ATC161021: Budgetary Review and Recommendations Report of the Portfolio Committee on Defence and Military Veterans on the 2015/16 Annual Report Plan of the Department of Defence (DOD), dated 21 October 2016

Defence and Military Veterans

BUDGETARY REVIEW AND RECOMMENDATIONS REPORT OF THE PORTFOLIO COMMITTEE ON DEFENCE AND MILITARY VETERANS ON THE 2015/16 ANNUAL REPORT PLAN OF THE DEPARTMENT OF DEFENCE (DOD), DATED 21 OCTOBER 2016.

The Portfolio Committee on Defence and Military Veterans (PCDMV), having considered the financial and service delivery performance of the Department of Defence (DOD) for the 2015/16 financial year, reports as follows:

 

         1.         Introduction

 

1. Description of core functions of the Department

 

The Constitution (1996) in Section 200 sets out the mandate of the South African National Defence Force (SANDF), while Section 204 establishes a civilian secretariat for the Department. The mandate is to “defend and protect the Republic, its territorial integrity and its people in accordance with the Constitution and the principles of international law regulating the use of force”. In pursuance of this mandate, the DOD provides, manages, prepares and employs defence capabilities commensurate with the needs of South Africa, guided by the Constitution, relevant legislation and Executive direction. 

 

1.2        Mandate of the Committee

 

The Portfolio Committee on Defence and Military Veterans (PCDMV) is mandated to oversee the Department of Defence and Military Veterans (DODMV) to ensure that the Department fulfils its mandate through the monitoring of the implementation of legislation and adherence to policies, such as the Defence Act (No. 42 of 2002), the White Paper on Defence (1996) as well as the Defence Review (1998). Most recently, the mandate of the 2015 Defence Review also forms part of the Committees consideration. It must scrutinise legislation which supports the mission statement of Government; the budget and functioning of DODMV; and the employment of the SANDF.

 

 

 

 

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 BRRR to contain the following:

 

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

 

In October of each year, parliamentary portfolio committees 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 PCDMV conducted one oversight visit to Gauteng over the period 21 to 24 July 2015 where it visited the DOD Headquarters, the Gerotek Testing Facilities of Armscor, the Defence Works Formation Projects,  1 Military Hospital and the Department of Military Veterans Headquarters.

 

 

 

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 reports on the 2015/16 budget hearings, strategic plans and annual report;
• The National Development Plan;
• The 2015 Estimates of National Expenditure;
• The 2015 Budget Speech of the Minister of Finance;
• The 2015 State of the Nation address by President J.G Zuma;
• The Auditor-General Report on the DOD; and
• Presentations on the 2015 Defence Review.

 

1.7        Structure of the Report

 

This report comprises seven sections:

• Section 1: An Introduction which 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 (2014/15)
• Section 4: Provides a broad overview and assessment of financial performance of the
        Department 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

 

The 2015 State of the Nation Address (SONA) related to the DOD in a number of ways. Most significantly, President referred to South Africa’s contribution to building a better Africa. He stated that South Africa will continue to support peace and security and regional economic integration on the continent. To this extent, the President reiterated the role of the SANDF in regional stability through its participation in peacekeeping operations. In 2015/16, the SANDF contribution spearheaded the United Nations Organisation Stabilisation Mission in the Democratic Republic of the Congo (MONUSCO) Force Intervention Brigade (FIB) which successfully repelled the M23 rebel group in that country. Furthermore, President Zuma noted the establishment of the African Capacity for Immediate Response to Crises (ACIRC), which is spearheaded by South Africa. ACIRC was established as part of the mantra of finding African solutions for African problems and to fill the vacuum left by the failure to establish the African Standby Force (ASF). The aim of the ACIRC is to provide immediate combat intervention based on a humanitarian imperative to save lives, typically involving stopping or preventing emerging genocide, crimes against humanity, atrocities or war crimes by armed rebel forces. In addition, the SA Navy contributed to maritime safety through deployments to the Mozambican Channel.

Further focus was also placed on the role of the SANDF closer to the country. President Zuma announced that the Government has made substantial progress in establishing a Border Management Agency (BMA) to manage all ports of entry and improve security. The BMA falls under the Department of Home Affairs, but will work closely with the DOD as the SANDF remains responsible for borderline safeguarding. The President also referred to the ongoing problem of rhino poaching The Kruger National Park is especially vulnerable to rhino poaching and the majority of incidents occur in the park. The SANDF is involved in anti-rhino poaching operations in the Kruger National Park as part of its broader borderline control deployments. Finally, the 2015 SONA also highlighted the ongoing fight against high levels of crime and, specifically, problems related to violent protests. While the South African Police Service (SAPS) remain primarily responsible for this aspect of internal security, it is often assisted by the SANDF when the need arises.

The February 2015 SONA also focused on the need to curb unemployment included two aspects that may link it to the DOD. Firstly, the President highlighted the need to focus on the youth when aiming to reduce unemployment. Secondly, skills development was prioritised. The DOD contributes to unemployment alleviation through the National Youth Service which is operated by the DOD on behalf of other provincial as well as national departments, notably the Department of Rural Development and Land Reform. The DOD also continued with the recruitment of youth through the Military Skills Development System (MSDS) programme instituted in 2003 as its primary contribution to national youth development.

 

 

2.2        The National Development Plan

 

The National Development Plan (NDP) presents a number of Recommendations, Actions and Indicators that relate to the DOD. The following represent some of the key aspects related to the DOD:

• Chapter 7: Positioning South Africa in the World. The NDP proposes the convening of a high-level, high-impact task team to investigate South Africa's foreign relations. The study should outline an implementation programme to reach these objectives, focusing on, inter alia,   national defence. The DOD contributes to this focus point of the NDP through peacekeeping operations and the presence of defence attaches around the world. Chapter 7 of the NDP also recommends that South Africa should extend the current agreement that allows the South African Navy to undertake anti-piracy operations in Mozambican and Tanzanian waters, to include Kenya. South Africa’s anti-piracy operation, which involves the South African Air Force, Special Forces and South African Military Health Services as well as the South African Navy, must be strengthened in order for operations to be sustained.

 

• Chapter 7 of the NDP also recommends the strengthening of border-enforcement to curb cross-border smuggling of counterfeit goods.

 

• Chapter 9: Promoting health. The NDP notes the aim of Universal Health Care coverage and that everyone must have access to an equal standard of care, regardless of their income. The DOD provides health services to all members of the SANDF through the SA Military Health Services.

 

• Chapter 12: Building safer communities. The NDP recommends the re-establishment of specialised units staffed with highly trained and professional police officers, to respond to changing crime trends such as narcotics and cybercrime. The SANDF is actively involved in re-establishing this capacity.

 

• Chapter 14: Fighting corruption. The NDP aims for corruption-free society, a high adherence to ethics throughout society and a government that is accountable to its people. The DOD furthers this goals through a number of initiatives, including the national anti-corruption hotline, Corruption and Fraud awareness campaigns as well as implementing the DOD Procurement Policy.

The envisaged contributions are further concretised in the MTSF.

 

2.3        The Medium Term Strategic Framework (2014 - 2019)

 

The 2014-2019 Medium Term Strategic Framework (MTSF) of Government identifies a number of priorities that are based on the electoral mandate. The outcomes-based approach identifies the 12 desired outcomes of the Government. The DODMV plays an important role in Outcome 3 (All people in South Africa are and feel safe) and Outcome 11 (Creating a better South Africa and contributing to a better and safer Africa in a better world). Contributions to these outcomes are summarised in the table below.

 

Table 1: DOD contributions to strategic outputs

MTSF Outcomes	Sub-outcome	Actual Achievement
Outcome 3	Sub-outcome 3: South Africa’s borders are effectively protected and managed	The DOD assisted in developing the border safeguarding strategy. The number of landward units deployed to the borders increased from 13 to 15 units.
	Sub-outcome 4: Secure Cyberspace	The DOD contributed towards a National Cyberwarfare Strategy and Implementation Plan.
	Sub-outcome 7: Reduction of Corruption	No cases of corruption of R5 million or more reported in the DOD during 2015/16.
Outcome 11	Sub-outcome 3: Political cohesion in Southern Africa	SANDF deployed peacekeeping forces in the SADC region 10 Defence Attaches deployed to the SADC region. SANDF hosted and participated in interdepartmental and multinational military exercises.

 

 

 

2.4.       Overview of DOD Strategic Plan and Annual Performance Plan

 

The DOD Strategic Plan flows, in part, from the NDP and MTSF objectives and also informs the Annual Performance Pan (APP).

2.4.1     Strategic Plan: Policy Priorities for the Minister of Defence

The Overarching Strategic Statement for 2015/16 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 for 2015/16 to 2017/18. These focus areas are largely aligned with Milestone 1 of the Defence Review and include:

• Strategic Leadership. The Minister wishes to ensure effective strategic leadership and successful succession planning over the next 20 years. Strategic leadership will be linked to the implementation mandates of the Defence Review. A Defence Communication Strategy will also be implemented for stakeholder management and communication with the general public.
• Defence Funding Model. This relates to a funding model to ensure the SANDF is effectively funded. The funding model will see the DOD return spending patterns to a 40:30:30 ratio (Personnel: Operations: Capital expenditure).
• Human resources renewal. Ensuring that the personnel profile meet the current and future defence requirements. The proposed force structures as per the Defence Review will be implemented and supernumerary positions will be limited to no more than two per cent. In terms of recruitment, the recruiting process will be devolved to services and divisions. Training and development will be strengthened by the implementation of a Defence Academy (as per the Defence Review) and the renewal of the External Training and Development (ETD) system.
• Organisational renewal. The aim is for the DOD to achieve greater transversal and departmental effectiveness though a number of initiatives including, among others, the repositioning of the defence secretariat, restructuring the SANDF, decentralising the procurement system.
• Capability renewal. Reviewing the Defence Capability Strategy and directing defence acquisition in line with the first four Milestones of the Defence Review.
• Defence Industry. This relates to the development of the Defence Industry and Technology Agenda and Innovation Plans to support the defence development programme. It will also assist in integrating the Defence Industry into the mainstream of the Industrial Action Plan.
• Defence Commitments. This relates to the execution of ordered SANDF commitments and includes the optimising of border safeguarding as well as other internal/external operations.

2.4.2     The Annual Performance Plan (APP)

In addition to the Ministerial Priorities identified above, the 2015 APP also notes the medium-term goals for the Secretary for Defence as well as the Chief of the SANDF. The goals for the Secretary for Defence is directly aligned with the priorities of the Minister of Defence. The Chief of the SANDF does, however, identify a number of organisational goals linked to the Minister and Secretary’s strategic goals, including:

• Restructuring the SANDF. The restructuring of the SANDF will be done in in a manner underpinning the DOD’s ‘Accountability Model’.
• Renovation of DOD facilities. The DOD will transfer endowment property from the Department of Public Works to the DOD and also increase the capacity of the Defence Works Formation to conduct repair and maintenance.
• Development and maintenance of Strategic Reserves. The Chief SANDF will commence with the streamlining of strategic reserves to align it with possible emergencies that may arise.
• Implementing the HR strategy. The concept ‘Cradle to Grave’ will be implemented to guide HR renewal.
• Revitalisation of the Reserves. This will focus specifically on the development of a feeder system for the Reserves.
• Enforcement of military discipline.
• Development of SANDF capabilities. This will be closely linked to the acquisition of force-enhancement equipment where funds are available. In terms of maritime defence, this will also include the possible development of a Coast Guard for South Africa.
• Renewal of the Landward Defence Capability.

 

 

 

         3.         Summary of previous (2015) key financial and performance          recommendations of the Committee

          

3.1        BRRR 2015 recommendations

 

In 2015, the Committee made the following recommendations in its BRR Report on performance and financial matters:

 

• The Defence Review Implementation Plan should be submitted to Parliament as a matter of urgency, together with confirmation of all projected resource requirements for such implementation.
• Given financial constraints, initiatives to cooperate with Armscor to generate additional revenue through the sale of land, equipment and related defence assets, is welcomed and should be further pursued, as it may result in less reliance on the national fiscus. The Committee cautions, however, that the sale of land and equipment should be done in a responsible and transparent way that will not be to the detriment of the Department or the state.
• The re-imbursements from the United Nations and African Union for participation of the SANDF in peace operations do not accrue back to the Department, but is rather returned to National Treasury. It is therefore recommended that National Treasury, in consultation with the Department of Defence, should consider that reimbursements are received directly by the Department
• Operation Thusano should be furthered to ensure that the serviceability of vehicles in operational areas are enhanced.
• The Committee recommends that the Department makes the various movements of funds more visible, especially where 100 per cent expenditure is reported.
• The high percentage of spending on personnel (54 per cent) against capital and operational expenditure is a cause of concern, particularly against the norm of a 40:30:30 ratio as noted in the Defence Review.
• The revitalisation of the Reserves should be further prioritised to ensure the effective funding of the Reserve Force.
• The Committee further recommends that force rejuvenation be prioritised through the MSDS system. In this regard the DOD should also re-look the utilisation of the Mobile-Exit-Mechanism (MEM) model.
• The Committee urges the department to ensure that invoices are paid within the 30 day period.
• The Committee recommends that the Department prioritise the deployment of the additional two sub-units to the landline borders in addition to the deployed 13 sub-units by the end of the financial year.
• The Department is encouraged to plan expenditure in such a way that more funds are allocated to increase the number of flying hours and sea hours. These increased hours should be reflected in the performance targets over the MTSF.

3.2        Response by the Minister of Finance:

 

On the matter related to the reimbursement of the DOD for peace-operations, the Minister of Finance noted that funds are returned to the fiscus in line with Section 13 of the Public Finance Management Act (1999). However, National Treasury reallocated R182.2 million of the reimbursed funds from the United Nations to the DOD in the 2015 adjustment period for the deployment of additional Oryx and Rooivalk helicopters and for additional operational costs.

 

In relation to border safeguarding, the Minister of Finance noted that R3.6 billion was allocated for this function over the 2016 MTEF and that the DOD reprioritised R577 million for this function over the 2016 MTEF period.

 

3.3        Committee 2015/16 Budget Report

 

The Committee made the following recommendations in terms of the 2015/16 Annual Performance Plan and Strategic Plan (2015-2019):

 

• That an appropriately sized budget is allocated to the Defence portfolio, critically required for the successful implementation of the revised defence policy’s (South African Defence Review 2015) goal of restoring defence capabilities over the next five years.
• That the Defence Review Implementation Plan be presented to Parliament as soon as possible.

 

Following its consideration of the 2015/16 Budget of the DOD, the PCDMV made the following recommendations regarding the planned expenditure of the Department:

 

• Complete the Defence Review Implementation Plan (DRIP) and to brief the Committee on it as soon as possible in order to position the Committee to assist the Department in sourcing an appropriately sized budget which is critically required for the successful implementation of the South African Defence Review.
• The rejuvenation of the Defence Force is crucial to meets its constitutional mandate and the Department should reconsider the number of MSDS and NYS members who can assist to address this challenge.
• The decentralisation of recruitment to Services and Divisions is welcomed, but the Department is encouraged to ensure that the necessary structures and personnel are in place before implementing this intervention.
• The reimbursements from the UN/AU for peacekeeping missions should be prioritised to ensure that the country is compensated properly and timeously in terms of the related concluded agreements.
• The reduced landward defence funding is a concern especially since it has not been a recipient of the Strategic Defence Package. The Department is therefore encouraged to specifically prioritise this programme in Milestone 1 and ensure that these capabilities are restored, maintained and enhanced.
• The reduction of flying hours as well as reduced funds for oil, gas and fuel, is a concern and the Committee therefore proposes that the Department reviews this decision to ensure that reduced funding does not impact on the safety and morale of soldiers.
• The reduction in training funding is also a concern and the Department should clearly indicate how it intends to mitigate the impact of reduced training opportunities.
• The Committee supports the continued role the Department plays in anti-piracy operations. The Department is urged to ensure that this commitment is prioritised and funded appropriately. Sufficient sea hours should also be allocated to ensure adequate force preparation to facilitate well-prepared maritime forces for operational purposes.
• The Department should provide Parliament with a status report on the proposed National Coast Guard within six months of the National Assembly’s adoption of this report, and thereafter on a quarterly basis.
• The increase in compensation to military health personnel is noted against the background of the exit of many such personnel in the recent past. The Department should appraise the Committee of its retention and succession planning strategies for this sector.
• The Department should brief the Committee on its Cyber Warfare Strategy as soon as it is completed.
• The increasing role that the Reserves play in operations is noted and the Department is requested to indicate how this role can be further enhanced since Reserves are less expensive.
• The Committee will on a quarterly basis, request information on the impact of mobile health support during deployments, as well as medical services to military veterans as these may impact on the performance against targets.

 

 

         4.         Overview and assessment of financial performance FOR 2015/16

          

4.1. Overview of Vote allocation and spending for 2015/16 FY

 

The DOD received a main appropriation of R44 579.4 million for 2015/16 which constitutes 3.65 per cent of the financial year’s total appropriation of R1 222 344.7 million. This is a slight decrease from 2014/15 when the defence budget allocation constituted 3.75 per cent of the year’s total appropriation. Although the budget allocation for 2015/16 increased by 4.02 per cent in nominal terms, it decreased by 0.75 per cent in real terms in comparison to 2014/15. This is the second consecutive real percentage decrease in the DOD Budget allocation

 

Table 2: Main appropriation for Vote 19: DOD over the MTEF

Programme	Budget		Nominal Rand change	Real Rand change	Nominal % change	Real % change
R thousand	2014/15	2015/16	2014/15-2015/16		2014/15-2015/16
Programme 1: Administration	3 487.0	4 827.2	327.5	106.4	7.28 per cent	2.36 per cent
Programme 2: Force Employment	14 241.9	3 603.2	116.2	-  48.8	3.33 per cent	-1.40 per cent
Programme 3: Landward Defence	7 176.6	14 805.3	563.4	-  114.7	3.96 per cent	-0.81 per cent
Programme 4: Air Defence	3 678.5	7 049.2	-  127.4	-  450.3	-1.78 per cent	-6.27 per cent
Programme 5: Maritime Defence	3 849.1	3 717.2	38.7	-  131.6	1.05 per cent	-3.58 per cent
Programme 6: Military Health Support	813.7	3 932.9	83.8	-  96.3	2.18 per cent	-2.50 per cent
Programme 7: Defence Intelligence	5 110.5	827.5	13.8	-  24.1	1.70 per cent	-2.96 per cent
Programme 8: General Support	4 499.7	5 817.0	706.5	440.1	13.82 per cent	8.61 per cent
TOTAL	42 857.0	44 579.5	1 722.5	-  319.3	4.02 per cent	-0.75 per cent

 

 

4.2        Observations made during the First and Second Quarter spending

 

During the first quarter, at programme level, variations between the projected and actual expenditure were marginal for all the programmes. The largest variation was with the Force Employment Programme, which spent only 15.9 per cent of its allocated budget against a projected expenditure of 21.6 per cent. Other low spending on programmes include 20.6 per cent on the Administration Programme (against a projected spending of 21.7 per cent). In terms of economic classification, one case of high spending was recorded. The Department spent 11.8 per cent of its budget for Payment on Capital Assets against a projected spending of 9.97 per cent. Low spending was recorded in terms of the Compensation of employees where 23 per cent of the annual allocation was spent in the first quarter against a projected 24.2 per cent.

 

During the second quarter, slow spending was recorded under the Force Employment programme. In terms of economic classifications, significant slow spending was recorded under machinery and equipment and building and other fixed structures. R1.204 million was spent on payments for financial assets without being budgeted for.

 

 

 

4.3        Adjusted appropriation for 2015/16

 

The Department of Defence and Military Veterans (DODMV) received a main appropriation of R44.579 billion for the 2015/16 financial year, which was increased by R508.771 million to R45.088 billion during the adjustments budget process. During this adjustment, all programmes received additional funds, while the allocation to Programme 8 (General Support) was reduced. The shifts and additional allocations are reflected in the Table below.

Table 3: DOD Adjusted appropriation for 2015/16

Programme (R Thousand)	Main Appropriation	Roll-overs	Unavoidable expenses	Virements/ shifts	Other adjustments	Adjusted appropriation
Administration	4 827 173	-	-	11 714	23 514	4 862 401
Force Employment	3 603 153	-	-	17 086	193 070	3 813 309
Landward Defence	14 805 303	-	-	224 453	172 620	15 202 376
Air Defence	7 049 155	-	-	79 242	39 197	7 167 594
Maritime Defence	3 717 249	-	-	25 658	26 240	3 769 147
Military Health	3 932 914	-	-	106 199	30 148	4 069 261
Defence Intelligence	827 451	-	-	-	4 008	831 459
General Support	5 816 992	-	-	(464 352)	19 974	5 372 614
TOTALS	44 579 390	-	-	-	508 771	45 088 161

 

4.4        Third Quarter spending and final spending for 2015/16

 

At programme level, variations between the projected and actual expenditure were marginal. The largest variation was with the Force Employment Programme, which spent only 58.3 per cent of its allocated budget against a projected expenditure of 64.9 per cent. The General Support Programme spent 70.6 per cent of its adjusted allocation against a projection of 66.3 per cent. In terms of economic classification, R35 000 was spent on provinces and municipalities by the end of the Quarter, which exceeds the R33 000 allocated for the entire year. Spending on Households was high (88.9 per cent of the adjusted budget against a projected spending of 75 per cent). Furthermore, the Department spent 58.6 per cent of its budget for Payment on Capital Assets against a projected spending of 47.0 per cent. Low spending was recorded in terms of the Buildings and structures where 33.6 per cent of the adjusted allocation was spent against a projected 47.2 per cent. Overspending on Specialised Military Assets has been recorded by the end of the Third Quarter (248.9 per cent).

 

By the end of 2015/16, the DOD managed to spend R45.071 billion of its adjusted appropriation of R45.088 billion. Total underspending amounted to R16.627 million. In Programme 1, this was due to a transfer payment which was less than anticipated. In Programme 2, it was due to delays in the procurement of mobility packages for border safeguarding operations. Budget allocation and actual expenditure for 2015/16 is reflected in the table below:

 

Table 4: Budget allocation and expenditure for 2015/16

Programme	Main Appropriation (R millions)	Adjusted Appropriation (R 000)	Final Appropriation (R 000)	Actual Expenditure (R 000)
Programme 1: Administration	4 827.2	4 862 401	4 984 514	4 981 493
Programme 2: Force Employment	3 603.2	3 813 309	3 616 407	3 602 801
Programme 3: Landward Defence	14 805.3	15 202 376	15 118 951	15 118 951
Programme 4: Air Defence	7 049.2	7 167 594	7 085 719	7 085 719
Programme 5: Maritime Defence	3 717.2	3 769 147	3 732 748	3 732 748
Programme 6: Military health support	3 932.9	4 069 261	4 243 150	4 243 150
Programme 7: Defence Intelligence	827.5	831 459	830 060	830 060
Programme 8: General Support	5 817.0	5 372 614	5 476 612	5 476 612
Total	44 579.5	45 088 161	45 088 161	45 071 534

 

 

4.5        Unauthorised, fruitless and wasteful, and irregular expenditure

 

In terms of Irregular expenditure21, a total of R671.889 million was irregularly spent during 2015/16. Of this amount, R77.479 million was already condoned. When combined with outstanding irregular expenditure from previous years that is still awaiting condonement, the DOD has a total of R633.272 in irregular expenditure that awaits condonement. The major contributor was Deviation from the Procurement Process which contributed R439.122 million to irregular expenditure. An investigation to determine the responsible official is still in progress. Furthermore, R231.042 million in irregular expenditure is related to non-compliance with the PPPFA. However, no disciplinary action has been taken as no DOD employee was found to be involved in the deviation.

 

Fruitless and wasteful expenditure for 2015/16 was R7.18 million. When combined with outstanding cases of fruitless and wasteful expenditure from previous years that are yet to be resolved, the total rises to R308.189 million. The R7.18 million of fruitless and wasteful expenditure in 2015/16 relates largely to four cancellation fees that needed to be paid (R5.328 million) and penalty fees that needed to be paid (R1.419 million). In most of the cases, investigations into the responsible personnel were still not completed.

 

4.6        Report of the Auditor General (AG)

 

Similar to 2014/15, the AG provided the DOD with an unqualified audit opinion with findings. Two emphasis of matter were identified:

 

• Restatement of corresponding figures. A number of figures for 31 March 2015 have been restated as a result of errors discovered during the year ending 31 March 2016.

 

• Payables. Payables which exceeded the payment term of 30 days amounted to R176.696 million. This exceeded the voted funds to be surrendered of by R160.069 million. The difference between these two amounts would therefore have constituted unauthorised expenditure had the amounts been paid in a timely manner.

 

The AG also provided input on predetermined objectives:

 

• Outcome 3 (Sub-outcome 3) of the MTSF: South Africa’s borders effectively defended, protected, secured and well managed. During 2015/16, the DOD contributed towards this sub-outcome through the development of the Border Safeguarding Strategy (substrategy). The DOD also increased the number of sub-units deployed for border safeguarding from 13 to 15.

 

• Outcome 3 (Sub-outcome 4) of the MTSF: Secure cyberspace. During 2015/16, the DOD contributed towards the development of the National Cyberwarfare Strategy and Implementation Plan, by developing and submitting a Cyberwarfare Strategy and Implementation Plan. During 2016/17, the DOD will implement the Cyberwarfare Implementation Plan.

 

• Outcome 3 (Sub-outcome 7) of the MTSF: Corruption in the Public and Private Sectors Reduced. The DOD contributed to this sub-outcome by means of reducing departmental levels of corruption where prevalent, thus contributing to improving investor perception, trust in and willingness to invest in South Africa. No corruption and fraud cases of R5 million and over were reported in the DOD during the year under review.

 

• Outcome 11 (Sub-outcome 3) of the MTSF: Political cohesion in Southern Africa to ensure a peaceful, secure and stable Southern African Region. The DOD contributed towards this sub-outcome by means of the deployment of the SANDF for peace support operations. The DOD complied 100 per cent with all ordered commitments.

 

The AG also raised the following two aspects of Internal Control that require attention:

 

• Leadership: The accounting officer did not exercise sufficient oversight of financial reporting in respect of capital assets, compliance and related internal control, which resulted in material adjustments to the financial statements.

 

• Financial and performance management: Existing controls were not designed to ensure adequate record keeping to support accurate and complete reporting.

 

Finally, the AG noted a number of outstanding investigations. At least 20 investigations conducted by the DOD relating to supply chain management and procurement in 2015/16 were still in progress by the end of the reporting period.

 

4.7        DOD Human Resources overview

 

The following notes provide an overview of the key Human Resources focus points during 2015/16:

 

• Personnel strength and alignment with the Defence Review: The total personnel strength of the DOD for 2015/16 was 77 597 against a planned personnel strength of 79 446. This stands in contrast to Milestone 1 of the Defence Review which speaks to the need for a significant reduction in force levels if the levels of funding remain the same.

 

• Force rejuvenation: It has emerged during oversight visits that force rejuvenation is urgently needed in the SANDF. However, during 2015/16, only 2 862 personnel were appointed while 3 278 left the system.

 

• Personnel cost: During 2015/16, 55 per cent of the DOD’s allocation was spent on personnel cost. This is significantly higher than the 40 per cent margin envisaged in the Defence Review. The highest percentages was for the Landward Defence (70 per cent), Maritime Defence (57 per cent) and Force employment (53 per cent).

 

• Vacancy rate: The total vacancy rate for the DOD is 2.33 per cent with the Defence Administration (9.89 per cent), Force Employment (7.56 per cent) and General Support (7.06 per cent) programmes being the worst affected.

 

• Critical skills shortages: There are a number of critical skills with high vacancy rates, including:

Engineering: 43.58 per cent vacancy rate

Aircrew: 23.86 per cent vacancy rate

Technical: 15.63 per cent vacancy rate

Medical professionals: 8.57 per cent vacancy rate

 

• Loss of critical skills in 2015/16: During the financial years, the following critical skills losses far outweighed the appointment of similar skills:

Aircrew: 27 aircrew left the service while 15 entered the service

Artillery: 18 artillery experts exited the system while only one entered the service.

Combat Navy: 27 naval combat officers left the system while only two joined.

Engineers: 16 engineers left the system while only four joined.

Nursing: 109 nurses left the system, while only nine joined.

 

• Salary levels exceeding grade determination: During a Job Evaluation completed in 2015/16, it was found that 1 062 personnel members were remunerated at a salary band higher than the job evaluation level.

 

• Misconduct and disciplinary hearings finalised: Only 41 disciplinary cases were finalised in 2015/16 of which 15 resulted in dismissals.

 

5.         OVERVIEW AND ASSESSMENT OF PERFORMANCE

 

The DOD set itself a total of 121 targets over its eight programmes. The majority of the targets relate to Programme 1 (Administration). Of the 121 targets, 12 were deemed to contain classified information and were not made available for public consumption. Excluding the classified targets, the DOD managed to achieve 65 per cent of the set targets in 2015/16. This is lower than the 74 per cent achievement in 2014/15.

 

The following sections will provide an overview of performance as per the eight programmes of the DOD. In addition, key observations on performance by the PCDMV during oversight visits are included.

 

 

 

 

 

 

5.1        Programme Performance

 

Programme 1: Administration

 

The Administration Programme has as its measurable objective, the regulation of the overall management of the Department and provides centralised support services. While most of the targets in the various sub-programmes were achieved, the Department experienced delays in the achievement of others. Specifically, the DOD experienced delays in achieving targets related to the non-completion of policies and strategies. Examples include the Policy Research Unit Concept document; DOD Ethics Policy; Defence Foreign Relations Policy; Updating of the DOD Performance Monitoring and Evaluation Policy; Updating of the Procurement Policy; Review of the Defence Information Strategy; and, a Human Resources Development Strategy. Furthermore, the Defence Review Implementation Plan was not completed during 2015/16. Over achievement in the number of cases completed by the Office of the Military Ombud is noted as a significant achievement in 2015/16.  

 

5.2        Programme 2: Force Employment

 

The purpose of this programme is to provide and employ defence capabilities. A total of 12 targets were set for the programme of which five were classified. All the remaining seven targets were achieved. This relates to, inter alia, the number of military multinational and interdepartmental exercises held as well as the 15 sub-units deployed for border safeguarding.

 

5.3        Programme 3: Landward Defence

 

The purpose of this programme is to provide prepared and supported landward defence capabilities for the defence and protection of South Africa. For this programme, only three targets were set of which one was deemed classified. Targets related to compliance with ordered commitments and compliance with DOD training targets were both met. A total of 3 315 learners were trained under this programme.

 

5.4        Programme 4: Air Defence

 

The purpose of the Air Defence programme is to provide prepared and supported air defence capabilities for the defence and protection of South Africa. Three targets were set of which one is deemed classified. While the Programme did well in terms of training targets, force employment flying hours were not achieved:

• Training: 1 241 personnel members trained against a target of 834
• Flying hours: 4 785 force employment hours were flown against a target of 6 500. This is even lower than the 5 026 flown in 2014/15. Of the 4 785 hours flown, 893 was for the purpose of VIP operations and 3 893 for the purpose of Joint force requirements.

 

5.5        Programme 5: Maritime Defence

 

The purpose of the programme is to provide prepared and supported maritime defence capabilities for the defence and protection of South Africa. For the period under review, the Maritime Defence Programme had only three targets of which one was deemed classified. The other achievements versus set targets included:

 

• Training: 532 personnel members trained against a target of 422
• Sea hours: 10 710 Sea hours were achieved against a set target of 12 000. In 2014/15, the SA Navy also failed to meet its target for sea hours. Reasons provided include constraints to the Dockyard which resulted in a lack of availability of vessels and Human Resources constraints.

 

5.6        Programme 6: Military Health Services

 

The purpose of the Military Health Support Programme is to provide prepared and supported health capabilities and services for the defence and protection of South Africa. The programme had six targets of which three were deemed classified. The programme achieved 2 257 785 healthcare activities in 2015/16, thus achieving its target in this regard. The training target of 80 per cent was also exceeded. The programme did, however, fall short on the percentage availability of medical stock which stood at 45 per cent (compared to a target of 50 per cent).

 

5.7        Programme 7: Defence Intelligence

 

The purpose of Defence Intelligence programme is to provide a defence intelligence and counter-intelligence capability. For 2015/16, the programme spent 100 per cent of its budget and minimal virements and shifts were made. The programme had five targets of which it achieved two. The achieved targets related to compliance with external operational requirements and the number of Defence Intelligence Products produced for the year. Targets not achieved include the following:

 

• Developing a Cyber Warfare Strategy: The Strategy was drafted, but awaits final approval
• Number of vetting decision taken: 4 234 vetting decisions were taken against a target of
  5 000.
• Establish a Cyber Warfare Command Centre. This was not achieved due to financial constraints. Additional funds were allocated for this purpose in 2016/17.

 

5.8        Programme 8: General Support

 

A total of 14 targets were set of which one was deemed classified. Of the remaining targets, the DOD managed to achieve seven. The targets not achieved related to non-compliance with the annual refurbishment programme, non-compliance with the DOD codification requirements, a lack of finalising procurement requests within 90 days and not meeting the 100 per cent target for disposal requests.

 

5.9        Oversight visit reports: Summary of key performance matters

 

Non-achievement on the targets in Programme 8 is closely linked to observations made by the PC0DMV during its 2015/16 oversight visit. During a visit to 1 Military Hospital, for example, significant delays in the finalisation of refurbishment at the Hospital was observed. This impacted negatively on the ability of the institution to serve patients and had cost implications for the DOD due to the high rate of outsourcing of surgeries and other medical procedures. Similarly, the PCDMV noted with concern the cumbersome procurement processes in the DOD which impacts negatively on, notably, the day-to-day running of military units. Disposal of vehicles and other assets has also been highlighted as a concern as a smooth disposal system in the DOD could help offset the costs of purchasing new items. The PCDMV noted the disposal of non-serviceable vehicles (non-military) as a specific concern.

 

 

 

 

 

6.         COMMITTEE KEY FINDINGS: DePARTMENT OF DEFENCE

 

The Committee made the following Observations on the 2015/16 Annual Report:

• The Committee notes and welcomes the achievement of an unqualified audit opinion from the Office of the Auditor General.
• The deployment of two additional sub-units for the purpose of border safeguarding is welcomed and further deployments are encouraged to ensure that our landline borders are optimally guarded within the available resources.
• The Committee notes the contribution of the DOD towards the finalisation of a National Cyberwarfare Security Strategy as it forms an important part of related NDP goals.
• The Committee welcomes the fact that no major cases of corruption (above R5 million) were reported in the DOD in 2015/16 as well as the Department’s commitments to consequence management.
• The continued success of Operation Thusano was welcomed by the Committee and it encouraged the Department to further enhance this capability.
• The comprehensive and informative nature and structure of the 2015/16 Annual Report was welcomed by the Committee as it is much more user-friendly than previous ones.
• The delays in the presentation of the Defence Review Implementation Plan to the PCDMV was highlighted as a major concern as it impacts negatively on the ability of the Committee to do future-oriented oversight.
• The Committee raised its concern regarding the slow finalisation of policies and strategies in the DOD, although it took cognisance of the attempts to realign these with the 2015 Defence Review.
• The impact of the current limited budgetary allocation on the sustainment of defence capabilities and the supporting of ordered commitments were identified as key risks.
• The underfunding of the Defence Reserves remains a major concern for the Committee especially since it is utilised to complement the understaffed Regular Forces and because the Reserves are in need of rejuvenation.
• The non-payment of service providers in the stipulated 30 days was identified as a concern.
• The continued high spending on personnel at 55 per cent is an ongoing concern and impacts negatively on the DOD’s ability to focus on the procurement of capital assets and the maintenance of these assets. It furthermore limits the SANDF’s operational capacity. This is contrary to the 40 per cent target set by the Defence Review.
• While the higher than normal absorption of MSDS personnel into the Regular Force is noted, force rejuvenation remains a critical concern for the Committee.
• Low flying and sea hours remain a concern for the Committee as it reduces personnel morale and contributes to the exit of highly skilled personnel from the SA Air Force and SA Navy.
• The Committee has become increasingly aware of concerns related to the procurement and the Supply-Chain Management (SCM) processes in the SANDF and the negative impact this has on the day-to-day functioning of, specifically, military units.
• The Committee notes with concern the ongoing challenge to fill the critical skills positions notably engineers, aircrew, technical personnel and medical professionals.
• Delays in the finalisation of the Military Disciplinary Bill remain a concern to the Committee, especially given the challenges around the appointment of military judges and the recent cases of ill-discipline noted in the Department.
• Medical stock levels remain below the targeted 50 per cent levels which the Committee notes as a concern as it relates directly to the wellbeing of SANDF personnel.
• The Committee noted, during its oversight visit, the ongoing delays in the completion of the refurbishment of 1 Military Hospital.
• The various legal cases in which the Department is involved was noted as a concern by the Committee.
• The Committee notes with concern that Fruitless and Wasteful expenditure remains at high levels (R7.18 million in 2015/16).
• The Committee raised concern regarding the fact that 1 062 members were remunerated at salary levels exceeding grade determination.
• Financial concerns and delays in the finalisation of the procurement of naval vessels under Operations Hotel and Biro was identified as a concern.
• The Committee appreciates the confidential nature of spending under the Special Defence Account (SDA), but concern exists regarding the oversight of spending under the SDA.
• Several targets in the Annual Report are not reflected as information is deemed to be classified information. While the Committee appreciates the confidential nature of such information, it will engage further with the DOD to ensure that adequate oversight of such aspects are done.
• The Committee noted that there were several outstanding litigations against the DOD which poses a future risk to the Department.
• The previous withdrawal of the SANDF from the Central African Republic and the more recent withdrawal from Sudan were noted by the Committee, but questions remain regarding the equipment of the DOD remaining in these countries.
• The Committee raised questions regarding the high number of disability leave days (99 560 days in 2015) utilised during the year under review.

 

7.         COMMITTEE Recommendations

 

Based on its analysis and overview of the 2015/16 Annual Report, the Committee makes the following recommendations:

• The Committee urges the DOD to present the Defence Review Implementation Plan to the PCDMV and/or Joint Standing Committee on Defence as soon as possible.
• The Department should continue to attend to the matters of emphasis raised by the Auditor General and strive for a clean audit opinion in future.
• The Department should report to the Committee within 30 days of the adoption of the BRR Report on how funds will be reprioritised in terms of the current funding to ensure the sustainment of defence capabilities and supporting ordered commitments.
• National Treasury should consider the allocation of additional funds to the DOD to facilitate the deployment of additional sub-units for border safeguarding to increase it further beyond the current deployment of 15 sub-units for land border safeguarding. The Committee remains cognisant of the fact that 22 sub-units remain the ideal strength for border safeguarding. The Committee further encourages the DOD to increase the use of technology as a force multiplier for land and air border safeguarding.
• The DOD should indicate to the Committee, in writing, what the financial constraints are in terms of the implementation of the Cyberwarfare strategy and how the Department aims to implement this Strategy.
• The DOD should, on a quarterly basis, update the Committee on progress related to the finalisation of outstanding policies and strategies.
• The Committee encourages the DOD to continue with efforts to fund and rejuvenate the Defence Reserves.
• The DOD should, on a quarterly basis, inform the Committee of its achievement of the payment of service providers within the stipulated 30 days.
• As part of the Defence Review Implementation Plan, the DOD should present its strategy to reduce spending on personnel to the desired levels of 40 per cent of total expenditure.
• The Committee urges the DOD to continue with the high absorption rate of MSDS personnel into the Regular Force. Notwithstanding this achievement, the DOD should, as part of its presentation on the Defence Review Implementation Plan, inform the Committee of the means it will employ to rejuvenate the SANDF, including as aspects related to the Mobile Exit Mechanism (MEM).
• The DOD should include two new targets related to flying and sea hours which should be reported on quarterly and annually. These targets should measure the percentage of total flying and sea hours achieved against planned hours (This should include all flying and sea hours planned by the DOD for a specific financial year).
• The Committee urges National Treasury to provide additional funds to the DOD to be ring-fenced for aircraft and vessel spare parts to ensure the operational readiness and increased utilisation of these aircraft and vessels.
• The DOD should finalise its revised Procurement policy to deal with the decentralisation of this function as a matter of urgency and present the Committee with the update on this matter as soon as the revised policy has been completed. Clear measures to reduce the 90-day procurement target should form part of this policy.
• The DOD should provide the Committee with a report within six months of the adoption of the BRR Report, on plans to address the critical skills vacancies.
• The Committee urges the DOD to put measures in place to drastically reduce the amount of Irregular, Fruitless and Wasteful expenditure.
• The DOD should reduce the number of members that were remunerated at salary levels exceeding grade determination and report on this to the Committee on a quarterly basis.
• The DOD should inform the Committee, within 30 days of the adoption of this BRR Report, of its plans, with detailed timelines and costing, for the finalisation of the 1 Military Hospital refurbishment project, including the appointment of the medical technologist required for the finalisation of the project.
• The DOD should finalise the Military Disciplinary Bill as a matter of urgency and inform the Committee on when this Bill can be expected as soon as possible.
• The DOD should provide the Committee with a report, within 60 days of the adoption of this BRR Report, on the work done by military judges on addressing the backlog in outstanding military court cases.
• The Committee urges National Treasury to increase the reimbursement of the DOD for its participation in peacekeeping missions.
• The DOD should, within 60 days of the adoption of the BRR Report, inform the Committee in writing of the status of litigation against the Department as well as other contingent liabilities.
• The DOD should, within 60 days of the adoption of the BRR Report, inform the Committee in writing of the status of equipment left in the Central African Republic (CAR) and Sudan following SANDF deployment and subsequent withdrawal from these countries.
• The DOD should, within 60 days of the adoption of the BRR Report, inform the Committee in writing of the status of the 20 investigations regarding SCM, procurement and contracting investigations.
• The DOD should, within 60 days of the adoption of the BRR Report, inform the Committee in writing of reasons for the high number of disability leave (99 560 days in 2015) in the Department and what plans are in place to mitigate the loss of working days in this regard.

 

Report to be considered.