introduction

1. Description of core functions of the Castle Control Board

The Castle Management Act, 1993 (No. 207 of 1993) provides for a Castle Control Board (CCB) to govern and manage the Castle – South Africa’s oldest architectural structure - on behalf of the Minister of Defence and Military Veterans. The National Heritage Resources Act (No. 25 of 1999) provides for the management of the Castle as a national heritage site. The Castle’s objectives are set out in the Castle Management Act as follows:

• To preserve and protect the military and cultural heritage of the Castle;
• To optimise the tourist potential of the Castle; and
• To maximise accessibility to the public.

1.2       Mandate of Committee

The Portfolio Committee on Defence and Military Veterans (PCODMV) is mandated to oversee the CCB to ensure that the entity fulfils its mandate through the monitoring of the implementation of legislation and adherence to policies, such as the Castle Management Act, 1993 (No. 207 of 1993), the National Heritage Resources Act (No. 25 of 1999), and the Defence Endowment Property and Account Act (No. 33 of 1922). It must scrutinise legislation which supports the mission statement of Government, the budget and functioning of the CCB.

1.3       Purpose of the BRR Report

Section 5 (2) of the Money Bills Procedures and Related Matters Amendment Act (Act 9 of 2009) allows for each Committee to compile a budgetary review and recommendation report (BRRR) which must be tabled in the National Assembly.  Section 5(3) provides for a budgetary review and recommendation report to contain the following:

a) an assessment of the department’s and entities’ service delivery performance given available         resources;

1. an assessment on the effectiveness and efficiency of departments use and forward allocation of available resource; and
2. recommendations on the forward use of resources

In October of each year, portfolio committees must compile a BRRR that assess service delivery performance given available resources; evaluate the effective and efficient use and forward allocation of resources; and may make recommendations on the forward use of resources. The BRRRs are also source documents for the Standing/Select Committees on Appropriations/Finance when they make recommendations to the Houses of Parliament on the Medium-Term Budget Policy Statement (MTBPS). The comprehensive review and analysis of the previous financial year’s performance, as well as performance to date, form part of this process.

1.4       Methodology in compiling the report

The Report is compiled from the various activities of the Committee. It is inclusive of the Committee’s meetings, oversight visits, reports on budget votes, strategic plans, annual performance plans and annual reports, as well as previously published Committee reports.

1.5       Dates of oversight visits

The PCODMV did not conduct an Oversight visit to the Castle in 2016.

1.6       Information used to compile the Report

Besides the information on the Oversight visit, other information used in the assessment of the service delivery and financial performance included:

• Committee report on the 2016/17 budget hearings, strategic plans and annual report;
• The National Development Plan;
• The 2016 Estimates of National Expenditure;
• The 2016 State of the Nation Address by President Zuma; and
• The Auditor-General Report on the CCB.

1.7       Structure of the Report

This Report comprises seven sections:

• Section 1: Introduction – sets out the mandate of the Committee, the purpose of this
        report (BRRR) and the process to develop this report.

• Section 2: Provides an overview of the key relevant policy focus areas.
• Section 3: Provides an overview and summary of previous key financial and
        performance recommendations of the Committee (2015/16).
• Section 4: Provides a broad overview and assessment of financial performance of the
        CCB for 2015/16.
• Section 5: Overview of service delivery and performance. 
• Section 6: Key Committee findings. 
• Section 7: Key Recommendations.

1. Overview of the key relevant policy focus areas

2.1       State of the Nation Address 2016

In the State of the Nation Addresses of 11 February 2016, the President indicated that government has embarked on radical socio-economic transformation to address the triple challenges of poverty, inequality and unemployment. The additional pronouncements that are considered relate to:

• Promotion of Local Procurement. In keeping with the promotion of local procurement and increasing domestic production by having the State Institutions buy 75% of goods and services from South African producers, the CCB’s procurement policy will be aligned to promote local procurement by having the department to procure at least 75% of goods and services from South African producers.

• Employment of Youth. Government will introduce further measures to speed up the employment of young people.

• Expansion of Internship Programmes in Government. Every government department and public entity will be required to support the initiative to appoint additional interns for the transfer of skills.

• Resourcing the Defence Mandate. “The SANDF has been a source of national pride as it participated in peacekeeping missions in the continent. This role will continue and government is looking into the resourcing of the SANDF mandate in line with recently concluded “SA Defence Review 2015”. The DOD has begun planning for the implementation of the SA Defence Review 2015 for the short-, medium and long-term within the context of available resources and the CCB shall support its endeavours.

• Improved Implementation of the Financial Disclosures Framework. Taking note that the implementation of the Financial Disclosures Framework is being improved, the CCB shall ensure that it adheres to compliance dates for the submission of SMS Financial Disclosures to external organisations.

2.2       The National Development Plan

The NDP and its related policies provide a national framework that will inform the contribution by national departments and public entities. Aspects relevant to the CCB and the envisaged contribution are as follows:

• Tourism:  The NDP is clear on the strategic role of tourism as a driver for economic growth and job creation. At a national level the National Tourism Sector Strategy will be aligned to meet up with the 2030 targets set out in the NDP. The Castle of Good Hope (CGH) as a premier heritage tourism destination is part of important debates and regularly engages with the tourism industry, government departments, donors and partners to contribute toward the NDP outcomes and targets. The CCB’s Programme 3 deals with Tourism Management and the organisational objective aligned to the NDP is “To maximize the tourism potential of the CGH.”

• Envisaged Reduction in Youth Unemployment:  The CCB is running a vibrant programme for youth job shadowing and internship. This initiative will be strengthened and refined over the MTEF. In this regard the CCB is working with the Culture, Arts, Tourism, Hospitality & Sports Sector Education and Training Authority to access some of their resources. The CCB’s output objective in Programme 4, which is aligned to the NDP, is “Delivering a range of public programmes with SA schools, cultural groups and special community groups.”

• Strengthening the National Research and Development Capacity: The CCB is very mindful of the historical significance of the CGH and its collections. These offer significant opportunities in the areas of education and research. The organisation has a small resource centre which it plans to expand. The CCB will establish a CCB Strategic Research capability, particularly to record, monitor and share the lessons of the multi-million rand renovations project. In this regard, the SANDF’s Regional Works Regiment has been approached to provide assistance and support. The link with the NDP is CCB Programme 2 “Ensure the maintenance, preservation, interpretation and showcasing the history of the Castle.”

• Fraud and Corruption: The CCB will intensify its campaign in fighting fraud and corruption. CCB Programme 1 refers to “Ensure clean, sound administration and good governance”. The organisation is involved in a process to review its legislation and has strengthened most of its critical internal controls to ensure a sound, corruption and crime-free organisation.

2.3       The Medium Term Strategic Framework (2014 - 2019)

The MTSF Outcomes to which CCB will contribute by virtue of its legislative mandate and inherent capabilities are as follows:

MTSF Outcomes 4 and 5: “A skilled and capable workforce to support an inclusive growth path” and “Decent employment through inclusive economic growth” are linked to the CCB’s Programme “To maximise the tourism potential of the CGH” with the following outcomes set out in the CCB Strategy Map:

• Deliver a complete offering of visitor services and experience;

• Human resource development and adequate staffing levels;

• Implement a revenue generation plan; and

• Responsible commercialisation drive.

MTSF Outcome 12: “An efficient, effective and development orientated public service and an empowered, fair and inclusive citizenship” is linked to CCB programmes 1 and 2, namely “Ensure clean, sound administration and good corporate governance” and “Ensure the maintenance, preservation, interpretation and showcasing of the history of the Castle”. These are linked to the following Strategic Map outcomes:

• Effective and efficient systems of internal control;

• Sound financial control;

• Research and international benchmarking; and

• Integrated resource management.

2.4       Overview of CCB Strategic Plan and Annual Performance Plan

The CCB Strategic Plan (2015 - 2020) gives effect to the mandate of the CCB which translates into the following outcomes:

Programme 1: Ensure clean, sound administration and good corporate governance. Delivery of a significantly improved corporate governance environment as measured by the CCB’s annual AGSA audit rating i.e. achievement of a clean audit report.

Programme 2: Ensure the maintenance, preservation, interpretation and showcasing of the history of the Castle. Delivering of an increased number of innovative museum exhibitions and other displays accessible to the general public and tourists.

Programme 3: Maximise the tourist potential of the Castle. Delivering of the Castle as an enhanced tourist attraction as indicated by increased visitor figures and revenue generated through tourism activities.

Programme 4: Increased public profile and positive perception across all sectors of the community

The CCB 2015/16 Annual Performance Plan gives effect to the mandate of the CCB which translates into the following outcomes:

Strategic Outcomes

The strategic outcome goals of the CCB articulated in the APP for the 2016/17 financial year were:

• To ensure effective administrative management in terms of corporate governance and project a professional competent corporate image towards optimal resource support and public relations;
• To develop the museum and interpretive components of the Castle and its related themes through continuous research and development;
• To ensure promotion of the Castle as a must-see and vibrant tourist destination accessible to all the citizens of South Africa and the world; and
• To ensure the accessibility of the Castle as an attractive and user-friendly centre of cultural significance by all sectors of the community.

             3.         Summary of previous key financial and performance          recommendations of the Committee

3.1       BRRR 2016 recommendations

In 2016, the Committee made the following recommendations in its BRR Report on performance and financial matters:

• The CCB was encouraged to further enhance its clean audit opinion by ensuring that the noted Irregular expenditure is avoided in future.
• The Committee agrees with the recommendation by the A-G regarding irregular expenditure that control measures should be strengthened to ensure compliance with legislation.
• The Committee recommended that the CCB should include the list with risks and the action plans to mitigate these, in their Annual Reports.
• The Committee recommended that performance rewards should be managed responsibly and that other staff members should also be considered for these rewards.
• The Committee indicated its concern about the dwindling reserves without a concomitant increase in revenue and recommended that the CCB share it Revenue Optimisation Strategy with the Committee as soon as possible.
• The Committee was especially concern about the increasing salary bill and indicated that the CCB should manage this situation prudently.
• The CCB indicated that the military tattoo is a legacy project but given the funding modality of it, it plans to end this historical arrangement.

3.2       Response by the Minister of Finance:

No specific response was required from the Minister on the 2016 BRRR Recommendations.

3.3       Committee 2016/17 Budget Report

The Committee made the following recommendations in terms of the 2016/17 Annual Performance Plan and Strategic Plan (2015 - 2020):

• The Committee recommends that the Castle Control Board capitalise on opportunities such as Het Bakhuys and a conference center to enhance its financial sustainability.
• The Board is encouraged to further ensure that the Castle becomes more accessible to cultural communities to incorporate them in their annual activities.
• The Committee recommends that the Board present its plans to get the Castle listed as an UNESCO World Heritage Site.
• The Committee urges the Board to get clarity of the basis on which Iziko is entitled to one third of its gate takings, especially as this can be an impediment to get listed as an UNESCO site.

             4.         Overview and assessment of financial performance FOR 2016/17

4.1       Overview of Vote allocation and spending for 2016/17 FY

The budgetary allocation for the CCB is listed in Table 1 below.

Table 1: CCB Budgetary allocation 2016/17

Programme 1: Administration

The aim of this programme is to ensure clean, sound administration and good corporate governance.

Programme 2: Maintenance and conservation of the Castle

The aim of this programme is to ensure the maintenance, preservation, interpretation and showcasing of the history of the Castle.

Programme 3: Tourism

The aim of this programme is to maximise the tourism potential of the Castle of Good Hope. 

Programme 4: Public Access

The aim of this programme is to achieve an increased public profile and positive perception across all sectors of the community.

4.1.1    Performance Information

Table 2: Performance Information for 2016/17

4.2       Quarterly spending for 2015/16

The National Treasury does not include the entities in its quarterly analysis nor do the Committee review the performance of the entities on a quarterly basis.

4.3       Report of the Auditor General (AG)

The CCB received a clean audit opinion from the Auditor-General for the FY2015/16 and for FY2016/17. The AGSA however, lists an Emphasis of matter namely the Restatement of corresponding figures, which does alter his audit opinion. This refers to “Comparative figures for expenditure items were reclassified during the year under review” but also states that “these reclassifications have no influence on both Surplus for the prior year and Accumulated Surplus as at 31 March 2015.”

Irregular expenditure

An amount of R57 195.00 (which was condoned/written off by the Board) was listed as Irregular expenditure for FY2015/16 and for FY2016/17 it is R1.724 869.00.  The explanation provided states that the “CCB holds formal written approval from its Executive Authority and from National Treasury to supplement its authorised expenditure budget for the 2017 financial year with drawdowns from its accumulated surplus which can be used by the entity for specific, pre-agreed purposes. Notwithstanding such approval and pre-authorisation, this expenditure is classified as irregular expenditure because it does not relate to the normal approved budget for the period. This expenditure amounted to a total of R1 724 869.00 and was directly monitored and controlled by the Board.

Unauthorised Expenditure and Fruitless and Wasteful Expenditure

No Unauthorised, Fruitless and Wasteful expenditure was incurred during the year under review.

5.         OVERVIEW AND ASSESSMENT OF PERFORMANCE

Financial Performance for the 2016/17 Financial Year

The CCB had an overspending of R1 726 000 for the FY 2016/17 against an underspending of R75 000 in the previous financial year.

Table 3: Budget for FY2016/17

Table 4: Revenue FY 2016/17

In terms of Revenue Collection, the Reports shows a decrease of R911 000 where R4 905 000 was collected in 2015/16 and R3 994 000 was collected in 2016/17. The main concern is that for the third year in a row (R1 074 000 in FY 2014/15, R2 596 000 in FY 2015/16 and R4 220 000 in FY 2016/17), the CCB has under-collected on their planned revenue. Either the estimates are unrealistic or there is a lack of proper planning/estimation in this regard.

Non-financial performance

The Annual Report 2016/17 indicates that only one (1) of the CCB’s 17 key performance indicators was missed. Seven were met whilst the majority (9) were exceeded.

Programme 1: Administration and Good Corporate Governance

All KPI-targets dealing with the operations of the Board, Board sub-committees and general administration, were met. The Board approved its Petty Cash Policy as well as Travel and Subsistence Policy.

Programme 2: Preservation, Interpretation and Showcasing of the History of the Castle

All 4 of the APP targets in this area, were met. The combination of heritage and 350 Commemoration activities and programmes has driven this performance. This was made possible by the November 2016 Board approval of R1,7m (deemed as irregular expenditure as disclosed in the notes to the AFS) for 350 Commemoration programme purposes. The community support and media and publicity generated by these events was apparently unprecedented.

Programme 3: Maximising the Tourist Potential

Visitor figures to the Castle increased significantly from the previous year. The numbers were mainly driven by the following KPI’s namely commercial events (40 in total, which is 15 over target), film shoots (32 in total and 15 over target), new tourism attractions (7 and 5 over target) and the number of joint marketing agreements with business partners (11 and 8 over target).

Programme 4: Increased Public Profile and Positive Perception Across all Sectors of the Community

Under the slogan “Bringing People to the Castle and Taking the Castle to the People”, the CCB managed to meet all its four KPI targets under this Key Performance Area. One of the highlights, is the number of potential tourists reached through positive media coverage.

6.         GOVERNANCE

The Annual Report refers to various issues under this section, inter alia that it operates as a Schedule 3A Public Entity and that the Board’s composition should adhere to certain conditions in the Castle Management Act.

6.1       Risk Management

The Annual Report refers to its Risk Management and that it has developed a Risk Register which forms the basis for regular risk assessments to determine the effectiveness of its risk management strategy and to identify new and emerging risks. It further states that “The management of the organization is performed on an “enterprise risk management” basis i.e. the most important risks that would potentially compromise our ability to attain our strategic objectives are articulated in a Risk Register, ranked and regularly evaluated.”

6.2       Fraud and corruption

The Annual Report states that the CCB does not have an anti-criminality plan but has a fully-fledged Fraught (sic) Prevention Policy. It aims to make losses due to fraud and corruption intolerable and will institute training covering these aspects.  It states that criminal activities would more likely be internally induced, and feels that the Department’s guidelines in this regard are sufficient to deal with the issue. 

6.3       Audit Committee and Internal Audit

The Audit Committee is fully functional and should be commended for its support to the CCB to achieve a clean audit opinion, and its interaction with the A-G to ensure that there are no unresolved issues. Internal audit services were provided by an outsourced professional auditing firm namely Sizwe-Ntsaluba Gobodo,  in terms of a short-term contract, supplemented by the Board’s own internal audit charter.

7.         HUMAN RESOURCES

The Castle has no dedicated Human Resources Unit and has a staff complement of 39 members of which three are remunerated by the Department of Defence, and thus not included in HR tables. The CCB has appointed the Events, Tourism and Heritage Managers as of 1 April 2016. The total expenditure for the 36 employees (24 in FY2015/16) amount to R5 393 000 (R3 362 000 in FY2015/16) of the Castle’s total expenditure of R9 939 000 (R7 425 000 in FY 2015/16) which represents a 54.3% (45.2% in FY2015/16) of personnel expenditure as a percentage of total expenditure.

7.1       Performance rewards

Provision is being made for performance rewards of R368 935 (R313 371 in FY2015/16). These are for three employee categories composed of R161 000 (Top management), R179 000 (Senior Management) and R21 000 (professional qualified), although these are indicated as provisional amounts. The Report on page 110 shows the performance bonus of the CEO as R90 347 (R165 174 in FY2015/16) and R70 524 (R128 927 in FY2015/16) for the CFO, totalling R160 871 (R294 101 in FY2015/16). In FY2014/15, the CEO received a performance bonus of R154 368 and the CFO, R120 493.

Table 5: Performance Bonuses

Table 6: Performance rewards

The Annual Report (p.110) outlines the performance bonuses as set out in Table 4, while Table 5 outlines the Performance rewards (p. 43). 

7.2       Employee related costs

The Report indicates that the cost related to employees for FY 2016/17 was R5 393 000 as opposed to R3 361 566 in FY2015/16.  It was R3 092 162 in FY 2014/15, and R1 775 000 in FY 2013/14.

8.         COMMITTEE KEY FINDINGS: CASTLE CONTROL BOARD

The following findings were made regarding the CCB:

• The Committee applauded the CCB for its second consecutive clean audit opinion, hosting the successful 350 Commemoration programme, and achieving 16 of the 17 targets, many of which were exceeded.
• The Committee noted the utilisation of the accumulated surplus and the fact that National Treasury prescripts do not allow public entities to make a profit. It was however still concerned that the accumulated surplus has decreased from R10 120 340 in 2015/2016 to R4 175 966 in FY2016/17.

• Irregular Expenditure for FY2016/17 is R1.724 869.00, an increase on the previous years’ R57 195.00, was noted by the Committee
• The Committee noted the CCB’s plans to supplement its revenue through the utilisation of a Conference center, gift shop and settling the human resource component as part of its Revenue Optimisation Strategy.
• The Committee enquired about the contractual arrangements of the CEO, and it was indicted that this has been extended until 2019.
• Concern was expressed at the 54.3% spent on the compensation of employees versus the recommended ratio of 40/30/30 with 40% for human resources and 30% each for capital expenditure and operational expenditure.
• The Committee enquired about the progress being made by the CCB to ensure that it is managing the CGH as a single entity.
• The ill-discipline of soldiers guarding the CGH is deemed as unacceptable and the Committee wanted to know about progress being made in this regard.
• The Committee required more information on the request for an additional ring-fenced annual operational subsidy of R4.5 million from the DOD.
• The Committee enquired about the anti-criminality plan for the CGH, given the challenges around people staying on the outside of the CGH.
• The CCB indicated that it operates on an Enterprise Risk Management system, which identifies the five main risks and which are managed as priorities by the CCB in cooperation with the Internal Audit.
• Questions were raised around the performance awards, the differences between performance awards and bonuses as well as the reasons these amounts have been listed as provisional.
• The Committee raised concern about the “Het Bakhuys” restaurant as it was raised previously with no apparent resolution to its migration to the CCB.
• The Committee noted the expenses related to local and international travel and enquired around the nature and purpose of these travels.

9.         COMMITTEE Recommendations

• The Committee recommended that even though the accumulated surplus and its utilisation has been sanctioned by National Treasury, the surplus should be utilised prudently and with the understanding that revenue shortfalls, should be covered by the Revenue Optimisation Strategy.
• The CCB indicated that the Revenue Optimisation Strategy is a 110 pager and it was requested that this be shared with the Committee, as soon as possible. It is recommended that the strategy be operationalised to generate income to prevent the depletion of the surplus which will impact on the running of CGH, in case the R4.5 million is not provided by the DOD. In addition, the CCB should provide the Committee with the projected figures for each of the highlighted projects.
• The CCB was encouraged to further enhance its clean audit opinion by ensuring that the noted Irregular Expenditure is avoided in future.
• The Committee reiterated that it was not against the awarding of performance bonuses/awards, especially against the good performance of the CCB, but stressed that all personnel should be considered for this.
• The Committee encouraged the CCB to enhance its revenue strategies, not only to improve its finances, but also to address the high cost of compensation to employees. 
• The CCB indicated that progress is being made with its plans to solely manage the Castle, and it was encouraged to further these attempts to ensure that it is in a position to optimally manage the whole precinct.
• Given that no specific answer was given to the requested R4.5 million annual subsidy from the Department of Defence, it is recommended that the CCB provides more information on this issue at its next meeting.
• The Committee was encouraged by the response by Chief of Logistics that he will address the ill-discipline of SANDF soldiers guarding the CGH, and they were requested to share these plans and progress in this regard with the Committee.
• The CCB should provide more information on the anti-criminality plan given the challenges in this regard, and especially how it impacts on the image of the CGH.
• The Committee recommended that the CCB should not only manage the top five risks, but all risks attached to the CGH.
• The CCB is required to explain the difference in amounts between performance rewards and performance bonuses, given that they indicated that these terms were used interchangeable, as well as when these amounts will be finalised.
• Given that the CCB indicated that progress has been made with the migration of “Het Bakhuys” to them, the Committee recommended that the CCB keeps it abreast of developments in this regard. The CCB should also provide the Committee with the current and projected figures regarding the finances of “Het Bakhuys.”
• The CCB should provide the Committee with more information around local and international travels undertaken by members of the CCB.

Report to be considered.

PART B: ARMAMENTS CORPORATION OF SOUTH AFRICA (ARMSCOR)

             1.         Introduction

            Description of core functions of the entity

Armscor was established in terms of the Armaments Production and Development Act (No. 57 of 1968) to satisfy the requirements of the South African National Defence Force (SANDF) in respect of Defence Matériel. The Armscor Act (No. 51 of 2003) was enacted to provide for the continued existence of Armscor, and to provide for the functions, accountability and finances of the Corporation, as well as for matters connected therewith.

1.2       Mandate of Committee

The Portfolio Committee on Defence and Military Veterans (PCODMV) is mandated to oversee Armscor to ensure that it fulfils its mandate through the monitoring of the implementation of legislation and adherence to policies, such as the Armaments Production and Development Act (No. 57 of 1968) and the Armscor Act (No. 51 of 2003).

1.3       Purpose of the BRR Report

Section 5 (2) of the Money Bills Procedures and Related Matters Amendment Act (No. 9 of 2009) allows for each Committee to compile a budgetary review and recommendation report (BRRR) which must be tabled in the National Assembly.  Section 5(3) provides for a budgetary review and recommendation report to contain the following:

• an assessment of the department’s service delivery performance given available resources;
• an assessment on the effectiveness and efficiency of departments use and forward allocation of available resource; and
• recommendations on the forward use of resources

The above is done in October of each year, and the BRRR is also a source documents for the Standing/Select Committees on Appropriations/Finance when they make recommendations to the Houses of Parliament on the Medium-Term Budget Policy Statement (MTBPS). The comprehensive review and analysis of the previous financial year’s performance, as well as performance to date, form part of this process.

1.4       Methodology in compiling the report

The Report is compiled from the various activities of the Committee. It is inclusive of the Committee’s meetings, oversight visits, reports on budget votes, strategic plans, annual performance plans and annual reports, as well as previously published Committee reports.

1.5       Dates of oversight visits

No oversight visits to Armscor facilities were conducted during the 2016/17 financial year.

1.6       Information used to compile the Report

Besides the information on the Oversight visit, other information used in the assessment of the service delivery and financial performance included the:

• Committee reports on the 2016/17 budget hearings, strategic plans and annual report;
• The National Development Plan;
• The 2016 Estimates of National Expenditure;
• The 2016 Budget Speech of the Minister of Finance;
• The 2016 State of the Nation address by President Zuma; and
• The Auditor-General Report on the DOD

1.7       Structure of the Report

This report comprises seven sections:

• Section 1: Introduction – sets out the mandate of the Committee, the purpose of this report (BRRR) and the process to develop this report.
• Section 2: Provides an overview of the key relevant policy focus areas.
• Section 3: Provides an overview and summary of previous key financial and performance recommendations of Committee (2016/17).
• Section 4: Provides a broad overview and assessment of financial performance of Armscor for 2016/17.
• Section 5: Overview of service delivery and performance. 
• Section 6: Key Committee findings. 
• Section 7: Key recommendations.

2.         Overview of the key relevant policy focus areas

2.1       State of the Nation Address

In the State of the Nation Addresses of 11 February 2016, the President indicated that government has embarked on radical socio-economic transformation to address the triple challenges of poverty, inequality and unemployment. The additional pronouncements that are considered in this APP relates to:

• Promotion of Local Procurement. Armscor as the main defence acquisition entity is placed strategically to promote local procurement. As such it can support the DOD’s procurement policy to be aligned to promote local procurement by having the department and its entities procure at least 75% of goods and services from South African producers.

• Employment of Youth. Armscor has a Youth Development Programme (YDP) and aims to give high school learners more insight into career opportunities in the aviation and defence industries. The YDP proved to be a success with Armscor having almost 10 000 learners taking part in the programme.

• Expansion of Internship Programmes in Government. Every government department and public entity will be required to support the initiative to appoint additional interns for the transfer of skills. Armscor has, been involved in socially responsible initiatives, with the main emphasis on education, particularly supporting initiatives in the areas of science, technology, engineering and mathematics (STEM) subjects at schools; bursaries and internships. In July 2016, Armscor partnered with the University of Fort Hare (UFH) in an effort to create capability and capacity for, and support the development and maintenance of the Department of Defence capabilities.

• Resourcing the Defence Mandate. Armscor is continuously involved in supporting the SANDF with cost-saving or income generating measures. One such measure aims to reduce the SANDF’s expenditure on the leasing of property by providing permanent solutions within existing facilities. An example in this regard is where Armscor is the supervisory entity for migrating the Defence Intelligence Headquarters from a leased facility to a permanent Armscor owned facility that can accommodate densification. Multiple investigations are ongoing for sweating SANDF endowment properties where feasible, without the SANDF losing ownership of them.

2.2       National Development Plan (NDP)

The National Development Plan (NDP) identifies Small medium and micro sized enterprises (SMMEs) as key areas for development. Armscor is playing its part in this arena, and strives to increase fairness in the playing field between the established big players in defence, related industries, and the new smaller entrants. In support of imperatives that advance the strategic initiatives of a developmental state as defined in the National Development Plan (NDP) and the Industrial Policy Action Plan (IPAP), Armscor hosted the Armscor Supplier Open Day which was held on 19 May 2016; the first of its kind for Armscor. Under the theme “Empowering SMMEs for global competitiveness.”

Armscor is striving to create employment in the RSA by increasing the probability of RSA industry members becoming service providers to United Nations activities in Africa. Armscor is registered on the United Nations (UN) supplier database and opportunities are being followed up. Armscor further contributes to the NDP’s Chapter 3 (Economy and employment) through the employment of 1 502 full-time personnel and creating many more economic opportunities through its business endeavours with the South African defence industry. This is an increase from the 1 383 permanent employees Armscor had in 2015/16. Armscor also assists in terms of Chapter 9 of the NDP (Improving Education, Training and Innovation). In 2016/17, Armscor awarded 116 bursaries to students, which is a marked increase from 2015/16 when it awarded 55 bursaries. The institution also provided 23 Dockyard employees with training opportunities and 76 employees with the Adult Education and Training Programme.

2.3       Medium Term Strategic Framework (MTSF) 2014 - 2019

Armscor’s Strategic Priorities are aligned to several MTSF outcomes, including Outcomes 2, 3, 4, 5, 11 and 12. For 2016/17, Armscor contributed to the following MTSF outcomes:

Outcome 4: Decent employment through inclusive economic growth. Armscor continued to employ 1 502 members during the period under review. It created DIP credits to the value of R135 471 664 during the 2016/17 financial year. This is from the 12 existing DIP agreements that Armscor is currently managing.  Despite a reduction in allocated funds and limited DOD contracting, revenue generated by Armscor only decreased marginally from R1 412 million to R 1 398 million. 

Outcome 5: A skilled and capable workforce to support an inclusive growth path.

Armscor’s most valuable asset is its professional and highly skilled corps of technical personnel. During the review period, Armscor to provide experience to young engineers and scientists that is required by Engineering Council of South Africa (ECSA) for professional registration. A number of newly graduated engineers are placed in industry for a period of 1 to 2 years to obtain those required outcomes that cannot be obtained within the ambit of Armscor’s normal activities.

Armscor runs a highly successful Research and Development programme which includes, inter alia, the Gerotek test facilities, projects in Armour development, Protechknic Laboratories, Ergonomics technologies, Hazmat protective systems and the institute for Maritime Technology. Technology funding for 2015/16 totalled R590 million and for 2016/17 it was R854m.

2.4       Strategic Objectives

Armscor’s Strategic Objectives according its 2016 Corporate Plan are:

• Financial turnaround and business re-orientation – to ensure that Armscor generates sufficient income to meet its funding needs in the near to medium term through innovative business initiatives.
• Acquisition excellence – to meet the SANDF’s materiel requirements on time and in time, based on compliant governance policy, processes and procedures.
• Technology advancement – to direct and sustain research and development in line with the capability requirements of the DOD.
• Industry sustainability – to sustain and support the South African Defence Industry (SADI) so that it meets the requirements of the SANDF and contributes to economic development.
• Stakeholder engagement – to build, maintain and strengthen relationships with all stakeholders through different marketing communication and engagement platforms.

2.5       SA Defence Review 2015

The period under review was characterised by a steady progress in the DOD in refining the detailed requirements for creating the envisioned SANDF. The demands on the national fiscus indicate that the DOD will not receive the full funding it needs to fully implement the Defence Review. During the period under review, multiple ideas to improve the efficiency of the SANDF and to define income streams that will not burden Treasury were identified and quantified. Armscor is continuously involved in supporting the SANDF with some of these cost-saving or income generating measures. One such measure aims to reduce the SANDF’s expenditure on the leasing of property by providing permanent solutions within existing facilities. An example in this regard is where Armscor is the supervisory entity for migrating the Defence Intelligence Headquarters from a leased facility to a permanent Armscor owned facility that can accommodate densification. Multiple investigations are ongoing for sweating SANDF endowment properties where feasible, without the SANDF losing ownership of them.

2.6       Overview of Armscor’s Corporate Plan for 2016/17

The Corporate Plan 2016/17 highlights the main focus areas as outlined in its Strategic Plan. It aims to:

• Customer satisfaction through service delivery standards.
• Accountability in the execution of the mandate.
• Research and Development, which provides research, development, test and evaluation support to Acquisition and SANDF operational users.
• Financial responsibility and the responsible utilisation of scarce financial resources.
• Efficiency, effectiveness, and economical service delivery.
• Utilisation of the human resources of Armscor to provide the services required from Armscor.

3.         Summary of previous recommendations of the Committee

3.1.      2016 BRRR Recommendations

The PCODMV makes the following recommendations with regards to Armscor:

• That the coexistence agreement with the Square Kilometre Array project be finalised as soon as possible and that the Committee be informed in writing when the final agreement has been signed.
   
• For the duration of the official transition period, Armscor (in conjunction with the SA Navy) should provide the PCODMV with written quarterly updates on the status of the Dockyard. This information should include details on whether suspensive conditions were met in that quarter; employee figures at the Dockyard; a synopsis of the financial status of the dockyard; compliance to deadlines for vessel repairs and other services to the SA Navy; the number of artisans and other students under training at the Dockyard; and, commercial opportunities explored and unlocked at the dockyard. Progress with regards to the raising of capital for the Dockyard should also be reported.

• The Committee urges Armscor to increase its revenue collection streams as a matter of urgency. Future Annual Reports should include details on the capitalisation of Intellectual Property and outline other avenues explored for commercialisation. Simultaneously the Committee should also be provided with a long-term sustainability plan from Armscor.

• Armscor should aim to reach its set target for the employment of people with disabilities before the end of the 2016/17 financial year.

• Although outside the control of Armscor, the Committee notes with concern the delays in the acquisition of new vessels for the SA Navy under Projects Hotel and Biro. The Committee urges Armscor to expedite the acquisition of these vessels once the procurement process returns to the ambit of Armscor. Armscor should inform the PCODMV, at the resumption of the contracting for these vessels, what plans have been put in place to expedite the delivery of the vessels under these projects. Detailed timelines and cost-breakdowns for the two projects should also be provided to the Committee within 30 days of the official awarding of the respective tenders.

3.2       Response by Department and Minister of Finance:

No responses were made with regard to Armscor by the Minister of Finance in his responses to the 2016 BRRR recommendations.

3.3.      Committee 2016/17 Budget Report

• The Committee recommends that Armscor enhance its efforts to ensure greater participation of local businesses in its procurement processes.
• Armscor should update the Committee on its progress to source additional avenues of revenue to sustainably fund its operations.
• The amount of the claim in Lisbon, Portugal is concerning to the Committee and Armscor is implored to update the Committee on developments in this regard on a regular basis.
• The Corporation is encouraged to earnestly investigate and exploit opportunities to support the United Nations and African Union peace support operations in Africa based on its proximity and knowledge of the Continent.
• The Committee encourages the Corporation to enhance its efforts to attract and retain especially black and female scientists.

             4.         Overview and assessment of financial performance

4.1.      Overview of Armscor’s 2016/17 financial outlook

The Group’s reserves decreased from R2 125,6 million to R1 998,7 million mainly as a result of the deficit during the year. Cash and cash equivalents form a significant part of the assets, and are reserved to finance specific future obligations. The Group invested R32,7 million in acquiring plant, intangible assets and equipment to capacitate existing facilities.

The net financial result of the Group reflects a deficit of R126,9 million compared to a surplus of R208,5 million in the previous financial year. Total revenue increased with 9,6% while operating expenditure, excluding depreciation, decreased by 6,3%.

The main contributors to the deviation for the year under review are the following:

• Personnel Costs

The net underspending in personnel cost is due to the freezing of vacancies, except for those deemed critical for the continued operations of the organisation.

• Allocation for operating expenditure/Gross contributions

Allocation for operating expenditure is received to defray the cost of the Group’s operations for the year under review, to address additional services to be rendered, and to ensure that Armscor’s contracted service delivery to the Department of Defence, in terms of the Service Level Agreement (SLA), is effectively and efficiently met.

Funding of Armscor

Armscor’s main funding remains by means of a transfer payment via the DODMV. During the year under review, Armscor’s transfer payment was impacted the most by the three year reduction in the transfer payment, as directed by National Treasury, whereby it was required that Armscor should fund the shortfall allocated by National Treasury from its own reserves. This shortfall in the allocated transfer payment led to the significant deficit budgeted for the period under review. To this extent, Armscor continued to implement cost containment and cost prioritisation in order to reduce the budgeted deficit, and to reduce the impact on its own internal resources. This led to a 39,2% reduction in the deficit budgeted for the year.

Unrecoverable debts

An amount of R9,5 million (2016: R1,7 million) relating to unrecoverable debts was written off during the year.

Irregular expenditure

Irregular expenditure of R9.78 million (R13.2 million in 2015/16) was incurred during the year as a result of procurement that occurred without following the competitive bidding process. R4,7 million of this expense relate to security services contracts that were extended pending finalisation of discussions to transfer the physical security of its head office and strategic facilities to the Department of Defence, whilst R2,2million was treated as single source procurement without the required approval.

Fruitless and wasteful expenditure

Expenditure amounting to R3 million (2016: R823) was incurred during the year, and is deemed to be fruitless and wasteful. The expenditure was as a result of interest paid on late payments (R733), uninsured damages to third party client property (R0,8 million) and expenditure with no corresponding benefit to the organisation (R2,1 million). Processes are underway to determine appropriate action to be taken.

4.2       Report of the Auditor General (AG) for 2015/16 and risk management

Clean Audit

The external audit concluded by the office of the Auditor- General of South Africa (AGSA) resulted in a clean Audit report - as was the case in 2015/16. Armscor was awarded a clean audit award and a certificate of excellence by the Auditor-General of South Africa. This follows on from Armscor’s clean audit opinion, with no qualifications from the Auditor-General of South Africa for the 2014/15 financial year. The Auditor-General of South Africa audits 10 of the 21 major public entities. Of these state entities, Armscor is one of the few entities that received a clean audit opinion for the 2015/16 financial year - sustained from the previous year.

5.         OVERVIEW AND ASSESSMENT OF PERFORMANCE

This section will provide an overview of achievements in the key focus areas of Armscor for 2016/17, its official performance against targets and human resources matters.

5.1       Achievements in the key focus areas

Acquisitions for the SANDF and other government departments reflect Armscor’s core function. During the 2016/17 financial year, Armscor achieved the following in terms of contract management:

• R4.519bn or 39.8% of the total portfolio related to procurement and maintenance and support contracts, against R5.631 billion the previous year.
• R6.842bn, or 60.2% of the total portfolio related to technology and capital acquisition projects R6.315 billion in FY2015/16.

Defence Industrial Participation (DIP)

Defence Industrial Participation (DIP) relates to the obligation of a foreign supplier to reciprocate defence related business in South Africa as a result of a Defence acquisition. Armscor is currently managing 12 existing DIP agreements resulting from capital acquisition projects, a single obligation that stems from the SDPs, and one DIP agreement resulting from the procurement of pistols on behalf of the SAPS. It created DIP credits to the value of R135 471 664 during the 2016/17 financial year.  The only remaining SDP related DIP obligation is one incurred by MBDA for the acquisition of the Exocet surface-to-surface missile, for deployment on the frigates of the SA Navy. The DIP agreement has been extended to March 2019 to give Armscor and MBDA an opportunity to identify suitable projects involving local companies to discharge the outstanding obligation.

Research and Development

In accordance with the mandate given to Armscor, the Research and Development (R&D) Department manages the strategic capabilities and facilities under its control. The Department managed to earn 34% of the total business portfolio of R451,3m from commercial contracts, and 66% from the Department of Defence and Military Veterans. The Alkantpan and Gerotek Test Ranges, as well as Hazmat Protective Systems mainly contribute to the local and foreign commercial income. The department is still facing the challenge of insufficient funding to ensure the effective execution of its mandate. Commercial opportunities created by research and development activities are actively being exploited to contribute to long-term financial sustainability.

The Dockyard

The Dockyard achieved all its performance deliverables, which were signed off by the SA Navy, in accordance with the performance agreement with the Dockyard for the reporting period. ability. The Dockyard transfer process from Armscor to Denel continued to gain momentum during the period under review. The key outstanding actions include key approvals by National Treasury and an agreement with Denel’s strategic partner. Both processes are underway. This transfer will culminate in the SA Navy retaining sovereign control, and Armscor being the contracting authority, with Denel being the operator. Armscor permanently absorbed a number of employees who were previously employed through labour brokers. This would ensure that these employees enjoy the same full benefits as any other permanent employee. The Dockyard continued with its apprenticeship programme, thus ensuring a much needed feeder scheme to the technical domains.

The transfer of the Dockyard from Armscor to Denel is progressing and awaiting the necessary approvals. This process will culminate in a business model whereby the SA Navy will have sovereign control, Armscor will become the Contracting Authority in accordance with its mandate, whilst Denel will manage and operate the capability. In this process, Denel will have a strategic partner to ensure the much needed investment, capability rejuvenation and commercial involvement. Finalisation of this process is planned for the next reporting period.

Military Veterans

Armscor continues to collaborate with, and enhance its relationship with the Department of Defence and Military Veterans. A dedicated programme to address real needs of Military Veterans through various projects was established by Armscor. Armscor supported the launch of the Women Military Veterans Association (WOMVASA). Armscor maintains a database of Military Veterans suppliers. On 23 March 2017, Armscor held a workshop for Military Veterans suppliers, to provide them with information on Armscor’s procurement and acquisition processes. Currently, there are Military Veterans companies that have been awarded tenders in Armscor’s core business to the tune of approximately R30m. Others have been appointed through the ESD initiative as suppliers to main contractors to the tune of approximately R40m, while other projects of this nature are still being processed. Other initiatives include 5 bursaries worth R218 000 awarded to Military Veterans’ beneficiaries.

5.2       Performance against set targets

The Armscor three year integrated Corporate Plan defines two categories of performance indicators. The first category addresses performance indicators that measure the execution of Armscor’s functions, as defined in the Armscor Act and as agreed on in the SLA with the DOD, while the second category measures the attainment of the strategic objectives of the Group. A total of 53 Key Performance Indicators (goals) were set for 2015/16. Armscor managed to achieve 48 of these, with one which they did not have the opportunity to execute (KPI 2.3.1 Engage with the DOD to influence better alignment of capital projects), which results in a success rate of 90.56 per cent. Targets not achieved are reflected in table below.

Table : Key Performance Indicators not achieved during 2015/16

5.3       Personnel information

The 2016/17 Annual Report indicates that Armscor, including the Armscor Dockyard, has a staff complement of 1 502, which is lower than the 2015/16 figure of 1 383. The year under review is the last year of the term of the Employment Equity Plan, and the goals were achieved as follows:

•           The goal was set to increase black employees from 66% to 68% and 77,32% performance was     achieved; and

•           The goal for females was set to increase from 34% to 36% and 36% performance was achieved.

The targets for people with disabilities were surpassed, especially the female group. However, there were

terminations of service in the male category resulting from retirements during the year under review, and

consequently, the goals were not achieved.

In order to address skills shortage, Armscor continues to provide skills development through a number of programmes, the following of which are noteworthy:

• Five employees continued with studies enrolled since December 2014 at the Naval Postgraduate School in Monterey, California.
• One employee is currently registered at Cranfield to complete the Aircraft Certification programme. She completed two blocks in 2016, and the remainder of the programme will be completed in 2017.
• Seventy-six employees were registered on various levels of the AET programme during the period of reporting. From 76, 60 are registered for matric, and 16 for the AET levels 1 - 4.
• Thirty-five graduates were appointed to the Talent Development programme during the year under review. The programme comprises 14 African males, 19 African females, one Indian male and one White female pursuing opportunities in the disciplines of Science, Engineering and Information Communication Technology.
• One-hundred-and-sixteen bursaries were awarded to undergraduates at various local universities during the period under review. The bursaries are funded through the Armscor bursary scheme, the Armscor Defence Industry Bursary Scheme (ADIBS) and the Department of Defence (DOD) Ledger Fund.
• A total of 23 SA Navy students were enrolled at the training centre for P1 Mechanical Engineering and P2 Electrical Engineering respectively. Two of these learners enrolled for trade test preparation
• The Manufacturing Engineering and Related Services Seta (MERSETA) awarded Armscor Dockyard a R1 672 200 discretionary grant for 12 learners for the apprenticeship programme. The first tranche payment of R836 100 was paid in June 2016.

6.         COMMITTEE KEY FINDINGS: ARMSCOR

During its engagement with Armscor, the PCODMV made the following key findings:

• The Committee notes and welcomes Armscor’s expansion of service provision to state departments (other than the DOD) as well as other states such as Nigeria and Ghana.
• The Committee notes the cancellation of the contracting for the Offshore Patrol Vessels and the potential negative impact that this can have in the medium-term in terms of the SA Navy’s patrol capability.
• The Committee notes the potential delays in terms of the acquisitions of Project Hoefyster (Infantry Fighting Vehicles). Such delays are of key concern to the SANDF’s operational readiness. The Committee is cognisant of the fact that such delays largely relate to the manufacturing agent, Denel.
• The agreement between the Square Kilometre Array (SKA) project and Armscor’s Alkantpan facility is welcomed by the Committee. The Committee stresses that the aim should remain not to reduce revenue generated from this facility as a result of limitations placed on testing by the SKA-agreement.
• The successful increase in income from commercial sources by some of the Armscor facilities is welcomed.
• The Committee expresses concern regarding the delays in the transfer of the Dockyard to the planned cooperative management of Armscor, Denel and the SA Navy. The facility is of immense strategic value and its functioning imperative to the operational capacity of the SA Navy, in line with the Government Garage concept, as announced by the President, related to Operation Phakisa. The Committee acknowledges that Armscor awaits Denel’s final position on the potential transfer of the Dockyard.
• The Committee welcomes the maintenance of a clean audit by Armscor for 2016/17.
• The advances in terms of Employment Equity by Armscor are welcomed.
• Several successful training and education initiatives have been implemented by Armscor and the continued implementation of such initiatives are encouraged.
• The decrease in operating expenditure by Armscor is a major achievement in ensuring the longevity of the Armscor Group. This initiative should continue to bring down operating expenditure in the medium-term. However, the Committee stresses concern regarding the long-term financial sustainability of Armscor given limited income and a decreased state transfer.
• The Committee notes Armscor’s concerns related to Denel’s capabilities and its lack of ability to adequately support the SANDF, which invariably impacts on Armscor.
• The Committee stresses the importance of addressing ICT concerns at Armscor raised by the Auditor General.
• The ongoing delay in finalising the outstanding DIP agreement from the Strategic Defence Procurement Package (the MBDA DIP Agreement) is a major concern to the Committee and the finalisation thereof should be prioritised.
• The Committee notes the commitment by the Deputy Chairperson of the Armscor Board that Armscor will increase its involvement with the military veterans’ community.
• The Committee notes initial progress with the Truck Africa project which aims to produce a new logistics vehicle for the SANDF. The need exists to manage this in an efficient way as to ensure the delivery of a high-quality, cost-effective vehicle to the SANDF.
• It is acknowledged by the Committee that Armscor is not currently involved in any sweating of assets by the DOD as a means of funding the 2015 Defence Review.
• The Committee welcomes the establishment of a Defence Industry Fund as this may serve as a valuable tool to ensure the growth of the domestic defence industry, especially as it relate to the potential growth of SMME’s operating in the defence domain.
• Intellectual Property (IP) management is essential to ensure both the maintenance of sovereign defence capabilities and exploiting such IP for commercial use, where viable.

7.         COMMITTEE Recommendations

The PCODMV makes the following recommendations with regards to Armscor:

• In the context of limited DOD contracting, the Committee recommends Armscor to continue to exploit commercial opportunities for revenue collection as a means to ensure the sustainability of the Group.
• The Committee notes the cancellation of the contracting for Offshore Patrol Vessels as a major concern as it impacts negatively on the operational capacity of the SA Navy. The Committee recommends that the DOD and Armscor find a lasting solution in this regard to ensure SA Navy’s patrolling capacity. This is of special importance in the context of Operation Phakisa that aims to exploit the ocean’s economy.
• The Committee recommends that the DOD and Armscor meet urgently with Denel to ensure that the extended target (March 2019) for the first delivery of Infantry Fighting Vehicles is met. Failure to meet this target impacts negatively on the SANDF’s operational capacity. Armscor and/or the DOD should provide feedback on progress in this regard to the PCDMV within 45 days of the adoption of this report. The Committee will utilise this engagement for future interactions with Denel.
• Delays in the transfer of the Dockyard is of a major concern to the Committee. The Committee acknowledges that Armscor awaits Denel’s final position on the potential transfer of the Dockyard. The Committee recommends that the DOD and Armscor meet urgently with Denel to ensure the finalisation of this process or the identification of an alternative management initiative. Armscor and/or the DOD should provide feedback on progress in this regard within 45 days of the adoption of this report, including alternative management structures for the Dockyard. The Committee will use this feedback from the DOD and Armscor for future interactions with Denel.
• The Committee recommends that Armscor implements, as a matter of urgency, its identified corrective measures related to the AG’s Information Technology concerns.
• The Committee notes ongoing initiatives by Armscor to offset the DIP credits with the European Missile Producer, MBDA. It is recommended that the finalisation of this DIP agreement be prioritised for finalisation while ensuring maximum benefit for the state. Feedback in this regard should be provided no later than 1 June 2018.
• Feedback on the additional 11 DIP agreements and where/how these credits will be utilised should be provided to the Committee no later than 31 March 2018.
• Armscor should provide feedback on progress with the Truck Africa project no later than 31 March 2018. The Committee recommends that Armscor ensures that the vehicles are suitable for operational areas in Africa where the SANDF deploys.
• Armscor should provide feedback on the status of the Defence Industry Fund by no later than 31 March 2018.
• The Committee recommends that Armscor continues to manage IP in a responsible manner for the state, as there are billions worth of IP in Denel, and other organisations outside the defence environment, which need to be protected. This is to ensure commercialisation where viable as a means of gaining revenue. Armscor should report on challenges in this regard no later than 31 March 2018. This report should also include whether current legislation sufficiently protect defence-related IP and whether there are any threats to sovereign IP?
• Armscor should provide feedback in relation to progress of (1) Project Hotel and (2) Project Biro for the SA Navy. Such reporting should include detailed timelines on the production and delivery of these vessels. Reporting should be done by no later than 31 March 2018.
• The Committee recommends that Denel, which is currently under the Department of Public Enterprises, should migrate to the Ministry of Defence and Military Veterans, as recommended by the Presidential Committee on review of the State Owned Enterprises in 2012.

Report to be considered.