Department of Defence 2019/20 Annual Report

This premium content has been made freely available

Defence and Military Veterans

01 December 2020
Chairperson: Mr V Xaba (ANC)
Share this page:

Meeting Summary

Video: Portfolio Committee on Defence and Military Veterans [NA]

2019/20 Annual Reports

The Department of Defence issued a warning that because of a lack of resources, there was a risk that South Africa may not have a Defence Force equipped to deliver on its constitutional mandate, and would have to settle for what its financial resources dictated. Responding to questions on its 2019/20 Annual Report in a virtual meeting with the Portfolio Committee, the Department said it was “in a quagmire,” as it previously used to take funds from the Special Defence Account (SDA) for the compensation of employees, and the budget cuts had left it with no funding for next year.  Right now, the compensation of employees (COE) budget was under-funded by R3 billion.

The Committee was told that poor management controls and oversight in the Department were areas of serious concern that needed to be addressed. Worrying was the structural misalignments of DOD structures, especially the supply chain management (SCM) that was presently not reporting to the chief financial officer, but rather to the chief of logistics, who was not an accountant. The fact that only four people were working on risk management in a Department that had a human resources (HR) capacity of 73 000 was clearly insufficient and an anomaly, as most departments of a similar size would have a risk officer in a chief director position.

Members were concerned that the lack of funding placed the major acquisition of land works and maritime forces under threat, while failure to meet training targets for the air force and navy meant the country would not be prepared for any eventuality. They were worried that there was no budget for Armscor, and commented that in the current economic climate, it was unnecessary for South Africa to have military attachés in 21 countries outside of the African continent. They asked why the Department had comleted only 10% of its targeted disciplinary cases, and urged it to speed up the process of disposing of its old apartheid era assets, stressing that its “graveyard of vehicles” should be auctioned off to raise much needed funds.

Meeting report

Department of Defence (DOD) 2019/20 Annual Report

Ms Sonto Kudjoe, Secretary of Defence, said that despite severe budget cuts during the 2014 to 2019 medium term strategic framework (MTSF) period, the Department of Defence (DOD) had done well and fulfilled its constitutional mandate. It had obtained qualified audit with findings. The Defence budget had been cut beyond the bone, and the Special Defence Account (SDA) -- a key instrument to enable Defence to execute its approved defence acquisition projects -- was nearing its demise. During the 2019/20 financial year, the DOD was represented by residential defence attachés in 42 countries, the African Union (AU) and the United Nations (UN). During the same period, resident military attachés and advisor corps representatives in SA were from 59 countries.

If the Department did not receive sustainable funding, a re-evaluation of SA’s defence capability and the capacity of the DOD to sustain its ordered commitments were inevitable. This implied that the Defence Force would have to be redesigned to fit its funding allocation and not its constitutional obligations. During 2019/20, the DOD had received an appropriation of R5.888 billion, which was a 4.93% increase on the previous year.  It was able to spend 99.99% of its appropriated funds, and had surrendered R5.875m to the National Revenue Fund (NRF).

The Department had achieved 73% of its performance targets. Targets not achieved included the number of marketing events to promote the reserves, military disciplinary cases finalised within 90 days, and compliance with DOD training targets. Others involved compliance with submission dates of DOD accountability documents, such as reports on Reserve Force Council (RFC) activities submitted to the Executive Authority, adherence to the DOD governance schedule, and collective grievances and disputes resolved.

Irregular expenditure amounting to R2.836 billion had been recorded during the current audit due to non-compliance with supply chain management (SCM) processes and under-funding of compensation of employees (COE). The nature, cause and circumstances of non-compliance with SCM processes were not isolated, but indicative of similar non-compliance in the population.

Discussion

Mr S Marais (DA) thanked the Secretary of Defence for her report, and commented that from next year she would be reporting on her own performance, and not someone else’s.

On the strategic overview with regard to the Special Defence Account (SDA), that was a major concern of the Committee because there would be nothing in that account next year. The Committee had raised this concern before and would not provide for capital acquisition, and there would be no allocation for it next year. How would the SDA be replaced? Had the Department any answers for that? Would it just be an ordinary allocation in the budget, or to the general Defence account, or what would replace it?

The COE was somehow covered from money withdrawn from the SDA in the past two financial years. Could the Department indicate how that would be dealt with going forward, and specifically the major acquisition projects on land works and maritime forces which were said to be under threat?   The DOD had indicated that from 2021/22 there would be no budget for Armscor, which would be a major concern for the Committee, because of the operational costs.

An indication had been given in the presentation of the Defence Review that it was an ideologically unsustainable policy document which could not be funded. How would the Department deal with the specific challenge that the policy document could not produce the required outcomes? 

On military attaches, RSA was represented in a number of countries, 21 of which were outside of Africa. That was a huge cost. How could this be justified when there was no value to their being there? Could the Committee be briefed sometime next year as to why there were 59 foreign military attaches in South Africa? Could it be the strategic positioning of RSA?

The qualifications in the audit report had referred to poor management controls and oversight in the DOD. How could this be changed?  How could accountability and good governance be regained? The failure to meet the training targets in the air force and navy meant the country could not be prepared for any eventuality. On the criteria for irregular expenditure, why was the contract not awarded to the company with the highest points?

Ms A Beukes (ANC) said during their oversight visit last weekend, they had seen a lot of old vehicles. What was the situation regarding auctioning these vehicles? In the Department’s 2019/20 report, it was indicated that the inability to appoint an auctioneer was the problem, and same reason had been given the year before. How far was the process of appointing an auctioneer?

Somewhere in the report it was stated that the Defence Force would have to be redesigned to fit its funding allocation, and not its constitutional obligation. What would be the impact of such restructuring on service delivery? What were the processes of engagement in the Department on the possibility and the impact of a possible redesign?  With the current financial constraints and the need for border safeguarding, would the South African National Defence Force (SANDF) be able to continue to do both border deployment and external deployment over the medium term? Should they perhaps stop external deployment and focus on border safeguarding until their finances and capability allowed this?

The Department had achieved only 10% on its targets for disciplinary cases -- why was it so low?

Department’s response

Ms Kudjoe responded to the strategic review question involving the SDA, and said that in the past the Department had used the SDA to deal with its shortfalls for the CoE. As it was going into the next financial year with nothing left, what was important was that it would have to rely on the general Defence account.  With some of the strategic acquisitions, because the procurement processes took a while, the Department had asked that some of the money should be rolled over to the next financial year. Part of the funds being rolled over was the money that Armscor had said they would be unable to utilise before the end of the financial year. They had asked the DOD to approach the Treasury so that they could use it. The point being emphasised was that for the main strategic acquisitions, it had to rely on the special Defence account. With it being unavailable in the next financial year, strategic acquisitions would be even more difficult to accomplish. However, the money that would be rolled over would be used to the extent that it could go to finalise the projects and after that, nothing could be guaranteed.

The budget for the next financial year was set at R45 billion, and it was important for the money to be received before the financial year begins. This financial year, the Department had a budget of R50.8 billion, and it would be slashed next year. From the last financial year, about R5 billion had already been lost, and that budget reduction would have an impact in terms of strategic acquisitions. What would happen to Armscor in 2021/22 when the Department and its entities would not have the kind of budget it really needed? That was what was being grappled with now. Armscor at least had some projects that generated income for them, and the financial situation had a cascading effect.

The Defence Review was a good document with lofty ideas, but it required funds to be implemented. Throughout the presentation, the common thread had been the lack of funds. This situation would ensure that the country would only have the kind of force that the budget could cover, rather than that which was able to carry out its constitutional mandate.

Regarding the 31 military attachés, the work being done by the Defence Force was based on South Africa’s foreign policy. Africa was at the centre of that policy, but that did not mean SA should not have defence attachés that were deployed to other countries strategic to SA that were outside the continent. SA had 49 attachés, with an official embassy load of 136 around the world. A greater number of the embassies did not have defence attachés. This Department would not be in a position to explain why because SA got requests from the countries hosting its embassies to deploy their people here. This was not necessarily on a reciprocal basis, because there were attachés here from countries in which SA did not have attachés.

The Department had moved from six audit qualifications to two, which of course had meant a lot of work. In the present audit report, there was no qualification on asset management, and it was the wish of the Department to keep up the good work it was doing. It was true that the controls were poor, however. There were controls in place, but those tasked with their implementation would also have to tighten up on consequence management. Hopefully all the investigations ongoing would point the Department in the right direction.

The reason why many cases remained unresolved was that there were not enough people trained in the Department to deal with them, which resulted in some the cases not being finalised. This situation would continue to receive attention. The Department could have done better job in the area of consequence management. It was also receiving attention, and managers would be held accountable, because they have the power to exercise consequence management for any wrong doing.

On force re-design, the Department had an idea of where it wanted to be, as reflected in the Defence Act as well as in the Defence Review. However, for this to happen, the financial resources had to be available to carry it out, and whatever resources it had available was what it could work with. That was why it was stated in the briefing that there was that risk that South Africa may not have a Defence Force equipped to deliver on its constitutional mandate because of a lack of resources, and would have to settle for what its financial resources dictated. More details would be submitted to the Committee in writing.

On the consideration of internal versus external deployments, considering the budget costs, Cabinet had made a decision that based on tasking by the President, and the Department had also responded to that call. If the funds were not available, then there was actually no need to deploy.

Mr Eric Siphiwe Sokhela, Chief Financial Officer (CFO), SANDF, added that in 2021, the budget of the SDA would not be available, but engagement was ongoing with National Treasury in the hope that it might still come. All projects were not proceeding at same level, whatever savings from other projects might be utilised. He highlighted that the Department was “in a quagmire,” as it previously used to take funds from the SDA for the compensation of employees. Right now, COE was under-funded by R3 billion. This meant that if the SDA was discontinued, the Department could not get that buffer again. The Department would, however, interact with Treasury for all deviations that could be made, and report back to the Committee. All this would be done according to the law, in terms of Sec 43 of the Public Finance Management Act (PFMA).

On internal controls, the Department was trying its best to implement all the internal controls which had led to the decrease in qualifications in this financial year. The qualification the Department had now was only around irregular expenditure arising from the procurement section, and not on internal controls. It would endeavor to implement consequence management.

On the old vehicles that needed to be auctioned, the Department had engaged with the team and they were busy making an inventory of the vehicles in order to fix them. After that was done, the ones that were not needed would be auctioned off. As at now, some of those vehicles could still be fixed and the Committee would get a full report in due course.

The Chairperson said he was happy the DOD was attending to some of the notable misalignments within the departmental structures, especially that SCM was not reporting to the CFO, but rather to the Chief of Logistics, who was not an accountant. Another area was risk, which involved under-planning. The Auditor-General (AG) had said that the Department did not investigate risk sufficiently, and all the risk areas were as well listed in the document. These matters had attracted adverse findings from the AG every year, and had not been dealt with. Where should risk management be located? He urged the DOD to look at how other departments did it, concluding that if this was not sorted out, the DOD would continue to receive repeat findings from the AG.

Ms Kudjoe agreed with the views expressed by the Chairperson, and said it was correct that the DoD risk management was located in the policy unit. Only four people were working on this in a Department that had a human resources (HR) capacity of 73 000, and this clearly was not sufficient. In most other departments they had a risk officer who was in a chief director position. A chief risk officer would normally go to the various areas to identify risk and formulate mitigating measures. This was so that before internal auditors visited, all risks had been mitigated and the AG normally would then need to look only at the report of the internal auditors. A properly staffed risk office played a preventive measure role.

Mr W Mafanya (EFF) spoke on the sorting out of assets, stressing that the DOD had assets dating back to the apartheid period which were still with them, and they kept on saying they would put them up for auction. How did the DOD intend to speed up the process, taking into consideration that these assets have been there since the eighties? On risk, there had been line on compromised defence direction -- what did that mean?

Mr Sokhela responded that the Department had engaged on the funding model to ascertain how much would be realised if the assets were disposed of. When that was done, it was established that some of the assets were properties that belonged to the Department of Public Works as well. The DOD was engaging with them, as a date for when this would be completed could not be ascertained as yet. The selling of assets was still on the table, and so were other areas for generating revenue.

An inventory of the vehicles was being taken, and when the repairs were finished, all those that were not needed would be placed on an auction list and sold off.

The Chairperson concluded that the process of disposing of the vehicles should be speeded up. It was not ideal to continue to have a graveyard of cars which the Committee Members had seen over the weekend when they went on their oversight tour. The issue of an auctioneer had been raised last year and this year too. Since the Committee had a budgetary meeting engagement with the DOD in the new year, they must come with an answer then. 

The meeting was adjoined.

Audio

No related

Download as PDF

You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.

See detailed instructions for your browser here.

Share this page: