BUDGETARY REVIEW AND RECOMMENDATION
REPORT OF THE PORTFOLIO COMMITTEE ON DEFENCE AND MILITARY VETERANS, dated 23
1.1. The Money Bills Amendment Procedures and Related Matters Act (No. 9 of 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 Budgetary 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 and Military Veterans provides, manages,
prepares and employs defence capabilities commensurate with the needs of
1.4 The Portfolio Committee on Defence and Military Veterans (PCODMV) 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 (No. 42 of 2002), the White Paper on Defence (1996) as well as the Defence Review (1998).
1.5 At the time of writing this report, a presentation on performance information relating to the Department of Military Veterans was still outstanding. The Committee will submit a separate report containing its findings and recommendations, once the Department of Military Veterans appears before it.
1.6 As in the previous years, the time constraints imposed on committees, particularly those of the parliamentary calendar, meant that the annual reports could not be vigorously interrogated and that this Budgetary Review and Recommendation Report (BRRR) was drafted within this limited time period. The Committee believes that the deadlines set for committees to consider annual reports, and draft and table the Budgetary Review and Recommendation Reports (BRRR,) should be reconsidered.
1.7 This Report comprises four parts detailing the analysis of the 2011/12 Annual Report and Financial statements, the prevailing strategic objectives, the budget allocation and financial performance, and the PCODMV’s observations/recommendations. This document should be read alongside previously published Committee reports, including those relating to oversight visits, reports on budget votes and strategic plans, as well as the report on annual reports.
2. 2011/12 ANNUAL PERFORMANCE AND AUDITED FINANCIAL STATEMENTS
2.1.1 The Department of Defence and Military Veterans received an adjusted appropriation of R34,349 billion against a budget vote of R34, 604 billion. Total expenditure against the adjusted budget vote amounted to R34 331.437 billion, with a reported variance of R17 650.
2.1.2 The Committee notes that the applicability, relevance and validity of performance targets and indicators remain a challenge. For the period under review, it is reported that, of the 276 targets set, only 119 (43%) of these targets had been met. This was mainly ascribed to the fact that performance targets and indicators were not suitably developed during the strategic planning process. Furthermore, the Department succeeded in achieving eight of the 22 selected performance indicators published by National Treasury and which partly forms the basis of departmental planning, funding allocations and in-year performance reporting. It is especially the compliance with United Nations requirements and rules for peace missions, the finalisation of the DOD border management strategy, the number of reserves,%age of vacant funded posts and the decline in the turnover rates, that are concerning. The Committee remains concerned over this persistent poor development of strategic objectives and performance indicators, since ongoing monitoring and evaluation of service delivery remains a challenge.
2.1.3 The Auditor-General expressed an unqualified audit opinion on the financial state of the Department. This is in part due to a conditional departure granted by National Treasury that allowed the Department, for auditing purposes, to disclose information on the three main categories of assets. It is expected that the DODMV will report fully on all assets for the 2012/13 financial year.
2.2 Performance across programmes
The Committee notes with concern that, during the 2011/12 financial year, the Department did not succeed in resolving the impact legacy information systems have on the effective administration of the Secretariat and South African National Defence Force (SANDF). This meant that the Department could not adhere to the Communication Systems Governance guidelines, Risk and Compliance functions and certain functions in terms of the Promotion of Access to Information Act. Furthermore, outdated systems are incompatible with current DOD information systems and can not be fully integrated. Given funding limitations, an immediate overhaul of information systems is also not feasible. To ensure minimal disruption in the administration and operation of the Department, it is reported that systems are regularly upgraded to ensure an adequate level of “interoperability”.
A limited budget also impacted on the achievement of key targets set for the financial services, resulting in, amongst others, delays in the registration and payment of suppliers in the procurement process. In terms of the supply chain management sub-programme, the Committee notes the ongoing work done to ensure that the misalignment between the scope within the functions that are to be performed and the current Human Resource structure. This would ensure that certain HR functions are decentralised and executed on a Service and Divisional level The Acquisition Services also reported poor achievement of performance targets mainly due to delays in the strategic acquisition process which is partially due to the finalisation of the White Paper on the Defence Industry.
2.2.2 Force Employment
The Department achieved its 14 targets, with the exception of the targeted nine joint interdepartmental and multinational exercises. Only six exercises were successfully conducted, due to a command decision that the SANDF should not participate in the two exercises, while one was cancelled by the Namibian Defence Force. The roll-out of phase two of the border safeguarding responsibility proceeded as planned – it had successfully deployed seven sub-units (which include land, air and maritime defence) and had contributed to apprehending illegal immigrants, arrests of criminals, confiscating illicit drugs and goods, as well as the killing of 11 and arrest of 22 poachers in the Kruger National Park.
However, threats to effective border safeguarding remain, particularly in the Madimbo training area where a land dispute remains unresolved. The Committee notes the impact this unresolved matter could have on effective border safeguarding, as it creates a gap that can be exploited for the illegal crossing of people and goods. The SANDF also urgently requires an adequate strategic heavy-airlift capability, as the lack thereof limits the deployment and sustainability of the SANDF in external operations, as well as the deployment of the SANDF’s reaction force. The high cost of chartering aircraft and ships to address this challenge - while noting that this is a temporary and immediate solution - is not sustainable and cost effective in the medium to long term.
2.2.3 Landward Defence
The South African Army’s capabilities are severely overstretched, and it struggles to meet operational commitments – it lacks the required infantry, engineer, intelligence and support capabilities. Of the 20 identified targets, only one had been achieved.
The Committee is perturbed by the admission that, while the SA Army had provided all forces required, these forces may not have been combat ready. The exodus of scarce-skilled personnel, particularly those in logistics, technical and hospitality, the ageing Prime Mission Equipment (PME), shortages of ammunition, and dilapidating facilities, led to important targets not being achieved. The Annual Report confirms that the Mobile Bridge Laying System is no longer safe to use for force preparation or operations. Also, force training had to be discontinued with the Mine Breaching System, which is no longer in use. Funds are critically needed for the upgrade and maintenance of these capabilities. Effective border safeguarding is also threatened, since the required capabilities expected to be provided by the landward defence programme would further compromise the already overstretched deployable capabilities. The SA Army requires additional funding for the force preparation of the 15 sub-units the SA Army should supply for this purpose. Owing to the limited budget, current army projects (armament planning) cannot be completed and will not meet the full capability requirements as stipulated in the Defence Act, 2002, or the SA Army Force Design/Structure. Sustainability of PME remains a concern, as operational gaps have already been reported due to the end of life-cycle, obsolescence, underfunding and late delivery on equipment. The non-performance of the Defence Industry also contributes to the above state of affairs, as is evident in the delays in the finalisation of Project Vistula. Leader Group training of MSDS recruits could also not be continued, since key exercises such as Exercise Seboka and Exercise Young Eagle were not scheduled for the period under review.
2.2.4 Air Defence
The Annual Report indicates the achievement of most of the targets but that this Programme struggled to achieve the planned flying hours for three sub-programmes. The helicopter-capability sub-programme achieved 10 333.26 of the targeted 12 500 flying hours due to budget constraints that limited the availability of the A109 as well as Oryx and Rooivalk fleet and aircrew. Similar reasons were provided for the underachievement of the transport and maritime surveillance capability sub-programme, as well as the command and control capability sub-programme. Due to chronic funding shortages, the SA Air Force had to narrow its work to improving the availability of systems, particularly the provision of air mobility systems to other services.
2.2.5 Maritime Defence
The South African Navy predicts that required levels of capability are not sustainable within the limited budget. While it achieved most of its performance targets, less money meant that facilities requiring maintenance and upgrade would continue deteriorating and that critical shortages in core musterings could not be remedied. Notwithstanding the above, the SA Navy met most of its targets. However, due to the cancellation of the Military Skills Development System (MSDS) intake, there were fewer accepted apprentices, which meant that of the targeted 4 928 targeted enrolments, only 3 713 could be achieved.
2.2.6 Military Health Support
While this programme reported an achievement of 10 of the 15 targets, a limited budget and critical shortages in health care practitioners continued to impact on the combat readiness of and delivery of medical services by the South African Military Health Services (SAMHS). The measures introduced to strengthen the skills capacity would only bear fruit in the medium to long term. Of the 1.4 million health care activities targeted at the 88 geographical health area facilities, only 1 250 99 activities were recorded due to a lack of funding. Only 779 751 out of the targeted 995 000 health care activities were recorded at the three military hospitals due to the repair and maintenance programmes at these facilities. Available stock levels were not achieved due to limited funds and late delivery by suppliers.
2.2.7 Defence Intelligence
Given the nature of the responsibilities of this programme, objectives, targets and performance information could not be disclosed. While no reasons are provided, it merely disclosed that of the 340 defence intelligence products according to annual schedule and client requirements provided, only 339 had been achieved. Following a series of security breaches at the Ministry, the Department and Armscor,Defence Intelligence instituted counter-intelligence measures.
2.2.8 General Support
This programme achieved 10 of the 17 targets set for the 2011/12 financial year. The facilities utilised by the Department of Defence remain in a state of disrepair and continue to deteriorate and may not be in line with Occupational Health and Safety Standards. The challenges in the relationship between the Departments of Defence and Public Works meant that only 52% compliance to Capital Works Programme had been achieved and refurbishment projects could not be fully completed.
2.3 Overview of budget and financial performance
2.3.1 Budget Vote and spending
For the 2011/12 financial year, the Department received R34, 604 billion which was decreased to
R34 349 billion, during the adjustment period. The Defence budget vote, prior to adjustment, amounted to 1.19% of the Gross Domestic Product or 2.53% of the total government expenditure and represented an increase of 12.66% of the previous year (R30.4 billion in 2010/11). The overall increase in allocation was due to the establishment of the Department of Military Veterans, the execution of the border safeguarding, municipal charges, funding for the new SANDF remuneration dispensation, peace support operations and maintenance of defence capabilities.
Adjustments to the budget decreased the total allocation to the Department by R 233 878 million. Additional adjustments included an unforeseen and unavoidable amount of R81 437 million to fund the SANDF’s participation in anti-piracy efforts in the Mozambican channel; and an additional amount of R200 million to fund personnel remuneration increases.
National-Treasury-approved virements were also recorded. These included R23 493 million reallocated within the Maritime Defence Programme from Goods and Services to Transfer and Subsidies; Public Corporations and Enterprises for cranes, lifts, pumps, generators, gantries, fuel and piping, emergency services harbour services and general upkeep. R0.845 million was also reallocated from the landward defence programme to the administration programme for the payment of the Safety and Security Sector Education and Training Authority (SASSETA).
2.3.2 Audit findings
While the Department received an unqualified audit report, this is mainly due to a conditional departure granted by National Treasury, exempting it from reporting on certain assets in the annual financial statements. For the period under review, the Department was required to only subject the three primary categories of assets – specialised military assets, transport assets and immovable assets - to a full audit. A consistent and well-documented policy had to be submitted on how assets disclosed had been valued and other categories of assets had to be disclosed in an annexure on which the auditors would not express an opinion.
Key findings were made that the Committee believes require greater scrutiny. These relate to compliance with Supply Chain Management laws and regulations, inadequate contract management, the functionality of an internal audit, implementation of senior management performance agreements, adherence to an Information Technology Governance Framework, a classification policy for inventory and assets, and reporting progress on a Capital Assets Plan.
3. 2012/2013 EXPENDITURE TRENDS AND PERFORMANCE AGAINST TARGETS
3.1 Overarching priorities
Ten priorities inform the work of the Secretariat and Department of Defence and Military Veterans and these are:
§ Enhancing the SANDF’s Landward Defence Capability;
Improving maritime security in order to effectively respond
to maritime threats affecting
§ Through approved projects within the defence industry, the Department will contribute to the creation of jobs within available resources;
Given the increasingly central role
§ Defence capabilities will be utilised to provide initial training to selected youngsters, as part of its National Youth Service programme;
§ Transformation and revitalisation of the Reserve Forces continues, in order to fulfil various roles allocated to them to support the Regular Force;
§ The restructuring of the defence industry is set to continue with emphasis on required defence capabilities and sustainability; and
§ Work continues regarding the establishment of the Defence Works Capability, and it is hoped that the in-house capability that will ultimately assume the responsibility of the repair and maintenance of defence facilities will become fully operation and resource.
3.2 Defence budget allocation and first quarter expenditure trends
The Department received a total allocation of R37.4 billion for 2012/13, which constitutes 3.81% of the total appropriation of R969.4 billion. It should be noted that this allocation nominally increased by 9.15%, in real terms, but amounts to 3.07% in real terms in comparison to 2011/12. This increase was expected to be utilised for, amongst others, the execution of border safeguarding, the institutionalisation of the new service dispensation for SANDF members, enhancing the landward defence capabilities, ensuring optimal human and capital acquisition through approved defence industry projects, enhancing the Defence Force’s peacekeeping capability, revitalising the reserve component, and consolidating the SADC’s maritime security strategy.
At the end of the first quarter, the Department had spent R7.6 billion or 20.3% of the total available budget. The spending is below the benchmark by approximately R85.9 million – planned expenditure was set at R7.7 billion. The slight underspending is mainly due to the late invoicing by the national Department of Public Works for municipal services and leases.
Spending on Compensation of Employees exceeded the planned R4.5 billion – it had spent R4.6 billion. This is primarily within the Maritime Defence, Military Health Support and General Support programmes and is due to the additional utilisation of Reserve Forces, payments of Occupational Specific Dispensations and the influx of students into the Defence Works Capability. Expenditure on Payments to Financial Assets amounted to R109.5 million and was used to pay unauthorised expenditure that was not approved by SCOPA and had to be funded within the budget. Payments to capital assets amounted to R64.2 million, exceeding the R47.9 million targetted for this period. This is due to the Air Defence Programme’s procurement of transport equipment.
3.3 Overview of allocations across programmes
3.3.1 The Administration programme represents 9.95% of the total Defence Budget, the fourth largest of the programmes, and it executes the Department’s overall management, administration and policy development. In nominal terms, it increased with 0.33% and in real terms it shows a decrease of -5.26%. Within the Administration programme, sub-programme Office Accommodation is the largest at 50.54% - the sub-programme manages the payment of accommodation charges, leases and municipal services - with the Human Resources Support Services and Financial Services second and third respectively. The Military Veterans Management sub-programme received R 51 million, as opposed to R 45 million the previous year. The increase in the Ministry sub-programme from R56 million in 2010/11 to R65.9 million in 2012/13 is due to the expansion of organisational structures within the office of the minister. The 2012 Estimates of National Expenditure (ENE) discusses the Department of Military Veterans (DMV) in the latter part of the Vote, and the DMV also has a 5-year Strategic Plan (2012 – 2016) and an Annual Performance Plan.
At the end of the first quarter, expenditure was R736 million or R19.7% of the R3.7 billion allocated. Planned expenditure was R905.2 million and the variance is due to the late invoicing of DPW for municipal services and leases.
3.3.2 Force Employment increased with 14.53% in nominal terms and 8.15% in real terms. This programme provides and employs defence capabilities to conduct all operations and exercises. There was a 73% nominal increase in the sub-programme Support to the People, while the Special Operations and Regional Security sub-programmes also saw increases of 14% and 4.75% respectively. There was a substantial decrease in the sub-programme Defence Capability Management of 30%. This may be partly due to the decrease in the number of personnel deployed daily in external operations per year,[i] but the Department needs to expand on this.
Trends in first quarter expenditure, suggest that this programme exceeded targeted expenditure by R94.7 million – it had spent R615.1 million. This is due to internal payments made to the Air Defence programme for the deployment of helicopters used in regional operations.
3.3.3 The Landward Defence programme is the largest
programme in the defence budget encompassing 33.84% to the total budget. It
provides prepared and supported landward defence capabilities for the defence
and protection of
At the end of the first quarter, this programme spent R2.7 billion of its allocated R12.7 billion. Planned expenditure was R2.8 billion and thus planned expenditure was not met by R 51.2 million, mainly due lower expenditure on compensation to employees.
3.3.4 The Air Defence programme is the second largest programme in the Defence budget encompassing 18% of the total budget. It has eight sub-programmes and provides prepared and supported air defence capabilities for the defence and protection of the country. It has seen a 6.20% and a 0.28% increase in nominal and real terms respectively from the previous financial year. The Air Combat capability consumes the largest part of the Air Defence programme with 23.49% which signifies a 2.47% increase from the previous year. The Base Support Capability sub-programme is the second largest sub-programme with 23.23%, also an increase of 1.17%. The Helicopter Capability is the third largest with 13.04% of the Air Defence programme. The nominal decrease of 30.33% in the Transport and Maritime Capability sub-programme is due to the finalisation of the replacement of the Astra training aircraft avionic suite project.
By 30 June 2012, this programme had spent R1.1 billion of its R6.7 billion – behind the targeted R1.2 billion expenditure. This is primarily due to internal payments received from the Force Employment programme for the deployed helicopters used in regional operations.
The Maritime Defence
programme consists of 6.8% of the total defence budget and is responsible for
providing prepared and supported maritime defence capabilities for the defence
and protection of
Expenditure at the end of the first quarter is reported to have exceeded the R69.9 million – the Department spent R605.4 million against the planned R535.4 million expenditure. This overspending is due to the payment of an appreciation allowance to all members and the additional utilisation of the Reserve Force.
3.3.6 The Military Health Support programme consists of 8.85% of the total defence budget. The programme is also the fifth largest programme in the defence budget (comprising 8.85% of the total budget) and saw a slight increase in nominal terms of 0.52% in comparison with 2011/12. The largest sub-programme is the Specialist/Tertiary Health Service sub-programme with 34.47% followed by the Area Military Health Support with 30.22% in terms of the percentage of Programme 6. These are also the largest sub-programmes in monetary terms with R1.017 billion and R1.054 billion respectively.
By 30 June 2012, this programme had exceeded its planned payment by R33.3 million – actual expenditure is recorded at R749.6 million against the planned R716.3 million. The rise in spending is due to the payment of Occupational Specific Dispensation to health care personnel.
3.3.7 The Defence Intelligence is the smallest of the defence programme with an allocation of R 709 million, an increase of 7.26% in nominal terms and an increase of 1.28% in real terms in comparison with 2011/12. It provides a defence intelligence and counter-intelligence capability. It has three sub-programmes of which the largest decrease was in the Strategic Direction sub-programme with a nominal decrease of -97.66% and a real decrease of -97.79%. The other two sub-programmes, namely Operations and Defence Intelligence Support, have increased in nominal terms with 3.92% and 13.23% respectively. The Operations sub-programme is the largest with 59.75% with the Defence Intelligence Support weighing in at 40.25% of the programme’s total budget.
Higher than anticipated cash flow within the Compensation of Employees sub-programme, meant that a higher expenditure was recorded by Defence Intelligence. Actual spending was recorded at R204 million ahead of targeted R202.9 million.
3.3.8 The General Support programme is the third largest programme in the defence budget with 13.54%, and has seen an increase in nominal terms of 22.53% and 17.71% in real terms. The programme consists of five sub-programmes and is responsible for general support capabilities and services to the Department. The Joint Logistic Services is the largest sub-programme comprising 43.63% of the programmes’ allocation. This programme experienced a 2.61% increase in comparison to the previous year. It is followed by the Departmental Support and Command and Management Information System sub-programmes with 21.13 and 20.11 respectively as percentages of Programme 8.
Armscor received transfer ahead of schedule, and this accounts for the higher than anticipated spending during the first quarter. This programme spent R891 million, and this exceeded the R826.1 million anticipated.
The Minister of Defence and Military Veterans is requested to ensure the implementation of the following recommendations:
4.1. As the case in previous years, underperformance against set targets by each programme is attributed to funding constraints. While the Committee recognises the need for an increased allocation, there is a need for better planning and management of the existing budget. This requires the Department to acquire appropriate skills to ensure that strategic objectives are well developed and that performance indicators adequately measure performance.
4.2 SANDF deployments should not be funded with money intended for, and at the expense of, other programmes or activities. We recommend that the Department, in consultation with National Treasury, investigate the establishment of a contingency budget ring-fenced for such deployments. Alternatively, the swift refunding of the Department for cost associated with the deployment of defence capabilities should also be considered.
4.3 The Committee notes that, to date, a comprehensive briefing on the implementation of Operation Corona had not been presented to Parliament, as previously recommended. We urge the Department to submit this information to Parliament as soon as possible. The Committee is of the opinion that, in order for the SANDF to effectively safeguard the borderline, a sufficient number of soldiers have to be deployed to conduct foot, air and vehicle patrols. A comprehensive progress report on the implementation of Operation Corona, including a frank needs-assessment and implementation challenges should be presented to the Committee
4.4 Deteriorating conditions of facilities remain a cause for concern. These conditions not only impact on the morale of the SANDF, but could also threaten the health and safety of our soldiers. As such, the arrangements between the DODMV and the NDPW should be speeded up to ensure that the Defence Works Capability can execute more of the repair and maintenance priorities.
4.5 The Department’s efforts to achieve an unqualified audit opinion are commendable. 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 still remains a major challenge. 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.
5.1 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 the Committee’s previous recommendations, is an outstanding matter.
Report to be considered.
 The Administration programme executes the Department’s overall management, administration and policy development. It consists of 15 sub-programmes with the latest addition being the Department of Military Veterans.
 Force Employment provides and employs defence capabilities including operational capability, to successfully conducts all operations and joint, interdepartmental and multinational military exercises.
 The Landward Defence Programme provides prepared and supported landward capabilities for the defence and protection of South Africa.
 The Air Defence programme provides prepared and supported defence capabilities for the defence and protection of South Africa.
 Maritime Defence provides for prepared and supported maritime defence capabilities for the defence and protection of South Africa.
 The Military Health Support programme provides prepared and supported health capabilities and services for the defence and protection of South Africa.
 Defence Intelligence provides a defence intelligence and counter-intelligence capability.
 The programme provides general support capabilities and services to the Department of Defence