Department of Defence Annual Report briefing 2010/11 & 1st and 2nd quarter 2011 performance

Meeting report

Department of Defence 2010/11 Annual Report briefing
Ms Mpumi Mpofu, Secretary of Defence, noted that all representatives from the Department of Defence (DoD or the Department) who formed part of the delegation today were from various divisions of the South African National Defence Force (SANDF), and, as a result of recent appointments, some divisions were represented by more than one person.

Ms Mpofu said that this presentation would outline the achievements and challenges reported in the 2010/11 Annual Report. The strategic plan had set out the aim of the SANDF to achieve defence for the democratic South Africa. The various outputs for landward, airforce and maritime detachments meant that the SANDF should be able to respond to defence commitments, whilst also attending to defence diplomacy (through deployment of attachés, servicing various Memorandum of Understandings, commitments to the United Nations, the African Union (AU) and Southern African Development Community (SADC)), and the provision of defence policy.

Ms Mpofu noted that 99% of the budget was spent. There was provision of R128 million made as a partial write-off for unauthorised expenditure incurred in the previous years. The allocation to write-off was discussed with the Standing Committee on Public Accounts (SCOPA).

Ms Mpofu said the Ministry of Defence and Military Veterans focused on and contributed to peace and security in the region, attended to internal deployments, and also gave support to other government departments, including during the 2010 FIFA World Cup, through responses to xenophobic attacks and the crisis caused by the public service strikes in hospitals. SANDF had been prepared to effectively undertake the function of the border patrols. She said Operation CORONA was still at an early stage in the last financial year. She said the Ministry also focused on facilitating a clean and unqualified audit opinion by the Department and its entities. It hoped to enhance good working relations with Parliament, especially the Portfolio Committee on Defence.

Some of the achievements included the establishment of the Department of the Military Veterans, promulgation of the Defence Amendment Act, and the Military Veterans Bill. The Department wished to thank the Committee, for the effort it put into these pieces of legislation. They enabled the DoD to serve, allowed for the establishment of a Reserve Force and a permanent Defence Service Commission. The Ministry had also dealt with the review of defence policy, which culminated in the appointment of the Defence Review Committee. This allowed for the repositioning of the Defence Secretariat and the National Youth Service programme.

The Department participated in defence diplomacy. She said scope for multi-lateral activities had increased in the past year. In the international arena, the Ministry had ensured that defence had led the way in coordinating the SADC Security Cluster. The Department ensured effective participation in cluster engagements and joint crime prevention and security.

Ms Mpofu said the Defence Secretariat (the Secretariat) had provided support, by seconding staff to the Department of Military Veterans (DMV). It also secured Cabinet approval for pension of non-security force and this work was being implemented. The Department created 5 700 job opportunities through Military Skills Development Service (MSDS) programme, and explored a number of areas through which the defence could further contribute to job creation. There were consultations with stakeholders, specifically Armscor and Denel, for the repositioning of the Secretariat in the defence industry. Further achievements were the development of the Commanders Appreciation and guidelines and the SANDF Strategic and Performance Plans. She said a defence strategic framework had been handed over to the defence review committee for finalisation. Other achievements included the provision of a special advisory team in the DRC.

Ms Mpofu said defence missions were undertaken in countries like the Democratic Republic of Congo, Sudan, Central African Republic and Mozambique. She said Operation Copa, with Mozambique, was an integral part of the maritime force strategy. Discussions were under way for the lifting of the moratorium on development deals, and the challenge it imposed on management of assets.

Ms Mpofu then outlined some of the challenges. This included the fact that the ICT inventory was not integrated, and it had a high level of obsolescence. Lack of financial resources for an overhaul of IT Systems, and the general lack of critical ICT skills, impacted on the Department and service providers. She said the Department was working on this challenge with the State Information and Technology Agency (SITA. Filling of vacancies and utilisation of reserves were entrenched challenges in the Department.

Ms Mpofu said the Department was working towards improving its financial services in order to reduce audit qualifications. She said that it was quite a substantial achievement that the Department had achieved 99% expenditure of its budget in 2010/11, and this had involved hard work each month. However, there were some remaining challenges in the move over from the outdated Financial Management System (FMS) to the Integrated Financial Management System (IFMS). She said migration was a slow process beyond the Department’s control, and was centrally controlled at National Treasury.

DoD was also affected by high staff turn-over. She listed the DOD gender conference and research findings on the status of women in the Department as achievements. In the HR area, it was also important to note that the non-statutory force dispensation was approved (see attached document for details) and was implemented. Ms Mpofu said challenges in HR included late submissions of performance agreements and financial disclosures. The Department was taking action, including sending reminders early in the year, to ensure that it addressed the delays. SANDF had 78 000 members spread across the country and the Continent, so the finalisation of performance agreements with all members proved a challenge and had led to further delays. There was also a challenge of members taking on other remunerative work outside the Department, without the necessary prior authorisation. DoD was in the process of reviving a policy that allowed for authorisation by commanders of various units, as opposed to the Minister. There was also an amendment that the Chief of Services be allowed to provide these authorisations to enable accountability.

Ms Mpofu said the Department’s legal services were attending to 1 305 requests for legal advice. It had provided legal advice for external and internal operations. The court for military appeals was finalised,; military law support was rendered, and a school of military law had received full accreditation from SA Qualifications Authority (SAQA). There were, however, challenges around a serious decline in operating budget, the lack of posts and the shortage of military law practitioners.

She said a nodal point for fraud, and a Corruption Forum was established, and the fraud prevention plan was finalised. There was a seminar hosted in Cape Town and draft inspection manuals were distributed at that seminar.

Ms Mpofu said that the defence equipment acquired had played a critical role during the 2010 FIFA World Cup. The Department would continue playing a critical role in Operation CORONA, which was a priority in border safeguarding. She said acquisition of 60mm long range mortar was finalised and four single seat Saab Gripen advanced light aircraft were delivered. The Department acknowledged the cumbersome nature of the approval process and had embarked on the refinement of the acquisition approval process. Under-performance in the DoD remained a complex challenge to timeous delivery. She said the absence of an asset register, coupled with a lack of policy and lack of a strategic plan for intangible capital assets, were also challenges.

Ms Mpofu noted that the DoD had hosted a Defence Industry Day to enhance good relations and support for the local industry. This activity allowed the Department to champion a programme for the transformation of the industry. The Department conducted joint operations and missions. She said inability to align supply chain and government business processes highlighted structural defects and capacity constraints. There was a challenge of suppliers not declaring connections with either the State or a civil servant. A procurement entity that used the National Treasury SBD form was now being used, together with a declaration form. These measures would in future compel bidders to disclose their interests and relationship with the State. Despite discussions about this issue, there was still no government regulation to control the situation, but the Department of Public Service and Administration was working on it. Currently, South Africa said that certain practices were undesirable, yet stopped short of outlawing them. This also extended to senior managers not disclosing to suppliers and the authority. All this pointed to the lack of integration between HR and procurement processes. She said the Department hoped to close this gap by allowing its human resource department (HR) to communicate with procurement.

Ms Mpofu said tertiary institutions had been training reserves and six liaison councils had been established throughout the country. The Department had established chaplain services, and had helped countries like Mozambique, Marion Islands, Lesotho and Namibia with the service.

Advanced foreign relations had improved and increased as a result of government diplomacy. She said there were three international operations in which DoD was active, namely CORONA (border safeguarding), Kgwele (2010 FIFA World Cup) and Copa (anti-piracy). She said defence foreign relations dealt with issues of defence attaches (DAs) and had contributed to  foreign policy. New offices were opened in Cuba, Ethiopia, Vietnam and there was non-resident accreditation in Ghana. There were defence committee meetings with Germany, PUR and the United Kingdom.

Ms Mpofu said the army had provided the key border safeguarding service in collaboration with the South African Police Service (SAPS). However, the rollout of CORONA had overstretched the army in terms of deployments. She said SANDF had built two bridges, provided fire fighting, and helped with search and rescue missions during the floods in the Northern Cape. 93 members of landward force were currently being trained in 11 countries. The army was crippled by the shortage of critical skills, age and health of personnel, and the state of facilities was a further challenge.

Ms Mpofu said the Air force (SAAF) had generally provided the required air defence capabilities, and had flown 33 930 hours. This division was battling to recruit so as to meet its transformation targets. The progress was equally slow at senior supervisory level. She said operational readiness was a challenge. The air force was required to maintain air-power competencies within acceptable force level, but this was currently not affordable. Due to the high level of aviation inflation, the Department would rather have a constant allocation of funds over many years. The relocation of air force base in Durban was another challenge. The air force was operating in two airbases in Durban, but discussions were under way to have it accommodated in one place. Further challenges were cited as the AMG agreement, where notice of intention to terminate was given, and there was a deadline to resolve the matter by April 2012.

The navy was highly ready during operation Kgwele and that indicated the level of deployment during that combat. Navy capability was enhanced during international visits. She said there were a number of maritime peace keeping missions deployed around the world. Another achievement was Ikhala, the emergency evacuation of the west coast of Africa by the SAS Drakensberg and the SS Mendi. She also said SS Mendi was also involved in Operation Copa on the Mozambican Channel. Another achievement for the navy was the collaborative effort with the army during Operation Prosper. The navy had to support 74 hospitals during the public service strike, with 2 822 members. Challenges involved lack of skilled personnel; and poor state of buildings in the Simonstown base. She said a healthcare package for military veterans was in the process of being finalised.

Defence diplomacy was enhanced through donation of military equipment to the Ugandan Defence Force. There were other bi-lateral agreements with countries such as Netherlands, Namibia, and France. Challenges included an insufficient budget to fulfil ordered commitments, retention of scarce skills, and renewal of obsolete equipment. She said there were further challenges of misconduct and irregular expenditure as a result of incapacity in financial management.

Ms Mpofu said that “the less said about defence intelligence, the better”. There were plans to even move defence intelligence from the DIHQ building. She said defence had a procurement structure that was approved. It had been the victim of cable theft twice already in this year.

Military police were involved in services and division in crime combating exercises. She said 654 crime prevention operations were done with the SAPS throughout the country and 250 members were provided for operations in the DRC and Sudan. She said 5 056 cases (criminal and disciplinary) were carried out and there were 261 DOD members arrested – 200 in uniform and 61 in civilian clothing. She said the division was hit by structural challenges and budgetary constraints. Assets to the value of R1.4 million were reported stolen.

The SANDF was the biggest employer, with 40 000 members out of 78 000 of the total force. Retention of scarce skills continued to be a challenge. The Department had developed a remuneration dispensation unique to SANDF. Occupation Specific Dispensation (OSD) was another way of dealing with specialised areas of the military. There was a 22% salary hike for the Reserve Force and a special allowance for technicians and related services was implemented.

Ms Mpofu said the buying power of the defence allocation was declining and would impact negatively on the Department’s performance and capital acquisition. Several measures were being taken to improve the situation of the stagnant budget. The Department was in the process of establishing a compliance unit.

In relation to the audit matters, she conceded that inadequate communication had led to the poor perception. She said there always would be an audit qualification in defence, claiming that this was in the nature of defence.

Discussion
Ms P Daniels (ANC) welcomed the Department’s presentation, especially the setting out of its achievements and the fact that it realised that there still were challenges. She said the lack of logistics and assets management was historic. However, she noted that this Department’s assets were clearly not of the same nature as those of other departments. The Committee also recognised that scarce skills were a challenge. She said the question was whether contracts with SANDF members were able to keep them in the force. It took a lot of money, time and skill to equip these members.

Ms Daniels noted that during oversight visits, the Committee heard that the air force had reduced its numbers of students who finished training. She asked what the challenge was, and whether these students were supported.  She requested that the answer be contextualised, in light of the claim that there scarce skills in that division.

Ms Daniels sought clarity on why the reserve force were not regarded as members of the defence force when it came to the conflict of interest policy. She said clarity was needed on the policy.

Mr L Mphahlele (PAC) said there had obviously been a lot of work that went into this report. However, he was unhappy about the assertion that qualified audit opinions would be the norm or would be regarded as acceptable in the military. She said reference needed not be made to the United States, which showed too many transgressions that South Africa should not follow.

Mr Mphahlele asked about repatriation of the people who died in exile. Those who had access to government money and tenders could afford to bring back relatives who died in exile, but there were many poor people not in this situation. If the struggle was about equity, Members needed to be ashamed that only relatives and friends of government employees were repatriated.

Mr Mphahlele wanted to know if several religions were accommodated in the chaplaincy service.

Mr Mphahlele asked how long the migration from Financial Management Systems to the Integrated Financial Management System would take.

Mr Mphahlele asked if the National Youth Service programme sought to benefit the youth of the ruling party.

Mr Mphahlele asked about the number of defence attachés for South Africa.

Mr D Maynier (DA) asked the Department about the outcome it sought to achieve by having a Defence Review Policy. He asked the Department to describe the process it intended to take, as this was not clarified at the briefing with the Minister. A Defence Review process needed to produce a clear and newly formed design, a new budget and proper costing over the lifecycle of the equipment.

Mr Maynier asked for an update on the Airbus 400M. He asked if there was a registered acquisition programme with regards to air transport, and, if so, asked for the details. He asked for an explanation on the statement that suggested adverse effects on the air force were due to underfunding and cuts in operating budget. He also wanted to know the details around why so few Gripens and Hawks were operational.

Mr Maynier asked to be briefed on the objectives, intended outcomes and the achievements of Operations CORONA and Copa, and what challenges they faced. He sought clarity on the operational gaps that resulted from ageing equipment mentioned in the report, and also asked for the breakdown of army equipment.

Mr P Groenewald (FF+) wanted to know what the Department was doing about the state of the air force. He said the defence force was doing a good job under trying circumstances, and recognised that it had financial constraints. A political solution was needed to solve the funding crisis in which the SANDF found itself. Every year, the Committee was told of shortage of highly skilled people, but he wanted to know what the DoD was actually doing about this. He wondered if the shortages were as a result of trying to implement affirmative action policies, and if this was so, asked if the Department should not simply admit that this was the reason it was losing highly skilled people.

Mr Greoenwald asked if the officials who failed to declare their interest were still in the defence force as he considered that would be irregular.

Mr Groenewald asked for an update on the army base that was occupied by illegal squatters who were asked to pay rent.

Mr J Masango (DA) asked what the Department was doing to ensure that it complied with the President’s declaration that this was a year of job creation.

Mr Masango wanted to know what the Defence Secretariat was doing to ensure that the unauthorised expenditure was dealt with, and asked if it was expecting this to recur, as there had been mention of another write-off.

Mr Masango asked for more details on the Fraud and Corruption Forum. He too wanted to know what was done about SANDF members who failed to disclose their interest, and pointed out that this was a particular issue raised by the Auditor-General South Africa (AGSA).

Mr Masango asked why forms were disappearing while being processed for security clearance certificates.

Mr Masango asked if targets were aligned to the budget, or were just guesswork of the departmental officials.

Ms Mpofu said, in response to questions on the Review, that the Department had developed a comprehensive framework that governed the review process of the White Paper and the defence review. The mandate was derived from what the framework looked like. External perspectives and input were sought and received from stakeholders. She said the Review prescribed a need to develop a new defence strategy and a force structure. She said the work of the Defence Review Committee did not have to start from the assumption that the Department start from scratch.

Ms Mpofu responded that repatriation was budgeted for and dealt with in the military veterans’ budget, not in that of the DoD.

Ms Mpofu said that the youth service did not deny opportunities to anyone. Admission to any of the programmes was not subject to political affiliation. The service was of a non-military nature and was directly linked to provinces. The Department would train the youth in areas like agriculture and health. The selection to the service was done by the Department and youth required a matriculation certificate. She said there were engagements with other departments for a possible involvement. The programme would target the poor youth, especially in rural areas.

Ms Mpofu said analysis of CORONA and Copa objectives should not be compared as the two operations were different and had started at different times.

Ms Mpofu said that Armscor was finalising the deal on returning the R2.9 billion. There were discussions with National Treasury as to how the money would be returned, and DoD had no control over that process. She said nothing had changed on the situation with the Airbus (A400M). There was no new programme on acquiring air transport. The Department would wait until National Treasury informed it that the R2.9 billion was available for use, before it could consider new acquisition programmes for the air force.

Ms Mpofu said write-offs happened with the approval of Standing Committee on Public Accounts (Scopa) when unauthorised expenditure had occurred. The simple definition of an unauthorised expenditure was when a department had been forced, by unavoidable and unforeseeable circumstances, to exceed the budget allocation. The defence budget had been exceeded many years ago, from 2002. SCOPA could condone the issue if it agreed with reasons for a write-off, or it could require a department to pay the moneys owing from current budget. She noted that this was different from irregular expenditure.

Mr Mziwonke Dlabantu, Chief Financial Officer, Department of Defence, said the Department still had used the Financial Management System that was used by the defence years back, but noted that this was outdated when compared to the requirements of the new financial management framework in the public sector. National Treasury started a programme in 2001 that sought to integrate FMS to the PMFA, and described this as the “IFMS” project. It was still being developed, although some modules were in use already. A total changeover to that system would only be possible by 2015.

Ms T Gamede, Chief Director: PSP, DOD, said they were complying with the directive of the President on job creation. The Department was hoping to fill 100% of vacancies that were funded, especially the public personnel. She said facilities upgrading was dependent on the migration from the Department of Public Works to Department of Defence. She said this would use about 500 artisans if the functions were to be migrated, but the current intake was at 250. The intake of MSDS personnel would increase as well.

Dr Mary Ledwaba, Chief Director: Human Resources, DoD, noted that the Department, when setting targets, did not estimated, but looked at the trends and indicators to guide its planning.  She said targets were done according to the available funds, but in the event of shortage of funds these were revised.

Dr Ledwaba also noted that there was a specific HR strategy that addressed remuneration and soft issues in an attempt to counter the loss of scarce skills from the SANDF. She said the Department had also implemented a unique dispensation for members of the force since 1 July 2010. In terms of the soft issues, the Department was addressing those that improved morale, like career management. Members were not previously clear about promotions, but that had since changed and the period that people stayed in a rank had been shortened. The Department had also improved on the recruitment strategy and from next year it would be decentralised for both the permanent and reserve force. She said the Department was improving its communication with members and had engaged in consultations.

Maj-Gen Justice Nkonyane, Chief of Logistics, DOD, said the army took a decision three years ago that Marienvale Military base was critical in terms of its capabilities and operational readiness. The challenge lay in upgrading the unit to fit its intended purpose. Because of the backlog in maintenance it was difficult to register this site with DPW. However, maintenance issues that had to do with the health of the members were being attended to. He said there were 120 members residing at the facility. Another challenge had to do with illegal squatting at the base. That was being dealt with through the courts.

Brig-Gen Wiseman S Mbambo, DACP, DOD, said previous and current air force requirements dictated that the heavy lift capability was a prerequisite. The Air Force’s findings indicated that other countries used other means to meet this requirement. The SA Air Force had a fixed air-wing that was rolled out as a strategy that sought to open opportunities. He agreed that, as a result of insufficient funds, the Air Force did not meet its constitutional mandate. However, within the very small budget that it received,  there were initiatives, like the Optimisation Project, which were undertaken to ensure that the maximum impact could be achieved with less money.

He added that flying hours were decided according to the amount of funds available. The Air Force continued to monitor the situation and the focus was to make sure that the Gripen and the Hawk were not operated below the integrity level. If these pieces of equipment fell below the integrity line it would be difficult to recover them, but at this stage the Air Force was managing. The readiness for combat was also challenged by the lack of funding, but the Air Force was using the Gripen as it provided funding to do the operational and evaluation tests. There were various reasons that led to lower numbers finishing the training for the Air Force, which had to do with academic results, health and aptitude tests, and abilities of the selected candidates.

Brig General Eddie Drost, Director: Strategy, DOD, said the army was a very versatile type of force and needed to be able to operate on all aspects. He said the prime mission equipment in the army was very old, with over thirty years or more in the service. Maintenance costs were very high and there were challenges. He said the army was travelling on tar roads instead of using the B Vehicles as a cost saving exercise. He said the problem in the army was not equipment, but the personnel to manage that equipment, and that was directly linked to financial challenges.

Col S Rhesi, Senior Liaison Officer: Joint DPS Division, DoD, said the anti-corruption forum was able to produce the Fraud Prevention Plan. He said it met monthly to monitor reported cases of corruption and fraud, analysed the risk, and monitored the implementation of the plan.

Lt Col Jansen, DMH Plan, DoD.said all religions were accommodated in the chaplaincy services. He said there were 37 defence attaches across the globe.

Mr Raymond Naidoo, Director, Defence Secretariat, said the DOD procurement policy would be reviewed in such a manner that it was applicable to the reserve force. He said services and divisions were identifying all those who had not disclosed their interest, and, based on the outcome of this process, officials would be disciplined.

Ms Mpofu added that the Auditor-General would assist the Department in dealing with poor discipline. She said the process was under way to deal with those who had already been named as transgressing in issues of supply chain management.

Col L Pillay, Director: Maritime Plans, DoD, said there were no clearance certificates that had been lost. He said his division had lost 15 skilled personnel to other government departments as it did not have the financial capacity to hold on to them. It took three years to train and capacitate a person to acquire that level of skill that was required by the Navy.

Ms Daniel told Defence Intelligence that South Africa did not want to be subjected to ambushes and surprise attacks. She said it was dangerous to classify everyone entering the country as a civilian. A reasonable percentage of people entering the country had military skills.

Ms Mpofu noted the comments made about people entering the country being classified as civilian.

Mr Groenewald sought clarity on the zero statistic for disciplinary processes instituted. He said it was unacceptable that there were no disciplinary hearings undertaken in the previous year.

Ms Mpofu explained that the Department was audited late, and there were therefore no records of disciplinary actions undertaken in the year under review. In July, when the AG’s report was finalised and signed off, the Department was still busy with some of those disciplinary processes.

Mr Groenewald asked that the Department must give more thought to the budgets, particularly for the Air Force.

Mr Dlabantu said that it was very difficult to manage budgetary processes. The Department invited the different divisions to make presentations before it could decide on allocations. Usually there were mini allocations during the year into the divisions, but due to the current economic climate that process had dried up. He said in such a situation the Department encouraged divisions to prioritise. A case was made to National Treasury for additional funding and the Department was waiting for a response.

Mr Groenewald asked if there was a good relationship between DoD and the SAPS.

Mr Rhesi said the SANDF was key in border safeguarding but could not take all of the border areas. There was an agreement with the SAPS that police should not vacate border facilities before the DoD could decide on them, but the DoD had, in some instances, found the facilities empty, but the arrangement was that it could call the Reserve Force to occupy them, so as to avoid vandalism. He said there were good working relations with SAPS, and there was a Memorandum of Understanding on their cooperation in the roles that they were playing, particularly in the border areas.

Mr Maynier requested the Department to clarify the objectives and challenges of operations CORONA and Copa. He asked for a detailed account of military equipment in various divisions. He also sought clarity on the savings of a billion rand as reported on the Annual Report.

Ms Mpofu requested to provide a written response to the questions that were not adequately covered and to the follow ups. She said it would be unfair to expect the Department to speak off the cuff in areas that required statistical information and details, such as Operations Copa and CORONA.

Dr Ledwaba, in answer to Mr Groenewald’s earlier question, said that affirmative action was a government policy, but required departments to recruit the best candidates. She said it was a good policy and it did not discriminate. When the Department did recruitment it sought the best candidates and it visited all schools. She said the Department was faced with a particular challenge from the private sector regarding the retention of personnel, since the private sector paid better salaries.

Mr Groenewald said the Department would not find skilled people in the schools. He sought clarity on the explanation given, and asked if the DoD was saying that anyone who possessed a scarce skill would be regarded, irrespective of his or her race. He had understood that there were highly skilled individuals available, but they could not be appointed because of their race.

Mr Maziya protested that the question was unfair, and that, as long as they were not too old, because they had to be accepted as members of the force, all applicants would be considered. He requested that no official should be asked to pre-empt something that was dependent on an application process.

Ms Mpofu said the defence attaché appointments were under intergovernmental relations, and were not DoD decisions. She said the comment about Cuba was misplaced because that country was central in the SADC region. She said the National Youth Service had enrolled 500 students and trained them on various life skills.

The Chairperson confirmed that the Department would provide written response to the issues it was unable to answer at this meeting.

Mr Maynier demanded specific answers on the air force questions he had earlier imposed, about the number of Gripens and Hawks that were operational. In answer to the suggestion by the Chairperson that this insistence was disruptive, he said that this information should be able to be given without the need to first verify it.

Mr Groenewald said that the figures were in the Annual Report but the Committee had asked if they were correct.

Mr Mbambo confirmed the figures, saying that 9 out of 24 Gripens were operational, and 15 out of 24 Hawks.

Department of Defence Financial Report 2010/11
Mr Dlabantu said the purpose of his presentation was to show and explain the finances of the Department for the year ended 31 March 2011.

Mr Dlabantu said that the landward division of the army was the largest cost driver and accounted for 31% of the budget, whilst salaries accounted for up to R16 billion in the previous financial year. He said the Air Force was largely concerned, in this financial year, with the termination of the A400M contract.

He said there was an unauthorised expenditure of R60.9 million and an overdraft of R538 million. This debt was older than three years and had originated from unauthorised expenditures. He said the Department needed to manage its debt levels down to the minimum.

Mr Dlabantu noted that the audit report had been qualified around the issue of asset management, over assets valued at about R76.8 billion. The AGSA had acknowledged that the Department had started addressing some of these issues, but the process remained unfinished because of the size and complexity of the defence force.

Mr Dlabantu said underlying the challenges was DOD’s asset management systems that were not compliant with the required accounting reporting framework. These were not updated since there was a moratorium by National Treasury pending the development of the IFMS. Some DOD units were still on manual asset management, but now there was a process to rationalise and reduce as the Department moved towards finalising the process of having a system. Values of assets were updated to reflect the latest prices.

He said there was a comprehensive plan to deal with changes and this was submitted to Treasury. Posts structures were finalised and people with financial background were recruited. He said there was a reporting framework that would be used for the next three years. He said the financial management division was being reorganised to ensure that capacity and functions necessary for the service and its divisions were appropriate and adequate to meet the financial management systems. AGSA had appointed five officials who assisted the Department with accounting matters every two weeks. He added that the Department would establish a dedicated intellectual foreign tangible capital asset management section by April next year. A register had been established, and was still being populated to ensure it was audited before December next year.

Mr Dlabantu said the Department had developed a financial misconduct strategy to deal with irregular expenditure, which sat at R799.3 million, to try to ensure the setting up of mechanisms that would prevent the occurrence of irregular expenditure. He said that in the last four years the Department did not incur unauthorised expenditure. Included in the strategy were awareness campaigns.

He said the financial misconduct policy was approved and revised to make sure that transgressors were found and disciplined accordingly. He said fruitless expenditure was low, compared to previous years, but was still unacceptable. Internal audit capacity had been raised but would be finalised in the current financial year.

He said that an sms system to notify anyone who had any outstanding financial matters would be started by the end of January. There would be a trial run in November. There were a number of non- disclosures that related to financial matters. Twenty four DoD employees had submitted no declaration of interest statements and performed remunerative work without written permission. Of this number, 7 were Reservists, who were, by the policy, not to have to comply with the regular staff systems. He said 16 employees had family members as part of the suppliers’ management or shareholding. Various cases were still under investigation and were all at different stages.

Mr Dlabantu said that in future, vetting of all Service Level Agreement contracts would be done by the legal services division, prior to procurement. This would ensure all necessary documents were part of the contracting process. There would be a strict verification for the bidders. All irregular expenditure was to be reporting monthly to National Treasury, according to procedures that would be standardised.

He said the AGSA had expressed a concern about the South African Defence Fund that did not have an audit committee. He said this Fund was established to help former members’ families in times of financial hardship. He said the defence audit committee had been requested to oversee the fund’s finances.

Mr Dlabantu then presented the First and Second Quarter 2011 financial performance reports. He noted that 8.6% of the projected R803 million to be collected was achieved, in respect of revenue collection. However, in the second quarter there had been a lot of movement, and the Department had submitted a request in relation to the unforeseen expenditure required as a result of Operation CORONA and Copa, and salary increases. The Department had asked to be reimbursed with R576 million. The Department had reassessed the revenue, and it would decrease. He said that in the previous financial year the Department had imposed serious penalties on service providers that did not perform and this had yielded results.

Mr Dlabantu then gave a comparison with the previous year, noting that the average performance was slightly down. The Department had projected that it would have spent about R18 billion in the first six months, and if the expenditure pattern continued there would be an over-expenditure of about R236 million. He said expenditure was monitored monthly so as to keep within what was allocated by Parliament. Again, he reiterated that the Department was engaging on the challenges faced, and, if it did not get the requested support from government, would have to find some other way to fund its projected over-expenditure.

Discussion
Mr Masango wanted to know if there was a way that consultants working on the assets could be monitored.

Mr Nkonyane said there was a consortium that was responsible for stock management and assisting the Department with migration from the old system. A project manager was assisting with monitoring whether the consultants were delivering. At the end of any project, the Officer Commanding would confirm whether the function had been satisfactorily performed. Reports were presented to the Department on monthly basis. He said in the last two years the consortium had been able to transfer stock-counting skills. He said the consortium brought an information system that helped clean the codification system. The only challenge with the system was whenever the data was cleaned it generated new data.

Mr Masango asked why the Head of Department of Internal Audit was still not hired as this was agreed to the previous year.

Ms Mpofu said reason for the delay in the employment of the head of Internal Audit was that the Department could not find a suitable candidate through the interview process. It had then head-hunted, but this took some time before a candidate should be found, and Cabinet had just requested additional information. An announcement of appointment would be made in the next two weeks.

Ms Daniels said the financial reports were neat and gave a clear idea of what was happening with finances. She wanted to know why the Department was not given funds by National Treasury for Operation CORONA and the Defence Services Commission. She said it was the constitutional mandate of the Department to perform, and she did not see a reason why National Treasury would interfere with that mandate by not providing funding.

Ms Mpofu said that an adjusted budget allocation would be made only when there were unavoidable and unforeseen reasons for additional funding, so Operation CORONA and the Defence Service Commission did not qualify for that.

Ms Daniels also sought clarity on the projected over-expenditure of R232 million.

Ms Mpofu said the R232 million projection need not be an issue because it would happen only if expenditure continued on a straight line. She said the Department was comfortable that would not happen, because expenditure in December and January generally tended to be reduced.

The Chairperson reminded the Department to follow up with the written responses it promised.

The meeting was adjourned.