Department of Defence briefing 2017/18 Annual Report & Quarter 1 performance

Meeting report

Department of Defence: 2017/18 Annual Report

Dr Sam Makhudu Gulube, Secretary of Defence, took the Members through the presentation and highlighted that under outcome 3 (Operation Corona), the Department undertook four maritime patrols over the year and 15 units had been deployed to safeguard the country’s borders. The Department needed 22 units, but this was not possible due to lack of funding. In terms of outcome 11 (External Deployments), there had been a major deployment to the Democratic Republic of Congo (DRC) under Operation Mistral and Team Bulisa.

The current budget allocation was deemed to be inadequate to enable the execution of the Department’s constitutional mandate. In 2018 the percentage of the budget to the gross domestic product (GDP) sat at 0.98%. The inadequate budget allocation had a detrimental effect on the sustainment of the  declining defence capabilities; supporting and executing ordered commitments for both internal and external operations; and human resources rejuvenation. The biggest concern during the year under review in relation to costs was the compensation of employees. The Minister of Finance had supported only an increase in the compensation of employees’ ceiling at R450 million, and not at R593 million as requested by the Department. This had resulted in an actual over-expenditure of R142.8 million.  

The audit outcomes of the Auditor General (AG) for the year ended 31 March 2018 had resulted in the Department receiving a qualification under capital assets, work in progress. This related to project assets within the ARMSCOR environment done on behalf of the Department of Defence (DOD) services and divisions. The DOD has no control over these assets until they are commissioned and available for use, so the Department did not make the disclosure in the financial statements since the expenses incurred  had been disclosed in the income statement.

The Department had also received an audit qualification under tangible capital assets, which related to the completeness and existence of assets that the auditors could not confirm. The justification was that not all assets could be traced to the DOD logistics systems and registers.

Another qualification related to intangible capital assets, which the Department had acknowledged but highlighted three areas of concern:

• Misstatements identified where expired licences were included in the intangible asset register from prior years;
• Supporting documents for licences and software from prior years could not be provided; and
• Software and licence values did not agree with the supporting documents.

The AG had issued yet another qualification for commitments to the value of R4.49 million because all procurement-related contracts entered into would still be reviewed by the legal division; and reconciliations were done manually in the Department, because the accounting and logistics systems were not linked.  

The last qualification was under sensitive projects, but an on-going discussion was taking place between the Department and Treasury to resolve accounting issues, whilst continuing to adhere to the Defence Special Account Act.

The Department would pursue these audit qualifications, and institute consequence management through established Departmental processes where appropriate.

Discussion
Mr D Gamede (ANC) referred to the high risk areas under Operation Corona, and wanted to know whether Gauteng and Western Cape had not been indicated as high risk areas intentionally or by omission. Secondly, with regard to dagga confiscated, there was now a court ruling on this, so on a lighter note, dagga confiscation would surely be at its lowest. Thirdly, how was the matter of the unavailability of boats going to be addressed, because it affected the flying hours for sea patrol.

Mr S Marais (DA) said the irregular expenditure was not a qualification anymore. Perhaps he had misunderstood what was in the annual report, but there was nearly R1.7 billion of irregular expenditure that had not been condoned by the Auditor-General. Therefore, he wanted to know whether this was to be flagged as a concern or not, and the Department needed to explain.

Secondly, under the special defence account, this time last year during the mid-term budget, there had been a lot of money transferred out for the compensation of employees. He had looked at the annual financial statements (AFS), and wanted to know where this was reflected. This was a concern because about R1 billion had been transferred out of this account, and it was not clearly reported on in the financials.

Thirdly, under human resources, this year the report highlights a 57% expenditure on the compensation of employees, which was an increase from the previous year, and it appeared to be an on-going trend. The presentation showed more money was being spent on employees, and at the same time there were much fewer hours flown and spent at sea.  

He wanted to know what the average age of soldiers was. There were a lot of more in the reserve force than the intake of new soldiers.

He said the rank structures looked like a mushroom if one looked at the cost attached to senior professional and management staff, with an average salary sitting at over R2 million and an increase of 7% every year. This was a bubble at the top – the Department was not taking in new soldiers to deploy, and depended mostly on the reserve force, but the human resource cost was booming out of control. Where did the Department stand with senior staff and management, and how did it compare with the norm in other defence forces?

What was the cost effect on the support of soldiers where they had been deployed? The appropriation of the defence force in relation the GDP was sitting at slightly over 1%, and it was apparent that the defence budget was not going to be increased. Therefore, there was a need to start looking into cutting costs effectively. What was the mandate of the defence force? Was it that the country must be fully prepared for war at any point, if such would erupt, or was it to safeguard the country’s land and sea borders? Clarity on the alternative funding models was required. Should the Department not be more realistic about the alternative funding models, because the current model was not working to support the mandate?

Ms B Dambuza (ANC) referred to the irregular expenditure, and said the Committee would like the Department to be encouraged to try and avoid that situation, as it could not condone that situation as Parliament. There were a lot of strategies that had not been completed by the Department -- when was it going to ensure that all its strategies would be finalized? Secondly, how many acting positions were there in the senior management, and when was the Department planning to fill those vacancies?

She asked the Department to explain why contractors had not been vetted, as vetting and performance management agreements were linked.

Was the Department of Military Veterans (DMV) the entity authorising the healthcare support for veterans, because in various constituencies there had been plenty of complaints regarding the payment of veterans’ costs by the DMV. She had been in contact with the DMV on this matter, but she would like to know what the matter was.

Mr G Skosana (EFF) was concerned about the audit qualification, and asked if the Department had implemented any post-audit action plans after the previous year’s qualification, and whether there had been any consequence management implemented. In respect of the AGSA audit qualification regarding the capital assets work in progress, how was the Department going to manage this going forward?

Lastly, how was the Department going to manage the over-expenditure on the compensation of employees in the future?

Mr S Esau (DA) said he would put his question to the Department in writing.

Mr Marais referred to the flying hours, and said the Department had promised to furnish a report with a break down on this. The team needed to note that there were a lot of outstanding reports that they had promised to furnish to the Committee. The Department had reported that the air force had spent 100% of its budget, but there were a lot of flying hours that had not been utilized, so how could it spend its entire budget but under-utilise its flying hours?

In the VVIP (Very Very Important Persons) category, only 496 of the 1 000 hours were flown, and it was known that the presidential jet had been grounded for about more than two years. How was it possible that those 496 hours were flown under the VVIP?

In the maritime environment, it had been indicated that only four patrols took place over the year. This was certainly not adequate - what should be done within the budget to address this? Only half of the budgeted sea hours had been utilised.

What had the Department done about its dependence on cyber-technology? Lastly, there had been an increase in classified information, and one wondered why this was the case. The team would remember the last time there had been a discussion on the reimbursement from the United Nations, which had been reflected. It was now classified – why had it been classified?

Department’s response

Dr Gulube said the Department had engaged the AG’s office with regard to the audit outcome, as well as the Accountant General, to try and look into the body standards that the Department followed, particularly cash standards. There was work in progress in this regard. A team had already been sent to check the assets, evaluate them and ascertain their value. The Department was not capable of providing the information to the Auditor-General for various reasons. They had learned that ARMSCOR had received a clean audit, but there were many things that had been overlooked.

The Department was following the dagga situation very closely and where it was necessary it would be confiscated, despite the recent court judgment, especially where it was being utilised illegally. This was a very important issue which had been discussed thoroughly in their cluster, because there was a very thin line between recreational and illegal use.

When the troops were out at sea patrol, the air force needed to make its presence felt as well, because that ensured that both sea and air in that space was covered. Therefore, speaking of four patrols did not mean that it conducted a patrol and after that it waited for another month to conduct another. When the patrols took place, they went all the way up to the southern border lines of Tanzania, so it took a very long time. That was why it was important to combine the sea patrols with the air force.

It was true that during the course of the year, some of the funds were used to cover the cost of employees, which was a major issue for the Department. This year it was already half way through the year; and its shortfall for the cost of employees was R3.2 billion, so between now and March, the Department either over-spends its cost of employees by that figure, or it releases 5 000 employees. This was a matter he would bring back to the Committee at a later stage, but he would appreciate the Committee’s advice on this matter. The Department was engaging with National Treasury, but it had indicated that it would not approve any more over-expenditure.

Once the cost structure had been deliberated on in the Department, and was approved, the Department would come back to the Committee to report. It needed to be re-designed to accommodate the budget allocations, and the Department would have to go through it step by step. The employee complement was 75 000, and without increasing the numbers the percentage of the cost of employees was too high, so if the budget was cut, it could not comply with the cost ratios.

The Department had developed a full plan to address consequence management matters.

Due to time constraints, the Chairperson informed Members that there would not be a second round of questions, and some of the questions would be responded to in writing.

The meeting was adjourned.