22. Thirty-First Report of Standing Committee on Public Accounts: Department of Defence, dated 8 June 2005:

  1. Introduction

The Standing Committee on Public Accounts (SCOPA), having heard and considered evidence on the Annual Report and the Report of the Auditor-General on the financial statements of the Department of Defence (DoD) for the year ended 31 March 2004, reports as follows:

2. Contingent liabilities and leave - page 143, paragraph 3.1

The audit report highligted unavailability of detailed supporting reports for leave credits relating to a contingent leave liability of approximately R1,064 billion as well as inadequate internal controls in respect of the leave administration system. The Committee is very concerned as the matter was raised several times during previous hearings with no solution forthcoming from the DoD.

The Committee recommends that the Accounting Officer ensures that the following are in place:

  1. A reliable system that gives the monetary value, correct amount of leave credits for each member in the SANDF and generates accurate, detailed management information;
  2. Leave credits are disclosed in the financial statements as prescribed including the directive on leave of absence;
  3. Proper adherence to all relevant rules, regulations and instructions of the internal control system.
  4. Proper management controls, which include regular independent checking and reviewing of attendance and leave registers.

3. Physical and intangible asset movement schedules - page 144,

paragraph 3.2

The audit report reflected that due to un-integrated systems existing at the DoD, no amounts could be disclosed in the physical and intangible asset movement schedules as prescribed by the Treasury Regulation.

It was further noted that the DoD is not in a position to move to a modified accrual accounting system any time soon.

The Committee notes that notwithstanding the recurrance of these system failures, the DoD has yet to implement the necessary corrections.

The Committee recommends that the Accounting Officer:

    1. Establishes a single logistical system that ensures accurate and complete disclosure; or
    2. Upgrades the present logistical systems to make provision for accrual accounting; and
    3. Indicates to the Committee time frames for implementation of a system that is integrated and able to report the financial information required.

4. Management of inventory, machinery and equipment page 144-

146, paragraph 5.1

    1. The audit conducted on the management of inventory, machinery and

equipment revealed that the same weaknesses in internal controls as reported on in prior years still existed in all main processes of asset management. This matter could mainly be ascribed to the fact that management policies and procedures were not adequately followed.

The Committee finds it unacceptable that matters reported in prior years still remain unresolved.

The Committee recommends that:

    1. Internal control procedures be revised and improved where necessary;
    2. Vacancies should be filled with skilled personnel and relevant training should be given and the Portfolio Committee on Defence should monitor progress;
    3. Disciplinary action be implemented where non-compliance with prescribed policies/ regulations occurred;
    4. Storage facilities be upgraded;
    5. The reporting structure within a general support basis, army support basis and joint support basis should be investigated and a practical/workable structure be considered that will give the officer commanding full responsibility over all the offices within his/her unit; and
    6. Logistic systems be integrated.

4.2 The Committee further noted that the DoD made commitments to SCOPA during previous hearing regarding implementation of corrective measures in respect of excessive stock levels. These include amongst other things disposal plans to be put in place for each service.

The Committee recommends that disposal plans be finalised on time and that SCOPA be provided with the progress report within 60 days of adoption of the report by Parliament.

5. Purchases and payables (accruals) - page 144, paragraph 3.4

The audit report reflected an instance where information could not be generated from the accounting systems of the DoD resulting in the amount disclosed as accruals understated by an unknown amount.

The Committee is concerned about the DoD's slow progress in addressing the issue.

The Committee recommends that the Accounting Officer ensures that:

    1. An integrated system that will comply with the accrual accounting principles and disclosures is implemented; and
    2. The current systems are upgraded/replaced or National Treasury has to revisit its requirements on disclosure within the limitations placed by the existing information systems.

6. Departmental income - page 144, paragraph 3.3

The committee is concerned about the completeness of income amounting to R266,342 million that could not be verified due to the inconsistent application of the internal controls applicable to income.

This has been a serious concern to the Committee as the situation worsened and the DoD implemented controls that are not functioning properly. The Committee is of the view that the DoD is not in a position to satisfy SCOPA that the matter will be corrected during the next financial year.

The Committee therefore recommends that the Accounting Officer ensures that:

    1. Steps are taken to ensure that monies received are regularly reconciled and checked by senior personnel at unit level; and
    2. Systems are reconfigured to ensure that income can be managed and controlled at unit level.

7. Irregularities and losses - page 144, paragraph 3.5

The Committee noted inconsistent application of policies and procedures resulting in losses and damages not reported to the finance division and that damage and loss registers at unit level were not updated regularly.

The Committee recommends that the Accounting Officer ensures that:

    1. Losses are reported and the loss register is updated and reviewed on a regular basis;
    2. Reconciliation is performed on a regular basis; and
    3. Training in financial management for senior personnel at unit level is implemented.

8. Land and buildings - page 146, paragraph 5.2

The Committee is concerned about various instances that caused uncertainity over the completeness and accuracy of the DoD's facility register system. Reconciliations could not be performed with Public Works' asset register due to the incompatibility of the two systems. This matter was raised in the previous report.

The Committee recommends that the Accounting Officer ensures that :

  1. A complete and accurate facility register is kept;
  2. Proper maintenance of buildings are carried out by the Department of Public Works, over and above innovative ways of maintaining buildings by the Department itself;
  3. Timeous investigations are carried out regarding the economic viability to either restore or demolish uninhabitable buildings and houses to reduce third party liability to an acceptable level;
  4. The current land and buildings register inventory be submitted to SCOPA within 30 days of the adoption of this report by Parliament.
  5. Provide SCOPA with a plan of action on how the Department will minimise possible health and safety risk which could result in the DoD becoming liable to third parties due to the uninhabitable status of buildings and houses

The Committee further recommends that:

  1. a completed integrated land inventory be established in consultation with the Department of Public Works and Department of Land Affairs addressing problems causing the current incompatibilities between the registers of the various departments; and
  2. the Committee be supplied with a progress report, within 90 days of the adoption of this Report by Parliament, on how the above problems are being addressed, and thereafter with a copy of the full reconciliation register.

Gift, donations and sponsorships - page146, paragraph 5.3

The Committee noted with concern shortcomings with regards to validity, accuracy and completeness of gifts received, donations and sponsorships made and received in kind.

The Committee recommends that internal control measures should be revised to ensure that all gifts, donations and sponsorships are reported and ultimately reflected correctly in the financial statements.

10. Personnel expenditure: Commuted overtime - page 146, paragraph 5.4

The Committee noted that internal controls with regards to overtime were not followed. In certain cases, the policies and procedures did not seem to be adequate to address all weaknesses in the system.

The Committee was also informed about the investigation that the DoD instituted with regards to issues raised in the audit report.

The Committee recommends that the Accounting Officer ensures:

    1. Improved management of commuted overtime in order to achieve acceptable levels;
    2. Updated implementation instructions and revised contracts for commuted overtime; and
    3. Adherence by all managers and supervisors to the implementation manual to monitor commuted overtime constantly to prevent over-underpayments.

11. Information systems - page 147, paragraph 5.7

The Committee noted that the Auditor-General could not place reliance on the general controls surrounding Computer Aided Logistic Management Information Systems (CALMIS) this resulted in the activities of database administrators not being logged and monitored.

The Committee recommends that security management be improved by means of baseline security standards based on the security policy. It should be enforced through detailed, documented and monitored processes and procedures and must be reported back to SCOPA within 60 days of adoption of this report by Parliament.

  1. Revenue and receivables (foreign aid in kind) - page 146, n

paragraph 5.5

The Committee is concerned that nothing has been done in the previous financial years to address the shortcomings in the system for recording and collation of foreign aid assistance received in kind.

The Committee finds the situation unacceptable, as the matter has been recurring for three consecutive years.

The Committee recommends that a progress report be submitted to SCOPA within 30 days of the adoption of this report by Parliament.

13. Rooivalk - page 49 & 81

The committee noted the time spent and cost thereof together with the number of Rooivalk aircraft manufactured and recommend that SCOPA be supplied with a cost benefit analysis of this project and how future operational cost been funded.

14. General

The Auditor-General should follow up on the following issues during the financial year ending 2004/05 audit and provide feedback to SCOPA:

  1. All the aspects highlighted above including previous SCOPA recommendations on the DoD and SDA; and
  2. Findings on the statutory mandate of National Conventional Arms Control Committee (NCACC) as reported on pages 146 -147, paragraph 5.6 of the audit report.

The Committee is of the view that the Department should adapt to systems that satisfy the Department’s needs in consultation with National Treasury.

Report to be considered.