Defence Budget and Procurement Programme: Department briefing

Meeting report

DEFENCE PORTFOLIO COMMITTEE
3 August 2005
DEFENCE BUDGET AND PROCUREMENT PROGRAMME: DEPARTMENT BRIEFING

Chairperson: Professor K Asmal (ANC)

Documents handed out:
Department of Defence Budget Presentation:
Cover Page
Appendixes
Strategic Plan Committee Report (available shortly @Committee Reports)
Budget Committee Report (available shortly @Committee Reports)
Human Resource Plan Committee Report (available shortly @Committee Reports)

SUMMARY
The Department of Defence presented on the Defence Budget and procurement programmes. Detail was relayed on the nature of the early warning system, the number of programmes in operation, the proposed Airbus A400M aircraft purchase, the practice of financial adjustments, the current status of cash flow, levels of financial misconduct, monies allocated to human resources and the National Adjustments Budget.

Members asked various questions about payments to the Airbus project, the anticipated impact on landward defence requirements, the distinction between overspending and underspending, the lack of projections for certain items, the status of civic education, progress in the scarce skills allowance arrangement, definitions of unforeseen and unavoidable events, and reimbursement by the United Nations for peace operations.

The Committee considered the Department of Defence Strategic Plan, Budget and Human Resource Plan reports. Members requested a breakdown of the current costs of the Department in future highlighting specific costs in greater detail. For example, further detail was required on the extent of legal services and the amount of lawyers employed by the Department. Information was sought on the status of the exit mechanism within the Defence force and the efficacy of current peacekeeping operations. The Department was requested to provide detail on the number of active peacekeeping missions involving Defence Force members. Legislation regarding peacekeeping was currently under review. Skills training linked to exit incentives should be re-evaluated as shortcomings existed. Active service presented an opportunity to re-skill individuals in the economic interest of South Africa. Members sought an update on the activities of the Defence SETA and the Service Corps and whether additional funding was required. The Committee adopted the reports.

MINUTES

Department budget briefing
Mr J Rautenbach (Department Acting Chief Director: Budget Management) stated that the Department had to provide an early warning report to the National Treasury on a monthly basis indicating expected and actual expenditure. Nine programmes existed with R22 billion in total expected expenditure. Actual expenditure was currently R7 billion and the Secretary of Defence could make two adjustments during the year to a maximum of 16% of the budget where surpluses pertained. Additional money had been obtained to finance the A400M Airbus acquisition. Total adjustments and available funds were elucidated.

Discussion
Mr M Sayedali-Shah (DA) referred to the additional input to the Special Defence Account and asked whether the intention was to contribute to the Airbus programme.

Mr M Booi (ANC) indicated that money had been transferred from the landward defence component and asked whether this section would be adversely affected by the shift.

The Chairperson asserted that the present financial requirement regarding the Airbus project was for preparation and planning. Further financial needs would be negotiated with Treasury in the ensuing years up to 2010. The acquisition of the Airbus would be funded from within the Defence budget.

Mr Rautenbach responded that the movement of resources from certain programmes into the special account had received approval from the Minister of Finance. Adjustments could be made twice a year but the Finance Minister could authorise additional funds in exceptional circumstances.

Mr D Dlali (ANC) asked whether thefts and losses existed as a separate programme within the budget.

Mr S Ntuli (ANC) asked whether a void had been created within landward defence requirements as a result of adjustments.

Mr Rautenbach responded that no separate budget existed for thefts and losses but the amount spent on addressing such incidents had to be reflected in the budget statements and early warning reports. A policy change in terms of employers' contributions to Pension Funds had created an extra amount that could be utilised within the Airbus project. The shifting of funds would not adversely affect any previously budgeted programmes. The presentation dealt with figures for the current financial year and further discussion would occur with Treasury for future capital needs. The amount reflected for the Airbus deal was for initial down payments to continue the project. Detail was provided on the state of revenue including the sale of capital assets from within the Department, the proceeds of which the Department was entitled to retain. The acquisitions committee was tasked with deciding on the priorities for the use of incoming funds and the Defence Staff Council took a final decision. The accumulated income was used in a variety of ways and a breakdown of such use would be provided to Members in due course.

The Chairperson stated that Members would debate the use of income in future as certain tasks such as the disposal of ammunition and other contingency needs could be met by the additional amount.

Mr Rautenbach discussed the cash flow report and the amounts not spent each month. Discussions were underway with the Treasury to allow the Department greater powers in determining cash flow adjustments. Presently, Treasury would indicate when adjustments could occur.

The Chairperson asked whether approval had to be obtained from the National Treasury for each payment made.

Mr Rautenbach responded that such approval was not required as requirements were provided in tranches in accordance with the amounts requested. The Department had to refine the cash flow projection system in future to address inadequate expenditure levels. The Public Finance Management Act gave new powers to Departments to spend the necessary amounts in line with needs based on initial requests. Presently, the Department had projected more than was necessary to pay per month and this anomaly would be addressed. Detail was provided on the Financial Misconduct report and the phenomenon of wasteful expenditure.

The Chairperson stated that the concept of wasteful expenditure was subjective and open to interpretation but should not be construed as illegal payment.

Mr O Monareng (ANC) sought clarity on the distinction between overspending and underspending as indicated in the budget and examples thereof.

Mr Rautenbach replied that unauthorised overexpenditure had to be prevented such as the acquisition of material not relevant to a particular armed forces division such as armoured vehicles for the navy. Recent peace missions had entailed overspending that would be curtailed. The incidence of under-expenditure in relation to budget holders would be addressed and financial re-alignment arranged.

Mr Sayedali-Shah asked why certain items did not contain projections. Mr Rautenbach responded that item six in the projected cash flow was linked to a Foreign Affairs initiative and therefore no projection could be made. The projection of mission accounts was also difficult due to uncertainty over requirements and their occurrence.

Mr Ntuli asked in which category civic education would be placed. Mr T Motumi (Deputy-Director-General: Department of Defence) responded that civic education was not a specific line function but was covered within the general budgets of each division within the Defence Force. Joint training was also included in this category. Civic education would also be included within the larger training budget in future.

Mr Rautenbach provided information on the Human Resources budget that he described as a complex environment. Currently, R7 million would be overspent but this amount could change in future. Spare capacity was expected within the improvement of conditions of service category.

The Chairperson asked whether the scarce skills allowance arrangement was in place to facilitate retention of much-needed skills within the Department.

Mr Motumi responded that the arrangement would be implemented but was currently delayed due to a protracted labour dispute within the bargaining council.

The Chairperson declared that the retention of scarce skills remained a government prerogative that should not be subject to a labour dispute. The principle was sound that government pay more to attract or retain scarce skills. He asked whether the arrangement had been implemented.

Mr Rautenbach responded that the arrangement had been implemented as authorised by the Minister of Defence but was hindered by a labour dispute that would be addressed.

The Chairperson requested that the Department update Members in future on the nature of the legal services employed to justify the budgeted amount. Clarity was sought on the responsibilities and designated functions of the Inspectorate.

Mr Motumi stated that the Inspectorate acted in accordance with Departmental policy and the strategic plan. The unit fulfilled an internal audit function and conducted a sector effect analysis determining the level of morale and efficacy of operations. An anti-fraud unit was also incorporated within the division.

Mr Rautenbach stated that the Special Defence Account contained earmarked funds that could not be reallocated but could be subject to roll-over from year to year. Detail was provided in the National Adjustments Budget that catered for special requirements such as peace operations and other unforeseen events.

Mr Monareng sought further clarity on what events could be construed as unforeseeable and unavoidable. Mr Rautenbach replied that rate of exchange fluctuations were regarded as unforeseen while a Presidential directive regarding a need in the national interest would be an unavoidable event.

The Chairperson asked for further detail on the role of the United Nations in providing funds to assist in peacekeeping missions.

Mr Rautenbach responded that the UN possessed a specific payment scheme based on each soldier involved per day and the number of items in operation. UN inspectors conducted regular inspections of operations to ascertain the maintenance of equipment. Poor serviceability would result in a reduction in final reimbursement. Approximately 60% of costs tended to be repaid into the National Revenue Fund. The provision of financial resources for peace operations remained a Treasury matter. Information was provided on possible adjustments pertaining to future funding requirements.

The Chairperson requested the Department to indicate the level of shortfall in reimbursement relating to peace operations to assist in oversight responsibilities and the amount provided by the Treasury. The Committee would pay particular attention to the issue of reserves within the armed forces and an inventory list indicating levels of readiness and standards of equipment was sought from the Department.

The meeting was adjourned.