BUDGETARY REVIEW AND RECOMMENDATION REPORT OF THE PORTFOLIO
COMMITTEE ON DEFENCE AND MILITARY VETERANS, DATED 01 NOVEMBER 2011
1. INTRODUCTION
1.1. The Money Bills Amendment and Related
Procedures Act (2009) provides for a parliamentary procedure to amend money
bills, thus granting parliamentary committees greater opportunity to influence
the allocation of funds to the departments they oversee.
1.2 Section 5 of this Act compels the
National Assembly, through its committees, to annually submit Budget Review and
Recommendation Reports (BRRR) on the financial performance of departments
accountable to them. The BRR report must be informed by a Committee’s
interrogation of, amongst others, the national departments’ medium-term
estimates of national expenditure, strategic priorities and measurable
objectives, National Treasury published reports, annual reports and financial
statements, as well as observations made during oversight visits. Essentially
the BRR report should be a Committee’s assessment of the department’s
performance and service delivery (given available resources), as well as the
effectiveness and efficiency with which its programmes are resourced. Although
the BRR reports must be published at a specific time in the budget cycle, it is
clear that the work that informs the report must be ongoing.
1.3 Section 200 of the Constitution sets out
the mandate of the South African National Defence Force (SANDF) which is to
“defend and protect the Republic, its territorial integrity and its people in
accordance with the Constitution and the principles of international law
regulating the use of force”. In pursuance of this mandate, the Department of
Defence provides, manages, prepares and employs defence capabilities
commensurate with the needs of
1.4 The Portfolio Committee on Defence and
Military Veterans is mandated to, amongst other statutory obligations, support
the Department of Defence and Military Veterans (DoDMV) in fulfilling its
mandate through the rigorous monitoring of the implementation of legislation and
adherence to policies, such as the Defence Act 42, of 2002, the White Paper on
Defence (1996) as well as the Defence Review (1998).
1.5 The report comprises four parts
detailing the analysis of the 2010/11 Annual Report and Financial statements, the
prevailing strategic objectives, the budget allocation and financial
performance, and the committee observations and recommendations
2. DEFENCE
ENTITIES: OVERVIEW OF 2010/11 ANNUAL REPORTS AND FINANCIAL STATEMENTS
2.1 ARMSCOR [ARMAMENTS CORPORATION OF
Established in terms of the Armaments Corporation of South
Africa, Limited Act (2003), the purpose of this entity is to satisfy the defence
materiel requirements of the South African National Defence Force (SANDF) and
any other organ that may require such services.
The entity made notable
progress in achieving targets set for the period under review. However the
following areas of underachievement and challenges are noted for further
monitoring and oversight:
The funding and staffing challenges at the Simonstown
Dockyard
meant that the deteriorating facilities could not be upgraded, and that
appropriately experienced and skilled personnel were regularly lost to the
private sector.
The transformation of Armscor’s staff profile is stagnant. While the Employment Equity Committee (EEC)
was re-established to manage matters of transformation and equity, it is clear
that the reasons for the poor performance against set targets require closer
scrutiny.
Targets set for Broad-Based Black Economic Empowerment
(BBBEE) were also not achieved. This
is attributed to the insufficient transformation of Armscor and the Defence
Industry, particularly the predominance of foreign suppliers in the defence
procurement environment, and the fact that these suppliers often have greater
spending power than local competitors.
While Armscor received an
unqualified audit report for the period under review, and total revenue for the
same period increased with 9.9%, the following funding challenges constrain
particularly the management of the Simonstown Dockyard, the ability to
rejuvenate workforce, the renewal of infrastructure, and maintaining and
attracting specialised, technically-skilled personnel.
2.2 CASTLE OF
GOOD HOPE
The
The Annual Report of this
entity does not clearly stipulate
performance against set targets for the period under review. As a result,
it is difficult to measure whether this entity’s work was informed by specific
objectives. We are mindful that this is
linked to the absence of a strategic and performance plan.
The gender and racial composition of staff at the Castle is a cause for
concern. Whites are at the higher
employment level, while Black employees (African and Coloured) are at the
lowest employment levels. This requires
closer scrutiny.
While the entity received
an unqualified audit opinion for the period under review, the following should
be noted: 1) quarterly reports were not submitted to the Department of Defence;
2) the Castle is not fully compliant with procurement and supply chain
management policies and procedures; 3) a strategic plan has not been finalised;
4) it lacks a performance report against pre-determined objectives; 5)
performance is not regularly managed or appraised.
Efforts by the Castle
Control Board to realise the self-sustainability of the Castle and to improve
governance and compliance standards are noted and will be monitored on a
regular basis.
3. THE
2010/11 ANNUAL REPORT AND FINANCIAL STATEMENTS OF THE DEPARTMENT OF DEFENCE
(DoD)
The 2010/11Annual Report highlights
the impact that a limited budget has on the ability of the South African
National Defence Force (SANDF) to maintain and sustain the core capabilities
necessary to fulfil its mandate.
The DoD received an
adjusted appropriation of R30.4 billion against a Budget Vote of R30.7 billion.
Total expenditure against the Adjusted Budget Vote amounted to R30.3 million,
resulting in an under-expenditure of R128.3 million, which included an amount
of R220 000 earmarked for the Regular Force Medical Continuation Fund that had,
at the time of reporting, not been transferred.
The Auditor-General expressed a
qualified opinion on the financial state of the Department. The management of moveable and immoveable
assets remain a cause of qualification.
The Department could not provide sufficient appropriate audit evidence
for the R76 billion disclosed, while “records did not permit the application of
alternative procedures”. Emphasis of
matter is due to the corresponding figures for operating leases for 31 March
2011 requiring restatement due to a technical error. as well as irregular
expenditure to the amount of R799.3 million, which was not done according to
National Treasury Regulations.
3.1 Performance across programmes
3.1.1 Landward Defence
The South African Army remains
overextended, with particular concern regarding its overstretched infantry, engineering
and support capabilities. Budgetary constraints negatively impact on the
sustainability of prime mission equipment (PME), the maintenance of operational
vehicle fleet, and the maintenance of required ammunition supplies.
The rejuvenation of the
South African Army into an appropriately skilled, youthful and properly
equipped service remains a challenge. Due to the lack of funding, limited number
of Military Skills Development System (MSDS) could be accommodated during the
period under review. Skills retention, age and health of soldiers thus are
enduring challenges.
3.1.2 Air Defence:
While it is reported that
the SA Air Force (SAAF) successfully provided air defence capabilities,
generated 33 930 flying hours, and successfully supported the SANDF in external
operations, operational readiness is not steady but fluctuates due to
exceptionally high levels of force employment.
It is reported that the
overstretching of the workforce resulted in low performance of force preparation
tasks..
Given the above, it
should be noted that budget constraints hamper effective execution of the constitutional
mandate, particularly with respect to the requirements within an acceptable
force design. The SA Air Force could only partially meet targets set. The SAAF did not achieve the targeted flying
hours. The helicopter capability sub-programme
could not achieve targeted flying hours due to operational requirements which
resulted in less force preparation (training).
Rooivalk aircraft could also not be properly serviced due to protracted
contract negotiations with the service provider.
The transport and
Maritime Surveillance capability could not achieve targets. This is due to technical failures of aircraft
and delays in scheduled maintenance. The number of mission-ready air-traffic
controllers (64 daily) could not be achieved, as members failed fitness tests
and could not complete initial training.
The SA Air Force has made
slow progress in achieving transformation objectives. Of particular concern is demographic
and gender representivity in the air-crew, technical and airspace control
environments, supervisory levels, and middle management levels. Underfunding for
the retention of technical skills, as well as the maintenance of infrastructure
are persistent challenges. Obsolete equipment hampers operations and finite
resources threaten the sustainability of combat systems.
3.1.3 Maritime Defence:
The South African Navy
has achieved its targets for the period under review. However, critical
challenges plague the SA Navy, particularly the shortage of specialist skills
within the technical, combat, diver, submariner and logistic domains. The maintenance and upkeep of facilities and
underfunding are enduring problems, particularly with respect to the facilities
in the Simonstown area.
3.1.4 Military Health Support:
The South African Military
Health Services struggle to fulfil ordered commitments, retain scarce skills,
and renew obsolete equipment. The management of assets and expenditure remains
a challenge; so too procurement and
contract management.
As in 2009/2010, the shortage
of health-care practitioners, deteriorating health-care facilities and
unsuitable equipment hamper long-term sustainability of military health
services. It is reported that the South
African Military Health Services (SAHMS) cannot fund renewal projects from its
operating budget, while facilities continue to deteriorate.
3.1.5 General Support
Inadequate and fragmented
defence logistics, strategy, policy, planning, budgeting, systems, processes
and skills resulted in a poorly managed asset management system. .Complete and
accurate asset management registers that meet the requirements of the National Treasury
are not in place, This programme therefore failed to provide appropriate, ready
and sustained materiel, facilities, and movement and logistics services.
It is acknowledged that
the Department has been working on longer term solutions to the above problem.
These include the implementation of the Integrated Financial Management System
(IFM). We note that the upgrade of the system is being done to address
compliance with the disclosure requirements. A single compliant logistics
information system remains a key outstanding matter, while much work has been
done by the Joint Logistics Services to resolve audit qualifications
3.2 OVERVIEW OF 2009/10
BUDGET AND SPENDING TRENDS
For the 2009/10 financial
year, the Department received an adjusted budget of R30.4 billion against a
Budget Vote of R30.7 billion. The
Defence Vote was decreased by R272 million through the adjusted vote. Additional funding of R2.5 billion was
requested.
Total expenditure
amounted to R30.3 million, resulting in an under-expenditure of R128.3 million,
including an amount of R220 0000 earmarked for the Regular Force Medical
Continuation Fund, which was not transferred.
3.3 AUDIT OUTCOME
The Department received a
qualified audit opinion for the period under review. It is worth mentioning
that the Department managed to steadily resolve audit qualifications, which
decreased from six in the 2008/2009 financial year to one in 2010/11.
As in 2009/10, the
Department failed to disclose financial information on moveable and immovable
tangible assets. A properly maintained asset register is still lacking. Current
internal controls and systems are not suitable to adhere to accounting
standards as prescribed by National Treasury.
4. OVERVIEW OF 2011/12 BUDGET AND ALIGNMENT TO
STRATEGIC OBJECTIVES
4.1 STRATEGIC
PRIORITIES AND MEASURABLE OBJECTIVES
4.1.1 A strategic plan addresses a few key areas
on which a department must focus in support of Government policy, as well as
the strategies to achieve them. It is an important tool to achieve Government
objectives, to address financial management and service delivery problems, and
to ensure that services are delivered in the most economical, effective and
efficient manner. The plans are both informed by, and designed to realise, the
mandate of the department and to indicate how the allocated budget will be
spent.
4.1.2 The Committee was mindful of the new
reporting format, which separates the strategic objectives of the Defence
Secretariat and the South African National Defence Force (SANDF). Subsequently,
the Committee received a briefing on the Strategic Plan and Annual Performance
Plan of the Defence Secretariat only, while the tabling of the SANDF Strategic
Plan, at the time of writing this report, was still awaited. According to the
Department, this new format would better reflect that the Secretariat and SANDF
were separate institutions with “distinct, yet complementary” mandates and
would thus “be serviced differently”.
4.1.3 The Department translates its mandate into
three core defence objectives which inform departmental priorities:
(i) The defence and protection of
(ii) The promotion of human security, both
domestically and internationally, in order to contribute to freedom from fear
and want; and
(iii) The contribution to a better life for
the people of
4.2. OVERVIEW OF
STRATEGIC FOCUS AREAS
4.2.1 The Defence Secretariat’s work is underpinned
by two over-arching objectives, i.e. the protection of
4.2.2 Ten strategic priorities have been
identified for the next three years. These are:
The strengthening of the
SANDF’s Landward Defence capabilities;
respond
to emerging maritime threats;
Force;
4.2.3 In order to
achieve the above-mentioned, the following policies and strategies enjoy
priority:
·
A policy framework for the implementation of the Defence Act
No 22 of 2010;
·
The Defence Security Strategy that would complement the
National Security
Strategy;
·
The finalisation of Defence’s contribution to the National
Crime Prevention
Strategy;
·
The finalisation of the DoD Border Management Strategy;
·
The National Youth Service Conceptual Framework;
·
The establishment of a research function in the policy
division unit;
·
The review of the White Paper on Defence-Related Industries,
as well as the
development of a Defence Industry Strategy;
·
The drafting of a Defence-Related Public Entities Strategy;
·
Assets and Facilities Management Policy Framework;
·
Human Resource Development Policy and Skills Development
Plan;
·
Defence Fiscal and Defence Capability Framework;
·
Armed Forces Day Policy Framework to facilitate armed forces
interaction
with the public.
4.3. OVERVIEW OF
2011/2012 BUDGET
4.3.1 For the 2011/12 financial year, the
Department of Defence and Military Veterans received R34.6 billion. This was mainly to be utilized for border safeguarding,
the modernisation of the landward defence capabilities, improving the service
conditions of soldiers, as well as the expansion of the Military Skills
Development System (MSDS).
4.3.2 The 2011/12 budget process also focused on
finding savings within the Department. The Department is expected to save R1.3
billion over the medium term, mainly sourced from non-core goods and services.
These savings would fund the new remuneration dispensation.
4.3.3 A policy reserve would fund key Government
priorities over the next three years. The SANDF will receive R600 million over
this period, to fund the deployment of soldiers along the borderline and for the
upgrade and improvement of facilities and equipment for effective borderline
patrol. These allocations are as follows: R100 million for 2011/12; R200
million for 2012/13; and R300 million for 2013/14
4.3.4 The modernisation of the landward defence
capabilities remains the biggest source of expenditure and received the largest share
of the Defence budget (33.99%). Air Defence received the second largest
allocation (24.59%), while the General Support programme is the third largest
programme, receiving 11.27%. The latter received a smaller allocation, contrary
to the much needed renovation, repair and maintenance of infrastructure and
facilities that it is responsible for.
4.4 OVERVIEW OF ALLOCATION PER PROGRAMME
4.4.1 The Administration
programme executes the Department’s overall management, administration and
policy development. Its allocated budget increased by 3.82%. Office
Accommodation sub-programme consumes 52.77% of the programme’s total budget. This
sub-programme manages the payment of accommodation charges, leases and
municipal services. The Military Veterans Management sub-programme has received
the most substantial increase (116.46%) and will mainly fund the operations of
the Department of Military Veterans.
4.4.2 Force
Employment programme provides and employs defence capabilities to
successfully conduct all operations and exercises. Its budget allocation has
decreased by 6.28%. The sub-programme Regional Security is responsible for the
deployment of forces in support of
4.4.3 The Landward Defence programme provides
prepared and supported landward defence capabilities for the defence and
protection of
4.4.5 The Air Defence programme, which provides
prepared and supported air defence capabilities for the defence and protection
of the country, has seen the second largest increase of 16.65%. Funding for the
Air Combat Capability sub-programme has increased by 130.22% and continues to
consume the largest portion of the programme’s total expenditure at 28%.
4.4.6 The Maritime Defence programme provides
prepared and supported maritime defence capabilities for the defence and
protection of
4.4.7 The
Military Health Support programme, which provides prepared and supported health
capabilities and services for the defence and protection of the country, has
seen a budgetary decrease of 4.75 per cent. The programme consumes 8.8% of the
Department’s total budget. As indicated in the ENE, spending will mainly be on
renewing of main medical equipment and upgrading of health facilities. The two
largest sub-programmes remain Area Military Health Service (32.32%) and
Specialist/Tertiary Health Service (31.19%). The Department’s 2009/10 Annual Report indicated that the critical
shortage of health care practitioners continued to impact on the combat
readiness of the SAMHS. It also
indicated that the management interventions that have been introduced will only
bear fruit in the medium to long term.
4.4.8 The Defence Intelligence programme provides
a defence intelligence and counter-intelligence capability, and has seen a
decrease in its budget of 2.78%. The programme consumes the smallest portion of
the Department’s total budget – 1.93%. Funding for all three the sub-programmes
has decreased. The Operations sub-programme remains the largest at 60.99%.
4.4.9 The General Support programme, which
provides general support capabilities and services to the Department, has
experienced the biggest budgetary decrease – 9.95% – of all the programmes in
the Department. Despite this, the programme still remains the third largest at
11.27% of the Department’s total budget. The Joint Logistic Services remains
the largest sub-programme and takes up 37.86% of the programme’s total budget;
this is a significant decrease of 25.16%, considering the fact that the
sub-programme aims to provide for the much needed renovation, and repair and maintenance of infrastructure
and facilities. According to the Final Report produced by the Interim National
Defence Force Service Commission, “the current infrastructure in the Department
is both seriously inadequate and, in many places, in unacceptable disrepair and
decay”.
In
addition, the Joint Logistic Services sub-programme is also responsible for the
reduction of logistic-related audit
qualifications through the Logistic Intervention and Repositioning Programme
(LIRP). This relates to issues raised by the A-G; especially the disclosure of
financial information on movable tangible capital assets, intangible capital
assets and immovable tangible capital assets, as well as the maintenance of a
proper asset register.
4.5 ANALYSIS OF QUARTERLY EXPENDITURE REPORTS
[To date, the portfolio committee’s
method of work does not include quarterly evaluation of departmental spending
and performance. This part of the report is therefore based on expenditure
information supplied by National Treasury and quarterly expenditure information
provided by the Department during the 2010/11 Annual Report interrogation. ]
4.5.1 For the first
quarter of the current financial year, the Department spent R7.2 billion or
20.8% of its allocated R34.6 billion. Force employment spent 470 million (20.3%
of its budget). This is due the SAAF support (chartered flights) provided
during peace- keeping missions, combating piracy in
4.5.2 Air Defence
spent 17.9% of its appropriated budget of R1.2 billion). This is less than
originally projected. Military Health Support spent 2.3% more than projected
due to spending on Compensation for Employees. Defence Intelligence spent 22.5
per cent or R150.7million – less than the R173 million projected expenditure.
5. COMMITTEE
OBSERVATIONS AND RECOMMENDATIONS
5.1 Observation
5.1.1 As in 2009/10 financial year, the Committee
remains concerned that the current defence budget is insufficient. Given the
limited funding, the SANDF cannot meet its obligations and fulfil its mandate. Efforts
to ensure that current limited resources are effectively directed to national
defence priorities are commended.
5.1.2 The pace and quality of transformation in the SANDF requires closer
scrutiny as it not only impacts on the morale and professionalism of soldiers,
but also affects the Defence Force’s ability to meet its constitutional
obligations. The current review and update of defence policy should therefore
include a frank assessment of the implementation of defence transformation
objectives.
5.1.3 The Portfolio Committee welcomes the recent
establishment of the Defence Review Committee (DRC) and supports the important
tasks of this body. We re-iterate that the finalisation of an updated defence
policy is a long outstanding matter and the lack of a long term indication of
the defence needs limited
effective monitoring of defence activities. We anticipate greater interaction
with the relevant stakeholders as a new defence policy is crafted.
5.2 Recommendations
5.2.1 Underperformance against set targets by
each programme is attributed to funding constraints. The Committee therefore
recommends that the budget allocation to the Department should be augmented. Sufficient
funding must be allocated for effective border safeguarding, effective service
delivery to military veterans, and the repair and maintenance of both
facilities and prime mission equipment (PME). The Department of Defence should, within three
months of the publication of this report, submit to Parliament a comprehensive
assessment of the budgetary constraints and areas of underfunding. Based on this submission, the Committee will
submit an additional Budgetary Review and Recommendation Report for adoption by
the National Assembly and consideration by the Minister of Finance.
5.2.2 The Committee re-iterates that, in order
for the SANDF to effectively undertake the monitoring and patrolling of the
borderline, a sufficient number of soldiers has to be deployed to conduct foot,
air and vehicle patrols. The SANDF’s
readiness to patrol the border largely depends on the rejuvenation of the Defence
Force to ensure that appropriately skilled and young soldiers are trained and
ready for deployment. A comprehensive
progress report on the implementation of Operation Corona, including a frank
needs assessment and implementation challenges should be submitted to
Parliament within three months of publication of this report.
5.2.3 The
Committee stresses the need for a coherent and well co-ordinated strategy that
would meet the immediate and basic needs of military veterans – interventions
that would contribute to long-term self-sufficiency. The improvement of the
socio-economic conditions of military veterans is essential, given the
potential political and social consequences this may hold. For this reason, the
Committee stresses that the Department of Military Veterans should become fully
operational as a matter of urgency. Specifically, the publication of a
strategic plan, a separate budget vote, as well as the finalisation of a policy
on military veterans requires immediate attention.
5.2.4 Deteriorating conditions of facilities
remains a cause for concern. These conditions not only impact on the morale of
the SANDF, but could also threaten health and safety of our soldiers. We
welcome the planned establishment of an in-house repair and maintenance
capability and recognise the need for greater interaction with the Department
regarding the specific repair and maintenance challenges, the planned
management plans, as well as the budgetary implications. In
particular, the Department should submit a progress report on the establishment
of the Defence Works Formation and whether this formation has been staffed.
5.2.5 The
creation of sustainable employment and professional development of young South
Africans is important. We welcome the
prioritization of National Youth Service, but caution that greater detail
regarding this strategy, as well as the synergy between new plans and existing
plans, is outstanding. We anticipate greater interaction regarding these
matters throughout the financial year.
5.2.6
The Landward Defence Programme is severely overstretched in,
especially, the infantry, engineer and support capabilities. It is clear that more funding is required to
ensure the required upgrade of this programme.
Such an upgrade is necessary to ensure that the South African Army can
adequately meet its responsibilities. The Committee therefore recommends that
quarterly progress reports regarding the upgrade of the Landward Defence
programme are submitted to Parliament.
5.2.7 Noting that the South African Navy’s
ever-expanding scope of responsibilities, particularly, the involvement in
combating piracy and intensified patrolling of our sea-borders, the Portfolio
Committee recommends that the funding allocation to this programme is
adequately increased to allow successful execution of these
responsibilities.
5.2.8 The Department’s efforts to resolve the existing
audit qualification are commendable. The Committee, however, remains concerned
about the non-compliance with National Treasury regulations. The continued strengthening of an internal
audit unit is essential. Internal Audit
committees play an integral role in ensuring that effective internal controls
are in place, thus enabling departments to identify areas of weakness before
they become areas of audit qualification. Asset management, too, remains a
major challenge, and a source of qualification for the DoD. A strategy must be
developed and implemented that will address the counting, verification,
recording and documentation of all assets. The Department should brief the
Committee, on a quarterly basis, regarding progress made with the resolution of
matters raised by the Office of the Auditor-General.
6. Conclusion
6.1.1 Section 5 of the Money Bills Amendment
Procedure and Related Matters Act (2009) compels the National Assembly, through
its committees, to submit Budgetary Review and Recommendation (BRR) reports on
the financial performance of departments accountable to them on an annual
basis. The BRR report must be informed by a committee’s interrogation of,
amongst others, each national department’s medium-term estimates of national expenditure,
strategic priorities and measurable objectives, National-Treasury-published
expenditure reports, annual reports and financial statements, as well as
observations made during oversight visits. This report is essentially a
committee’s assessment of a departments’ service delivery performance given its
available resources, as well as the effectiveness and efficiency with which its
programmes are implemented. Although BRR reports must be published at a
specific time in the budget cycle, it is clear that the work that informs the
report must be ongoing. Regrettably,
progress made with the implementation of committee recommendations is an
outstanding matter.
6.1.2 The Portfolio Committee on Defence and
Military Veterans remains concerned over the ability of the SANDF to meet its
obligations effectively within a limited budget. The recommendations made in this report are
primarily aimed at addressing enduring audit qualification owing to poor asset
control, while stressing the need for the alignment of the Defence budget with the
Department’s mandate.
Report to be considered.