ATC191024: Budgetary Review and Recommendation Report of the Portfolio Committee on Defence And Military Veterans on the 2018/19 Annual Report Of The Department Of Defence (DOD), dated 23 October 2019

Defence and Military Veterans

BUDGETARY REVIEW AND RECOMMENDATION REPORT OF THE PORTFOLIO COMMITTEE ON DEFENCE AND MILITARY VETERANS ON THE 2018/19 ANNUAL REPORT OF THE DEPARTMENT OF DEFENCE (DOD), DATED 23 OCTOBER 2019.

The Portfolio Committee on Defence and Military Veterans (PCODMV), having considered the financial and service delivery performance of the Department of Defence (DOD) for the 2018/19 financial year, reports as follows:

 

1.INTRODUCTION

 

 

1. Description of core functions of the Department

 

 

The Constitution of 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 Department of Defence (DOD) provides, manages, prepares and employs defence capabilities commensurate with the needs of South Africa, guided by the Constitution, relevant legislation and Executive direction.

1.2Mandate of the Committee

 

 

The Portfolio Committee on Defence and Military Veterans (PCODMV) 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) and the 1998 Defence Review. Recently, the 2015 Defence Review was introduced as a policy directive to guide defence activities for the next 20 to 30 years. These policy guidelines assist the Committee in its oversight activities. The Committee scrutinises legislation that supports the mission statement of Government, the budget and functioning of DODMV, and the employment of the SANDF.

1.3Purpose 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 performance given available resources; evaluates the effective and efficient use and forward allocation of resources; and makes 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.

 

1.4Methodology in compiling the report

 

 

The Report is compiled from the various activities of the Committee throughout the financial year. 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.

 

1.5Dates of oversight visits and study tours

 

 

The PCODMV did not conduct any oversight visit or study tour for the duration of the FY2018/19.

 

 

1.6Information used to compile the Report

 

 

Besides the information emanating from the oversight visit, other information used in the assessment of the service delivery and financial performance include:

 

 

• Committee reports on the 2018/19 budget hearings, strategic plans and annual report;
• The National Development Plan 2030 (NDP);
• The 2018 Estimates of National Expenditure (ENE);
• The 2018 State of the Nation Address (SONA); and
• The Auditor-General of South Africa (AGSA) Report on the DOD.

 

1.7Structure 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 (2017/18).
• Section 4: Provides a broad overview and assessment of financial performance of the Department for 2018/19.
• Section 5: Overview of service delivery and performance of the DOD for 2018/19.
• Section 6: Key Committee Observations.
• Section 7: Key Committee Recommendations.

 

2.OVERVIEW OF THE KEY RELEVANT POLICY FOCUS AREAS

 

 

1. State of the Nation Address

 

 

President Ramaphosa delivered the 2018 State of the Nations Address (SONA) on 16 February 2018 to a Joint Sitting of Parliament. These following excerpts are deemed relevant to the Department of Defence as referred to by the President:

Ethical behaviour and ethical leadership: The President stated that we should be guided by Mandela’s example and use the year to reinforce our commitment to ethical behaviour and ethical leadership, to turn the tide of corruption in our public institutions. The DOD has on several occasions indicated its seriousness with fighting fraud and corruption, and this was given further urgency by the President.

Job creation and youth unemployment: Reference was made to the fact that at the centre of our national agenda in 2018 is the creation of jobs, especially for the young people in our country. Our most grave and most pressing challenge is youth unemployment. The DOD through for instance the Military Skills Development System (MSDS) annually has an intake of young people into the SANDF for two years.

Transformation: Black professionals and disabled persons: The President alluded to the government improving its capacity to support black professionals, and to deal decisively with companies that resist transformation. Government is also working to expand economic opportunities for people with disabilities in our country. Transformation in terms of race, gender and disabilities still occupies a central role in the management of Human Resources and the support to black professionals and especially disabled persons, will assist to transform the South African workplace. The DOD annually reports on its performance on these issues.

Procurement and SMME’s: Government will honour its undertaking to set aside at least 30% of public procurement to small and medium enterprises, to co- operatives and to townships and rural enterprises. We will also continue to invest in small business incubation, because it is through the incubation process that we have been able to see small and medium enterprises mushrooming throughout the country. The Department’s annual target to pay invoices to especially SMME’s is important in this regard. Procurement and its effective management is also a central issue in the DOD and attention should also be had to the support of SMME’s in pursuit of this guideline.

Technology: The President also referred to the dependence of our nation on our ability to take full advantage of rapid technological change. The Fourth Industrial Revolution is upon us and this means that we urgently need to develop our capabilities in the areas of science, technology and innovation. Inter-operability between the various IT systems in the Department of Defence has been a head ache for years and needs to be addressed as soon as possible, given its importance and value that it can add.

Drought: RSA as water-scarce country: The country remains gripped by one of the most devastating droughts in a century, which has severely impacted our economy and which has also negatively impacted our social services and agricultural production. The drought situation in the Western Cape, the Eastern Cape and Northern Cape has been elevated to a national state of disaster. Being a water-scarce country, the role of the SANDF in playing a role to preserve our water resources and to assist where possible in the case of emergencies should be highlighted.

Health: HIV AIDS, NHI and lifestyle diseases: Reference was also made to SA taking the next critical steps towards eliminating HIV from our midst. By scaling up our testing and treating campaign, we will initiate an additional 2 million people on antiretroviral treatment by December 2020. We will also need to confront lifestyle diseases, such as high blood pressure, diabetes, cancer and cardiovascular disease. The time has now arrived to finally implement universal health coverage through the National Health Insurance. The role of especially the SA Medical Health Services (SAMHS) in providing health care for serving and retired SANDF members as well as it numerous activities to address HIV/AIDS, should be emphasised in this regard.

2.2The National Development Plan 2030

 

 

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 with relevance 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 (SAMHS), as well as assisting mil veterans with medical care.
• 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 goal through a number of initiatives, including the national anti-corruption hotline, Corruption and Fraud awareness campaigns as well as implementing and monitoring the DOD Procurement Policy.

The envisaged contributions are further concretised in the Medium-Term Strategic Framework (MTSF).

 

2.3The Medium Term Strategic Framework (2014 - 2019)

 

 

The 2014-2019 Medium Term Strategic Framework of Government identifies a number of priorities. The outcomes-based approach identifies 12 desired outcomes of the Government. The DOD 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). Examples of contributions to these outcomes are summarised in the table below.

 

DOD contributions to strategic outputs

 

MTSF Outcomes	Sub-outcome	Actual Achievement 2018/19
Outcome 3	Sub-outcome 3: South Africa’s	15 sub-units were deployed and four maritime
	borders are effectively protected	patrols are done per annum to execute Op
	and managed	CORONA (Border Safeguarding) in Limpopo,
		Mpumalanga,      KwaZulu-Natal,        Free     State,
		Eastern Cape, Northern Cape and North West
		Provinces in an endeavour to safeguard and
		maintain      the     integrity      of    the     country’s
		borderline.
		Assistance with water pollution in the Vaal
		River and selected municipalities.
		Assistance with wildfires.
		Supporting Operation Phakisa and the Oceans
		Economy.
		Search and rescue operations

 

		Support to the Department of Health through requested interventions
	Sub-outcome 4: Secure Cyberspace	The DOD continued its contribution towards this sub-outcome by developing a Cyber Warfare Strategy and Implementation Plan.
	Sub-outcome 7: Reduction of Corruption	Contributed to this sub-outcome by means of reducing departmental levels of corruption where prevalent.
Outcome 11	Sub-outcome 3: Political cohesion in Southern Africa	The DOD contributed towards this sub-outcome by means of the deployment of the SANDF for peace missions as well as the deployment of 10 Defence Attachés in the Southern African Development Community

 

1. 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 Plan (APP).

2.4.1     Strategic Plan: Policy Priorities for the Minister of Defence

 

The Minister of Defence maintained the same six strategic priorities in 2018/19 that were identified for previous years. These priorities related directly to the 2015 Defence Review, notably Milestone 1 of the Defence Review, and include:

• Defence Strategic Direction

 

• Strategic Resourcing Direction

 

• Organisational Renewal

 

• Human Resources Renewal

 

• Capability Sustainment Direction

 

• Ordered Defence Commitments Direction

 

These priorities are closely linked to the Defence Review Implementation Plan. Key to these Strategic Priorities is progress made with organisation renewal. The 2015 Defence Review, for example, refers

to the need to align defence expenditure with the international norm of 40 per cent expenditure on personnel, 30 per cent expenditure on capital assets and 30 per cent on operations (40:30:30). Milestone 1 of the Defence Review also calls for a significant reduction in the personnel figures of the SANDF. The latter is thus linked to the Minister’s priority regarding the Human Resources Renewal.

2.4.2     The Annual Performance Plan (APP)

 

To encapsulate both strategic and operational goals, selected aspects of the priorities of the Minister of Defence as well as the Chief of the SANDF as espoused in the 2017/18 APP, are highlighted in the table below.

 

Minister of Defence Priorities	Chief of the SANDF priorities
Defence Strategic Direction: This includes strategic direction for engagement on the 2015 Defence Review.	Military Strategic Direction: Implementing guidelines on the Defence Review; border safeguarding strategy; joint force employment strategy; developing the blue-print force design; and, a defence diplomacy strategy.
Strategic Resourcing Direction: Developing a Defence Funding Model.	Restructuring the SANDF. Compile a restructuring plan to be rolled out over the MTEF period.
Organisational Renewal: Providing strategic direction to inform the restructuring of the DOD (new force structure).	Implement HR Strategy: Based on the “cradle-to- grave” concept and focus on the right-sizing of the SANDF. The Defence Academy will be established.
	Enforcement of Military Discipline: A discipline plan will be promulgated based on the military culture defined in the Military Strategy.
	Revitalisation and utilisation of Reserves: Improved feeder system for the Reserves.
Human Resources renewal: Ensuring that the personnel profile meets both current and future defence obligations.	Renovation of DOD Facilities: Devolving the responsibility for Defence Endowment property from the DPW to the DOD and utilising the Defence Works Formation for maintenance.
	Development and maintenance of Strategic Reserves: Chief SANDF will provide a policy on

 

Minister of Defence Priorities	Chief of the SANDF priorities
	strategic reserves determining required reserve stock levels for emergencies.
	Development of SANDF capabilities: Physical development of appropriate capabilities through acquisition plans. Focus will be on development of landward defence capabilities, investigation of the establishment of a Coast Guard and establishing a Cyber Warfare Capability.
	Renewal of Landward Defence Capability: Development of a multipurpose support vehicle; resourced production to take place in 2018/19.
Capability Sustainment: Aligning defence acquisition to the 2015 Defence Review. Notable focus on the DOD Works Capability, cyber Warfare Capability and Defence Industry Policy and Strategy.	Force Protection: Improved Intelligence Capabilities on all levels and improved preparation and force employment stock levels.
	Border safeguarding: Systematic increase of the SANDF’s footprint on the borders.

 

3.SUMMARY OF PREVIOUS (2017/18) KEY FINANCIAL AND PERFORMANCE RECOMMENDATIONS OF THE COMMITTEE

 

1. Budgetary Review and Recommendations Report (BRRR) 2018 recommendations

 

 

In 2018, the Committee made the following recommendations in its BRR Report on performance and financial matters:

 

• The Department responded to the lack of sub-units deployed in Gauteng and Western Province. Due to capacity constraints and a lack of landline borders, focus is put on the other provinces, especially those bordering other countries. The Committee recommended  that  if additional funding can be   sourced, the number of sub-units should be increased given the successes these sub-units are achieving         in their borderline duties.
• The Department indicated that it cooperates with the relevant SAPS section to safeguard stolen goods on the borders. The Committee recommended that the Department should ensure that such procedures are tight and do not leave anything to chance.
• The poor performance on the flying hours’ and target, is related to the budgetary constraints and the  complex process to source spare parts. The Committee recommends that the Department  should firstly submit information on flying hours as requested in the 2017 BRRR and secondly that it should       seriously reconsider its overspending on the Compensation of Employees at the cost  of funding for flying hours.
• The Department explained that the poor performance on the sea hours’ target relates inter alia to the  unavailability of vessels at the required level of capability due to maintenance cycle delays   and operational         defects. As previously, the Committee recommends that the Department should sort out the delays at the Dockyard as it impact on the operational capabilities of the SA Navy. In addition, Projects Hotel and Biro should be fast-tracked to ensure that the SA Navy has adequate operationally capable vessels. The Department needs to report on a quarterly basis to the Committee on progress made with the Dockyard.
• The Compensation of Employees is a major concern for the Department and it indicated that for the FY2018/19 it already has a shortfall of R3.2 billion on this item. Some of the funds had indeed been shifted from the SDA for Compensation of Employees. It either has to continue overspending on this item or will have to release 5 000 employees. Given that National Treasury has indicated that it will not approve           overspending on this item, the Committee encouraged the Department to finalise the Force Structure in terms of the 2015 Defence Review as soon as possible. It should also provide the Committee with its plans to decrease the number of employees such as the exit mechanism. These would allow the Committee insights into its forward planning and avenues to address this particular budgetary shortfall.
• The Department explained that part of the irregular expenditure relates to assets that were under the control    of Armscor and that it has consulted the Accountant-General and the AGSA to assist to get clarity on this issue. The Department further indicated that it is using Defence Intelligence, the Military Police and the SAPS to assist in investigating these cases as it is taking the issue of Consequence Management very seriously. The Committee recommends that this issue should be dealt with speedily and that the        Department should report back to the Committee on this issue at the next quarterly report meeting.
• It was explained that the impact on projects to acquire military equipment such as the Infantry Fighting Vehicles (Project Hoefyster), is severe and that the number of units, will likely be decreased in the latter’s case. The delays at Denel necessitated a variation order to modify the number of units and the time frames, as well allowing the Department to stay in the available budget. The Committee recommends that the Department should submit a report on this issue by end November 2018. The report should include, inter alia, the financial implications of the new

acquisition plans as well as the number of units to be procured compared to the previously planned number of units. Furthermore, the report should indicate the impact of technology regression and whether the considered technology will still be feasible in future.

• The Department could not adequately explain the increase in the number of Senior Management positions nor rebut the view that it is top-heavy. The Department is requested to submit a report in this regard to the Committee by end November 2018.
• Similar to the 2017 BRRR, the Committee recommends that the Department provides it with a comprehensive report on how it proposes its repositioning based on (a) requirements in terms of Section 200 of the Constitution and (b) the available and appropriated budget. This report should be submitted to the PCODMV within 3 months from the adoption of this BRRR.
• The Department explained that given the resource constraints in Defence Intelligence, it had to categorise the various service providers. Preference is given to those who work in sensitive areas and it plans to address the back log as soon as possible. The Committee recommends that feedback be given by the Department on this issue on a quarterly basis.
• The medical services for military veterans are authorised by the relevant authorising persons at military health facilities. Part of the challenge is that they often do not forward or inform the Department of these authorisations, leading to confusion and delays. Service providers then submit these unpaid invoices to the military veterans who are mostly not in a position to these unpaid invoices. The Committee recommends that the Department should investigate these issues properly and report back to it by the end of November 2018.
• The Department indicated that it is in regular contact with the AGSA as well as the Accountant General to address the audit findings. The Committee recommends that the Department provides it with regular feedback on progress in this regard, especially as it pertains to the issues that led directly to the qualification
• The Committee commits itself to enhance its efforts to follow-up on recommendations made in the BRR reports, especially recurring issues that have not been responded to. The Committee will also interrogate its planning to ensure that its reports have an impact on especially the annual budget of the Department.
• As with the 2017 BRRR, the Committee reiterated the need for Parliament to conduct a study tour to benchmark how other countries manage their Special Defence Accounts and how oversight on such accounts are conducted. The Committee recommends that such a study tour should be conducted by both the PCODMV and the JSCD.

• The Committee encourages the Minister of Defence and Military Veterans to attend PCODMV meetings to keep Parliament abreast of developments and challenges related to concerns raised in

this report. The Committee undertook to invite the Minister to share the Department’s plans to address the recommendations made in this report.

 

3.2Response by the Minister of Finance

 

 

No responses to the PCODMV’s BRRR were made by the Minister of Finance.

 

 

4.OVERVIEW AND ASSESSMENT OF FINANCIAL PERFORMANCE FOR 2018/19

 

 

The Department of Defence (DOD) is responsible for the defence and protection of the Republic of South Africa. In addition to training and preparation, the South African National Defence Force (SANDF) is currently employed in a number of roles, ranging from participation in peacekeeping missions in the Democratic Republic of Congo (DRC) and naval deployments in the Mozambican channel to internal deployments in assistance to the South African Police Service and border safeguarding. These activities continued through the 2018/19 financial year, despite financial constraints. Additional force requirements were placed on the SANDF’s internal deployment capacity due to the deployment of 1 320 members in support of the Police in the Western Cape. The overall picture reflects increased operational demands amid decreased funding available to the SANDF. The status of the DOD is therefore perceived to be in a state of decline. As per the 2015 Defence Review, the SANDF thus set itself the target to “arrest the decline” under Milestone 1 of the Review which commenced in 2017/18. However, due to funding and other challenges, this process remains ongoing.

4.1.Overview of the Vote allocation and spending for 2018/19

 

 

The Department of Defence and Military Veterans received a total allocation of R 48 496 235 billion for the 2018/19 financial year, decreasing from R48 977 232 billion in 2017/18. It should be noted that this included an allocation of R627 087 million towards the Military Veterans Department which formed part of the Vote.

Actual Expenditure versus Adjusted Appropriation at Programme Level

 

Actual Expenditure versus Adjusted Appropriation at Programme Level
Programme	FY2018/19
	Adjusted	Final	Actual	(Over)/Under

 

	Appropriation	Appropriation	Expenditure	Expenditure
	R’000	R’000	R’000	R’000
Administration	5 653 274	5 692 748	5 692 748	0
Force Employment	3 375 584	3 168 678	3 168 678	0
Landward Defence	16 271 221	16 427 499	16 427 499	0
Air Defence	6 650 779	6 261 057	6 257 443	3 614
Maritime Defence	4 699 355	4 503 930	4 503 930	0
Military Health Support	4 714 062	5 090 591	5 090 591	0
Defence Intelligence	950 364	938 173	938 173	0
General Support	6 181 596	6 413 559	6 413 011	548
TOTAL	48 496 235	48 496 235	48 492 073	4 162

 

 

1. Reasons for Over- / Under Expenditure

 

 

The underspending of R4.162 million consists of the following:

 

 

• Air Defence. The under expenditure of R3.614 million (0.058%) was due to the prolonged procurement processes regarding the upkeep of aircraft systems, inclusive of the procurement of

spares, through ARMSCOR as well as the expenditure in social benefits being less than what was anticipated.

 

• General Support. The under expenditure of R548 000 (0.009%) was as a result of litigation claims not

being paid before 31 March 2019 due to administration processes not finalised in time.

 

 

4.3Additions / changes to Main Appropriation

 

 

The Defence Vote was increased with R546,492 million to R48,496 billion through the Adjustments Vote. The additional amount of R546,492 million was received as self-financing for revenue generated from reimbursements from the United Nations for South Africa’s contribution towards Peace Support Operations and the selling of equipment and spares procured through the Special Defence Account. This amount was surrendered to the National Revenue Fund.

 

4.3.1     Virements / Shifts within the Vote

 

 

The following virements/shifts were addressed after the Adjustments Estimate of Expenditure process:

 

•Approved by the National Treasury

• R4,024 million was reallocated within the Administration Programme to increase Transfers and Subsidies: Departmental Agencies to be transferred to the Safety and Security Sector Education and Training Authority (SASSETA), which acts as the Sector Education and Training Authority (SETA) for Defence in terms of the Skills Development Act, 1998 (Act No. 97 of 1998).
• R203,848 million was reallocated to Current Transfers and Subsidies to cover the cost regarding litigation claims against the state. Claims against the state are classified in terms of the Standard Chart of Accounts (SCoA) as Transfer Payments, however it should be noted that the Department does not budget for litigation claims during the MTEF process.

·Approved by the Accounting Officer:

• R19,048 million was reallocated from the Military Health Support (Rm7,6) and the Air Defence Programmes (R11,448 million) to the General Support Programme for Project THUSANO.
• R1,783 billion was reallocated from Current Transfers and Subsidies: Departmental Agencies and Accounts (Special Defence Account) to increase Goods and Services in order to ensure that sufficient funding is available within the General Defence Account for the final accounting of expenditure as well as to amend the Special Defence Account main ledger drawings accordingly.
• The re-allocation of funds between Programmes within the Defence Budget was executed in order to defray expenditure in respect of authorised losses, Payments for Capital Assets as well as Goods and Services to balance the expenditure for the 2018/19.

 

·Roll-Overs

• The Department did not submit a request for funds to be rolled-over from 2017/18, hence no roll-overs were received during 2018/19.

 

4.4Unauthorised, fruitless and wasteful, and irregular expenditure

 

 

Irregular expenditure, according to the DOD, amounted to R3.587 billion for 2018/19. This shows a major increase on the already increasing trends from previous years. For example, in 2017/18, irregular expenditure amounted to R631 million, which was substantially more than the R328.071 million reported in 2016/17. In addition, the Auditor-General notes that he was “unable to determine the full extent of the irregular expenditure stated at R5.13 billion in note 24 to the financial statements as it was impracticable to do so.”

The Annual Report lists the following major contributors to irregular expenditure as:

 

• R2.895 billion was for expenditure above the Compensation of Employees allocation; this was due to a reduction imposed by National Treasury through budget reduction on actual employees in the services of the DOD, for which the Department was not at fault.
• R135 million was paid for the asset verification project contract which was awarded through an unfair bidding process. This contract will only be concluded in 2021/22.
• R72 million was paid for a contract that was awarded by means of an unfair bidding process.

The DOD notes in its Annual Report that Fruitless and wasteful expenditure decreased from R55 million in 2017/18 to R37 million in 2018/19. Fruitless and wasteful expenditure in 2018/19 related mostly to the non-utilisation of leased properties (R35 million) and R2 million for the cancellation of chartered aircraft.

The Annual Report further notes that regarding Unauthorised Expenditure: “The DOD did not incur any unauthorised expenditure during the year under review”

 

4.5Report of the Auditor-General of South Africa

 

 

As in the past two financial years, the DOD received a qualified audit opinion from the Auditor- General for 2018/19. The basis for the qualified audit opinion rests on the following:

• Movable tangible capital assets. The AG was unable to obtain sufficient appropriate audit evidence for tangible capital assets as the department did not have adequate systems in place to record the tangible capital assets as required by MCS on capital assets, resulting in a misstatement.

 

• Goods and services. The AG was unable to obtain sufficient appropriate audit evidence for sensitive projects (in relation to the Special Defence Account (SDA)).

 

• Intangible capital assets. The AG was unable to determine whether any adjustments were necessary to the intangible capital assets stated at R4.95 billion in note 31 to the financial statements.

 

• Commitments. The department did not maintain accurate and complete records of the contractual information used to determine commitments. As a result, the AG was unable to determine whether any adjustment was necessary to commitments stated at R20.02 billion in note 19 to the financial statements for the comparative information.

 

• Irregular expenditure. The department did not fully record irregular expenditure in the notes to the financial statements.

 

The AG raised the following Emphasis of Matters:

• The Special Defence Account. National Treasury has allowed the DOD permission to submit separate financial statements for 2016/17 and 2017/18 for the SDA. The departure lapsed on 31 March 2018 and the department was therefore required to prepare a combined set of financial statements.

 

• Payables not recognised. Payables which exceeded the payment term of 30-days amount to R689.81 million.

 

• Uncertainty of future outcomes of litigation. The department is the defendant in various lawsuits. The ultimate outcome of these matters cannot presently be determined and no provision for any liability that may result has been made in the financial statements.

 

Additional concerns raised by the AG include the following:

 

• Procurement management. The AG noted that:
  • Some of the goods and services with a transaction value below R500 000 were procured without obtaining the required price quotations.
  • Some of the quotations were accepted from prospective suppliers who did not submit a declaration on whether they are employed by the state.
  • Some of the goods and services with a transaction value above R500 000 were procured without inviting competitive bids.
  • Some of the contracts and quotations were awarded to suppliers whose tax matters had cleared by the South African Revenue Service.
• Some cases of fruitless and wasteful expenditure that constituted crime were not reported to the South African Police Service.
• The AG was unable to obtain sufficient appropriate audit evidence in some instances that disciplinary hearings were held for confirmed cases of financial misconduct committed by officials

 

4.6Organisational Structure and Human Resources

 

The Human Resources Management chapter of the 2018/19 Annual Report deals with various issues related to personnel. The following key aspects should be considered by the PCODMV:

• Personnel spending: In 2018/19 the DOD had a total expenditure of R48.492 billion of which R30.012 billion was for compensation of employees. This equates to 61.89% of total

expenditure which is not aligned to the aim of the 2015 Defence Review for a 40 per cent spending on personnel. It also signifies regression in terms of expenditure, given that 57.25% of the final allocation was spent on Compensation of Employees in 2017/18.

 

 

• Personnel strength and alignment with the Defence Review: The total personnel strength of the DOD for 2018/19 was 74 508 against a planned personnel strength of 75 211. This represents an ongoing personnel reduction in recent years. In 2016/17 the actual force strength was 76 480 and in 2017/18 it stood at 75 051. However, Milestone 1 of the Defence Review speaks to a significant reduction in force levels if the levels of funding remain the same. The Minister of Defence already indicated in her introduction to the previous Annual Report that the DOD do not plan to reduce personnel figures.

 

• Reduction in Navy Personnel: The SA Navy, the smallest component of the SANDF, has seen its personnel figures continue to decrease in recent years. It decreased further from 7 076 members by the end of 2016/17 to 6 992 by the end of 2017/18. For 2018/19, it decreased further to 6 816.

 

• Other personnel changes: The following shifts in the numbers of personnel can be questioned:
  • The Defence Foreign Relations Division increased from 147 members in 2017/18 to 155 members in 2018/19, exceeding the planned post of 147 for the year under review.
  • The Human Resources Division increased from 1 237 members in 2017/18 to 1 353 members in 2018/19.
  • The Financial Management Division decreased from 817 members in 2017/18 to 805 members in 2018/19.

 

• Critical occupations: Despite high vacancy rates, the DOD should be commended for focusing on critical occupations and increasing the number of personnel in such posts. When comparing 2017/18 to 2018/19, there is noticeable increases in the number of Aircrew, Artillery, Engineering, medical professional, and technical personnel. Nonetheless, a decrease in numbers can be found in the following fields over the same period:
  • Air Space Control decreased from 475 to 465 personnel.
  • Navy Combat Officers decreased from 685 to 660 personnel.
  • The number of Technical Air specialists were not indicated in the 2018/19 Annual Report as in previous years.

 

• Critical occupation vacancy rates: In terms of critical occupations, several areas with high vacancy rates should be noted:
  • Airspace Control has a vacancy rate of 15%.
  • Aircrew has a vacancy rate of 18%.
  • Engineers has a vacancy rate of 47%.
  • Nursing has a vacancy rate of 11%.
  • Technical has a vacancy rate of 22%.

 

 

• Non-signing of performance agreements by Senior Management: Of the total of 282 Senior Management Members, only 257 signed their performance agreements in time. This is particularly evident on Salary Level 13, where 19 performance agreements were not signed.

 

• Sick leave: For 2016/17, the estimated cost for sick leave utilisation was R330.731 million. For 2017/18, this decreased slightly to R320.405 million. The average number of sick days utilised decreased from eight (8) in 2016/17 to seven (7) in 2017/18. While this remained stable in 2018/19, the total estimated cost of sick leave for the year decreased significantly to R296.754 million. T

 

 

• Granting of Mobility Exit Mechanism Packages. In 2018/19, 16 applications were received for MEM exits of which nine were approved.

 

• A top-heavy DOD? The 2018/19 Annual Report notes a total of 275 senior and top management level employees in comparison to a total DOD personnel strength of 74 508. This equates to one senior manager for every 269 people in the DOD.

 

 

5.OVERVIEW AND ASSESSMENT OF PERFORMANCE

 

 

The DOD set itself a total of 107 targets over its eight programmes. The majority of the targets (62) relates to Programme 1 (Administration). Of the total targets, 14 were deemed to contain classified information and were not made available for public scrutiny. Excluding the classified targets, the

DOD managed to achieve 64.5 per cent of the set targets in the year under review. This is the same achievement percentage as in 2017/18. The Department’s performance has been relatively stagnant in recent years with little overall improvement. There is thus an urgent need, going forward, for the DOD to improve on performance against set targets.

A matter that should be brought to the attention of the PCODMV again relates to the number of classified targets in the DOD’s Annual Reports. The number of classified targets increased from 12 in 2015/16 to 14 in 2016/17 and remained at this level since. The following classified targets are of special concern:

• Battle fitness compliance: In 2015/16, it was noted that this target consists of three components, namely Standard Fitness Assessment, the Concurrent Health Assessment and Battlefield Fitness. It was noted that the only component left for assessment was the battlefield fitness component. No subsequent Annual Reports made mention of whether this was actually completed
• Percentage available of medical stock: In the 2016 BRRR, Members of the PCODMV expressed concern that medical stock levels are below 50 per cent as per the 2015/16 Annual Report. Since 2016/17, annual reports of the DOD deemed the target for medical stock levels a classified target. There is thus no means for the PCODMV to track previously raised concerns.
• Reimbursements to the DOD for SANDF deployments to the UN: In the 2016 BRRR, Members urged National Treasury to increase the reimbursement of the DOD for its participation in peacekeeping missions. There is thus a clear need to track such reimbursement levels. However, in the 2018/19 Annual Report, information regarding reimbursement levels as a percentage of the value of reimbursements is deemed classified.

The Department is encouraged to minimise the number of classified targets in the Annual Report. This should further be followed-up as to whether such targets are actually overseen by the Joint Standing Committee on Intelligence. The inclusion of too many classified targets is not only detrimental to parliamentary oversight efforts, but contrary to democratic civil-military relations built on the pillars of transparency and openness.

5.1Programme 1: Defence Administration

 

 

The Administration programme consists of 20 sub-programmes. The following sections will firstly highlight the financial expenditure of the Administration Programme, followed by targets in selected

sub-programmes that may be followed up on by the PCODMV. Specific focus is placed on targets that were not achieved.

5.1.1Defence Administration financial shifts and expenditure

 

 

Programme	Adjusted Appropriation R’000	Virement R’000	Final Appropriation R’000	Actual Expenditure R’000	Variance
					R’000	%
Administration	5 653 274	39 474	5 693 748	5 693 748	0	0%

 

 

The Administration programme’s total expenditure for 2018/19 came to R5.653 billion, which included expenditure of R627 million of the Department of Military Veterans. After the adjusted appropriation period, further virements of R39.474 million were made to the programme. The following sub-programmes saw their allocation increase/decrease significantly through Virements:

• Office Accommodation’s allocation decreased through a virement of R73.793 million from R2.337 billion to R2.263 billion. The virement affected only the Goods and Services allocation.
• The allocation for Inspection and Audit Services decreased through a virement of R15.054 million. This is a substantial virement given that the adjusted allocation was R138.764 million. The virement largely affected Compensation of Employees (R5.766 million) and Goods and Services (R10.023 million).
• A virement of R50.771 million was made to the Human Resources Support Services, which increased the allocation for this function from R800.323 million to R851.034 million. The virement related largely to Goods and Services (R38.714 million).
• A virement of R37.109 million was made to Defence Foreign Relations, increasing the allocation from R278.873 million to R315.982 million. The virement was exclusively for Goods and Services.
• A virement of R33.529 was made to Acquisition Services, increasing the allocation from R173.409 million to R206.938 million. The virement relates largely to Goods and services (R12.870 million) and Software and intangible assets (R17.662 million).
• A virement of R28.332 million was made to Financial Services increasing the allocation from R369.395 million to R397.727 million. The virement related largely to Machinery and Equipment (R10.821 million) and Goods and Services (R7.474 million).

5.1.2Defence Administration performance

 

 

The Administration programme set 62 targets for 2018/19. Of these, 37 (60%) were achieved, 23 not achieved and two targets were deemed classified. The table below highlights selected targets in the various sub-programmes that were not achieved. The table also includes possible questions for Members to pose on the selected performance indicators.

Administration programme: Selected non-performance on set targets

 

Subprogramme	Target description	2018/19 Target	2018/19 Achievement	Comments
Policy               & Planning	% Adherence to DOD governance schedule	100%	41.7%	Seven                    strategies outstanding: Border safeguarding Force       employment strategy Cyber warfare strategy Sensor strategy HR strategy Logistics strategy Military strategy
Financial services	Defence      Funding Model Implementation	100%	0%	Implementation strategy changed from a policy to rather provide input to future MTEF planning
HR          Support Services	Financial disclosures submitted      (Senior Management)	100%	98%
	Performance agreements submitted      (Senior Management)	100%	88%	250/284            performance agreements submitted
	Public           Service Personnel	100%	59%	38/64     disciplinary      cases finalised

 

	disciplinary       cases finalised in 90 days
	Military disciplinary                        cases finalised in 90 days	100%	74.9%	1     218/1      626      military disciplinary cases finalised
Inspection      and Audit Services	Measure the level of DOD Morale	Positive	Neutral	Similar to previous measurement of DOD morale reported in the in 2016/17 Annual Report.
Defence Reserve Direction	Number                  of Marketing events to promote Reserves	36	28	Events     reduced     due    to budgetary constraints

 

 

1. Programme 2: Force Employment

 

 

Programme	Adjusted Appropriation R’000	Virement R’000	Final Appropriation R’000	Actual Expenditure R’000	Variance
					R’000	%
Force Employment	3 375 584	(206 906)	3 168 648	3 168 648	0	0%

 

 

The purpose of this programme is to provide and employ defence capabilities. In terms of financial expenditure, a trend of virements away from the programme has emerged in recent years (In all these cases, the virement was largely due to a shift away from the Regional Security subprogramme):

• In 2018/19, R206.906 million was shifted away from the programme after adjustments
• In 2017/18, R306.277 million was shifted away from the programme after adjustments
• In 2016/17, R227.1 million was shifted away from the programme after adjustments

 

 

In addition to the major virement away from the Regional Security subprogramme, the following virements can also be noted:

• R31.607 million virement to the Support to the People subprogramme
• R16.460 million virement to the Operational Direction subprogramme
• R16.101 million virement away from the Strategic Direction subprogramme

 

 

A total of 15 targets were set for the programme of which five were classified. Of the 10 remaining targets, eight were achieved. Targets not achieved relate to the finalisation of (1) the Border Safeguarding Strategy and (2) the Joint Force Employment Strategy. The Border Safeguarding Strategy is dependent on the finalisation of the Border-Management Agency (BMA) sub-strategy. The Joint Force Employment Strategy is scheduled to be finalised in future following the promulgation of the broader Military Strategy. A key target that was achieved relates to the ongoing deployment of 15 sub-units for border safeguarding. It should be noted, however, that the Secretary for Defence has noted to the PCODMV on several occasions that at least 22 sub-units are necessary along with force-multiplier technology. Border safeguarding has also been raised as a concern by the PCODMV on several occasions in the past year. In both the 2016 and 2017 BRR Reports, the Committee indicated the need to consider the expansion beyond the current 15 sub-units deployed. Due to funding constraints this has not been achieved.

 

 

5.3Programme 3: Landward defence

 

 

 

Programm e	Adjusted Appropriatio n	Viremen t R’000	Final Appropriatio n R’000	Actual Expenditur e R’000	Variance
					R’00 0	%          (Per Programme )
Landward Defence	16 217 221	156 278	16 427 499	16 427 499	0	0.0%

 

 

The purpose of this programme is to provide prepared and supported landward defence capabilities for the defence and protection of South Africa. In terms of spending during 2018/19, 100 per cent of the final appropriation for this programme was spent. However, following the mid-year adjustments, a further virement totalling R156.270 million was made to the Landward Defence Programme. The programme has 11 subprogrammes and major virements should be noted in the following subprogrammes:

• Infantry Capability. A virement of R140.245 million was made to the Infantry Capability, largely for Goods and Services.
• Signal Capability. A virement of R106.959 million was made to the Signal Capability, largely for Goods and Services.
• Strategic Direction. A virement of R97.881 million was made to the Strategic Direction subprogramme, largely towards Goods and Services. This should be seen against an adjusted appropriation of R389.890 million for the subprogramme, thus revealing a substantial virement.
• Support Capability. The Support Capability allocation was reduced through a virement of R139.667 million. This relates largely to a reduction in the Departmental Agencies and Accounts allocation.
• General Training Capability. The allocation for this subprogramme was reduced through a virement of R113.117 million, largely relating to a reduction in the allocation for Compensation of Employees and Goods and Services.

 

 

Three targets were set for this programme. One target, related to compliance with Joint Force Employment requirements, was deemed classified. The target related to compliance with DOD training targets was not achieved. 2 634 Members reported to 30 learning programmes of which 2 593 were found competent. This number of students did not fulfil the target of 3 681 and limited training opportunities was largely ascribed to budgetary constraints The final target related to unique force training exercises was achieved. Questions were raised consider whether it is sufficient for the Landward Defence Programme to (de facto) report on only two performance indicators. Up until 2011/12 up to 20 targets were reported on for this programme. These related to, for example, the number of battalions available per subprogramme.

5.4Programme 4: Air defence

 

 

Programm e	Adjusted Appropriatio n	Viremen t R’000	Final Appropriatio n R’000	Actual Expenditur e R’000	Variance
					R’00 0	%          (Per Programme )
Air Defence	6 650 779	(389 772)	6 261 057	6 257 057	3 614	99.9%

 

 

The purpose of the Air Defence programme is to provide prepared and supported air defence capabilities for the defence and protection of South Africa. In terms of spending, a number of

virements were recorded in the programme, totalling 5.86% of the adjusted appropriation. Five major virements should be noted in the following subprogrammes:

• Air Combat Capability. The allocation for this subprogramme was reduced through a virement of R320.4 million, largely related to Departmental Agencies and Accounts.
• Command and Control Capability. The allocation for this subprogramme was reduced through a virement of R265.749 million, largely related to Departmental Agencies and Accounts.
• Training Capability. The allocation for this subprogramme was reduced through a virement of R122.634 million. This largely related to a reduced allocation for Compensation of Employees and Goods and Services.
• Transport and Maritime Capability. The allocation for this subprogramme was reduced through a virement of R107.066 million, largely related to Goods and Services.
• Base Support Capability. The Base Support Capability is the only subprogramme that received a substantial increase as a result of a virement of R336.772 million. This related largely to an increased allocation for Goods and Services.

Four targets were set of which one is deemed classified (compliance with Joint Force Employment requirements). While the Programme did well in terms of training targets and training exercises, force employment flying hours remain a concern:

• Total target: 25 000 flying hours, but only 17 870 achieved. This consists of the following breakdown:
  • 14 882.90 hours for force preparation
  • 2 441.60 hours for force employment
  • 545.70 VVIP hours

 

 

Members may note that the JSCD received a briefing on the SA Air Force’s flying hours on 12 September 2019. During this briefing, the Chief of the SA Air Force indicated that the Force is currently in dire straits and operating in “survival mode”. The non-achievement of flying hours as noted above is therefore a confirmation of this ongoing concern. Funding was raised as the primary concern as it limits the ability of the Air Force to maintain aircraft, procure spare parts and achieve its flying hours.

5.5Programme 4: Maritime defence

 

Programm e	Adjusted Appropriatio n	Viremen t R’000	Final Appropriatio n R’000	Actual Expenditur e R’000	Variance
					R’00 0	%          (Per Programme )
Maritime	4 699 355	(195 425	4 503 930	4 503 930	0	0%
Defence		)

 

 

The purpose of the programme is to provide prepared and supported maritime defence capabilities for the defence and protection of South Africa. The Maritime Defence programme spent 100% of its final allocation of R4.503 billion by the end of 2018/19. However, a virement of R195.425 million away from the programme was made, totalling 4.16% of the adjusted appropriation. The following subprogrammes were most affected:

• Maritime Logistics Support Capability. The allocation for this subprogramme was reduced through a virement of R176.138 million, largely related to Goods and Services.
• Maritime Combat Capability. The allocation for this subprogramme was reduced through a virement of R86.905 million, largely related to Departmental Agencies and Accounts.
• Maritime Direction. This subprogramme received a substantial virement of R88.128 million, increasing the adjusted appropriation of R553.877 million to a final allocation of R649.510 million.

 

 

For the period under review, the Maritime Defence Programme had four targets of which one was deemed classified (compliance with Joint Force Employment requirements). All targets related to training were achieved. However, the target related to sea hours was not achieved:

• Sea hours: 7 704 Sea hours were achieved against a set target of 12 000. This figure reflects an ongoing decrease in sea hours compared to the 6 064 achieved in 2017/18, 8 131 in 2016/17 and the 10 710 achieved in 2015/16. Reasons provided include constraints related to vessel maintenance and availability as well as budgetary constraints. Similar concerns were raised in 2016/17. Sea hours for 2018/19 included the following:
  • Force Employment: 4 545.00 hours
  • Force Preparation: 3 159.13 hours

Members may note that the JSCD received a briefing on the SA Navy’s sea hours on 12 September 2019. During this briefing, the Chief of the SA Navy lamented the decreasing budget and noted that it impacts on the ability to perform vessel maintenance. Currently a number of primary vessels are in dire need of a mid-life refit which has been delayed due to budget cuts.

5.6Programme 6: Military Health Support

 

Programm e	Adjusted Appropriatio n	Viremen t R’000	Final Appropriatio n R’000	Actual Expenditur e R’000	Variance
					R’00 0	%          (Per Programme )
Military Health Support	4 714 062	376 529	5 090 591	5 090 591	0	0%

 

 

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. As was the case in previous years for the Military Health Support Programme, several large virements in the latter half of the financial year should be noted. Although the programme spent 100% of its final appropriation, virements totalled R376.529 million, or 7.99% of the adjusted appropriation. This may point to a poor level of planning for the specific programme given the need for additional funds in the last months of the financial year. In the seven subprogrammes, large virements are noticeable in the following three:

• Area Military Health Services. The allocation for this subprogramme was increased through a virement of R250.645 million, largely related to Goods and Services.
• Specialist/Tertiary Health Services. The allocation for this subprogramme was increased through a virement of R169.314 million, largely related to Goods and Services.
• Military Health Product Support. The allocation for this subprogramme was decreased through a virement of R102.873 million, largely related to Goods and Services.

 

 

The programme had six targets of which four were deemed classified. The programme achieved 2 183 927 healthcare activities in 2018/19, exceeding the target of 2 140 550 activities. The training target was also achieved with 649 members receiving training against a target of 648. This is, however, a reduction in comparison to the 790 members trained in 2017/18.

5.7Programme 7: Defence Intelligence

 

Programm e	Adjusted Appropriatio n	Viremen t R’000	Final Appropriatio n R’000	Actual Expenditur e R’000	Variance
					R’00 0	%          (Per Programme )
Defence Intelligenc e	950 364	(12 191)	938 173	938 173	0	0%

 

 

The purpose of Defence Intelligence programme is to provide a defence intelligence and counter- intelligence capability. For 2018/19, the programme spent 100 per cent of its final allocation. Two noticeable virements took place after the adjusted appropriation. A virement of R38.524 million was made to the Defence intelligence Support Services subprogramme, mostly related to a reduction in the allocation for Goods and Services. R50.715 million was removed from the Operations allocation through a virement, largely related to Departmental Agencies and Accounts.

The programme had six targets of which it achieved only two. Similar to 2017/18, the Defence Intelligence programme achieved on targets related to the provision of General Military Assistance and the number of Defence Intelligence Products produced for the year. Targets not achieved include the following:

• Developing a Cyber Warfare Strategy: The Strategy is within the departmental approval process. (No finalisation since 2015/16)
• The implementation of Phases 2 and 3 of the Cyber Warfare Plan was set as a target for 2017/18. However, Phase 1 was still in progress.
• Development of a Sensor Strategy: Only a draft sensor strategy was completed in 2016/17 and the strategy remains within the departmental approval process.
• Only 3 453 vetting decisions were taken against a target of 7 000. The latter underperformance is of specific concern given the provisions of the Defence Amendment Bill [B18 of 2017] adopted by the PCODMV. Clause 5(b) of the Bill proposes provision for the security vetting of contractors and service providers of the DOD. Defence Intelligence must be empowered to screen and vet the security profile of contractors and service providers to the DOD.

 

 

5.8Programme 8: General Support

 

 

Programm e	Adjusted Appropriatio n	Viremen t R’000	Final Appropriatio n R’000	Actual Expenditur e R’000	Variance
					R’00 0	%          (Per Programme )
General Support	6 181 596	231 963	6 413 559	6 413 011	548	0%

 

 

The purpose of the General Support programme is to provide support capabilities and services to the Department. The financials of the programme reflect three large virements in post-adjustment period in the following subprogrammes:

• Joint Logistics Services. A large virement of R436.898 million was made to this subprogramme. This related largely to Goods and Services (R315 million), Buildings and Fixed Structures (R76 million) and Machinery and Equipment (R49 million)
• Technology Development. The allocation for this subprogramme was reduced by R169.157 million, largely due to a reduced allocation for Departmental Agencies and Accounts.
• Command and Management Information Systems. The allocation for this subprogramme was reduced by R72.225 million, largely due to a majorly reduced allocation for Goods and Services (R192 million), partially offset by an increase for Machinery and Equipment (R99 million).

 

 

In terms of performance, a total of seven targets were set for 2018/19. This is less than the 10 targets reported on in 2017/18. The following three targets were therefore removed from the reporting cycle:

• DOD Procurement Policy status. (Not submitted for approval by the end of 2017/18).
• Percentage compliance to the management process of strategic reserves (ammunition). Target classified.
• Percentage of cases of Corruption and Fraud investigated (100% in 2017/18 with 77 cases investigated). In 2018/19, a target was included in Programme 1 (Administration) related to the Percentage of cases of Corruption and Fraud prosecuted.

Only one of the seven set targets were not achieved. This relates to the status of the overarching logistics strategy. The strategy is currently at 75% completion against a target of 100%.

6.COMMITTEE KEY FINDINGS: DEPARTMENT OF DEFENCE

 

 

The Committee made the following Observations on the 2018/19 Annual Report of the Department of Defence:

• The Committee noted with concern the apparent lack of cooperation between National Treasury and the DOD in paving a way forward that would ensure a modern technologically attuned military force, capable executing its constitutional mandate. This concern relates specifically to the limited increase in the DOD’s allocation over the MTEF and specifically the envisaged reduction in the allocation in from R52.516 billion in 2020/21 to R50.883 billion in 2021/22. The Committee also observed that areas for cost-saving have been identified by the DOD, including force rejuvenation, but that these remain unimplemented.
• The Committee noted the impact of the Compensation of Employees ceiling instituted by the National Treasury in 2016 and the fact that shifts from the Special Defence Account (SDA) is used to fund such compensation.
• The Committee noted with concern the rapid depletion of the SDA as it will not only impact negatively on the modernity and operational effectiveness of the SANDF, but will also push to the right the acquisition of urgently required Prime Mission Equipment.
• The relatively low number of deployable soldiers due to inter alia health and age challenges, and the fact that the Reserve Force comprises more than 50% of current deployments, were highlighted.
• The Committee noted the underperformance in critical areas for the SA Navy and SA Air Force, notably targets related to sea hours and flying hours. It also noted with concern the virements at the end of the financial year away from critical components of these Arms of Service, that include virements of R86.905 million from the Maritime Combat Capability and R320.4 million from the Air Combat Capability.
• The Committee noted comments made during engagements with the DOD that the non- achievement of flying and sea hours are impacted by maintenance schedules of aircraft and vessels. Of specific concern is the SA Navy’s frigate and submarine midlife upgrades that is on hold.
• Border safeguarding was raised as a major point of concern by the PCODMV. Members concurred that the current deployment of 15 sub-units for border safeguarding is insufficient and

that at least 22 companies are require. Members further noted that technological force multipliers such as drones and sensors are essential for border safeguarding.

• The Committee noted the DOD’s ongoing efforts regarding investigations and disciplinary action related to irregular, fruitless and wasteful expenditure transgressions. The Committee commended the reduction in Fruitless and wasteful expenditure from R55 million in 2017/18 to R37 million in 2018/19, but stressed that this should be totally eradicated.
• The Committee raised the Internal Audit capacity of the DOD as a major concern given the number of audit findings against the Department. The Committee questioned the capacity within the Internal Audit division of the DOD and raised concern regarding the ability of the division to prevent and address adverse audit findings. Although taking cognisance of its challenges to migrate from an Inspector-General Division to an Internal Audit Division, these challenges should have been addressed given that the PFMA was promulgated in 1999.
• The Committee noted the various adverse findings by the Auditor-General related to tangible assets, goods and services, intangible capital assets and the non-recording of certain irregular expenditure items. Of specific concern to the Committee was misstatements related to tangible assets as it further highlights concerns around the DOD’s Internal Audit function.
• Consequence management was highlighted by the Auditor-General as an ongoing concern in the DOD and the Committee noted this as an area that requires monitoring.

 

 

7.COMMITTEE RECOMMENDATIONS

Based on its analysis and overview of the 2018/19 Annual Report of the Department of Defence, the Committee makes the following recommendations:

Recommendations to the Minister of Finance:

 

• The Committee recommends that National Treasury should not lower the baseline DOD budget allocation in nominal terms over the MTEF period. This relates to all outlying years of the MTEF and specifically to 2021/22 where the budget is set to decrease from R52.516 billion in 2020/21 to R50.883 billion in 2021/22.

 

• The Committee urges National Treasury to provide additional funds specifically for the purpose of border safeguarding. The Committee recommends that the number of sub-units be increased incrementally over the MTEF with the aim of having 22 sub-units deployed for landward borderline duties by the end of the MTEF. Additional funds should also include an allocation for the use of technology as a force multiplier for border safeguarding purposes.

Recommendations to the Minister of Finance and Minister of Defence:

 

• The Committee urges the immediate engagement between the Minister of Defence, the Minister of Finance and the Commander-in-Chief of the SANDF, to finalise a funding plan that will arrest the current decline of the military. This recommendation is derived from the dire financial and resource situation shared with the Committee by especially the SA Army, SA Air Force and SA Navy during its recent oversight engagements. The finalised plan should be presented to the Committee no later than the end of the First Quarter of 2020/21.

 

• The Committee noted comments by the DOD that savings to Compensation of Employees can be made through a process of force rejuvenation. The Committee therefore recommends a joint approach to force rejuvenation that would see the DOD develop and roll out a rejuvenation plan and National Treasury providing funding for an exit mechanism to speed up rejuvenation. National Treasury should, as soon as possible, release funds to facilitate an interim exit mechanism for the remainder of 2019/20. The DOD should finalise rejuvenation plans for full implementation from 2020/21.

 

 

Recommendations to the Minister of Defence:

 

The Committee requires a written report from the DOD with regards to the future of the Special Defence Account (SDA), including the possible phasing out of the Account. The report should further indicate how the Compensation of Employees allocation will be met once the SDA has been depleted and how it will be ensured that future defence materiel needs are addressed. The Report should further indicate whether current projects (notably Projects Biro, Hotel and Hoefyster) are under threat given limited funding in the SDA. The written report should be submitted to the Committee no later than 1 February 2020.

• The DOD should, as part of its quarterly performance reports to Parliament, include an update on the number of investigations underway related to irregular expenditure and fruitless and wasteful expenditure. This should include information on the number of cases referred to the Military Police and/or the SAPS, the number of cases under investigation and the outcome of such investigations. This information is essential to ensure improved Consequence Management in the Department of Defence.
• The DOD should prioritise its Internal Audit Division’s capacity through the filling of vacant posts. The DOD should provide the Committee with quarterly updates on the status of the Internal Audit capacity.

 

• The Committee urges Armscor, the DOD and the AG to finalise a plan to correctly capture tangible assets in order to avoid future misstatements and subsequent adverse findings by the AG. The DOD should report to the Committee on progress in this regard on a quarterly basis.

 

• Although the situation around reimbursements from the United Nations for SANDF troop and equipment contributions has improved, the Committee noted ongoing concerns related to these reimbursements. This relates largely to the unserviceability of the Prime Mission Equipment in the mission areas. The latest information from the Minister of Defence indicated that reimbursements to the value of R54.667 million was forfeited. The Committee therefore strongly recommends that the DOD institute further measures to improve on the reimbursement levels from the UN. Quarterly updates on UN reimbursement levels should be provided to the Committee.

 

• The DOD should provide quarterly updates on the attainment of sea hours and flying hours by the SA Navy and SA Air Force, respectively. Furthermore, spending on key military functions such as the Maritime Combat Capability and Air Combat Capability must be reported to ensure that healthy spending patterns are maintained. The Department should also report on all virements and shifts in terms of these capabilities on a quarterly basis to prevent a situation where these movements take place at the end of the financial year, signalling poor planning.
• The DOD to take urgent steps to ensure the midlife upgrades for SA Navy frigates and submarines are carried out according to schedule. Feedback should be provided to the Committee before the end of the 2019/20 financial year.
• The Committee observed the need for South Africa to maintain a modern military force capable of executing its constitutional mandate. Given the current financial constraints, the Committee recommends that the DOD focuses expenditure on key deliverables that would contribute to the requirements of a modern military force. The Committee will monitor quarterly expenditure to ensure alignment with this objective.

Report to be considered.