ATC140711: Report of the Portfolio Committee on Defence and Military Veterans on Budget Vote 22: Department of Defence and Military Veterans and the Entities, namely Armscor and the Castle Control Board, dated July 2014

Defence and Military Veterans

REPORT OF THE PORTFOLIO COMMITTEE ON DEFENCE AND MILITARY VETERANS ON BUDGET VOTE 22: DEPARTMENT OF DEFENCE AND MILITARY VETERANS AND THE ENTITIES, NAMELY ARMSCOR AND THE CASTLE CONTROL BOARD, DATED JULY 2014
 

1. BACKGROUND

 

The Portfolio Committee on Defence and Military Veterans having considered the request of the National Assembly to consider and report on the Strategic Plans, Annual Performance Plans (APP’s) and budget allocations of the Department of Defence, the Department of Military Veterans and the entities tabled by the Minister of Defence and Military Veterans, and in terms of the Public Finance Management Act (No. 1 of 1999), reports as follows:

 

2. INTRODUCTION

 

The Portfolio Committee considered the Strategic Plans and the Annual Performance Plans for the 2014/2015 financial year of the Department of Defence, the Department of Military Veterans and the two entities of the Department, namely Armscor and the Castle Control Board. The Committee further considered the adequacy of financial resources for the implementation of these plans and interrogated the allocation received by the Departments and the entities from National Treasury, the trends over the Medium Term Expenditure Framework (MTEF) both in terms of allocations and expenditure and, in the instance of the entities, in terms of revenue collected. This Report details the findings and recommendations of the Committee after engaging the Departments, and the Entities.

 

3. CONSIDERATION OF TABLED PLANS

 

3.1 Purpose of consideration of tabled Plans and Budgets

 

The purpose of Portfolio Committee’s interactions with the two Department and two entities was two-fold, namely:

 

· To provide an overview of the projected spending by Departments and the Entities over the medium term; and

· To gain an understanding of how performance indicators and targets are derived and how progress against these targets are tracked and reported on.

 

The presentations made by the two Departments and the Entities focused on the approach followed in the development of indicators and targets; as well as an attempt to integrate the relevant indicators and targets of the Entities with that of the Department.

 

3.2 Approach of the Portfolio Committee in consideration of the Budget Allocations, Strategic Plans and Annual Performance Plans

 

The presentations and documents that form the basis of the deliberations of the Portfolio Committee were considered together with the tabled Plans. In terms of the key performance indicators and targets contained in the Plans, the Portfolio Committee analysed the tabled plans. Discussions focused on key strategic priorities relevant to the programmes of the Departments and that of the Entities.

 

 

 

 

3.3 Government policies and other guidelines

This Report is based on various policy documents which make reference to the relevance of the Defence Force, the specific allocations as well as additional allocations to the DODMV. These documents include the:

 

• National Development Plan which for instance make reference to youth unemployment and South Africa’s position in the Region and on the Continent.

• New Growth Path which refers to the development of the National Youth Service and the filling of vacant funded positions.

• Medium Term Budget Policy Statement where reference is made to R150 million for the DRC operations and the growth in salary requirements.

• Budget Review 2014 which indicates that over the MTEF period additional amounts will be spent on improving the operational capability of the SA Air Force.

• Reports of the Auditor-General with reference to the qualified audit report and unauthorised, fruitless and wasteful and irregular expenditure.

• State of the Nation Address with reference to appreciation for the peacekeeping role of the Defence Force and the adequate resourcing of the Defence Force in line with the 2014 Defence Review.

 

4. DEPARTMENT OF DEFENCE

 

4.1 Ministerial Priorities

 

The Overarching Strategic Statement for 2014/15 provides an updated situational analysis of factors that have a bearing on the output deliverables of the DOD. Some of these are included in the Minister’s Strategic Priorities and Strategic Focus Areas. These factors include the following:

· The South African Defence Review . The Draft Defence Review is a national-level policy, converting government security policy into orientations and tasks for defence and projecting a coherent set of aims and objectives (Note that the Defence Review was approved by Cabinet in March 2014 and was tabled in Parliament on 2 July 2014).

 

· Corporate Governance and Accountability . The Defence Secretariat will be strengthened in line with its legislative mandate to ensure departmental effectiveness and efficiency.

 

· DOD Supply Chain Management . To prevent unnecessary losses and to promote accountability and governance, the DOD undertakes to revise its Procurement Policy and ensure timeous payment to Small-Medium and Macro Enterprises within 30 days.

 

· National Cost Containment Measures . Pending the finalisation of the Defence Review, consideration will be given to departmental strategic resource prioritisation, limited structural expansion and implementation of National Treasury cost containment measures in curbing expenditure in the DOD.

 

· Border Safeguarding . The DOD remains committed to Operation CORONA, the SANDF’s border safeguarding operation which sees up to 13 sub-units deployed along the country’s borders.

 

· Human Resources . The following human resources aspects, inter alia, will receive attention: Human Resources Expenditure; Organisation and Individual Performance Management; Ethics and Integrity; and Service Delivery Improvement Plan.

 

4.2 Policy Priorities and Focus Areas

· Enhancement of the SANDF’s Landward Defence Capabilities .

In order to undertake all required missions, the enhancement of the Landward Defence Capabilities is essential and this enhancement has been considered a priority since 2013/14. The Landward Defence Capability has not enjoyed the advantage of being part of the Strategic Defence Packages and is thus lacking technologically advanced Primary Mission Equipment. These capabilities that require attention include the Infantry Capability, which encompasses the production of new generation infantry combat vehicles. The funding of this priority formed part of the financial year 2013/14 onwards strategic budgeting function of the DOD for which the Landward Defence programme was allocated R 13.6 billion.

· Maritime Security Strategy .

The National Development Plan (NDP) 2030 recognises piracy and the smuggling of counterfeit goods as some of transnational crimes that need direct intervention. The SA Navy will continue with Operation COPPER (anti-piracy) as well as support other operations such as Operations CORONA ( border safeguarding operation) and PROSPER ( SANDF’s support to the SA Police Service in crime prevention ). The expansion of Naval Base Durban should continue to be resourced in future financial years.

· Job Creation .

In line with the directives of the National Development Plan’s (NDP) prioritising of job creation, the DOD will continue to ensure that job creation, within available resourcing, will be effected through approved projects within the Defence industry. The 2014 Defence Review will inform the finalisation of the White Paper on Defence Industry and the concomitant Defence Industry Strategy.

· National Youth Service (NYS) .

The NYS Policy, which will set the norms and standards of the NYS programme, will be developed in 2014/15 and approved in 2015/16. In 2013/14, it was stated that the Department will continue with the execution of the NYS programme through the utilisation of core Defence capabilities to provide initial training to selected youth prior to absorption into respective Government Institutions. In the past financial years since 2011/12, more than 5 000 NYS members underwent training under the auspices of Training Command at various bases.

· Restructuring and Support of the Defence Industry .

The restructuring of the Defence Industry will focus on required Defence capabilities and the sustainability thereof. The White Paper on the Defence Industry has been included as a chapter in the 2014 Defence Review. The drafting process of the Defence Industry Strategy has gone through several stages of stakeholder consultation since its commencement. This aim is also in line with the directives of the NDP and the New Growth Path which aims to create increased employment opportunities.

 

· Revitalisation of the Reserves .

As part of the one-force concept, the Reserves will continue to be transformed and revitalised to fulfil the various Defence roles allocated to them in support of the regulars. A total of R25.2 million has been allocated for the Defence Reserve Direction, in Programme 1 (Administration), for the financial year 2014/15. This amount is, however, only expected to grow at an average of 5.5 per cent to R26.1 million in 2015/16.

In addition to the abovementioned policy priorities for the Minister of Defence and Military Veterans, a number of strategic focus areas have been identified which should be prioritised by the Department and the implementation thereof monitored by the PCDMV.

· Military Skills Development System (MSDS)

The MSDS is a service system that supports the rejuvenation of the DOD’s Human Resources Renewal Strategy to ensure SANDF rejuvenation. The reduction in the number of MSDS compromises the ability of the SANDF to ensure a rejuvenated, prepared and employed capability as force multiplier for both internal and external operations. Until the size of the annual intakes increases, there will be shortages of young and fit deployable soldiers in both regulars and reserves. For 2014/15, approximately 4 272 MSDS members will be in the system.

· Transformation within the SANDF

The representation of both men and women in the SANDF command structures remains a key focus area for the financial year 2014/15. The Departmental policy continues to address the aspects with regard to the representation in for instance women at recruitment level, military command level, Defence Attachés and Gender and leadership seminars.

· DOD Audit

The DOD continues to strengthen its internal mechanisms of accounting to ensure a clean audit. For 2013/14, the DOD received two audit qualifications on movable and tangible capital assets and intangible capital assets. For 2014/15, the DOD will focus on resolving challenges with asset management to ensure a clean audit. In this regard, “Operation Clean Audit” will be enhanced through the Audit Management Team.

· Corruption and Fraud

The DOD continues to adopt a zero tolerance attitude to all forms of corruption and fraud within the Department. The DOD Corruption and Fraud Prevention Plan, which is valid for three years, was reviewed and approved on 9 July 2012. In addition, the DOD will enhance the detection, investigation and prosecution of corruption and fraud.

 

5. OVERVIEW OF BUDGET ALLOCATION 2014/15

 

The defence budget allocation of R42 831.2 million for 2014/15 constitutes 3.75 per cent of the financial year’s total appropriation of R1 142 562.4 million. Although the budget allocation for 2014/15 increased by 5.3 per cent in nominal terms, it decreased by 0.81 per cent in real terms in comparison to 2013/14. In 2013/14 a real percentage growth of only 0.58 per cent was recorded. The latest allocation thus signifies a continuation of the slowdown in funds allocated to the Department of Defence (DOD).

Matters that have been prioritised for the year 2014/15 include, inter alia , the following:

· Effective management of the Department.

· Maintaining current defence capabilities.

· Ongoing border safeguarding deployments.

· Execution of ordered peace missions.

· The implementation of the maritime security strategy, including anti-piracy patrols off the Mozambican coast.

· Improved operations within the SA Air Force and the South African Military Health Services (SAMHS).

 

Table 1 indicates the percentage of the Department’s budget that was allocated to each programme in 2013/14 and 2014/15 respectively. The Landward Defence Programme received the largest allocation, and this is mainly due to its large personnel requirement. Furthermore, marginal increases in allocation can be observed in Programme 1 (Administration), Programme 4 (Air Defence) and Programme 5 (Maritime Defence). These trends are in line with the set ministerial priorities and indicate the prioritisation of the management of the Department, the implementation of the Maritime Security Strategy and the increased operating of the SA Air Force.

Of concern is the allocation towards Programme 2 (Force employment) as a percentage of the overall allocation for 2014/15 which is 0.72 per cent lower than in 2013/14. This is despite the Department’s prioritisation of foreign peace missions, including the SANDF’s participation in the 2013-launched UN Force Intervention Brigade in the DRC. Similarly, the allocation towards Programme 6 (Military Health Support) as a percentage of the overall allocation for 2014/15 is lower than in 2013/14, bringing into question the aims of the Department to reprioritise this function.

Table 1: Percentage of budget allocated to programmes

R thousand	2013/14 (R million)	Per cent of total budget per programme	2014/15 (R million)	Per cent of total budget per programme	Change in percent allocation
Programme 1: Administration	4 509.0	11.09 %	4 866.5	11.36 %	0.27 %
Programme 2: Force Employment	3 555.7	8.75 %	3 437.0	8.02 %	-0.72 %
Programme 3: Landward Defence	13 604.9	33.46 %	13 854.9	32.35 %	-1.11 %
Programme 4: Air Defence	5 714.4	14.05 %	7 166.9	16.73 %	2.68 %
Programme 5: Maritime Defence	3 107.3	7.64 %	3 678.5	8.59 %	0.95 %
Programme 6: Military Health Support	3 762.1	9.25 %	3 849.1	8.99 %	-0.27 %
Programme 7: Defence Intelligence	767.9	1.89 %	792.1	1.85 %	-0.04 %
Programme 8:General Support	5 636.8	13.86 %	5 186.3	12.11 %	-1.76 %
TOTAL	40 658.2		42 831.2

 

In line with the Department’s strategies, the biggest real percentage increase (18.10 per cent) is allocated to Programme 4 (Air Defence) while Programme 5 (Maritime Defence) also received a sizeable real percentage increase of 11.47 per cent. Programme 1 (Administration) also received a small real percentage increase. The latter is mostly related to the increased allocation for office accommodation to the Department of Military Veterans (DMV).

The most significant decrease can be observed in Programme 8 (General Support), which received a 13.36 per cent real decrease. This funding for this programme is, however, expected to recover over the MTEF period as it is required to assist the expected increase in personnel by 2016/17. Of concern is the 4.11 real percentage decrease in the allocation to Programme 2 (Force employment) given that foreign peacekeeping deployments have been noted as a Departmental priority. Border control is a further crucial function that is funded from this programme. Landward Defence and Military Health Support received real percentage decreases of 4.11 and 3.66 per cent respectively. The latter is of specific concern given the ongoing challenges faced at military hospitals throughout the country.

The increase in the compensation of employees may relate to expected annual increases as hardly any changes in the expected personnel numbers are foreseen from 2013/14 to 2014/15. The increase in spending on contractors relate mostly to specialised personnel required for aircraft maintenance and the outsourcing of military health requirements to the private sector.

5.1 Personnel information and salaries

The Department has a funded establishment of 76 538 posts. This is lower than the number of funded posts recorded in the 2013 National Treasury’s ENE, which notes the DOD to have 80 380 posts. The number is, however, set to grow to 78 582 by 2016/17 in efforts to rejuvenate the Landward Defence capability and build capacity within the Defence Works Formation. Spending on Compensation of employees is expected to increase slightly from R21 373 million in 2013/14 to R21 980.2 million in 2014/15. The latter amount constitutes 51.32 per cent of the allocated budget. While the number of funded posts for 2014/15 is less than in 2013/14, the slight increase in allocation can likely be attributed to annual salary increases. Similar to previous years, the high ratio of funds to be spent on compensation of employees is a concern, as less than half of the budget is left to be spent on other priorities. This has the potential to impact negatively on ensuring the execution of the SANDF’s core mandate and the maintenance of its operational readiness.

5.2 Infrastructure spending

There is a significant decrease in infrastructure spending in 2014/15 compared to previous years. While R1.2 billion and R980.2 million was allocated for this purpose in 2012/13 and 2013/14 respectively, the allocation for 2014/15 is only R109 million. This is expected to increase to R121 million by 2016/17. The DOD had 46 refurbishment projects in 2013/14 of which 20 are expected to continue over the MTEF period. A total of R3.8 billion has been allocated for their completion. It is further stated that the DOD is prioritising the refurbishment of physical infrastructure at its bases over the MTEF period.

6. OVERVIEW OF ALLOCATION PER PROGRAMME

 

6.1 2014/15 Allocations to Programme 1: Administration

The Administration programme, which consists of 15 sub-programmes, constitutes 11.36 per cent of the Departments total budget for 2014/15. In nominal terms, the budget for this programme increased by 7.9 per cent whereas the real percentage change showed an increase of 1.63 per cent. Sub-Programme 14 (Office Accommodation) represents the largest sub-programme and accounts for 46.13 per cent of the programme’s total budget. This is largely related to an increased allocation for the Department of Military Veteran’s office accommodation and the establishment of operational law structures.

In terms of economic classifications, there is an increase for Compensation of Employees which increased from R1 464.6 million in 2013/14 to R1 550.2 million in 2014/15. This is likely due to the increase in personnel from 3 807 in 2013/14 to 4 082 in 2014/15. This is influenced by the establishment of the Defence Force Service Commission which requires personnel funding from Programme 1 (Administration).

· Performance Indicators for Programme 1 (Administration)

Three performance indicators for Programme 1 (Administration) were provided by the DOD and the only significant variation with previous years is the reduction in the number of Military Skills Development Service (MSDS) members in the system per year. This is of concern given that the DOD stated that one of its aims is to “rejuvenate the landward forces.” The MSDS is central to the rejuvenation of the SANDF. Furthermore, a new indicator for the number of Reserve Force man days was created to be measured from 2014/15 onwards.

 

6.2 2014/15 Allocations to Programme 2: Force Employment

The allocated budget for Programme 2 decreased with 3.3 per cent in nominal terms and 8.98 per cent in real terms. This decrease may be viewed in line with the underspending at the end of the 2013/14 financial year. The programme constitutes 8.02 per cent of the Department’s total budget and has as its objective to provide and employ defence capabilities to conduct all operations and exercises. It should be noted that in 2013/14, an additional allocation of R150 million as part of unforeseen expenses was made to the SANDF for participation in the UN mission in the DRC.

Similar to previous years, peace missions, border safeguarding and anti-piracy operations have been identified as priorities in this programme. This relates to the strategic priorities set by the Minister. However, given the prioritisation of these aspects, it is unclear why there was a sudden reduction in the allocation for Programme 2.

· Performance Indicators for Programme 2: Force Employment

A number of performance indicators for Programme 2 were set in the DOD Annual Performance Plan. There are no significant shifts in terms of the performance indicators. The number of external operations is set to decline from six in 2013/14 to five in 2014/15. This is likely due to the termination of the Central African Republic mission. The number of joint, interdepartmental and multinational military exercises conducted per year is set to increase from five to nine by 2014/15. Furthermore, the number of sub-units deployed to borderline safeguarding is set to remain constant at 13 units over the MTEF period.

6.3 2014/15 Allocations to Programme 3: Landward Defence

The Landward Defence programme is the largest programme in the defence budget constituting 32.35 per cent of the Department’s total budget for 2014/15. It provides prepared and supported landward defence capabilities for the defence and protection of South Africa. The 2014/15 priorities set for this programme includes the preparation and provision of forces for both internal and external deployments. The two largest sub-programmes in this Programme are (1) the Infantry Capability and (2) the Support Capability. While allocation for this programme increased by 1.8 per cent in nominal terms, it decreased by 4.11 per cent in real terms from 2013/14 to 2014/15. This can be considered in line with the reduction of funds for this Programme due to virements and shifts in 2013/14.

The largest reduction in funds from 2013/14 to 2014/15 in Programme 3 (Landward Defence) was for the Support Capability, which decreased by 15.31 per cent in real terms. The aim of this sub-programme is to provide support to units, bases and deployed combat units. Given the ongoing focus on regional and internal deployments of the SANDF, it is thus unclear how this reduced allocation for support services will affect deployed units. The General Training Capacity allocation is also being reduced by 13.08 per cent in real terms. This may be related to the decreased intake in MSDS members from 2014/15 onwards. It is, however, uncertain how this decreased allocation will impact on the level and quality of training. Furthermore, the allocation for Strategic Direction decreased by 5.43 per cent in real terms from 2013/14 to 2014/15.

· Performance Indicators for Programme 3: Landward Defence

In previous years, the DOD Annual Performance Plans indicated four Performance indicators for the Landward Defence Programme. However, three of these were considered to contain classified information. As such, only one performance indicator is referenced in the 2014/15 Annual Performance Plan. However, the indicator reported on in 2013/14 was ‘the percentage compliance with DOD formal training targets (number of learners on planned courses)’. According to the 2013/14 Annual Performance Plan, up to 5 722 learners were to be enrolled on courses. There is, however, no similar performance indicator mentioned in the 2014/15 Annual Performance Plan.

6.4 2014/15 Allocations to Programme 4: Air Defence

The Air Defence programme, which has 11 sub-programmes, is the second largest programme in the Defence budget constituting 16.7 per cent of the Department’s total budget. Fund allocations to this programme increased by 25.4 per cent and 18.10 per cent in nominal and real terms respectively from the previous financial year. Sub-programme 4 ( Transport and Maritime Capability) represents the largest sub-programme and accounts for about 26 per cent of the programme’s total budget. This increase is because of an increase in deployments and presidential commitments, which resulted in the reprioritisation of R341.9 million from the Special Defence Account over the medium term to improve the South African Air Force’s operational capability. The increase in this programme is in line with strategic priorities. For instance, Maritime Security Strategy has been prioritised and the Transport and Maritime Capability sub-programme is critical in supporting the SA Navy in Operation COPPER. With 202.93 per cent, this sub-programme also represents the highest real percentage increase for Programme 4.

· Performance Indicators

For 2014/15, only one performance indicator (Number of force employment hours flown per year) is provided by the DOD. This indicator is different to the one provided for 2013/14 (Number of learners on planned courses) in which the DOD reported on four performance indicators for Programme 4. However, three of those indicators were not provided in the 2013 APP due to information being confidential. This was in contrast to the 2012 APP which provided a number of performance indicators per Sub-programme. A total of 14 performance indicators were provided for in the 2012 APP.

 

6.5 2014/15 Allocations to Programme 5: Maritime Defence

The Maritime Defence programme has 5 sub-programmes and is responsible for providing prepared and supported maritime defence capabilities for the defence and protection of South Africa. This programme constitutes 8.58 per cent of the total defence budget for 2014/15. The programme showed an increase of 18.4 per cent and 11.47 per cent in nominal and real terms respectively as compared to the 2013/14 allocation. Sub-programme 2 (Maritime Combat Capability) received the largest increase of 79.46 per cent in real terms. This increase is in line with identified strategic priorities and is projected to continue over the MTEF period due to the procurement of harbour tug-boats and payments for the replacement of offshore patrol vessels. Sub-programme 4 (Maritime Human Resources and Training Capability) also received a real percentage increase of 1.6 per cent stemming largely from the requirements for anti-piracy operations.

· Performance indicators

For 2014/15, only one indictor ‘Number of hours at sea’ has been identified for Programme 5 (Maritime Defence). This is a reduction from the four performance indicators identified for this programme in 2013/14, of which three lacked information due to confidential security classifications. In addition, the 2014/15 indicator has changed from ‘Number of learners on planned courses’ as provided in 2013/14. The Number of hours at sea decreased from 22 000 in 2013/14 to a projected 12 000 in 2014/15. In contrast, Operation COPPER continues and the SA Navy may soon commence patrolling the waters of Namibia and Angola based on recent agreements. Accordingly, it may be argued that there should be a possible increase in sea hours rather than a decrease from 2014/15 onwards.

6.6 2014/15 Allocations to Programme 6: Military Health Support

With an allocation of R3.85 billion in 2014/15, the Military Health Support programme constitutes 9 per cent of the total defence budget. The programme received an increase of 2.3 per cent in nominal terms which translates to a decrease of 3.66 per cent in real terms. There is a clear need to provide extra funding for this programme as can be observed in 2013/14 already when a virement of R119.553 million was made to the Programme. With regards to the various sub-programmes, s ub-programme 4 (Specialist/Tertiary Health Service) received an increase of 14.13 per cent in nominal terms which translates to an increase of 7.47 per cent in real terms. Other real increases were noted for Sub-programme 6 (Military Health Maintenance Capability) and Sub-programme 3 (Area Military Health Service) at 2.23 per cent and 2.22 per cent, respectively.

· Performance indicators

In 2013/14, six performance indicators were identified for Programme 6 of which three lacked information due to a confidential security clearance. For 2014/15, no indicators are indicated for this programme in the APP.

6.7 2014/15 Allocations to Programme 7: Defence Intelligence

This Programme has three sub-programmes. No major shifts were apparent for the 2014/15 financial year. Programme 7 (Defence Intelligence) is the smallest of the defence programmes with an allocation of R792 million, an increase of 3.2 per cent in nominal terms and a decrease of 2.87 per cent in real terms as compared to 2013/14. It provides a defence intelligence and counter-intelligence capability to the SANDF. Sub-programme 2 (Operations) received an allocation of R473.6 million, which translates to an increase of 3.27 per cent in nominal terms and a decrease of 2.76 per cent in real terms. Sub-programme 3 (Defence Intelligence Support Services) received an allocation of R318.5 million, which translates into an increase of 3.01 per cent in nominal terms and a decrease of 3.01 per cent in real terms.

· Performance indicators

Only one indicator has been identified for this programme as compared to four in 2013/14, of which two were classified. In addition, the current indicator is ‘Percentage compliance with number of ordered commitments (external operations)’. This is different from the 2013/14 indictors which were ‘Percentage compliance with the approved force design’, Percentage compliance with the approved force structure’, ‘Number of Defence Intelligence products’ and ‘Number of vetting decisions taken in accordance with requirements’.

6.8 2014/15 Allocations to Programme 8: General Support

The General Support programme is the third largest programme in the defence budget and constitutes 12.1 per cent thereof. The programme received an 8 per cent decrease in nominal terms which results in a 13.36 per cent decrease in real terms. This should be viewed against the fact that in 2013/14 there was a virement of R635.981 million to the programme. The largest decrease was observed in Sub-programme 5 (Departmental Support) with a real percentage decrease of 36.34 per cent. A real percentage reduction of 31.44 per cent was also observed for Sub-programme 2 (Command and Management Information Systems).

· Performance indicators

In 2013/14, several performance indicators were identified for Programme 8 (General Support) of which three lacked information due to a confidential security clearance. For 2014/15, no indicators are indicated for this programme in the APP.

7. DEPARTMENT OF MILITARY VETERANS

 

7.1 Medium-Term Strategic Focus

 

The DMV Strategic Plan for 2012 to 2016 lays the foundation for the structuring of programmes within the Department, the allocation of funds and the construct of the subsequent APP for 2014/15. The Strategic Plan is closely linked to Government’s medium-term strategies. From this, the Executive Authority has derived a number of priorities that inform delivery on the legislative mandate. These priorities are outlined below and, where applicable, their link to the 2014/15 financial year is alluded to:

· The provision of immediate social services to relieve distress among the most vulnerable military veterans . This priority is reflected in Programme 2 of the Department’s 2014/15 budget which refers to socio-economic support services. Funding for this programme increased from R122.2 million in 2013/14 to R168.1 million for 2014/15.

· Provision of comprehensive support services to military veterans and, where applicable, to their dependents, subject to availability of resources . Support services included in this entails health support, memorialising military veterans, education and skills development, facilitation/advice on business opportunities, pensions, housing and burial support. In 2014/15, these matters will be addressed in the Department’s Programme 3 (Empowerment and stakeholder management). The fund allocation for this programme is set to increase from R76.5 million in 2013/14 to R157.9 million in 2014/15. Of this amount, R100.2 million (or 63.5 per cent) is allocated to the empowerment and skills development sub-programme.

· The promotion of the heritage of military veterans and memorialising and honouring military veterans . As part of Programme 3 (Empowerment and stakeholder management), a total of R14.3 million is allocated to ‘heritage, memorials, burials and honours’ for 2014/15, signifying a decrease of more than 50 per cent for this sub-programme. This is mainly due to the fact that the “DMV will no longer have military veterans honouring functions”.

· Maintenance of a credible and secure national military veterans’ database . The maintenance of such a database is essential for the Department to be able to assist deserving military veterans. However, the finalisation and transparency of the database has been an issue of contention and has been questioned by the Portfolio Committee on several occasions. The DMV regulations, gazetted on 19 February 2014, pose similar challenges.

 

· Promotion of empowerment programmes for military veterans . This priority focuses on the pursuit of initiatives that will widen military veterans’ access to economic participation. This will include preferential procurement mechanisms within the Department of Defence and other social partners as well as the operationalisation of a special-purpose vehicle (SPV) to provide incubator programmes for military veterans. This priority is also addressed by Programme 3: Empowerment and stakeholder management.

 

7.2 Overview of 2014/15 Budget Allocation

 

While previous financial years have seen the DMV largely involved in capacity building, the recent increase in funding and expansion of its activities seeks to bring the Department closer to being fully operational. This is reflected in the fact that while in the first years of its establishment, Programme 1: Administration received the most funding, there has been a marked increase in funding of Programme 2: Socio economic support as well as Programme 3: Empowerment and stakeholder management in 2013/14 and 2014/15.

Table 2 indicates the percentage of the Department’s budget that was allocated to each programme in 2013/14, 2014/15 and projected for 2015/16 respectively. Similar to previous years, Programme 1 continues to receive the largest proportion of funding in 2014/15. This is only set to change in 2015/16. The decreasing percentage of Programme 1 as part of the overall allocation is, however, not due to decreased funding for that programme, but rather due to increased allocations for Programmes 2 and 3. The largest increase in funding for the 2014/15 financial year is for Programme 3, which reflects a real increase of 94.36 per cent. This is, however, set to stabilise by 2015/16 while Programme 2 will continue to rise to become the largest programme in terms of funds appropriation.

Table 2: Percentage of budget allocated to programmes

Programme	2013/14 (R million)	Percentage of total budget per programme	2014/15 (R million)	Percentage of total budget per programme	2015/16 (R million)	Percentage of total budget per programme
Programme 1: Administration	152.8	43.48%	178.2	35.34%	169.2	27.88%
Programme 2: Socio Economic Support Services	122.2	34.78%	168.1	33.34%	267.5	44.08%
Programme 3: Empowerment and Stakeholder Management	76.5	21.77%	157.9	31.32%	170.2	28.05%
TOTAL	351.4		504.2		606.8

 

· Economic classification

In terms of economic classifications, there is a slight increase in Compensation of employees, which increases from R80.6 million in 2013/14 to R92.2 million in 2014/15. Goods and services increase from R260.8 million in 2013/14 to R404.1 million in 2014/15. The most significant contributor to the increased allocation for Goods and services is consultants (R62 million for 2014/15) and housing (which increases from R60 million in 2013/14 to R103 million in 2014/15). There is also a significant increase in the allocation for travel and subsistence, which increases from R21.9 million in 2014/15 to R52.2 million in 2014/15. This is of particular concern given the DMV’s small staff complement. Training and development will increase from R23.6 million in 2013/14 to R79 million in 2014/15 while Machinery and equipment decreased from R10 million to R7.9 million.

· Personnel information and salaries

The Department has an organisational structure of 169 posts. There is, however, uncertainty as to the number of post filled by the end of 2013. National Treasury states that the DMV had 63 filled posts by November 2013. However, the DMV APP notes, on page 27, that it had 87 filled posts by December 2013. It is unclear if 20 personnel members were then hired in December alone. The Department aims to fill all 169 posts by 2016/17. These figures raise the concern that the Administration programme may be staffed at the expense of other programmes which relates more directly to the core functions of the DMV. Furthermore, given the significant real percentage increases in the allocations for programmes 2 and 3 (29.53 and 94.36 per cent respectively), there is a particularly small staff complement to manage projects related to this increased funding.

8. OVERVIEW OF ALLOCATION PER PROGRAMME

 

8.1 2014/15 Allocations to Programme 1: Administration

The 2014 APP reflects an expansion of the sub-programmes of Programme 1. While previously consisting of four sub-programmes, it has increased to six in 2014 with the addition of the (1) Strategic Management, Policy development and Monitoring and Evaluation sub-programme as well as the (2) Corporate Services sub-programme. The most significant increase in the allocation of funds to Programme 1 occurred in sub-programme 5 (Internal Audit), which increased by 69.8 per cent in nominal terms and 59.89 per cent in real terms. Similarly, sub-programme 3 (Corporate Services) also reflects a nominal increase of 52.09 per cent and a real increase of 43.22 per cent.

In terms of economic classifications, there are a number of concerns regarding the allocation of funds in Programme 1 (Administration):

· Travel and subsistence: The allocation for travel and subsistence increased from R5.414 million in 2013/14 to R7.161 million for 2014/15. This can be considered an extremely high allocation given that Programme 1 only has 67 filled posts.

· Catering and entertainment: Catering and entertainment is reported under three different headings in Programme 1, including ‘Catering Departmental Activities’, ‘Entertainment’ and ‘Inventory: Food and food supplies’. The allocation for these three categories are R389 000, R315 000 and R140 000 respectively.

· Advertising: Of the three programmes of the DMV, only Programme 1 reflects an allocation for advertising. The allocation for 2014/15 is, however, set to decrease from R1.573 million in 2013/14 to R1.223 million. This is of concern given the expanded scope of work of the DMV and the need to reach and interact further with military veterans.

· Communications: There is a significant increase in the allocation for Communication from R4.481 million in 2013/14 to R8.780 in 2014/15. It is unclear what this refers to as it cannot form part of ‘computer services’ or ‘advertising’ which has separate allocations. If this allocation refers only to, for example, phone services and the rental of internet lines, it represents a very high allocation for such a small programme with only 67 filled posts.

· Consumable supplies: A total of R2.090 million has been allocated for this category. However, it remains unclear what ‘consumable supplies’ refers to and how it is different from the other category of ‘Consumable: Stationary, printing and office’.

· Rental and hiring: A total of R1.180 million has been allocated for this category for 2014/15. However, it remains unclear as to what equipment needs to be hired/rented for an Administration programme.

 

Programme 1: Performance indicators

While Programme 1 (Administration) had a total of 18 performance indicators in 2013/14, this has decreased to 14 indicators in 2014/15. The following indicators were removed:

· Military Veterans regulations prepared for approval. (Note that these were approved in 2013).

· Approved DMV Service Delivery and Improvement Plan.

· Percentage deviation from approved cash flow.

· Percentage compliance with budget transfer prescripts.

 

8.2 Programme 2: Socio-economic Support

Programme 2 previously had four sub-programmes, but this has been reduced to three for the 2014/15 financial year. The sub-programme Research and Policy Development was removed. Programme 2 constitutes 33.34 per cent of the Departments total budget for 2014/15. In nominal terms, the budget for this programme increased 37.56 per cent while the real percentage change showed an increase of 29.51 per cent. Sub-programme 3 (Socio-economic support management) represents the largest sub-programme and accounts for 67.95 per cent of the programme’s total budget for 2014/15.

In terms of economic classifications, there are a number of concerns regarding the allocation of funds in Programme 2 (Socio-economic services):

· Catering and entertainment: Programme 2 reports on catering and entertainment in three different categories. In total, R1.002 million is to be spent on catering and entertainment in 2014/15, subdivided into ‘Catering: Departmental Activities’ (R797 000), ‘Entertainment’ (R80 000) and ‘Inventory: food and food supplies’ (R125 000).

· Consultants: A total of R35.861 million is to be spent on consultants for Business and Advisory Services (R5.842 million) as well as Laboratory Services (R30.019 million). It can be assumed that the former related to the finalisation of the database and the management thereof. The MTEF spending on this is, however, of concern.

· Stationary, printing and office: A total of R431 000 has been allocated for this function for 2014/15, which is relatively high given that Programme 2 only has a staff complement of 15.

· Travel and subsistence: A total of R4.971 million has been allocated for travel and subsistence. It is crucial for the DMV to explain what percentage of this will be utilised by staff of Programme 2 and what percentage will be utilised directly for military veterans (including the transport of veterans to and from events).

 

 

· Programme 2: Performance indicators

Programme 2 has a total of 5 annual performance indicators. This is significantly lower than the 11 performance indicators presented in the 2013 APP. The following performance indicators were removed and are not reflected in the 2014 APP:

· Total number of military veterans with access to counselling and treatment of Post-traumatic Stress Disorder.

· Number of distressed and vulnerable military veterans and dependents provided with immediate services.

· Number of military veterans receiving the anticipated military veterans pension.

· Compensation of military veterans physically or mentally injured in action.

· Approved military health care policy.

· Number of provincial health-care and wellbeing centres established

 

8.3 Programme 3: Empowerment and stakeholder relations

Programme 3 consists of three sub-programmes and it constitutes 31.32 per cent of the Department’s total budget for 2014/15. In nominal terms, the budget for this programme increased by 106.5 per cent, while the real percentage change showed an increase of 94.47 per cent. The most significant increase in funds allocated in this Programme relates to funding for provincial offices and stakeholder relations. Funding for this sub-programme will increase from R11.076 million in 2013/14 to R43.334 million in 2014/15. The primary aim of this sub-programme will be to set up and equip the DMV’s provincial offices. The National Treasury states that in 2013/14, the focus was on the DMV’s negotiations with relevant authorities to set up provincial offices.

In terms of economic classifications, there are a number of concerns regarding the allocation of funds in Programme 3 (Empowerment and stakeholder management):

· Compensation of employees: The 2014 APP notes that by 31 December 2013, only five permanent positions were filled in this programme with 40 vacancies remaining. However, the allocation for compensation of employees for this programme during 2013/14 was R22.629 million. This is set to rise to R25.143 million in 2014/15. It is unclear how such a large amount can be used for such a small staff contingent.

· Catering and entertainment: Programme 3 has a substantially higher allocation for catering (R3.359 million) and entertainment (R294 000) than other programmes. It can be assumed that catering may refer to events hosted for military veterans where food is supplied. However, the 2014 APP also notes that the DMV will no longer have military veterans honouring functions. As such, it is unclear exactly how these amounts will be utilised.

· Fleet services: A total of R1.2 million is allocated for this purpose, but it is unclear how many vehicles have been allocated to this programme. As such, an accurate cost-benefit analysis cannot be done.

· Stationary, printing and office supplies: Given the relative small staff contingent of five, the allocation of R895 000 for stationary and printing seems extraordinarily high.

· Travel and subsistence: A breakdown of funds for travel and subsistence should be provided for this programme. This is extremely important given that R40.042 million was allocated to this programme for travel and subsistence in 2014/15.

· Training and development: Over the medium-term the DMV aims to train up to 9 000 people at the Centre for Advanced Training. The total cost for this over the medium term, as per the 2014 APP, comes to R227.038 million which equates to R25 226 per trainee.

· Programme 3: Performance indicators

Programme 3 has a total of six annual performance indicators for 2014/15, which is significantly lower than the 18 indicators presented in the 2013 APP. The following indicators were omitted in the 2014 APP:

· Liberation war memorial (According to the 2013 APP this should be established in 2014/15).

· Erection of the Tomb of the Unknown Soldier (scheduled for completion in 2013/14).

· Number of programmes promoting the heritage of military veterans.

· Number of graves established and restored

· Military veterans company database.

· Number of military veterans with relevant SAQA approved certificates (there was to be 1 000 in 2014/15).

· Number of events honouring military veterans

· Military veterans training and skills development policy document (This was supposed to be approved in the 2014/15 financial year).

· Number of formal agreements with institutes of higher learning

· Number of veterans receiving burial support per year

· Number of programmes promoting the heritage of military veterans

· Number of programmes promoting the affairs of military veterans approved by Cabinet.

 

9. ARMSCOR

 

The Armaments Corporation of South Africa SOC Ltd (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 Minister of Defence and Military Veterans is the executive authority responsible for Armscor. The Corporate Plan 2014/15 – 2016/17 of Armscor was submitted to Parliament in March 2014.

Armscor’s vision is to become the premier technology and acquisition agency for the South African Government and Governments of the Southern African Development Community (SADC).

9.1 SWOT analysis

The SWOT analysis, which was revised by the Board of Directors in June 2013, refers to strengths, weaknesses, opportunities and threats for the Corporation.

Strengths include the following:

· Armscor’s Intellectual Property (IP) assets.

· Armscor’s position to exploit IP for product development and upgrade.

· International reputation on acquisition arena.

· Strong legal authority and a strong resourced statutory client.

· Strong and resourced statutory client.

Weaknesses include the following:

· Lack of managerial depth.

· Narrow understanding of its mandate.

· Single-client concentration or inability to develop independently from the DOD.

· Failure to understand the intention of its creation as a legal persona.

· Not operating as a business.

Opportunities include the following:

· Armscor as the only acquisition structure and authority of its kind in the country and the continent.

· Experience with products acquired from abroad and major countries that did not perform in Africa.

· The drive for standardisation on the continent.

· A strong SADC and close cooperation of its security services.

· Lack of strategic planning and force design capabilities on the continent.

· Lack of technologies and individual resources to develop own solutions in the defence and general industry.

Threats include the following:

· International competition based on subsidising defence export.

· Political pressure on South Africa exploiting its Constitution and sensitivity on arms export.

· Sophisticated and underhand efforts to keep Africa incapable of defending itself.

· Concerted efforts to undermine the unity and cohesion of SADC and the AU

· Small armed forces in SADC and the continent.

· Efforts to disarm the country of its defence-related industry.

9.2 Financial plan

The Corporate Plan refers to the three year plan incorporating the financial results of Armscor Corporate, Research and Development, the Naval Dockyard, and AB Logistics. In terms of revenue growth, the Plan provides for low growth as the main source of income for services charged is subject to a moderate increase in defence spending. The revenue is supplemented by income from investments and some commercial income. Cost growth has been carefully managed over the planning period in response to the negative outlook. The Plan also includes a capital expenditure programme to maintain activities. Armscor does not declare dividends at the end of any financial period. Surpluses generated by Armscor will be issued to maintain its infrastructure. The three year forecast indicates a negative position which will require Armscor to make use of reserves to fund its operating activities. Borrowings may be required to fund its required capital expenditure as well as strategic projects pursued.

9.3 Group Financial Statements

The Revised budget for Armscor Group for the 2014/15 financial year excluding unfunded additional cost indicates a projected total income of R1.225 billion, while the operating expenditure is estimated at R1.186 billion, of which R935.5 million is for Direct Personnel Cost and R61.7 million for External Services. An amount of R37.7 million has been allocated for Indirect Personnel Cost, R36 million for Subsistence and Travel and R33.3 million for Water and Electricity. The total profit for 2014/15 is projected at R800 000, whereas the losses for 2015/16 and 2016/17 are projected at R11.7 million and R23.3 million respectively. These projections are contrary to those contained in the previous Corporate Plan, which projected a total profits for 2014/15 and 2015/16 at R48.7 million and R59.4 million respectively. The financial information of the various Armscor bodies is as follows:

· Armscor Corporate . The income for Armscor Corporate for 2014/15 is projected at R734.3 million, while the operating expenses are projected at R718.7 million of which R541.5 million is allocated for Direct Personnel Cost and R53.7 million for External Services. It is projected that the Armscor Corporate will make a loss of R700 000 in 2014/15, R4.4 million in 2015/16 and R10.1 million in 2016/17.

· Research and Development. The Research and Development was previously known as Armscor Defence Institutes. The income for Research and Development for 2015/16 is projected at R284.3 million, while the operating expenses are projected at R271.2 million of which R218.7 million has been allocated for Direct Personnel Cost. Its profit is projected at R3.8 million and R1.1 million for 2014/15 and 2015/16 respectively, while a loss of R2.4 million is projected for 2016/17.

· Armscor Dockyard . The income for Armscor Dockyard for 2014/15 is projected at R182 million, while the operating expenses are projected at R170 million of which R153.7 has been allocated for Direct Personnel Cost. After financing and non less cash flow items, it is projected that the Dockyard will not make any profit for 2014/15. It is further projected that the Dockyard will make losses of R5.8 million and R7.8 million for 2015/16 and 2016/17 respectively.

· AB Logistics. The income for AB Logistics is projected at R24 million, while operating expenses are projected at R26.3 million of which R21.6 million has been allocated for Direct Personnel Cost. Its losses are projected at R2.3 million, R2.6 million and R3 million for 2014/15, 2015/16 and 2016/17, respectively.

9.4 SELECTED PERFORMANCE INDICATORS

The Service Level Agreement between Armscor and the DOD specifies targets to be reached for as:

· Capital Defence Materiel Acquisition (Goals 1): Contracts to be placed by Armscor and Cash flow.

· Strategic Defence Acquisition (Goal 2): Contracts to be placed by Armscor and Cash flow.

· System Support Acquisition and Procurement (Goal 3): Contracts to be placed by Armscor and Cash flow.

· Schedule placement (Goal 4).

· Management of Defence Industrial Participation (Goal 5).

· Management and execution of defence technology, research, test and evaluation requirements by the DOD (Goal 6)

· Performance against mandate (Dockyard performance management agreement) (Goal 7).

The Corporate Plan then lists the various key performance indicators with the related goals for the four years namely 2013/14, 2014/15, 2015/16 and 2016/17. The Estimates of National Expenditure for 2014 and Armscor’s Annual Report 2011/12 show how the Corporation performed its functions against the set targets.

9.5 BUDGET ANALYSIS FOR 2014/15

The total allocation for 2014/15 is R 1 981.6 billion, which indicates an increase from R 1 924.2 billion for 2013/14. In terms of real rand change between 2013/14 and 2014/15 the Corporation’s budget has declined by R58.3 million, which indicates a real percentage decrease of 3.03 per cent.

· Administration . The allocation of R361.2 million for 2014/15 for this purpose, illustrates a real rand decrease of R36.7 million as compared to the R376.8 million allocated for 2013/14. In terms of real percentage change, the allocation indicates a decrease of 9.74 per cent.

 

· Quality Assurance . The allocation of R90.3 million for 2014/15 illustrates a real rand decrease of R1.4 million as compared to the R86.4 million for allocated 2013/14. In terms of real percentage change, the allocation indicates a decrease of 1.59 per cent.

 

· Management of Defence Matériel Acquisition . The allocation of R317.6 million for 2014/15 for this programme, illustrates a real decrease of R3.2 million as compared to the R302.3 million for allocated 2013/14. In terms of real percentage change, the allocation indicates a decrease of 1.07 per cent.

 

· Management of Strategic Facilities: Research and Development . The allocation of R439.1 million for 2014/15 for this goal, illustrates a real decrease of R8.9 million as compared to the R422.4 million for allocated 2013/14. In terms of real percentage change, the allocation indicates a decrease of 2.12 per cent.

 

· Management of Strategic Facilities: Research and Development . The allocation of R439.1 million for 2014/15 for this goal, illustrates a real decrease of R8.9 million as compared to the R422.4 million allocated for 2013/14. In terms of real percentage change, the allocation indicates a decrease of 2.12 per cent.

10. CASTLE CONTROL BOARD

The Castle Control Board (CCB) submitted its Annual Performance Plan (APP) for the 2014/15 financial year to Parliament in March 2014. This APP may be viewed in the context of the more overarching Strategic Plan for the financial years 2012/13 -2016/17. However, changes in the CCB structure, most notably the appointment of an Executive Director, may impact on the direction of the APP.

10.1 Performance Delivery Environment

The CCB set a number of adjusted and new performance targets in the 2014 APP:

· To reduce adverse audit findings by at least 50 per cent.

· To complete 100 per cent of all scheduled and approved projects by year-end.

· To complete two new innovative displays per annum.

· To increase tourism numbers to 150 000 in the 2014/15 financial year.

· Increase revenue from tourism to R3.3 million in 2014/15.

· Support and mentor 20 intern students.

· Involve at least 10 community users in the use of the Castle for educational and cultural exchange programmes.

· Increase the number of non-paying community members accessing the Castle to
25 000

· Increase the audience reached through positive media coverage from 5 to 6 million people.

In addition to the above, the APP also included new/proposed outputs for 2014/15. These include the following expenditure:

· R710 000 for the Conservation Management Plan

· R978 000 to ‘kick-start’ the enhancement of tourism potential

· R298 000 for the tourism internship programme and the heritage month programme

 

10.2 CCB programmes and MTEF estimates

There have been no changes to the programmes as per the Strategic Plan and the 2014 APP makes reference to four programmes. The budgetary allocations of these programmes are shown in Table 4.

Table 4: Expenditure estimates per programme:

CASTLE CONTROL BOARD: INFORMATION
Programme	Estimate	Medium-term estimate
	2013/14 (R’000)	2014/15 (R’000)	2015/16 (R’000)	2016/17 (R’000)
Administration	2 526	3 573	5 226	5 525
Maintenance and conservation	1 463	1 863	1 950	2 020
Tourism	67	75	130	150
Public Access	104	260	330	360
TOTAL	4 160	5 771	7 636	8 055

 

10.2.1 Programme 1: Administration

Of the various programmes, the Administration programme is set to receive the largest allocation over the MTEF period. The APP notes that the increased allocation for this programme is due to recommendations by the Auditor-General that the CCB should ensure improved corporate governance. As such, there is a need for increased human resources. Accordingly, Compensation of employees will increase from R1.505 million in 2013/14 to R2.472 million in 2014/15 and eventually to R4.225 million in 2016/17. It is further noted that the CCB proposes that the Castle’s trade surplus fund of R13.9 million be used for funding of the additional human resources. Approval for the usage of this fund was obtained from National Treasury in September 2013.

10.2.2 Programme 2: Maintenance and conservation of the Castle

There is a steady increase in the allocation to Programme 2 over the MTEF period from R1.463 million in 2013/14 to R1.863 million in 2014/15. This is, however, a significant reduction from 2012/13 when R3.565 million was allocated to Programme 2. The reduction in funds allocated for 2014/15 compared to 2012/13 is of concern given that the CCB’s 2012/13 Annual Report indicated a desire to start ‘Phase Two’ of the Department of Public Work’s maintenance project in the 2014/15 financial year.

10.2.3 Programme 3: Tourism

The Castle raises its funds through entrance fees and venue hire. The allocation for 2014/15 is set to increase somewhat from R67 000 to R75 000. The APP states that the CCB aims to limit the costs of consultants now that the Executive Director has been appointed. However, the APP also reveals that, over the MTEF period, the allocation for consultants, contractors and special services will increase steadily from R321 000 in 2014/15 to R400 000 in 2016/17.

 

10.2.4 Programme 4: Increased public access to the Castle

The 2014 APP indicates significant underperformance in this programme in recent years. Accordingly, the budgetary allocation will increase from R104 000 in 2013/14 to R260 000 in 2014/15. The APP is, however, unclear as to exactly how these funds would be utilised.

10.3 Economic Classifications

In addition to the ‘Compensation of employees’ and ‘consultant fees’ highlighted above, several economic classifications require further interrogation by the Committee:

· Travel and subsistence (Domestic): Until 2013/14 there were no funds allocated for domestic travel. However, R25 000 has been allocated for this purpose for 2014/15 which is set to increase to R70 000 in 2016/17. It is unclear as to what the purpose of this domestic travel will be.

· Travel and subsistence (International): While no funds have previously been allocated for this purpose, R65 000 was allocated for the 2014/15 financial year and this is set to increase to R90 000 by 2016/17. It is unclear as to what the purpose of this international travel will be.

· Entertainment: Funds allocated for the purpose of entertainment stood at R36 000 for 2014/15. This is set to increase to R60 000 by 2016/17.

· Printing and publications: Fund allocated for this purpose increased from R81 000 in 2013/14 to R185 000 in 2014/15.

· Museum expenses: An increase from R259 000 to R475 000 has been allocated for museum expenses from 2013/14 to 2014/15.

10.4 Utilisation of CCB Surplus

The 2014 APP indicates a number of projects for which the CCB surplus will be used for over the MTEF period. It was projected that R940 000 of the surplus will be spent in 2013/14 and this will increase to R1.868 million in 2014/15. Over the MTEF period, the largest amount (R2.159 million) will be spent on Castle commercialisation. The finalisation of the Heritage Management Plan and the development of a place of worship are ‘once-off’ projects which ought to be finalised in 2014/15 and 2015/16 respectively.

 

 

 

 

11. COMMITTEE OBSERVATIONS

11.1 DEPARTMENT OF DEFENCE

The Department of Defence led by the Secretary for Defence, Dr S. M. Gulube, presented its 2014 Annual Performance Plan and 2014 Budget to the Portfolio Committee on Defence and Military Veterans on 9 July 2014. The following observations were made by the Committee:

· The Department was commended on the submission of the 2014 Defence Review to Parliament and the Committee indicated that that it is viewed as an opportunity for the Department to arrest the decline in the Defence Force.

 

· The question was raised whether the Department is actually underfunded given the R3.46 billion surplus in the Special Defence Account as well as the increasing expenditure on non-core items such as Advertising which seems to have increased from R11.9 million to R52.3 million. The Department responded by explaining the purpose of the Special Defence Account Act and emphasised that annual roll-overs do not mean that these funds are available for other activities especially since the act allows for these roll-overs. The R3.46 billion is committed for various projects and would only be a surplus if it was uncommitted. This is an issue that the Committee will have to receive a comprehensive briefing on and it is hoped that with the presentation of the 2014 Defence Review, this issue will to a large extent be addressed.

 

· Defence acquisition plays a major part in adequately resourcing the defence force and it was questioned whether acquisition projects, such as Project Hoefyster ( acquisition of Armoured Personnel Carriers for the SA Army ), has been aligned with the security threats facing South Africa as an amount of R15 billion has been set aside for this project. It was also questioned why the Project has been approved before the release of the Defence Review. Finally, a concern was raised as to whether the defence force will be able to deploy the infantry fighting vehicles to, for instance, the DRC and maintain their deployment in foreign deployment areas. The Department indicated that the Defence Review was not the sole document to direct the defence force and that other policy documents have been utilised as well to acquire capital equipment for the Department.

 

· The compensation of employees is around R21.9 billion or at least 51.9% of the defence budget. It was claimed that the Department spends at least around R4.8 billion too much on this item. The Secretary indicated that more time is required to appraise the Committee fully on this issue and that the Human Resources are a major component being addressed in the Defence Review. It is hoped that with the finalisation of the Defence force design and defence force structure by the Chief of the SANDF, this issue will be addressed. The Department also indicated their willingness to engage with the Committee on the matter of the Defence Review.

 

· The Committee enquired about the actual number of members in the Defence Force, as varying figures were given in the presentation, the 2014 ENE and the APP. It was pointed out that the 1998 Defence Review indicated a downsizing of the Defence Force personnel, but subsequent to that, many factors - such as border safeguarding and peace missions - have attributed to the situation where the personnel numbers actually need to be increased. The Department undertook to inform the Committee within 7 – 10 days on the actual position regarding the personnel in the Defence Force.

 

· The legal claim of R299 million against the Department has not been reported to National Treasury and the Committee expressed its concern in this regard as well as the impact of other legal claims on the Department, especially against the background that the Department is viewed as being underfunded. The Department indicated that many of the claims revolve around complications in medical care, contractual disputes and labour issues. Although the response indicated that National Treasury requires, inter alia, a projection of such claims, the Committee would like the Department to pay close attention to this matter.

 

· The R150 million allocated to the operations in the Central African Republic has been transferred to the deployment in the DRC after the CAR deployment has been terminated, but indications were that there were around 18 soldiers remaining in the CAR, thus contradicting the first statement. In response it was indicated that all soldiers were withdrawn from the CAR and that efforts are being made through DIRCO and the State Security Department to facilitate the return of equipment left in the CAR.

 

· The Office of the Military Ombud is partially staffed (44 out of the 89 posts) and it is experiencing operational challenges as it can only deal with 50% of the case load. This is to disadvantage of serving members and especially military veterans who face challenges when lodging complaints.

 

· The Committee has encountered complaints about the effectiveness of the grievance procedures in the Department during its oversight visits in the Fourth Parliament, and enquired about this aspect. The Department responded that it has an electronic grievance procedure in place which can trace complaints from unit level until resolution, which it believes is functioning effectively to assist with addressing grievances in the Department.

 

· Targets set in a particular APP have been changed in the subsequent year regarding the same APP targets, leading to a situation where there are difficulties in comparing the progress made or to verify whether these have been achieved or under-achieved. Although it was indicated that the APP of the Secretariat contained a list of changing targets, such changes should be reported in the subsequent Annual Report and the reasons therefore should be provided.

 

· The target of the number of Reserves being used versus the hours utilised by them, is problematic. The Department should either provide a figure of the number of personnel utilised or use a combination of personnel numbers and man-hours. The Department responded that in its interaction with National Treasury it indicated the difficulty with this target and after deliberations decided to change the target to “number of Reserve force days used.”

 

· The Committee enquired about the main cost drivers from the 2009 budget and whether these were partly the reasons for the overall budget shortfall. The Secretary responded that National Treasury stated that the funding for the improved salaries of soldiers must come from the Department’s budget. No additional funding was received from National Treasury regardless of the fact that there was a directive to improve salaries.

 

· The Department is involved in Disaster Management and the Committee enquired where the funds for this come from. The Department explained that these activities are unfunded and that it has to be sourced from other allocations in their budget.

 

· The Committee agreed that the Strategic Plans of the Defence Secretariat and the SA National Defence Force should be combined and it is hoped that the next Strategic Plan 2015 – 2020 will reflect this intention.

 

· The Committee inquired about the changes in the allocated flying and sea hours in the Force Employment programme as well as those in Programmes 4 (Air Defence) and Programme 5 (Maritime Defence). It was responded that these are spread across the programmes and that it is difficult to determine the flying hours in Programme 2 (Force Employment) in advance due to various reasons. The Committee expressed its concern regarding flying hours and expressed the need that the SA Air Force must be able to maintain sufficient hours as per the international norms.

 

The following questions were allocated for written responses from the Department:

· Whether there are outstanding investigations at the Infantry School in Oudtshoorn and it was requested that the Committee be briefed on this once concluded?

· The understaffing at the Office of the Military Ombud and how this is being addressed should be responded to by the Military Ombud.

· It should be indicated in which countries the two new defence attaches will be deployed as little information in this regard has been made available.

· More information should be given about the reasons for the changes in sea hours and the changes in flying hours.

· Whether funds have been set aside to acquire a new VIP aircraft for the President?

· The status of the Ministerial report on the South African Military Health.

· The total number of soldiers per sub-unit on our landline borders.

· Whether the Mobile Exit Mechanisms (MEM) were still ongoing and, if so, whether it is effective in addressing personnel figures in the Department?

· Why there is an allocation for vehicle maintenance by consultants and why this was necessary?

· Whether Unmanned Aerial Vehicles or Drones will be utilised as a force multiplier for the SANDF forces deployed along the borders.

· Whether the Department will fulfil its quota of nine (9) planned in international military exercises?

· Slide 54 of the presentation by the department refers to a baseline increase for the South African Air Force. How will this be utilised?

 

11.2 DEPARTMENT OF MILITARY VETERANS

The Department of Military Veterans presented its Annual Performance Plan and Budget for 2014 to the PCODMV on 3 July 2014, with the newly appointed Deputy Minister in attendance. The Department was commended for the work they have done so far to deliver benefits to military veterans in terms of Section 5 of the Military Veterans Act (No. 18 of 2012).

· The DMV encountered challenges in the release of funds from National Treasury, but these have been now resolved. The Committee expressed the hope that with the current financial year’s allocation, much progress will be made to deliver benefits to deserving military veterans and their dependents.

 

· The Committee indicated to the Department that differences in sub-programmes where targets were changed are problematic and that this should be avoided as it is not only confusing but lacks consistency over the MTEF period and complicates comparisons between the different Annual Performance Plans.

 

· The lack of a credible, transparent and secure military veterans’ database remains a concern and its completion should be concluded as soon as practically possible to facilitate budgeting and other management processes. The DMV should therefore inform the PCODMV of the challenges in this regard and especially their timeframe to finalise database.

 

· Clarity should be given to the Committee regarding the contradicting personnel information in the 2014 Estimates of National Expenditure, the Department’s 4 th Quarterly Report and the 2014 Annual Performance Plan.

 

· The Department spends a large amount on consultants (R62 million budgeted for 2014/15) and this should be explained. The DMV should also endeavour to lessen its reliance on consultants and only utilise them when absolutely necessary.

 

· The expenditure on Sustenance and Travelling is exorbitantly high given the limited number of personnel employed by the DMV. It should clearly indicate which amounts have been for service delivery and which have been allocated for operational purposes. Similarly, expenditure regarding Entertainment and catering should be clearly categorised into these sub-categories.

 

· It should be indicated whether cooperation of other Departments at national, provincial and especially local government level have been investigated to assist with for instance the provisioning of accommodation for the to-be-established provincial structures. The Committee expressed the view that there is sufficient goodwill at the other spheres of government to support the DMV in their efforts to accelerate the provision of benefits to Military Veterans. These opportunities should be exploited as it will not only save costs but also assist to increase awareness.

 

· The Department needs to reconsider its communication with military veterans throughout the country as many military veterans are complaining about a lack of information as well as difficulties to contact the Department. Similarly, the DMV should present its Marketing strategy to the Committee and in particular indicate how it attempts to reach rural and indigent military veterans as they count amongst the most deserving military veterans who require urgent assistance.

 

· The Stationary and Printing expenditure should be explained to the Committee as it is clear that a large amount is allocated to this item while a limited number of personnel have been employed by the Department. The DMV should consider alternative reporting to distinguish between operational and service delivery expenditure in this regard.

 

· It should be indicated how many and where the Wellness Centers were established as it cannot be confirmed that these have been established as planned.

 

· Attention should be given to the respective Memoranda of Understanding and Service Level Agreements between the DMV and other service delivery agencies and it should be indicated how many have been concluded, how many are outstanding and challenges to ensure that services and benefits are delivered to military veterans.

 

· Burial support is a crucial benefit for military veterans and it should be ensured that access by deserving military veterans and their dependants are not restricted or over-complicated to make certain that military veterans are buried with the necessary dignity and respect given the sacrifices they have made for the country.

 

11.3 ARMSCOR

Armscor, led by the newly appointed Chairperson of its Board of Directors – Vice Admiral (ret) RJ Mudimu - presented its Corporate Plan 2014/15 – 2016/17 to the Portfolio Committee on 2 July 2014. The new Board was appointed on 1 May 2014. The following were deliberated upon in the meeting:

· It was indicated that the new Board has deliberated upon the appointment of a permanent Chief Executive Officer and was waiting for an opportunity to present its report to the Minister and will then be in a position to comment on the appointment of the CEO. The contract of employment of the former CEO - Mr Sipho Thomo - was terminated with effect from 7 January 2010 and since then Mr JS Mkwanazi, General Manager Acquisition has been acting CEO. It was impressed on them that this matter should be finalised as soon as possible and be reported to the Committee.

 

· Armscor participated in the process of developing the 2014 Defence Review and had several meetings with the Defence Review Committee. The Corporation will once again reflect on the latest version of the Defence Review with the new Board at its upcoming strategic session. It is especially with regards to Chapter 9, 10 and 15 of the Defence Review that the Corporation will have to position itself in such a manner to optimally support the Defence Force. A presentation on its position in this regard should be given to the PCODMV as soon as possible especially since the 2014 Defence Review has been tabled in Parliament on 3 July 2014.

 

· The question was raised whether Armscor has and will exploit its Strengths and Opportunities and limit the Weaknesses and Threats as identified in its SWOT analysis. It responded that these are integral to its Strategic Plan and cited several practical examples on how the Corporation is dealing with it. It has inter alia established a Compliance Department to assist with lowering the risks and threats and in this pro-active manner it attempts to manage these issues. The Committee encouraged the Corporation to increase its efforts to address these issues.

 

· Several Key Performance indicators had 90% as a target (See for instance Goals 1, 2, 3, 4, 6 and 7 in latest Corporate Plan) and many of these have been overachieved (See achievements in the 2012/13 Annual Report regarding Goals 1, 2, 3.2, 5 and 6 ) resulting in the questioning of whether these targets have been set too low. It was indicated that often milestones were reached ahead of the target date resulting in an overachievement. The Committee will monitor these targets and its achievements and will advise accordingly.

 

· Armscor’s Regional Strategy is in the process of being finalised and is viewed as important for especially its regional outreach and business opportunities. The Committee called on the Corporation to indicate who is responsible for the development of the strategy and how far this process is. Given the role of South Africa in the region and especially the Continent and the pronouncements of the 2014 Defence Review in this regard, it is important that the Committee be briefed on this strategy as soon as possible.

 

· The Corporate Plan indicates that it will consider the registration of some of Armscor’s business units as independent companies. The Board was requested to supply information on the responsible person and/or unit as well as the progress made to register these business units. Since Armscor’s ability to operate as a business is viewed as a weakness in the SWOT analysis, it is important that the Committee be kept abreast of developments in this regard.

 

· Simon’s Town Dockyard faces many challenges and some of these relate to personnel and capacity issues and in particular funding constraints to conduct its work of refitting and maintenance of the SA Navy’s vessels and submarines. The Committee pointed out that the Dockyard should be listed as one of the main critical success factors and should receive the priority status it deserves to address the various challenges.

 

· The Corporation was encouraged to fill the vacancies as soon as possible while paying attention to Employment Equity in particular Black females. It should also indicate which skills it is developing, how much was spent on this and that it should communicate the Skills Development Plans to the Committee.

 

· The Committee requested an explanation about the unfunded expenditure and how the Corporation is dealing with it. While Armscor indicated that certain projects and programmes are covered by agreements between Armscor and the SA Navy, the Committee encouraged it to clearly indicate which projects are funded by it and which are funded by the SA Navy.

 

· The Corporation stated that it faces Modernisation constraints and was requested to indicate how this process is funded, especially since the DoD itself, is underfunded.

 

· A profit of R84.6 million is indicated for the Financial Year 2012/13 while this diminish to a loss of R23.2 million (2016/17 Corporate Plan A2) over the MTEF period. Given this reality, the Corporation was asked to indicate how it will deal with future losses.

 

· According to the Estimates of National Expenditure the target for Management of Defence Industrial Participation was set at R349 million for 2012/13. Only R75 million was achieved. The Corporation should indicate the reasons why it is under-achieving regarding the targets set for the Defence Industrial Participation and why these are pitched at 90% and not 100%.

 

11.4 CASTLE CONTROL BOARD (CASTLE OF GOOD HOPE)

The Castle Control Board led by Lt Gen (ret) JT Nkonyane presented its State of the Organisation to the Committee on 2 July 2014. The Executive Director could not attend and the newly appointed Chief Financial Officer (CFO) was introduced to the Committee at the meeting. The following are pertinent issues:

· The Committee wanted to be informed about the impact of restorations at the Castle of Good Hope (CGH) on its daily Operations. It was indicated that although it did have a negative impact, this was managed through proper planning to ensure that the impact is limited and interference with the daily operations at the Castle is limited. At the next meeting the CCB should report back on this issue.

 

· The Committee enquired whether the position of a Chief Financial Officer (CFO) is affordable and if this function cannot be more cost-effectively executed by a part-time employee. The Board responded that a CFO was recently appointed on a three year contract and believe that given the current financial status of the CGH it is affordable over the Medium Term Expenditure Framework (MTEF) period. The position was budgeted for and although income dependent, it is viewed as being affordable given inter alia the R13.9 million surplus.

 

· Responding to the question whether there were specific plans to utilise the R13.9 million surplus over the MTEF period, it was indicated that these plans are set out in Appendix B of the Annual Performance Plan (APP). It remains unclear if the remaining amount in the Surplus would be utilised beyond the MTEF period or whether some funds will be maintained as a form of contingency-fund. The specifics of these plans need however to be shared with the Committee as the Appendix only lists the items and amounts for the relevant three years of the MTEF.

 

· The CCB intends to increase the revenue from tourism through aggressive marketing and increasing the number of visitors and it is hoped that this will not have an impact on the entrance fees visitors have to pay. The Committee will track the increase in entrance fees and make sure that it remains accessible to South Africans from all walks of life.

 

· In response to a question whether anything was planned for Nelson Mandela Day, it was reported that plans are being made to celebrate the day, but that the detail thereof has not yet been finalised and would be shared with the Committee.

 

· The Committee requested to be informed about the timeframes attached to the filling of vacancies at the CGH. As this was one of the key performance areas on which the Executive Director will be assessed, this is not only viewed as a priority but the intention is to have all vacancies filled by the end of this financial year.

 

· The CCB was urged to “tighten up the risks” associated with human resources as this is insufficient to fulfill its mandate. Similarly, the security and safety issues in and around the site, as indicated in its Strategic Risks of the CCB, needs to be attended to.

 

· Provision is made for 20 interns and the Committee wanted to know whether they are paid a stipend, where the money for this comes from as well as how these interns are being utilised. During the response it was indicated that the utilisation of interns is not new and that they are sourced from tertiary institutions.

 

· On the question of how the 10 community members will be involved in educational and cultural programmes, it was indicated that they hail mostly from the surrounding communities and some were sourced through NGO’s. They will be involved in an advisory capacity on how to improve the image and profile of the Castle. Attempts are also being made to improve its outreach beyond the Western Cape and the CCB was requested to inform the Committee accordingly on developments in this regard.

 

· The Sustenance and Travel allocation was questioned by the Committee and in response it was stated that it was inter alia for international travel to benchmark and/or to attend relevant meetings for the Executive Director and the CFO. The CCB should report back to the Committee on the outcomes and benefits of such international travel.

 

· The Committee pointed out the discrepancy in the annual target for audience where the APP refers to 5 to 6 million for 2014/15 but the ED’s performance contract refers to 15 million. It was indicated that since the ED was absent this anomaly will be pointed out to him for action. The CCB was requested to respond in writing to the Committee on this issue.

 

· The amount allocated for Entertainment is R2000 and upon questioning this amount, the Committee was informed that it will be used to entertain high profile guests such as the Minister and the Deputy Minister. Similarly, in response to the increase in Printing and publication, it was stated that this was to assist the drive to market the Castle more extensively. The increase in Museum expenditure was for the increase in exhibitions like the new Cetshwayo exhibition in cooperation with the KwaZulu-Natal province. The Committee will track developments in this regard to ensure that these expenditure items are in line with the planned activities.

 

12. RECOMMENDATION

 

view that the Department of Defence is underfunded as inter alia indicated in the 2014 Defence Review and the increasing ordered responsibilities placed upon the Department as well as several other important considerations highlighted in this Report, it is recommended that the 2014/15 budgetary allocations and provisions of the Department of Defence, Department of Military Veterans, Armscor and the Castle Control Board, be approved.

13. APPRECIATION

The Portfolio Committee on Defence and Military Veterans wishes to extend its gratitude for all those involved in making this Report possible especially the officials from the Departments and the entities. It expresses the wish that future interactions will similarly be constructive and conducive to effective oversight over these important stakeholders responsible for the preservation of the Castle, provision of defence material, caring for our military veterans and the safeguarding of our country and its people.

 

Report to be considered.