ATC170523: Report of the Portfolio Committee on Defence and Military Veterans on Budget Vote 19: Defence and Military Veterans Entities, dated 23 May 2017

Defence and Military Veterans

REPORT OF THE PORTFOLIO COMMITTEE ON DEFENCE AND MILITARY VETERANS ON BUDGET VOTE 19: DEFENCE AND MILITARY VETERANS ENTITIES: CASTLE CONTROL BOARD (CCB), ARMAMENTS CORPORATION OF SOUTH AFRICA (ARMSCOR) AND THE MILITARY OMBUD, DATED 23 MAY 2017.

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

 

The Portfolio Committee on Defence and Military Veterans (PCODMV), having considered the 2017/18 Budgetary allocation and the 2017 Annual Performance Plans of the Castle Control Board (CCB), the Armaments Corporation of South Africa (ARMSCOR), and the Military Ombud, reports as follows:

 

PART A: CASTLE CONTROL BOARD (CCB)

 

         1.         Introduction

 

1. Description of core functions of the Castle Control Board

 

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

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

 

1. Overview of the key relevant policy focus areas

 

2.1        State of the Nation Addresses

 

In the State of the Nation Addresses of 11 February 2016 and 9 February 2017, the President indicated that government has embarked on radical socio-economic transformation to address the triple challenges of poverty, inequality and unemployment. The CCB embraces this pronouncement and will use heritage enterprise development to create opportunities for military veterans, unemployed youth, rural dwellers and women operating in the heritage, tourism and cultural sectors. The additional pronouncements that are considered in this APP relate to:

 

• Promotion of Local Procurement.
• Employment of Youth.
• Expansion of Internship Programmes in Government.
• Resourcing the Defence Mandate.
• Improved Implementation of the Financial Disclosures Framework.

 

 

2.2        The National Development Plan

 

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

 

• Tourism:  The Castle of Good Hope (CGH) as a premier heritage tourism destination is part of important debates and regularly engages with the tourism industry, government departments, donors and partners to contribute toward the NDP outcomes and targets. CCB Programme 3 deals with Tourism Management and the organisational objective aligned to the NDP is “To maximize the tourism potential of the CGH.”

 

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

 

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

 

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

 

2.3        The Medium Term Strategic Framework (2014 - 2019)

 

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

 

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

 

• Deliver a complete offering of visitor services and experience;

• Human resource development and adequate staffing levels;

• Implement a revenue generation plan; and

• Responsible commercialisation drive.

 

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

 

• Effective and efficient systems of internal control;

• Sound financial control;

• Research and international benchmarking; and

• Integrated resource management.

 

2.4        Ministerial Priorities

 

The CCB states that they will endeavour to align its programmatic outputs and outcomes to those of the Ministry:

 

• Defence Strategic Direction. This priority relates to ensuring the provision of Ministerial strategic direction to the DOD over the short, medium- and long-term.

 

• Strategic Resourcing Direction. This priority relates to the directing of the developing of an appropriate Defence Funding Model thereby ensuring the adequate resourcing of the Defence function over multiple MTSF periods aligned with prevailing defence policy.

 

• Organisational Renewal Direction. This priority relates to the directing of the renewal of the defence organisation to achieve greater efficiencies and effectiveness across the defence functions.

 

• Human Resources (HR) Renewal Direction. This priority relates to the directing of the renewal of the departmental human resource function to ensure that the personnel profile is able to meet both current and future defence obligations.

 

• Capability Sustainment Direction. This priority relates to reviewing the Defence direction to the Defence Industry, technology development and directing Defence acquisition in line with the four milestones of the SA Defence Review 2015.

 

2.5        Sustainable Development Goals

 

The 17 SDGs and 169 targets which form the SDGs demonstrate the scale and ambition of this new universal Agenda. These SDGs seek to build on the Millennium Development Goals and complete what they did not achieve. These SDG and targets will stimulate action over the next 15 years in areas of critical importance for humanity and the planet. The CCB by virtue of its legislative mandate will indirectly support selected SDGs as furthermore directed through the current 2015 – 2020 MTSF.

 

1.       Committee 2015/16 Budget Report

 

The Committee made the following recommendations in terms of the 2015/16 Annual Performance Plan and Strategic Plan (2015 - 2020):

 

• The Committee commends the Castle Control Board for the strides made in establishing the required internal controls and establishing systems that will ensure that the entity complies with national norms and standards. However, it recognises that greater creativity is required to ensure that the Castle further enhances its self-sufficiency in terms of funding.
• The Committee is concerned about vagrancy and crime around the Castle, the impact of renovations on daily operations, as well as the ability of the CCB to substantially increase its revenue to ensure its financial sustainability.

 

4.         CCB Overview of the 2017/18 Budget and Medium Term Expenditure Framework Estimates

 

The CCB 2017/18 Annual Performance Plan and the Strategic Plan (2015 - 2020) give effect to the mandate of the CCB which translates into the following outcomes:

 

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

 

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

 

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

 

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

 

4.1        CCB’s Expenditure Estimates for FY2017/18 to FY2019/20

 

Programme	Budget				Nominal Rand change	Real Rand change	Nominal % change	Real % change
R million	2016/17	2017/18	2018/19	2019/20	2016/17-2017/18		2016/17-2017/18
Administration	6 637.0	5 895.0	6 432.0	6 788.0	-  742.0	- 1 091.4	-11.18 per cent	-16.44 per cent
Conservation	369.0	2 121.0	2 244.0	2 370.0	1 752.0	1 626.3	474.80 per cent	440.73 per cent
Tourism Promotion	41.0	158.0	167.0	176.0	117.0	107.6	285.37 per cent	262.53 per cent
Public Access	1 167.0	364.0	385.0	407.0	-  803.0	-  824.6	-68.81 per cent	-70.66 per cent
TOTAL	8 214.0	8 538.0	9 228.0	9 741.0	324.0	-  182.0	3.94 per cent	-2.22 per cent

Table 1: CCB’s Expenditure Estimates for FY2017/18 to FY2019/20

 

Table 1 indicates the increases and decreases of the overall budget of the CCB as well as those of the four programmes between FY 2016/17 and FY 2017/18. The CCB Budget has increased in nominal terms with 3.94% but decreased with 2.22% in real terms. The increases in Programme 2 and 3 (474.8% and 285.37% respectively) are welcomed as these are crucial to an effective functioning Castle and especially it revenue generation potential. It is especially Programme 3: Tourism promotion which increased with 262% in real terms that is encouraging as it relates directly to the possible increase in revenue for the Castle. However, the decrease in Public access is concerning as the CCB’s public profile and positive perception across all sectors, are key to improve the number of tourists. The decrease in the Administration programme with 16.44% in real terms is noted and concern should be raised of the possible impact of this decrease in the management of the Castle.

 

Programme R thousand	2013/14	2014/15	2015/16	2016/17	2017/18	2018/19	2019/2020
Administration	3 373	5 172 (4 180)	5 412 (5 091)	6 637 (5 428)	5 895 (5 674)	6 432 (5 867)	6 788
Conservation	753	656 (1 863)	541 (1 950)	369 (2 020)	2 121	2 244 (2 325)	2 370
Tourism Promotion	46	60 (75)	131 (130)	41 (150)	158	167 180	176
Public Access	263	350 (260)	1 354 (330)	1 167 (347)	364	385	407
Total	4 435	6 239 (6 378)	7 438 (7 501)	8 214 (7 945)	8 538 (8 317)	9 228 (8 757)	9 741

Table 2: Expenditure Estimates for FY2017/18 to FY2019/20 (Figures in brackets are from the FY2016/17)

 

There are significant differences in the Conservation programme from 1 863 in the APP 2016 to 656 in the APP 2017, which the entity needs to explain. Similarly, the decrease in Tourism promotion from 150 in the 2016 APP to 41 in the 2017 APP, and even more significant the increase in Public Access from 347 in the 2016 APP to 1 167 in the 2017 APP, are noted. Similar changes have also been noted in the previous two APP’s regarding the FY 2013/14 and the APP for 2015 and the APP for APP 2016

4.2        Additional funds allocated for FY2016/17 and FY2018/19

The APP indicates that National Treasury has approved the CCB’s application for the retention of historically accrued surplus funds in 2013 and it outlines how it will utilise these funds. Table 3 appeared in the 2016 APP.

S/ No	Additional Funding Requirement Description	Fin Year for which Additional Funding is allocated	Allocations (R’000)	Output /Activity Deliverables Linked to the Additional Funding
1	With the strengthening of the  CCB’s delivery capacity, the commercialisation drive of the Castle and the ambitious goal to obtain UNESCO World Heritage Status for the Castle, additional surplus funding is required	FY2016/17	R3 198	Heritage maintenance, development of Conservation Management Plan, development of new heritage tourism products, refurbishing and outsourcing De Goewerneur restaurant, Castle Chapel
		FY2016/17	R3 180	Heritage maintenance, development of conference and wedding facilities, refurbishing and outsourcing, completion of Military Museum exhibitions
		FY2018/19	R3 000	Heritage maintenance, acquisition of heritage artefacts, development of Centre for African Colonial Studies, development of bid for World Heritage Site status
		FY 2018/19	R1 200	Expansion of Conference and Events facilities
		FY 2019/20	R800	Upgrade of entire CGH precinct and external signage and interpretation system

Table 3: Additional funds allocated for FY2016/17 and FY2018/19

 

The utilisation of the historically accrued surplus funds is noted as well as the activities for which these funds will be employed. There are however differences between the previous APP and the current one relating to the “Expansion of conferences and events facilities” (R 1 200 000) and “Upgrade of entire CGH precinct and external signage and interpretation system” (R800 000), which have been omitted in the current APP. One element that has also not been presented, is by whom, when and how the spending of these additional funds will be monitored. In addition, the 2014 CCB APP noted a trade surplus fund of R13.9 million and the 2015 and 2016 APP’s only refers to an amount of R9.378 million.

 

4.3        Selected Performance Indicators

Performance indicator	2013/14	2014/15	2015/16	2016/17	2017/18	2018/19	2019/20
Gross revenue generated per annum	R3.6 m (R3.1m)	R3.8m (R3.3m)	R4.9m (R3.9m)	R8.2m (R4.65m)	R8.5m (R5m)	R9.2m (R5.3m)	R9.7m
Number of tourists attracted per annum	141 084 (145 000)	168 514 (149 940)	154 067 (152 000)	155 000 (157 000)	160 000	165 000	165 000
Number of student interns hosted per annum	New	20	26 (25)	30 (30)	30 (35)	30 (40)	30
APP submitted to Executive Authority	100%	100%	100%	100%	100%	100%	100%
Annual Report submitted to Executive Authority	100%	100%	100%	100%	100%	100%	100%

Table 4: CCB Selected performance indicators (Figures in brackets are from the 2017 APP)

The inconsistencies between the various Annual Performance Plans are noted, for instance the differences in the figures for especially the Financial years 2013/14, 2014/15 and 2016/17 in the 2016 APP and the 2017 APP. Some of the changes are significant, for example Gross Revenue changed from R3.1 m in FY 2013/14 in the 2016 APP to R3.6 m in the 2017 APP. Similarly, the Gross revenue increase by around R1m between FY2015/16 and FY 2016/17, is noted.

5.         Organisational structure and personnel

CCB is apparently well-structured and has a functional Board. It appointed a Chief Executive in April 2013, a CFO on 1 April 2014, and plans to appoint an exhibitions manager and a permanent heritage coordinator, as well as a Precinct coordinator.  It has an establishment of 14 mainly civilian posts and this excludes the DOD personnel. Personnel is the CCB’s biggest driver of expenditure as can be noted in the table below.

 

Item	2013/14	2014/15	2015/16	2016/17	2017/18	2018/19	2019/2020
Compensation of employees (CoE)	1 775	3 092	3 317 (3 845)	4 278 (4 128)	4 530 (4 309)	4 987 (4 602)	5 262
CoE Percentage of total allocation	40%	49.56%	44.59%	52.08%	53.05%	54.04%	54.02

Table 5: CCB Compensation of personnel FY2013/14 to 2019/20

 

6.         Proposed Amendments to the Castle Management Act

The APP lists the proposed amendments in Annexure B of the 2017 APP. It was in support of the amendments in the Defence Laws Repeal and Amendment Act (No. 17 of 2015) namely the removal of the age restriction and repeal of the Defence Endowment Property and Account Amendment Act (No. 17 of 1929). It suggest further changes regarding some of the names, definitions, the appointment of the Chairperson of the CCB, and the clarification of the CCB’s scope and objects. It also proposes the deletion of provisions relating to the “purchase of the Castle.”

 

7.         Committee Observations

During deliberations with the Castle Control Board on 23 May 2017, Members of the PCODMV made several observations related to the budgetary allocation and the targets set in the Annual Performance Plan. The following should be noted:

1. The Committee noted that the Revenue Optimisation Plan is not delivering the kind of revenue to make the CGH sustainable.
2. Questions were asked about the position of a Financial Manager and whether this is akin to the post of the CFO, to which the answer was in the affirmative.
3. The issue of the statue for Ms Murphy was raised in the context of its costs and progress. The CCB responded that there were disputes between different groups as to whom Ms Murphy actually “belongs,” but this is being given the necessary attention.
4. The utilisation of the historic reserves is a concern to the Committee, especially since it is being decreased on an annual basis without any indication as to whether it will be replenished.
5. The Committee commended the CCB for its efforts to assist military veterans and host them at the CGH, especially regarding training initiatives.
6. The claims of other stakeholders to the CGH, is a contentious issue and it is hoped that the legislative amendments will address this issue.
7. The Committee noted various discrepancies between the 2016 APP and 2017 APP regarding the Performance indicators and targets, which leads to confusion and complicates proper comparisons.
8. The issue of the Het Bakhuys restaurant and other officers’ messes is a cause for concern and the Committee wanted clarity on the views of the DOD in this regard.
9. The Committee enquired about the progress to establish the CGH as a UNESCO Heritage site, as this would afford it additional status and benefits.

8.         Recommendations

The PCODMV identified the following areas which will be subject to monitoring by the Committee throughout the 2017/18 financial year:

1. The Committee encouraged the CCB to ensure that it enhances its efforts to improve the revenue generation options of the CCB, as proper funding is essential for the sustainability of this national heritage asset.
2. The CCB was encouraged to ensure that its utilisation of terminology is consistent and does not lead to confusion regarding for instance the number of posts.
3. The CCB should assist to resolve the controversy around Ms Murphy statue in order for them to proceed with this project.
4. The CCB should step up its revenue generation initiatives in order to avoid a situation where the historic surplus is being totally depleted.
5. The CCB is encouraged to further enhance its efforts to assist and support military veterans with their training and related requirements, if and where possible.
6. The Committee recommended that the CCB should speed up the process to amend the Castle Management Act to facilitate its sole ownership/management of the Castle.
7. The ill-discipline of soldiers doing guard duty at the CGH is a major concern as it not only impact on the CGH’s image but also impact negatively on the image of the CGH.
8. The CCB is advised to ensure that there is consistency regarding the figures between the various financial years in order to allow for proper comparisons.
9. The Committee advised the CCB that the issue of Het Bakhuys and other officers, messes need to be clarified with the DOD and their views should be accommodated in addressing this issue.
10. The CCB was encouraged to further enhance the status of the CGH as a national and especially UNESCO Heritage site given the added benefits attached to such status.

 

 

 

PART B: ARMAMENTS CORPORATION OF SOUTH AFRICA (ARMSCOR)

          

         1.         Introduction

 

1.1        Description of core functions of 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. Armscor differs from other entities in the Defence Portfolio as it is largely self-funded and profit-driven. Parliamentary oversight of Armscor aims to strike the balance between corporate efficiency/sustainability and effective service delivery to the SANDF.

 

2.         Overview of the key relevant policy focus areas

 

2.1        State of the Nation Addresses

 

In the State of the Nation Addresses of 9 February 2017, the President highlighted some aspects that has an impact on Armscor’s functions. Firstly, there was a focus on Operation Phakisa and the role of the SA Navy and Armscor in this regard.  The seamless transition of control of the Naval Dockyard in Simon’s Town and maximising the economic potential thereof will be essential to its contribution to Operation Phakisa. Secondly, the President focused on the furthering of Broad-based Black Economic Empowerment and Small, Medium and Micro-sized Enterprises (SMME). This relates to a large extent to local procurement. With regards to local procurement, it is crucial that both the SANDF and Armscor, which is responsible for the acquisition of defence materiel for the SANDF, adhere to this requirement. Finally, the President also made reference to the Square Kilometre Array (SKA) project in the Northern Cape for continuing to make important contributions to socio-economic development in South Africa. It was stated previously that Armscor’s Alkantpan facility falls within the radio-frequency field of this project and may impact thereupon. As such, an agreement between Armscor and the SKA is urgently required.

 

2.2        The National Development Plan

 

The NDP and its related policies provide a national framework that will inform the contribution by national departments and public entities. Aspects of the NDP relevant to Armscor include the following:

 

• Sharpening South Africa’s innovative edge by contributing to global scientific and technological advancement.
• Enhancing investment in Research and Development and by better utilising existing resources.
• Facilitating innovation and enhanced cooperation between public service and technology institutions and the private sector in areas of potential dual use.
• Committing to procurement approaches that stimulate domestic industry and job creation.
• Procuring from and supporting SMMEs, black-owned and black-managed enterprises, and female led-enterprises, the youth and military veterans.

 

 

 

2.3        The Medium Term Strategic Framework (2014 - 2019)

 

The MTSF Outcomes to which Armscor will contribute are as follows:

 

MTSF Outcomes 3: “All people in South Africa are and feel safe.” Armscor contributes to the following facets of Outcome 3:

 

• Border safeguarding - Armscor supports border safeguarding through the provision of
                technology and equipment to the DOD in terms of land, air and maritime border safeguarding.

•   Secure cyber space – Armscor provides support towards capacitating a Cyber-Security Institution
    by the establishment of the Cyber Command Centre Headquarters scheduled for 2018/19.

• Reduction of corruption in the public and private sectors – Armscor will prevent corruption
                where prevalent and in the execution of Armscor’s mandate.

 

MTSF Outcome 11: “Creating a better South Africa and contributing to a better and safer Africa in a better World.” Armscor contributes to Outcome 11 by addressing the sub-outcome related to ‘Political cohesion in Southern Africa to ensure a peaceful, secure and stable region.’ Armscor supports the DOD in this regard by supplying the necessary security equipment.

 

In addition to supporting MTSF Outcomes 3 and 11, Armscor also supports four additional MTSF Outcomes indirectly, including:

• MTSF Outcome 2: A long and healthy life for all South Africans.
• MTSF Outcome 4: Decent employment through inclusive economic growth.
• MTSF Outcome 5: A skilled and capable workforce to support an inclusive growth path.
• MTSF Outcome 12: An efficient, effective and development oriented public service and an empowered, fair and inclusive citizenship.

2.4        Ministerial and Armscor Priorities

 

The Minister of Defence and Military Veterans identified several priorities for 2017/18 that emanated from the 2015 defence Review. These include (1) Defence Strategic Direction, (2) Strategic Resourcing Direction, (3) Capability sustainment Direction, (4) Organisational Renewal Direction, (5) Human Resources Renewal Direction, and (6) Ordered Defence Commitments Direction. In relation to these, Armscor developed several strategic priorities, including (1) Customer Satisfaction through service delivery standards, (2) Accountability in execution of the mandate, (3) Financial responsibility, and (4) a focus on the utilisation of Human Resources. From these priorities, Armscor developed a number of Strategic Focus Areas (see Table 1) (only selected goals are reflected; note that these are not the Key Performance Indicators which will be presented later in the Report).

 

Table 1: Strategic focus areas and objectives of the Armscor Board over the MTEF

STRATEGIC FOCUS AREAS
Strategic initiative	Measurement of success	2017/18 target
Financial turnaround and business orientation	Improve net financial position of the Group	5%
	Increase income	5 per cent (R133 189 702)
	Finalising of funding options for sweating DOD assets	31 March 2018 target date
	Commercialise Intellectual Property (IP) related technologies	Process 80% of all IP requests received
	Establish a sustainability unit	30 June 2017
	Controllable staff turnover in technical positions	Less than 4.5%
	Skills development (bursaries allocated)	33
Acquisition excellence	Value of DIP credits approved	R235 million
Technology Advancement	Percentage compliance with Technology Development Master Plan	90%
Industry Sustainability	Support the development of local industry	Implement a position paper on the need for Defence Sector Charter by 30 September 2017.
	Issue quarterly reports against targets on procurement spend on SMMEs.	31 March 2018
Stakeholder engagement	Shows and exhibitions (Three National Pavilion shows and exhibitions as approved by the board)	31 March 2018
	Marketing of Research and Development facilities through the Military Attaché and Advisor Corps and touring at least three R&D facilities	31 March 2018

 

 

3.         Committee 2015/16 Budget Report of Armscor

 

The Committee made the following recommendations in terms of the 2017 Corporate Plan of Armscor:

 

3.1        The Committee recommends that Armscor enhance its efforts to ensure greater participation of
local businesses in its procurement processes.

3.2        Armscor should update the Committee on its progress to source additional avenues of revenue to sustainably fund its operations. This process should be fast-tracked as a means of not only funding the Defence Review, but also creating additional revenue for Armscor.

3.3        The amount of the legal claim in Lisbon, Portugal, is concerning to the Committee and Armscor is implored to update the Committee on developments in this regard on a regular basis.

3.4        The Corporation is encouraged to earnestly investigate and exploit opportunities to support the United Nations and African Union peace support operations in Africa based on its proximity and knowledge of the Continent.

3.5        The Committee encourages the Corporation to enhance its efforts to attract and retain especially black and female scientists and technical skills personnel.

3.6        The Committee encourages Armscor to continue its support to military veterans and to expand on this capacity in future.

3.7        The Committee recommends that Armscor and the Department of Science and Technology come to an urgent agreement on the future of the Alkantpan facility. The Committee further urges an outcome that would ensure the maintenance of this strategic capability in South Africa as well as the maintenance of its current commercial viability.

3.8        The Committee recommends that Armscor updates it regularly on the status of its skills transfer programme.

3.9        The Committee recommends that the future status of the Dockyard be finalised for implementation before the end of the 2016/17 financial year.

 

4.         Overview of the 2017/18 Budget for Armscor

 

The projected income for the Armscor Group in 2017/18 (R1.543 billion) is higher than that which was projected for 2016/17 (R1.190 billion). Despite the projected increase in income, Armscor is still expected to make a net loss of R25.5 million for 2017/18. This is due to operating expenses that increases slightly to R1.495 billion. The main increase in terms of operating expenses relate to “Direct Personnel cost”. Personnel costs increases from R1.049 billion in 2016/17 to R1.203 billion in 2017/18. Maintenance costs also increase from R10 million in 2017/18 to R17 million in 2017/18.

Whereas the Corporate Plan for 2016/17 noted that all components of the Armscor Group (Armscor Corporate, Research and Development, the Armscor Dockyard, and AB Logistics) will be loss-making, the situation has changed somewhat in 2017/18. During this year it is expected that all components, except the Dockyard, will be profitable. Projected profit/losses for the 2017/18 financial year per components includes:

• Armscor Corporate:                   Profit of R9.2 million
• Research and Development:      Profit of R1.6 million
• Armscor Dockyard:                   Loss of R39.6 million
• AB Logistics:                            Profit of R3.3 million
• Armscor Group:                       Loss of R25.5 million

 

In terms of the Group Capital Expenditure for 2017/18, a number of requirements are put forth in the Corporate Plan. Of key importance is that Armscor is not able to fully fund its capital expenditure requirements for the financial year. A total of R154.579 million is required while only R84.110 has been budgeted for capital expenditure. For example, R29.744 million is required for computer equipment while only R9.976 million has been budgeted. Similarly, R39.542 million is required for machinery and equipment while only R25.589 has been budgeted for this purpose. However, whereas only R34.250 million is required for capital assets, R38.352 million has been budgeted.

When reviewing the Armscor expenditure per activity, as presented by National Treasury, overall expenditure increases from R1.704 billion in 2016/17 to R1.865 billion in 2017/18. The largest increase related to the Armscor Dockyard, which will see increased expenditure by 10 per cent in nominal terms. Expenditure related to Research and Development will increase by 9.81 per cent in nominal terms from R386.2 million in 2016/17 to R424.1 million in 2017/18. Both the Logistics support and Administration activities also reflect increased expenditure of over 8 per cent in nominal terms for 2017/18 when compared to the previous financial year.

 

 

 

 

 

Table 2: Armscor expenditure trends from 2016/17 to 2017/18

Programme/objective/ activity	Budget		Nominal Increase / Decrease in 2017/18	Real Increase / Decrease in 2017/18	Nominal Percent change in 2017/18	Real Percent change in 2017/18
R million	2016/17	2017/18
Administration	413,1	447,3	34,2	7,7	8,28 per cent	1,86 per cent
Quality Assurance	101,9	112,2	10,3	3,7	10,11 per cent	3,58 per cent
Management of Defence Matériel Acquisition	337,1	371,3	34,2	12,2	10,15 per cent	3,62 per cent
Logistics Support	215,5	234,6	19,1	5,2	8,86 per cent	2,41 per cent
Management of strategic facilities: Armscor Dockyard	250,5	275,7	25,2	8,9	10,06 per cent	3,54 per cent
Management of strategic facilities: Research and Development	386,2	424,1	37,9	12,8	9,81 per cent	3,31 per cent
TOTAL	1 704,4	1 865,1	160,7	50,2	9,4 per cent	2,94 per cent

 

5.         Selected Performance Indicators for Armscor

Table 3 below highlights a selected number of performance targets across Armscor’s six goals:

 

Table 3: Selected performance indicators per Armscor goal

Goal	Performance indicator	2015/16  Achievement	2016/17 Target	2017/18 Target
1 (Defence Materiel acquisition)	Contracts to be placed by Armscor: Commitment of funds against formally planned value of commitments	98.04 per cent	95 per cent	95 per cent
2 (System Support Acquisition)	Contracts to be placed by Armscor: Commitment of funds against formally planned value of commitments	99.16 per cent	92 per cent	95 per cent
3 (Schedule placement)	Average time from receipt of requirement to placement of contract	72.5 days	60 days for shortened process items   90 days for standard acquisition   270 days for SDA programmes	60 days for shortened process items   90 days for standard acquisition   270 days for SDA programmes
4 (DIP Management)	Value of Defence Industrial Participation (DIP) credits granted	R103.8 million	R135 million	R235.6 million
5 (Defence Technology and Research)	Research and Development to achieve contractual milestones/deliveries as per agreed Memoranda	99.6 per cent	95 per cent	95 per cent
6 (Dockyard Management)	Adherence to contractual project milestones	97.35per cent	90 per cent	90 per cent
	Provision of Ancillary Services to the SA Navy	90 per cent	90 per cent	90 per cent
	Ensure training is provided in accordance with the requirements of the SA Navy	90 per cent	90 per cent	90 per cent

 

 

6.         Organisational structure and personnel of Armscor

The total personnel strength is reflected in the table below and comes to 1 564 for 2017/18. This, however, excludes Contracted Employees and Talent Development Programme Employees. When these categories are added, the total number of personnel is 1 732 for 2017/18. It should be noted that the number of permanent Armscor personnel is expected to increase in 2017/18 when compared to the Annual Report of 2015/16. This increase in staff is largely due to the permanent appointment of personnel at the Dockyard.

Table 4: Personnel figure comparison

Armscor Group	Total Permanent employees as per 2015/16 Annual Report	Total Permanent employees provided for 2017/18
Armscor (including R&D)	1022	1128
Armscor Dockyard	361	436
TOTAL	1383	1564

 

 

7.         Committee Observations

During deliberations with Armscor on 17 May 2017, Members of the PCODMV made several observations related to the budgetary allocation and the targets set in the Corporate Plan. The following should be noted:

 

1. Members expressed concern regarding the impact of the decreasing DODMV funding to be spent on Capital Acquisition which may impact on the profitability of Armscor as a service provider to the Department. However, the Committee noted as a positive the efforts by Armscor to diversify its income through other commercialisation endeavours.
2. Members noted the need for Armscor to enhance its efforts to become a larger industry role-player in Africa. Current efforts in this regard was noted as a positive start which needs to serve as a platform for further growth.
3. Members noted the role that Armscor can play in the process of sweating assets for the DOD. Members further commended current engagements between the DODMV and Armscor in relation to Armscor’s role as the possible sole disposal agent of the Department.
4. The Committee noted the potential construction of a new Defence Intelligence Headquarters on Armscor land at the Gerotek Facility.
5. The Committee noted Armscor’s focus on the Defence Charter which has the potential to assist in fostering further growth of the defence industry.
6. The Committee noted with concern the ongoing loss-making of the Armscor Dockyard, but also notes the ongoing process to transfer the Dockyard to Denel.
7. Members noted Armscor’s effort to assist employees with disabilities as well as cooperation with NGOs and educational institutions to support those with disabilities
8. Members noted with concern the ongoing challenges regarding the legacy IT system.

 

8.         Recommendations

 

The PCODMV identified the following areas for re-prioritisation which will be subject to monitoring by the Committee throughout the 2017/18 financial year:

1. The Committee recommends that the Minister of Defence and other necessary role-players accelerate the transfer of the Dockyard.

 

1. The Committee calls on Armscor and other relevant role-players to enhance efforts to expand into the African market as a means of market diversification and revenue generation.

 

1. The Committee urges Armscor to accelerate efforts to commercialise Intellectual Property as a means of revenue generation.

 

1. The Committee commends Armscor for its efforts to extend the lifeline of its revenue surplus and encourages Armscor to make efforts to further extend this surplus where possible.

 

1. The Committee recommends that the Minister of Defence, the Chief of the SANDF and Armscor accelerate engagements regarding the Armscor’s potential for becoming the sole disposal agent for the Department and to ensure that measures are in place to ensure all disposals are done ethically and in the best interest of the Department.

PART C: THE MILITARY OMBUD

 

         1.         Introduction

 

1.1        Description of core functions of the entity

 

The Military Ombud was established in terms of the Military Ombud Act, No. 4 of 2012, to “investigate and ensure that complaints are resolved in a fair, economical and expeditious manner.” Section 8 (1) of the Act states that “the Ombud and staff members must serve independently and impartially and must perform their functions in good faith and without fear, favour, bias or prejudice, subject to the Constitution and the law.”

1.2        Mandate of Committee

 

Parliamentary oversight of the Military Ombud aims to ensure that the Ombud finalises complaints within reasonable time as to ensure the relevance of the Ombud’s Office and general satisfactory conflict resolution within the South African National Defence Force’s (SANDF) serving and former members.

1.3        The 2017 Annual Performance Plan (APP)

The Office of the Military Ombud (MO) submitted its third Annual Performance Plan (APP) in March 2017 to Parliament. As with the first two APP’s, it was developed in support of the National Development Plan, the Medium Term Strategic Framework 2014 – 2019, the New Growth Path and the 2015 State of the Nation Address. The Minister states in her Foreword that the Military Ombud continues to be an official grievance platform to investigate grievances for current and former members of the SANDF. She concludes that she is pleased with the progress made by the Office in addressing complaints and how these have been handled. The Military Ombud in turn, refers to the need to balance three key areas: the need for impartiality, independence, and commitment to achieving the objectives of the Office. He also reflected on the austerity measures and human resource constraints which will to some degree impact negatively on their outputs and outcomes and that has the potential to erode public trust in the Office.

 

1.4        Independence of the Office of the Military Ombud

The Office has over time indicated to the Committee that one of its main concerns is the independence of the Military Ombud, both institutionally and operationally. The need to reposition the Office to achieve organisational independence from the SANDF is essential as it has to take decisions on complaints independently and fairly. The APP states that the Office is consulting with the Department of Public Service and Administration (DPSA), National Treasury and the DOD on alternative avenues to ensure their independence as per the requirement in the Military Ombud Act, Act 4 of 2012. Reference is also made to the fact that in terms of Section 10(1) of the Military Ombud Act, “Expenditure in connection with the administration of the Office must be funded from monies appropriated by Parliament for that purpose, as part of the budget vote of the Department.”

Feedback on recommendations

Directly linked to the independence of the Office is the issue of feedback on recommendations. Although the Office put it mildly that they do not receive feedback on their recommendations, this is a crucial issue that goes to the heart of the Office’s integrity, trust and respect that soldiers have in the institution. The absence of a feedback mechanism is concerning, and the Office should indicate to the Committee how it can assist to ensure that a proper feedback mechanism is established as soon as possible.

2.         Selected Strategic Focus Areas of the Military Ombud

 

Aligned to the priorities of the Minister of Defence and Military Veterans, the Military Ombud highlighted a number of focus areas for FY 2017/18 to ensure increased performance.

MILITARY OMBUD FOCUS AREAS
Focus area	Goal
Management	A strong management and unified team focusing on professionalism.
Corporate governance	Various focus areas identified: Strengthening ethical conduct and promoting integrity Effective enterprise risk management Strengthen IT Policies Develop Compliance Committees to oversee various areas of compliance The lack of Internal Audit to be addressed during restructuring Stakeholder relationship management Fraud and corruption prevention Effective financial management within a limited budget Adherence to target dates Operations (timely resolution of complaints)
Service delivery	Adherence to the Batho Pele principles.
Independence	The provision of high quality legal advice and opinions must be intensified to ensure sound findings and recommendations by the Office.
Implementing Operational Recommendations	This remains a challenge and could be addressed by seeking an amendment to the current mandate.
Training	Training as a means of capacity building should be increasingly explored.

Table 1: Military Ombud Focus Areas

3.         General overview of the 2017/18 budget

 

The full allocation to the Office of the Military Ombud decreases from R48.654 million in 2016/17 to R46.653 million in 2017/18. This reduction is linked to the concern of the Military Ombud that despite the fact that the Minister of Defence approved a new organisational structure four years ago, the lack of funding prevents the implementation of this structure. In terms of economic classifications, the bulk of the expenditure is for Compensation of employees, which decreases by roughly R1.615 million between 2016/17 and 2017/18. The following changes to expenditure should also be noted:

• Communication increases from R558 000 in 2016/17 to R658 000 in 2017/18.
• Computer Services increases significantly from R1.715 million in 2016/17 to R2.166 million in 2017/18.
• Consultants, Contractors and Special Advisors increase from R131 000 to R145 000.
• Operating leases decrease from R5.997 million to R4.512 million.
• Travel and subsistence increases marginally from R2.399 million in 2016/17 to R2.629 in 2017/18.

 

The Military Ombud further notes a funding deviation of R25.991 million. This is the difference between the projected cost of a fully staffed Office of the Military Ombud as per the approved structure, and the actual planned expenditure for 2017/18.

4.     Personnel information

 

The Office of the Military Ombud has an approved staff complement of 89 personnel planned for 2017/18 to 2019/20. This structure makes provision for a Military Ombud and a Deputy Military Ombud. The APP notes that two teams of investigators will not be staffed during the MTEF.  Similar to the 2016/17 APP, the 2017/18 APP notes that the Office of the Military Ombud aims to be recognised as a Level 3 Public Entity (Other/Minor Public Entity). This will place additional service requirements on the Office, including (1) Governance Risk and Compliance, (2) Procurement Function, and (3) A Chief Financial Officer. The total additional cost to adhere to these requirements will be R2.872 million per year.

Deputy Military Ombud

A related issue is that of the vacant Deputy Military Ombud post. This has been an ongoing concern where the appointment has to be made by the President in consultation with the Military Ombud. It is especially the impact of the vacant post on the Human Resource Budget and the execution thereof that is concerning.

5.         Selected Performance Indicators

 

The Military Ombud lists four Selected performance indicators for the FY 2017/18 to FY 2019/20 as outlined in the table below.

Performance indicator	Estimated performance		Medium-term projections and sources of verification
	2016/17	2017/18	2018/19	2019/2020
Percentage of written complaints finalised	60%	70%	80%	100%
Percentage compliance with submission dates of MO accountability documents to Executive Authority (Annual Performance Plans)	100%	100%	100%	100%
Percentage compliance with submission dates of MO accountability documents to Executive Authority  ( 1x Annual Report on MO Activities submitted to Executive Authority)	100%	100%	100%	100%
Percentage compliance with submission dates of MO accountability documents to Executive Authority  (1 x Annual Report submitted to Executive Authority)	100%	100%	100%	100%

Table 2: Selected performance indicators for FY 2016/17 to FY 2018/19

The Portfolio Committee has previously questioned the 60% and 70% targets to finalise written complaints and is encouraged that for 2019/20 it aims to finalise 100% of these complaints. The Office will be engaged regarding the challenges to finalise more complaints for the current and next financial years.

 

6.         Committee Observations

During deliberations with the Military Ombud on 23 May 2017, Members of the PCODMV made several observations related to the budgetary allocation and the targets set in the Annual Performance Plan. The following should be noted:

1. The Committee enquired about the funding allocation for the Military Ombud which is not ring-fenced by National Treasury and allocated by the Department of Defence. Concerns regarding the independence of the Office were raised.

 

1. Members noted concerns regarding the backlog of cases and the fact that cases which run over several years are not indicated in the APP.

 

1. The Committee welcomed the appointment of the Deputy Military Ombud.

 

1. The Committee noted the relatively high spending on the leasing of a property for the Office of the Military Ombud and that this may be identified as a possible future area of savings.

 

1. The DOD appreciates the explanation of the categories of complaints being addressed by the Office of the Military Ombud. These include (1) Promotions and demotions, (2) Utilisation and placement, (3) Service benefits and work environment, (4) Training and education, (5) Remuneration, (6) Grievances and disciplinary cases and, (7) Termination of service.

 

1. The Committee noted with concern the fact that there are, in some cases, significant delays in the implementation of recommendations made by the Military Ombud.

 

7.         Recommendations

The PCODMV identified the following areas for re-prioritisation which will be subject to monitoring by the Committee throughout the 2017/18 financial year:

1. The Committee recommends that the Minister should consider the proposed amendments to the Military Ombud Act in order to address some of the concerns raised by the Members.
2. The Committee recommends that the Secretary of Defence respond, as a matter of urgency, to the letters submitted by the Military Ombud regarding the ring-fencing of the allocation for the Office of the Military Ombud. The Committee supports the ring-fencing of funds for the Office of the Military Ombud.

 

1. The Committee requests that the Minister of Defence briefs the Committee on the status of the ring-fencing of funds for the Military Ombud and the potential for the Office of the Military Ombud to be established as a Schedule 3 entity.

 

1. The Committee recommends increased engagement between the Military Ombud and the Minister of Defence regarding delays in the implementation of recommendations made by the Military Ombud. The DOD should brief the PCODMV on challenges regarding the implementation of some of the recommendations made by the Military Ombud.

 

1. The Committee recommends that, in future, the APP’s should indicate those cases which have been active for more than one year.

 

Report to be considered