DoD 2020/21 Quarter 2 & 3 performance & update on irregular expenditure and consequence management; Maintenance capability at Armscor Dockyard

Meeting report

The Chairperson welcomed Members to the virtual meeting, and suggested that the Committee start by adopting the minutes of previous meetings, and Members were in agreement. They considered and adopted the minutes of 5 February 2020, 11 November 2020, and 10, 17 and 24 February 2021.

Department of Defence Q2 and Q3 performance reports

Dr Thobekile Gamede, Deputy Director-General: Defence Policy, Strategy and Planning, DOD, said that in response to the impact of the COVID-19 pandemic, the Secretary for Defence had co-chaired the Justice, Crime Prevention and Security (JCPS) cluster meetings at Director General (DG) level, and had subsequently also chaired the NATJOINTS DG meetings. During the weekly fora, he had reported to the National Coronavirus Command Council (NCCC) and provided strategic direction and guidance to various work-streams. Over the reporting period, through continuous monitoring of the nation-wide situation, the NATJOINTS had supported the President in engaging the nation and with stakeholders to move SA from Alert Level 2 back to Adjusted Alert Level 3 status.

The South African National Defence Force (SANDF) had supported the national effort to mitigate the spread of COVID-19 through Operation NOTLELA, from 24 March to 30 September 2020, and all forces were demobilised by 18 October 2020. National efforts to mitigate and combat the spread of COVID-19 included the deployment of forces, health and humanitarian support, operational activities, own force protection interventions, use of military vehicles and the provision of assets.

The planned number of Reserve Force man-days for 2020/21 financial year was 2 695 963, while the utilisation until the end of Q2 was 1 440 978. The man-days utilised until the end of Q2 was 352 486 man-days more than expected. This difference was due to services and divisions that provided additional support to Operation NOTLELA.

The SANDF had executed three operations in support of COVID-19 which affected the human resources (HR) expenditure in terms of allowances and additional wages paid. The current projected HR over-expenditure of R3.13bn included the projected expenditure for Operations DITABA, NOTLELA and LIGCOLO. The DOD had received an additional allocation of R3bn in support of its COVID-19 response, of which R763.4m was specifically and exclusively appropriated for costs of employment (CoE).

During the period under review, the Secretary for Defence had provided strategic direction to the DOD through various governance activities and interventions. These included timely decision-making on strategic and defence diplomacy matters, effective management and processing of official departmental documents, chairing of various DOD management bodies, as well as attendance at Director-Generals’ meetings, Cabinet lekgotlas and Government clusters.

In terms of its “Support to the People,” the SANDF had deployed 15 sub-units to execute Operation CORONA for border safeguarding in Limpopo, Mpumalanga, KwaZulu-Natal, the Free State, the Eastern Cape, Northern Cape and North-West provinces. The SA Navy did not conduct an Operation CORONA maritime coastal patrol during Q3. Two coastal patrols were conducted during Q1. During Q2, a maritime coastal patrol, seen as a border control deployment, had been conducted to enforce the lockdown regulations up to the Mozambique border. A total of three maritime coastal patrols were thus conducted for 2020/21 financial year.

In terms of regional security, the SANDF continued to provide force structure elements to the United Nations Peace Support Operation (PSO) in the Democratic Republic of Congo (DRC) through Operation MISTRAL. These had included the SANDF Specialist Contingent) in Kinshasa, the Force Intervention Battalion Group in Sake Base, and the Composite Helicopter Unit in Goma. Underfunding and the turnaround time to obtain spares from industry had caused naval vessels not to be available for deployment, so no Operation COPPER long-range deployment had taken place during Q3.

To support government departments (Operation PROSPER), the SANDF’s operational concept for safety and security support was to employ multi-rolled military capabilities on request and according to the prescripts of the Defence Act 42 of 2002.

The South African Air Force (SAAF) had provided air support to the South African Police Service (SAPS) in an anti-poaching operation in the Western Cape on 29 November 2020.

Dr Gamede said that COVID-19 travelling restrictions had impacted on planned subsistence and travel (S&T) expenditure relating to the movement of personnel like courses, training etc.

The backlog at the Department of International Relations and Cooperation (DIRCO) due to internal and external COVID-19 lockdowns, had resulted in payment vouchers on military attachés’ expenditure abroad not being provided to the DOD on time.

The higher than anticipated cash flow was as a result of allowances paid to deployed SANDF soldiers in support to other Government departments in mitigating the spread of the COVID-19 pandemic.

The closure of local and international businesses, following the collective global responses to contain the spread of the COVID-19 pandemic, had a negative impact on the ability of the SAAF to perform financially as planned. The placement of new aircraft system contracts for the Gripen and Hawk airframes and engines had been deferred to 1 Apr 2021. This decision was motivated by the negative impact of COVID-19 on deliverables from suppliers. Prolonged procurement processes regarding the upkeep of aircraft systems had an effect on cash flow performance.

Delivery dates of spares had been shifted to the right by contractors. This had negatively affected the availability of spares required for the maintenance and repair of vessels, which in turn had a direct impact on the availability and readiness of navy platforms.

Discussion

The Chairperson asked Dr Gamede not to present on irregular expenditure, since it was an item on the agenda. He invited Members to give comments and ask questions on the presentation.

Mr S Marais (DA) asked if Dr Gamede would give an explanation for the money that was overspent, because the Committee had been informed that an additional R2.8 billion had been allocated to the COVID budget, and the request by DOD had been around R5 billion, but the numbers being presented by the DOD had not shown a clear picture. He also wanted to find out about the backlogs and the deviations presented, because it seemed like there were other expenses involved. He wanted more information on the money allocated for COVID on how it was used by the DOD.

Ms A Beukes (ANC) raised concern over the failure of the DOD to reach its targets. She asked if there was a communication blockage between the DOD and other state departments. Had it engaged with the National Treasury in time for deviations?

Mr Eric Sokhela, Chief Financial Officer (CFO), DOD, said that the team from DOD and DIRCO were working together on the issue of late payments. The Department wanted to make sure that what they were being billed for was accountable. It had been billed by the Department of Public Works and Infrastructure (DPWI) for R600 million, but they had disputed the amount and a meeting was scheduled to resolve the issues.

After a network interruption, Mr Sokhela continued that the issue of funding was still a problem at the DOD, and it continued to affect projects. The DOD had requested an amount of R4.5 billion from the National Treasury and had been allocated R 3 billion in June from the budget. DOD had spent about R 2.7 billion of that amount.

National Treasury was engaged by the DOD on deviations, and they had monthly meetings.

The Chairperson asked about Operation Notlela in response to Covid-19, and wanted to know the breakdown of the DOD personnel which had been deployed. He was concerned as to how one could reconcile the figures with the letters from the President, as they indicated different figures for the number of soldiers that were deployed during the lockdown.

Ms Beukes asked if the meeting cancellations between DOD and the DPWI were a constant issue, and what it had done to address the issue.

Mr Marais was concerned about the DOD’s backlogs. In Cape Town, the DOD owed the municipality R13 million, and they also owed other municipalities around the country. Accounts were not being paid on time and he wanted to get feedback from the DOD because it would lead to municipalities cutting services which would affect the soldiers.

Mr Sokhela responded to the question about meetings, and said that it depended on the availability of the CFO of the DPW. The last time they had talked he indicated that he would not be available, but the DOD was pushing for the meeting to take place.

He said that invoice duplication was an issue, and they were trying to reconcile this so that everything that appeared on the register was correct before it made a payment. The DOD and DPWI were committed to resolving the problems between the two departments. In their view, the DOD did not owe the DPWI R600 million, although the DPW had a different view.

Mr Sokhela agreed with Mr Marais that there was a backlog at the municipalities, but the DOD could pay only once they had reconciled and verified invoices. They were having discussions to reconcile the invoices.

The figures for the deployment of personnel for Operation Notlela that were not reflected in the presentation were referred to as “actuals.” This meant that the numbers not indicated had referred to those who were put on 25 hours’ standby, which meant that there would be a saving since they would not be entitled to any allowances, if need be. The budget had been reconciled against the actual deployment, and this was how the numbers were tallied up.

The Chairperson thanked the DOD team for their responses and the comprehensive presentation.

DOD irregular expenditure

The Chairperson asked Dr Gamede to present on irregular expenditure. The Committee researcher, Dr Wilhelm Janse van Rensburg, was tracking the irregular expenditure of the DOD, and Members should pay attention to his report and that of the Department.

Dr Gamede said that irregular expenditure recorded in the books of the DOD amounted to R8 billion, of which the CoE under-funding constituted R5.65bn (70%). Contracts awarded during the 2017/18 and 2019/20 financial years through an unfair bidding process for an asset management contract for information technology (IT) services had amounted to R 114 million. Extension of a contract by more than 15% without National Treasury approval for the reimbursement of 1 Military Hospital in terms of quality survey fees were R6.8 million, and contracts awarded through an incorrect bid evaluation process amounted to R13.8 million.

Cases to the value of R245 million had been submitted to National Treasury (NT) for condonation. Contracts to the amount of R217 million were registered with the Military Police (with a case docket), and were under investigation by the Special Investigating Unit (SIU). Cases to the value of R164 million, which were investigated by the Military Police, had been referred to the Commercial Crimes Court for a decision.

A forensic company had been contracted to investigate a contract to the value of R604 million. The DOD’s internal audit (forensic) section had investigated an asset management contract to the value of R570 million. The findings and recommendations were currently under review by the SANDF and the Accounting Officer.

The Chairperson thanked the DOD team for their presentation, and said that the Department was slow when it came to dealing with issues of misconduct and fraud -- it usually took more than 3 months. There had been an improvement in dealing with these issues, and it was commendable.

Discussion

Ms M Modise (ANC) said that there was a lack of a consequence management plan from the Auditor General’s (AG’s) office, and she wanted to know if DOD had a plan for dealing with this issue. No findings hadbeen presented to the Committee on the investigations that had been carried out.

Mr Marais concurred with Ms Modise, and said that the issues raised were from the previous sitting of Parliament. It sounded like repetition, and there must be reasons why the same things were being done. He asked about the role of the military police and if they had the authority to conduct investigations into financial transactions. Was it possible to open cases with the SAPS or the National Prosecuting Authority (NPA), since the matters raised involved public funding?

DOD’s response

Dr Gamede said that the DOD was concerned about the irregular expenditure, and they would try to make sure that Members were furnished with more information.

Mr Sokhela said there were various procurement centres, and the AG had been able to pick up some of the irregular expenditure. The DOD had embarked on training its staff so that they could process invoices properly and on time.

Consequence management cases were complex, and sometimes they took time. They would provide the Committee with feedback. Internally, there was a department that dealt with investigations, and it would be good for the Committee to invite the military police and the procurement team so that they could get a better understanding and details.

The Accounting Officer was busy coming up with mechanisms to deal with consequence management.

Mr Sokhela said that staff were being trained so that they could comply with the regulations.

The DOD was using a very old system for invoicing, and around 2016 there was a team from the Presidency that had looked at how the system was functioning. When all the departments were removed from the financial management system (FMS) to a new system, the DOD had not migrated and this had been a problem, because the system in place was used for reporting expenditure mostly, and implementing the Public Finance Management Act (PFMA), it was not compatible to give information on time. This was different to how other entities were working, because their systems were up to date and efficient as compared to the manual system being used by the DOD. The National Treasury also had an added advantage, because they were using a new system, and DIRCO used a sophisticated and efficient system which left the DOD behind. He said that most of the time the system would be down, and that affected the capturing of invoices.

The military police did have a mandate to investigate cases, but the concern was the nature of the investigation and jurisdiction, because some of the entities did not fall under the DOD. This meant the military police would have to work with other state entities involved in the cases. There were several dynamics in the investigation of a case, which included clearance with the prosecutor.

In the 2018/19 financial year, the DOD had found irregular expenditure and consequence management measures had been taken. Some of the people had been suspended, and there were cases that were still being investigated by SAPS.

It was not easy for the DOD to advertise vacancies because of the lack of funds, so it was difficult to fill the posts now. At the moment, there were no vacant posts because of the lack of funding. COVID had also affected the way in which posts were filled, because it usually took some months to conduct interviews and the vetting, but it was taking longer now.

Because of connectivity problems, Mr T Mmutle (ANC) was made acting Chairperson of the meeting.

Further discussion

Mr Marais was concerned about the outdated systems at the DOD, and requested that the DOD come back to the meeting with suggestions on how to deal with the issue, and if the Committee could assist. He asked if there would be money to pay for the commitments made to new projects and if not, what the consequences on the side of DOD were, because there were government guarantees on the projects. Was there any progress on developments to get more funding for the Department?

The Acting Chairperson added that clarity was needed about the systems, and whether the DOD had plans to get a new system that could assist them to be more efficient.

Mr W Mafanya (EFF) commented on the issues that had been highlighted by the DOD, and said that they were a repetition. He urged the Committee to probe some of the Department’s assertions, because they could not forever keep on blaming the systems, since they knew some of the problems, but they wanted different answers. Consequence management had been a problem in all sectors of the DOD, and the meetings always talked about the same issues, but there were no achievements which could be highlighted.

The Acting Chairperson asked the DOD to explain what they were doing to deal with the issue of needing a new system, and not to keep raising the same matter with the Committee. Had they done any research?

DOD’s response

Dr Gamede said the DOD agreed with the suggestion made by Mr Marais to do some research and come back to the Committee. She asked the Committee to give the DOD some time to prepare a cost plan so that they could have a different conversation. The DOD was prepared to bring the investigations department to make a concrete presentation on the matter of consequence management.

Mr Sokhela said that in the 2021/22 financial year, no budget had been allocated for projects.

Chairperson Mmutle thanked the DOD for their presentation, and asked for Armscor to make their presentation.

Armscor dockyard renewal plan

Mr Gerhard Grobler, CFO, ARMSCOR, said that the primary mandate of the naval dockyard was to provide capability support services as the SA Navy’s (SAN’s) third line maintenance and refitting authority. The dockyard supported all of the naval fleet, which includes four frigates, three submarines, four fast attack craft -- offshore patrol vessels (OPV’s) -- one support vessel, one hydrographic vessel and five tugs.

The dockyard renewal strategy was being undertaken in three phases over a period of three years, moving from stabilisation to growth and development, and finally to sustained growth.

Key projects were cost containment, market development initiatives, procurement transformation, equipment and facility maintenance and upgrade, capacity management and staff renewal and motivation amongst others.

Focus areas for 2021 were human resources, operational output, stakeholder engagement, revenue generation, finance and operational efficiency.

The current status at Armscor was that preference was being given to SAN projects, whilst the shortfall in funding would be supplemented through doing commercial work. Renewal of people, equipment, facilities, training and processes were in progress, and output to the SAN had been increased during the past year despite budgetary constraints. Maintenance of ageing equipment had also received priority through properly structured maintenance plans, whilst the revival and establishment of new capabilities such as small boat manufacturing and 3D printing capability were a few examples where the advantage of such projects would be utilised to the benefit of the SAN and job creation.

Several other projects were being pursued with the local maritime industry to secure localisation of their capability and using local industry to support the sustainability of the dockyard as strategic partners going forward. Maintaining complex equipment required effective and sustainable maintenance philosophies in order to have operational availability of such systems.

Current challenges include a declining defence allocation and its direct impact on the maintenance and repairs to the SAN’s vessels, affecting their availability. Bureaucratic procurement prescripts from Treasury for Armscor and the DOD were causing long delays in the procurement of spares. The Artisan Training Centre funding from the DOD had ceased, and should alternative funding not be obtained from local government or non-profit organizations (NPOs), the future of the centre was at risk. Intra-governmental department opportunities, such as a government garage for ships, manufacturing, services, etc, needed to be pursued.

The Acting Chairperson thanked the Armscor team for their presentation, and invited Members to engage with the entity.

Discussion

Mr Marais said it was wonderful to see what Armscor was doing in terms of the essential maintenance of vessels. He asked about the two submarines which had been at the harbour for some time and the effect of not being utilised, together with the cost of maintenance. He wanted to know how Armscor was affected by the lack of funding on their projects, since the DOD was heavily affected.

Ms Beukes applauded Armscor for an impressive presentation. She wanted to know what portion of the dockyard’s current income was derived from commercial work, and if there were any plans to increase it. She asked if the re-establishment of internal combustion engine maintenance capability had led to more commercial work. Had there been engagements with government departments to ensure that all government vessels were serviced at the dockyard? Were there any programmes to include youth, especially young women from the rural areas? She wanted to know why culture outcome was a challenge for Armscor.

The Acting Chairperson added that the presentation had been impressive, and the Committee was proud of the work that was being done by Armscor.

Armscor’s response

Mr Grobler said the lack of funding had been a problem, and there had been engagements with the Navy into looking at the modernisation of the vessels, but the major problem had been funding. The three submarines had spent a lot of time at the dockyard, and some systems were deteriorating, but there was a plan in place on how to re-fit them and replace the engines and pumps. The vessels were stable and floating.

There had been an impact on activities because Armscor would have to engage with the Navy on what could be done, considering the further budget cuts. With the funding of the dockyard, the Navy was seeing the same vision as Armscor, and they hoped that this would save money and effort by their working together.

There were decisions to be taken on some of the projects, and Armscor was waiting for feedback from the DOD.

Armscor had raised the issue about the shortage of funding and there had been no objections. There were more things to be done and projects were in the pipeline. There was a firm commitment for Armscor to receive more funding and should that fail, National Treasury could be approached.

On the matter of culture, the Armscor team said that they were continuously looking for methods to do things differently and aggressively to market the entity.

Armscor was looking into having projects that could attract the youth as part of the team, and Dr Van Rensburg had been tasked with coming up with clear programmes to the Executive Committee on how funding could be sourced. 40 youths had been recruited in the townships of Cape Town and offered training, and most of them were now employed in the different departments.

The Acting Chairperson said that the Committee was proud of the work that was being done by Armscor, and they should not forget to have more young people on board to assist with skills transfer.

The meeting was adjourned.