vote : 22 defence and military veterans

VOTE : 22Defence and

Military Veterans

Annual Audited Financial Statements For the year ended

31 March 2012

Scope Purpose of the presentation Breakdown of Appropriation Revenue Composition of expenditure by programme Appropriation statement per programme Appropriation statement per SCOA Statement of Financial Performance and analysis of changes Statement of Financial Position and analysis of changes Statement of changes in Net Assets Cash Flow Statement Departmental revenue Expenditure on compensation of employees Expenditure on goods and services Payments for financial assets Debtors Irregular Expenditure Assets Auditor General’s Report – GDA SDA 2010/11 & 2011/12 Auditor General’s Report – SDA 2

PurposeThe purpose of the presentation is to present Defence’s 2011/12 Annual Financial Statements and the Report of the Auditor General on this statements to the Portfolio Committee for Defence for the year ended 31 March 2012.

3

Breakdown of Appropriation Revenue

-Programmes Final Appropriation

R'000

Actual FundsReceived

2011/12R'000

Appropriation Received 2010/11

R'000

Administration 3 764 768 3 764 768 3 387 775 11.1%

Force Employment 2 358 515 2 358 515 2 265 457 4.1%

Landward Defence 10 962 193 10 962 193 9 295 568 17.9%

Air Defence 6 527 742 6 527 742 5 488 936 18.9%

Maritime Defence 2 574 714 2 574 714 2 349 916 9.6%

Military Health Support 3 400 096 3 400 096 3 150 334 7.9%

Defence Intelligence 653 113 653 113 633 853 3.0%

General Support 4 107 946 4 107 946 3 870 752 6.1%

Total 34 349 087 34 349 087 30 442 591 12.8%

4

Composition of expenditure by programme

5

6

Appropriation per Programme

1. Administration Final AppropriationActual

ExpenditureExpenditure as % of final appropriation

Final Appropriation

Actual Expenditure

Current payment 3,669,353 3,652,874 99.6% 3,307,355 3,307,355

Transfers and subsidies 34,012 32,841 96.6% 32,368 32,368

Payment for capital assets 34,017 34,017 100.0% 29,091 29,091

Payment for financial assets 27,386 27,386 100.0% 18,961 18,961

3,764,768 3,747,118 3,387,775 3,387,775

2. Force Employment

Current payment 2,037,432 2,037,432 100.0% 2,011,507 2,011,507



Payment for financial assets 10 10 100.0% 145 145

2,358,515 2,358,515 2,265,457 2,265,457

3 Landward Defence

Current payment 8,867,194 8,867,194 100.0% 8,568,056 8,568,056

Transfers and subsidies 1,795,945 1,795,945 100.0% 496,613 496,613



10,962,193 10,962,193 9,295,568 9,295,568

4 Air Defence

Current payment 4,599,263 4,599,263 100.0% 4,040,974 4,040,974

Transfers and subsidies 1,869,640 1,869,640 100.0% 1,400,474 1,400,474


Payment for financial assets 425 425 100.0% 5,422 5,422

6,527,742 6,527,742 0.0% 5,488,936 5,488,936

7

Appropriation per Programme

4 Air Defence Final

AppropriationActual

Expenditure

Expenditure as % of final

appropriation Final

Appropriation Actual

Expenditure Current payment 4,599,263 4,599,263 100.0% 4,040,974 4,040,974

Transfers and subsidies 1,869,640 1,869,640 100.0% 1,400,474 1,400,474


Payment for financial assets 425 425 100.0% 5,422 5,422

6,527,742 6,527,742 0.0% 5,488,936 5,488,936

5 Maritime Defence Current payment 2,095,632 2,095,632 100.0% 1,912,053 1,912,053




2,574,714 2,574,714 0.0% 2,349,916 2,349,916

6 Military Health Support Current payment 3,292,936 3,292,936 100.0% 3,026,415 3,026,415




3,400,096 3,400,096 0.0% 3,150,334 3,150,114

7 Defence Intelligence Current payment 239,947 239,947 100.0% 222,359 222,359




653,113 653,113 0.0% 633,853 633,853

8 General Support Current payment 2,452,366 2,452,366 100.0% 2,458,243 2,458,243

Transfers and subsidies 1,107,368 1,107,368 100.0% 998,392 998,392



4,107,946 4,107,946 0.0% 3,870,752 3,870,752

Analysis of Changes

Increase in programme Administration due to the increase in the devolved funds from NDPW and salary increases together with the implementation of the new defence force remuneration systems.

Increase in programme Landward Defence due to the maintenance of the current defence capabilities.

Increase in programme Air Defence mainly due to the maintenance of the current defence capabilities.

Increase in programme Maritime Defence due to the maintenance of the current defence capabilities.

Increase in programme Military Health Support due the maintenance of the current defence capabilities.

8

Analysis of Changes Increase in programme Defence Intelligence due to the

implementation of the new defence force remuneration systems.

Increase in programme General Support due to the implementation of the new defence force remuneration systems.

Increase in programme Force employment due to the strengthening and consolidation of border safeguarding as well as sustaining peace missions as per Cabinet decision.

9

10

Appropriation per Economic classification

2010/11Final

AppropriationActual

ExpenditureExpenditure as %

of final appropriation

Final Appropriation

Actual Expenditure

R'000 R'000 % R'000 R'000 Current payments

Compensation of employees 17,577,366 17,568,980 100.0% 16,597,098 16,597,098

Goods and services 9,676,559 9,668,466 99.9% 8,949,864 8,949,864 Interest and rent on land - - 0.0% - - Transfers and subsidies Provinces & municipalities - - 0.0% - -

Departmental agencies & accounts 4,879,109 4,877,938 100.0% 3,024,728 3,024,728 Universities & technikons - - 0.0% - -

Foreign governments & international organisations - - 0.0% - -

Public corporations & private enterprises 890,749 890,749 100.0% 737,510 737,510 Non-profit institutions 6,317 6,317 100.0% 5,407 5,187

Households 102,838 102,838 100.0% 120,592 120,592 Gifts and donations - - 0.0% - - Payments for capital assets

Buildings & other fixed structures 279,685 279,685 100.0% 251,203 251,203

Machinery & equipment 697,108 697,108 100.0% 581,388 581,388 Heritage assets - - 0.0% - - Specialised military assets - - 0.0% 7,599 7,599 Biological assets 622 622 100.0% 71 71 Land & subsoil assets - - 0.0% - - Software & other intangible assets 76 76 100.0% 132 132


Total 34,349,087 34,331,437 99.9% 30,442,591 30,442,371

Analysis of Changes Increase in Compensation of employees due to improvements in conditions of

service for soldiers and Military skills development initiative.

Increase in Goods and Services due to higher expenditure on Advertising, Entertainment (Military Attaches), Audit costs (Forensic and SDA - 2 years), Property payments, Venues and facilities and other operating expenditure (Aircraft chartering).

Decrease in transfers and subsidies to households due to the decrease in the number of officials exiting the department through EISP and MEM.

Increase in transfers and subsidies to departmental agencies and accounts due to SDA allocation.

Increase in transfers and subsidies to public corporations and private enterprises due to additional transfer made for the Navy Dockyard.

11

Analysis of Changes

Increase in transfers and subsidies to non-profit institutions due to yearly adjustments.

Increase in buildings and other fixed structures due to the upgrading of the runway at AFB Waterkloof.

Increase in machinery and equipment due to acquisition of UHF tactical equipment, warrior shelters systems and ambulances for the presidential Military Unit.

Decrease in Specialised Military Assets due to the reclassification of capital assets expenditure to inventory.

Increase in payment for financial assets due to unauthorised expenditure written-off.

12

13

DEPARTMENT OF DEFENCE AND MILITARY VETERANSVOTE 22

Statement of Financial Performancefor the year ended 31 March 2012

Note 2011/12 2010/11R'000 R'000

REVENUE

Annual appropriation 1 34 349 087 30 442 591Departmental revenue 2 4 269 010 689 688TOTAL REVENUE 38 618 097 31 132 279

EXPENDITURECurrent expenditureCompensation of employees 3 17 568 980 16 597 098Goods and services 4 9 668 466 8 949 864Total current expenditure 27 237 446 25 546 962

Transfers and subsidies 6 5 877 842 3 888 017

Expenditure for capital assetsTangible capital assets 7 977 415 840 261Software and other intangible assets 7 76 132Total expenditure for capital assets 977 491 840 393

Payments for financial assets 5 238 658 166 999

TOTAL EXPENDITURE 34 331 437 30 442 371

NET SURPLUS FOR THE YEAR 4 286 660 689 908

Reconciliation of Net Surplus for the yearVoted Funds 15 17 650 220Departmental revenue 16 4 269 010 689 688

NET SURPLUS FOR THE YEAR 4 286 660 689 908

Analysis of Changes Increase in departmental revenue due to the deposit refund in

cancellation of the A400 contract.

Increase in expenditure on Compensation of employees due to annual salary increases.

Increase in Transfers and Subsides mainly due to the increase in SDA allocation.

Increase in expenditure on Tangible capital assets due to the upgrading of the runway at AFB Waterkloof.

Decrease in expenditure on Software and other intangible assets due to upgrade done in 2010/11 FY.

14

15

DEPARTMENT OF DEFENCE AND MILITARY VETERANS

VOTE 22

Statement of Financial Position

as at 31 March 2012

Note 2011/12 2010/11

R'000 R'000

ASSETS

Current assets 669 026 741 344 Unauthorised expenditure 8 60 918 60 918

Fruitless and wasteful expenditure 9 20 29

Cash and cash equivalents 10 64 557 61 932

Prepayments and advances 11 131 620 75 293

Receivables 12 399 549 530 810

Loans 14 12 362 12 362

Non-current assets 75 000 75 000 Investments 13 75 000 75 000

TOTAL ASSETS 744 026 816 344

16


VOTE 22

Statement of Financial Position

as at 31 March 2012

LIABILITIES

Current liabilities 492 376 599 428 Voted funds to be surrendered to the Revenue Fund 15 17 650 220

Departmental revenue to be surrendered to the 2 639 4 139

Revenue Fund 16 - -

Bank overdraft 17 403 800 538 000

Payables 18 68 287 57 069

TOTAL LIABILITIES 492 376 599 428

NET ASSETS 251 650 216 916

Represented by:Capitalisation Reserves 75 000 75 000

Recoverable revenue 176 650 141 916

TOTAL 251 650 216 916

Analysis of Changes Increase in cash and cash equivalents due to the increased need for

cash in operational areas as well as inflation.

Increase in prepayments and advances due to backlog in S&T advances in international operations.

Decrease in receivables due to Unauthorised expenditure written off (Positive).

Increase in Voted funds to be surrendered due to under spending largely in Military Veterans environment.

Decrease in bank overdraft also due to Unauthorised Expenditure written off which was financed by the bank overdraft (Positive).

Increase in Payables due to invoices received at year end which could not be paid on time

17

18


VOTE 22

Statement of Changes in Net Assets

for the year ended 31 March 2012

Note 2011/12 2010/11

R'000 R'000

Capitalisation Reserves

Opening balance 75 000 75 000

Other movements -

-

Closing Balance 75 000 75 000

Recoverable revenue

Opening balance 141 916 131 404

Transfers 34 734 10 512

Irrecoverable amounts written off (2 329) (3 326)

Debts revised (7 207) (5 975) Debts recovered (included in departmental receipts) (106 249) (27 135)

Debts raised 150 519 46 948

Closing balance 176 650 141 916

TOTAL 251 650 216 916

19

DEPARTMENT OF DEFENCE AND MILITARY VETERANSVOTE 22

Cash Flow Statementfor the year ended 31 March 2012

Note 2011/12R'000

2010/11R'000

CASH FLOWS FROM OPERATING ACTIVITIESReceipts 38 539 178 31 109 211

Annual appropriated funds received 1 34 349 087 30 442 591Departmental revenue received 2 4 190 091 666 620

Payments Net decrease/(increase) in working capital 86 161 175 860 Surrendered to Revenue Fund (4 270 730) ( 688 929) Current payments (27 237 446) (25 546 962) Payments for financial assets ( 238 658) ( 166 999) Transfers and subsidies paid (5 877 842) (3 888 017)

(37 538 515) (30 115 047)

Net cash flows available from operating activities 19 1 000 663 994 164

CASH FLOWS FROM INVESTING ACTIVITIESPayments for capital assets 7 ( 977 491) ( 840 393)Proceeds from sale of capital assets 2.4 78 919 23 068Net cash flows from investing activities ( 898 572) ( 817 325)

CASH FLOWS FROM FINANCING ACTIVITIESIncrease/(decrease) in net assets 34 734 13 837Net cash flows from financing activities 34 734 13 837

Net increase/(decrease) in cash and cash equivalents 136 825 190 676Cash and cash equivalents at beginning of period ( 476 068) ( 666 744)Cash and cash equivalents at end of period 20 ( 339 243) ( 476 068)

Departmental Revenue

20

2011/12R'000

2010/11R'000

Sales of goods and services other than capital assets

292 210 263 989 10.7%

Fines, penalties and forfeits

894 4 459 -80.0%

Interest, dividends and rent on land 162 779 2 628 6094.0%

Sales of capital assets 78 919 23 068 242.1%

Transactions in financial assets in liabilities 3 374 002 144 777 2230.5%

Transfer received 360 206 250 767 43.6%

Departmental revenue collected 4 269 010 689 688 519.0%

Analysis of Changes

Increase of goods and services other than capital assets due to increase in receipts for board and lodging and housing rent.

Decrease in fines, penalties and forfeits due to the Garnishee orders receipts not being recognised as revenue.

Increase in sales of capital assets due to more obsolete and redundant assets sold.

Increase in financial assets and liabilities due to forex gain in the cancellation of A400 transaction.

Increase in transfers received due to more funds received from the United Nations for participation in Peace Support Operations.

21

Compensation of Employees

22

2011/12R'000

2010/11R'000

Salaries and wages

Basic salary 7.0% 11 220 960 10 483 192

Performance award -99.8% 215 111 480

Service Based 3.8% 50 464 48 598

Compensative/circumstantial -5.9% 1 716 919 1 825 212

Other non-pensionable allowances 14.1% 2 704 915 2 371 257

Total 5.8% 15 693 473 14 839 739

Social contributions

Employer contributions

Pension 6.3% 1 773 449 1 669 043

Medical 15.7% 101 379 87 650

Bargaining council 2.0% 679 666

Total 6.7% 1 875 507 1 757 359

Total compensation of employees 5.9% 17 568 980 16 597 098

Average number of employees

2.2% 78 824 77 125

Analysis of Changes Increase in basic salary due to annual increases and the new

remuneration system.

Decrease in performance awards due to new system being implemented which resulted in no bonuses paid.

Increase in other categories related to the new Military Salary Dispensation and the general salary increase.

23

Goods and Services

24

2011/12R'000

2010/11R'000

Administrative fees 6 243 10 318 -39.5%

Advertising 6 874 5 553 23.8%

Assets less then R5,000 130 850 108 647 20.4%

Catering 35 936 38 016 -5.5%

Communication 94 130 88 873 5.9%

Computer services 861 234 856 280 0.6%

Consultants, contractors and agency/outsourced services 4 220 838 3 999 364 5.5%

Entertainment 10 620 9 170 15.8%

Audit cost – external 56 432 49 972 12.9%

Inventory 1 929 175 1 787 881 7.9%

Goods and Services- Continued

25

2011/12R'000

2010/11R'000

Operating leases 248 777 259 120 -4.0%

Property payments 761 584 580 930 31.1%

Travel and subsistence 733 171 728 501 0.6%

Venues and facilities 19 515 9 972 95.7%

Training and staff development 127 520 118 977 7.2%

Other operating expenditure 425 567 298 290 42.7%

Total 9 668 466 8 949 864 8.0%

Analysis of Changes Decrease in administrative fees due to large amounts paid to travel

agencies for the 2010 FIFA World Cup in the previous year.

Increase in advertising due to an approved advertising campaign including billboards and other media.

Increase in entertainment expenditure is due to increased diplomatic ties with foreign countries.

Increase in audit cost due to forensic audits and SDA audit for two financial years.

26

Analysis of Changes Increase in property payments due to increase in municipal taxes,

rental and electricity.

Increase in venues and facilities due to increased number of seminars and symposia held.

Increase in other operating expenditure mainly due to aircraft chartering.

27

Payments for Financial Assets

28

2011/12R'000

2010/11R'000

5. Payments for financial assets

Other material losses written off 235 572 158 873 48.3%Debts written off 2 585 2 199 17.6%Forex losses 501 5 927 -91.5%

Total 238 658 166 999 42.9%5.1 Other material losses written off

Nature of losses

Settlement 1,575 4,811 -67.3%

Miscellaneous 2 -

Motor vehicle losses 1,569 1,714 -8.5%

Other claims against the state 358 442 -19.0%

Legal opinions 2,462 4,068 -39.5%

Legal fees 25,471 18,540 37.4%

Interest claims - 29 -100.0%

Fruitless and wasteful expenditure 1 880 -99.9%

Spectacle losses - 3 -100.0%

Unauthorised expenditure written off 204,134 128,386 59.0%

Total 235,572 158,873 48.3%

Analysis of Changes

Other material losses written-off

Decrease in expenditure on settlements due to substantive claims in previous year not repeated.

Increase in expenditure on legal fees due to additional legal assistance utilised by the DOD.

Write-off of unauthorised expenditure which occurred in previous financial years (Rm204,134).

29

Debtors

30

Receivables

Less than one year

R'000

One to three yearsR'000

Older than three yearsR'000

2011/12TotalR'000

2010/11TotalR'000

Claims recoverable 12.1 & Annex 4 53 897 2 102 2 240 58 238 7 031

Staff debt 12.2 61 895 8 295 12 280 82 471 67 152

Other debtors 12.3 63 837 23 012 171 991 258 840 456 627

Total 179 629 33 409 186 511 399 549 530 810

Analysis of Changes Increase in claims recoverable is mainly due to debtor arose from

the Provincial Government of KZN.

Increase in staff debt mainly due to losses of state money and studies at state expense.

Decrease in other debtors is mainly due to unauthorised expenditure written off included in debtors (Rm 204 134).

31

Irregular Expenditure

32

27. Irregular expenditure

27.1 Reconciliation of irregular expenditure 2011/12R'000

2010/11R'000

Opening balance 876 029 1 765 277Add: Irregular expenditure - relating to prior year

64 313 139

Add: Irregular expenditure - relating to current year

350 364 688 575

Less: Amounts condoned

( 571 890) (1 522 522)

Less: Amounts recoverable (not condoned) ( 10) ( 55 440)

Less: Amounts not recoverable (not condoned)

-

-

Irregular expenditure awaiting condonement

718 806 876 029

Analysis of awaiting condonement per age classification

Current year 340 518 584 114Prior years 378 288 291 915Total 718 806 876 029

Irregular Expenditure cont…

33

27.2 Details of Irregular expenditure - Current Year

IncidentDisciplinary steps taken/criminal proceedings

Procurement without Financial Authority and Government Order Under investigation to determine

responsible official. 12 411

Contract irregularities Under investigation to determine responsible official.

4 106

Other matters The member was released from his cashier duties while under going corrective training.

3

Exceeding delegated powers Under investigation to determine responsible official.

39

Deviation from the Bidding process. Submission for condonement in process to NT.

271 262

No declaration of interest by prospective suppliers

Under investigation to determine responsible officials.

9,391

Sub-division of requirements Under investigation to determine responsible officials.

1,056

No declaration of interest by SCM officials

Under investigation to determine responsible officials.

61

Sourcing of aircraft No disciplinary action required. Submission submitted to NT.

52,036

Total 350 364

Irregular Expenditure cont…

34

27.3 Details of irregular expenditure condonedIncident Condoned by (condoning authority)Procurement without Financial Authority and Government Order

Central Commercial Procurement Sub-Committee and CFO.

126 848

A400M Airbus. Day to day operational costs.

Prosecution and Recovery committee.

38 027

Other matters Prosecution and Recovery committee and CFO.

821

Performance incentivesAccounting Officer. 112 003

Contract irregularities Prosecution and Recovery committee and CFO.

8 001

Exceeding delegated power Prosecution and Recovery committee.

6 335

Deviation from Bidding process Prosecution and Recovery committee, CFO and AO.

190 443

Deviation from Payment Process Prosecution and Recovery committee, CFO and AO.

88 736

Sub division of requirements Prosecution and Recovery committee.

676

571 890

Assets

35

33.Movable Tangible Capital Assets

MOVEMENT IN MOVABLE TANGIBLE CAPITAL ASSETS PER ASSET REGISTER FOR THE YEAR ENDED 31 MARCH 2012

Opening balance

Current year adjustments to prior year balances

Additions DisposalsClosing balance

R'000 R'000 R'000 R'000 R'000

MACHINERY AND EQUIPMENT 7 759 132 (6 398 096) 391 629 47 1 752 618

Transport assets 7 759 132 (6 398 096) 391 629 47 1 752 618

SPECIALISED MILITARY ASSETS 37 709 720 (19 641 342) 2 041

- 18 070 419

Specialised military assets 37 709 720 (19 641 342) 2 041

- 18 070 419

TOTAL MOVABLE TANGIBLE CAPITAL ASSETS 45 468 852 (26 039 438) 393 670 47 19 823 037

Analysis of adjustments to prior year closing balances

36

- Assets acquired prior to 1 April 2002 disclosed at various values instead of R1.

- Inventory incorrectly classified as capital assets.

- Removal of duplicated assets.

- Incorrect classifications.

- Removal of assets disposed of.

- Elimination of values relating to assets disclosed at weighted average prices.

Assets cont…

37

34.Immovable Tangible Capital AssetsMOVEMENT IN IMMOVABLE TANGIBLE CAPITAL ASSETS PER ASSET REGISTER FOR THE YEAR ENDED 31 MARCH 2012

Opening balance

Curr year adjustments to prior year

balances Additions DisposalsClosing balance

R'000 R'000 R'000 R'000 R'000 BUILDINGS AND OTHER FIXED STRUCTURES 15,421,191

-

- 15 421 191

Dwellings

-

-

-

-

-

Non-residential buildings

- 15,421,191

-

- 15,421,191

Other fixed structures

-

-

-

-

-

HERITAGE ASSETS

-

-

-

Heritage assets

-

-

-

-

-

TOTAL IMMOVABLE TANGIBLE CAPITAL ASSETS

- 29 210 811

-

- 29 210 811

Auditor General’s Report

38

Audit Outcome

Unqualified Report

39

Summary of the findings• Unqualified report

• Emphasis of Matters Financial Reporting Framework - Departure Restatement of Corresponding Figures for Movable Tangible Capital

Assets

• Other Matters Achievement of planned targets Material Adjustments to Annual Performance report Strategic planning and performance management Human Resource Management and Compensation Internal Audit Annual Financial Statements, Performance and Annual report Procurement and Contract Management

40

DOD AUDIT REPORT AND ACTION PLANS

For the year ended

31 March 2012

41

Audit Outcome - Matters of Emphasis

Emphasis of matters paragraphs are included in the auditor’s report in order to highlight them for the benefit of the users of the financial statements.

There are 2 matters of emphasis in the report:

42

Audit Outcome - Matters of Emphasis continuation

Financial Reporting FrameworkAs disclosed in note 33 to the financial statements, the National Treasury has granted the department a departure from the Departmental Financial Reporting Framework. In terms of this departure, the department only has to disclose information for the categories of specialised military, transport and immovable assets and not the other categories of assets as required by National Treasury in the Departmental Financial Reporting Framework as set out in the accounting policy note.

Restatement of corresponding figuresThe corresponding figures for movable tangible capital assets were adjusted in disclosure note 33 as current year adjustments to prior year balances.

43

GDA 10/11 11/12 Main Finding

Financial reporting framework

- EoM As disclosed in note 33 to the financial statements, the National Treasury has granted the department a departure from the Departmental Financial Reporting Framework.

AG findings Emphasis of Matter Items

44

Reasons for the departure:• The DOD is operating multiple non-integrated Logistical systems

resulting in the DOD’s AFS being qualified on assets in 2010/11 financial year.

• To correct this the DOD focused on correcting Specialised Military, Transport and Immovable assets during FY 2011/12.


Restatement of corresponding figures

EoM EoM The corresponding figures for movable tangible capital assets were adjusted in disclosure note 33, current year adjustments to prior year balances.

Reasons for the corrections made:• In the previous year the DOD could not provide sufficient appropriate

audit evidence to support the amount disclosed, and the records did not permit the application of alternative audit procedures.

• In the year under review the additions, disposals, and closing balances for these categories of assets were supported by the asset register and adequate records, necessitating adjustments to the opening balances.

AG findings and corrective action Emphasis of Matter Items

45

Other Matter ItemsGDA 10/11 11/12 Main Finding

Achievement of planned targets

- OM Of the total number of planned targets, only 119 were achieved during the year under review. This represents 43% of total planned targets that were not achieved during the year under review.

46

Measures and Completion Dates

• This is mainly due to the fact that indicators and targets were not suitably developed during the strategic planning process.

• Appropriate processes of developing targets has been developed to rectify this situation as follows:


Achievement of planned targets cont…

- OM Of the total number of planned targets, only 119 were achieved during the year under review. This represents 43% of total planned targets that were not achieved during the year under review.

47

• The department has adopted the SMART criteria for developing

indicators and targets in its Strategic Planning Framework. • The department has also instituted a Performance Information

Management Steering Committee to approve all performance indicators in terms of the SMART criteria.

• All future indicators will have a technical indicator description / datasheet which will give the description, purpose, calculation, responsibility etc. of the indicator to ensure better developed indicators and targets during the planning process phase.


Leadership - OM The department did not have sufficient monitoring controls for the overall process of reporting, and regular reviewing of information to ensure the accuracy and completeness of financial and performance information. Management did not always have approved updated policies and procedures, to guide management at the lowest level to ensure compliance with National Treasury disclosure requirements, and the Framework for Managing Programme Performance Information.”

48

Other Matter Items – Leadership cont…

49

Control Measures put in place

• The department’s effort in developing an Interim Department of Defence Instruction POL&PLAN/00001/2011 (Edition 1) DS/CDPSP/R/501/8/P dd 10 April 2012 was approved and promulgated by the Sec Def and C SANDF on the 10 April 2012 thereby ensuring the directing, management and reporting of departmental performance information and the associated activities related thereto for FY2012/13.

• A final approved and promulgated corporate policy will be finalised within the interim period of 12 months, thus before the end of the FY2012/1 and communicated to all staff to ensure that they know and understand what is expected from them.


Financial and performance management

- OM Existing manual and automated controls were not designed to ensure adequate record keeping to support accurate and complete financial and performance reporting which is accessible and available as required by National Treasury”.

50

Other Matter Items – Financial Performance and management cont…

51

Control Measures put in place

• Various initiatives regarding Information Technology (IT) systems have been embark on the address the management of performance information within Defence. However, these performance information systems/enablers have proved inadequate to fully address the strategic management requirement of Defence especially due to the ever-increasing planning, budgeting and reporting requirements over the past few years by National Treasury and more recently by the newly established Department for Performance Monitoring and Evaluation (DPME) in the Presidency.

• To ensure that the IT systems that support the management of performance information within the Department do not evolve in a fragmented manner, an Integrated Strategic Management Enabler (ISME) is being proposed and requested from CMIS / SITA.

AG findings and corrective action Other Matter Items


Material adjustments to the annual performance report

- OM Material audit adjustments in the annual performance report were identified during the audit, all of which were corrected by management.

Root Causes• DOD systems were not designed for an accrual accounting basis and

some are still manual and therefore prone to risks of human error.

• While training on accruals was done across the various units staff transfers and changes of personnel took place.

• Major revaluation of asset values as a result of the policy changes emanating from Treasury approval for departure.

52



Material adjustments to the annual performance report

- OM Material audit adjustments in the annual performance report were identified during the audit, all of which were corrected by management.

Measures and Completion dates• Development of enhancements to ensure that GRV’s are recorded and

required as part of the payment process.

• Road shows are planned again and further training will be provided.

• Continuous evaluation of progress will be assessed as part of the quarterly interim financial reporting.

53



Strategic planning and performance management

- OM The accounting officer did not provide Parliament with the strategic plan and annual performance plan relating to the SANDF programmes at least 10 days prior to the discussion of the department’s budget vote as required by Treasury Regulation (TR) 5.2.2.

Corrective Actions

• The plan was subsequently tabled in Parliament on 30 March 2012.

• CSANDF appointed a delegate who will in future attend to the tabling of the plans personally.

54

Other Matter ItemsGDA 10/11 11/12 Main Findings

Human resource management and compensation

OM OM Some senior managers did not enter into a performance agreement for the current year as per the requirements of PSR 4/III/B.1 and Department of Defence Instruction: POL and PLAN No. 00065/2002 (Edition 2) dated 1 January 2005.

Measures and Completion Dates • Issue requests for submission of performance agreements at the beginning of each calendar year to ensure that all affected members are aware of the submission target date of 31 May 2012.

• Issue notifications timely via the intranet.

• Issue notifications for the submission of the outstanding performance agreements to the Chiefs of Services and Divisions.

• Inform Secretary of Defence and Chief SANDF about non-compliance by senior managers.

55

GDA 10/11 11/12 Main Findings

Human resource management and compensation

OM OM Some employees received overtime compensation in excess of 30% of their monthly salaries, in contravention of PSR 1/V/D.2(d) and Department of Defence Instruction: POL and PLAN No. 00018/2004 (Edition 1) dated 1 November 2005.

56


Human resource management and compensation (continued)

Measures and Completion Dates • In order to ensure compliance, the DOD has implemented the following measures:• A DOD Instruction was promulgated to inform Services and Divisions about the approval process for overtime exceeding 30% basic salary.

• Furthermore, CHR will revisit the policy and reduce the delegation of approval from Minister to the relevant Authority without compromising compliance.

• The PERSOL system was enhanced to block the capturing of transactions exceeding 30% of monthly salary with effect from 01 May 2012.

•SAMHS also promulgated an instruction to regulate the capturing of overtime above 30% of monthly salary.

•A submission to obtain authority from the Minister of Defence and Military Veterans for the overtime worked is in process.

57



Annual financial statements, performance and annual report

OM OM The financial statements submitted for auditing were not prepared in all material respects in accordance with the requirements of section 40(1)(a) of the PFMA.

60

LEGEND - OM: Other Matter EOM: Emphasis of Matter Q: Qualification

Corrective Actions • This finding relates to material misstatements on capital assets

identified by the auditors which were subsequently corrected, resulting in the financial statements receiving an unqualified audit opinion.

• Policies and processes need to be updated and this will be done in the short and medium term by means of own (restricted) capabilities and external staff support by means of contracting.



Procurement and contract management

OM OM • In some instances goods and services of a transaction value above R500 000 were procured without inviting competitive bids as required by TR 16A6.1 and TR 16A6.4.

61

AG findings and corrective action Other Matter Items – Procurement and contract management

62

Corrective Measures (SCM Findings)

• Policy and Prescripts. A comprehensive review of the Supply Chain Management Policy Regime is currently in process. The review will include DODI on procurement, all relevant procurement regulations and procurement delegations.

• Vetting of SLA’s, contracts, etc. To be done by legal services prior to signing of procurement contracts.

• Publishing bidders details on website for all req >R500k. Done within 10 days after closure of the bid.

• Verifying ID numbers of bidders against departments post establishment table. Must use the revised SBD 4 “Declaration of Interest” document and this must be done for price quotations and bids.

• Procurement Road-show. To be conducted to interface with procurement officials.

Other Matter ItemsGDA 10/11 11/12 Main Findings

Procurement and contract management

OM OM In some instances employees of the department performed or engaged themselves to perform remunerative work outside their employment in the department without written permission from the relevant authority as per the requirements of section 30(b) of the Public Service Act and section 52.5 (a) of the Defence Act 42 of 2002.

Measures and Completion Dates

• C HR requested Services and Divisions to instruct their level 3 and 4 officers commanding to ensure that appropriate audit evidence are kept on file where approval was granted to their employees to perform remunerative work outside their employment.• The policy on remunerative work is under review for completion and implementation.• Investigations are in process on the reported cases.

63

SPECIAL DEFENCE ACCOUNT

64

SPECIAL DEFENCE ACCOUNTSequence of Events Financial Statements for the Special Defence Account (SDA) have

always been prepared on an Entity Specific accounting framework as approved by the National Treasury (NT) prior to the financial year 2010/2011.

Change in South African Auditing Practice Statements 2 (SAAPS 2) in October 2010 excluded Entity Specific accounting framework as an approved accounting framework for the Public Sector.

NT letter dated 18 May 2011 instructed the DOD that as a deemed unlisted Public Entity, prepare financial statements in terms of GRAP but left which option DOD could utilise in terms of the GRAP framework.

65

SPECIAL DEFENCE ACCOUNTSequence of Events Financial statements for the SDA are now prepared in accordance

with GRAP (ASB).

The application of GRAP 104 (accounting for financial instruments) instead of GRAP 6 (consolidated financial statements) was approved by the Minister of Finance on 03 May 2012 as an exemption for the SDA – approval granted until 31 March 2013.

Financial Statements of the SDA for the year ended 31 March 2011 are now included in Annual Report for 2011/12.

66


SDA 2011

67

Statement of Financial Performance

2010/11 2009/10

R'000 R'000

Note

REVENUE 3 182 452 11 717 268

Revenue from non-exchange transactions 3 3 094 766 8 685 260

Revenue from exchange transactions 4 87 686 2 962 030

Foreign Exchange gain 16 - 69 978

EXPENDITURE 4 948 835 5 357 175

Operating expenditure 5 4 857 199 5 357 175

Foreign Exchanges losses 16 91 636 -

(1 766 383) 6 360 093

68

Analysis of major changesStatement of Financial Performance

• The decrease in the Revenue from non-exchange transactions is due to the Strategic Defence Procurement Packages (SDP’s) nearing completion.

• The decrease in the Revenue from Exchange transaction is due to the fact that in the previous financial year, there was the first time recognition of the debtor from the A400 contract cancellation.

69

Statement of financial Position2010/11 2009/10

R'000 R'000

ASSETS

NoteCurrent assets 7 357 647 9 276 681

Cash and cash equivalents 6 3 594 217 5 455 437Receivables from exchange transactions 7 3 714 283 3 812 737Receivables from non-exchange transactions

8 49 147 8 507

Non-current assets 36 776 48 642 Receivables from Non-exchange transactionsOther financial assets

89

-36 776

14 60234 040

TOTAL ASSETS 7 394 423 9 325 323

70

Statement of Financial Position2010/11 2009/10R'000 R'000

LIABILITIESNote

Current liabilities 269 285 376 896

Payables from exchange transactions 10 156 741 170 185 Payables from non-exchange transactions 11 35 020 34 690 Funds to be surrendered to NRF 12 53 986 149 858

Other financial liabilities 13 23 538 22 163

Non-current liabilities - 2 920 Payables from exchange transactions 10 - 2 920

TOTAL LIABILITIES 269 285 379 816

TOTAL NET ASSETS 7 125 138 8 945 507

NET ASSETSReservesAccumulated Surplus 7 125 138 8 945 507

Net Assets 7 125 138 8 945 50771

Analysis of major changesStatement of Financial

Position Change in cash and cash equivalents was due to a decrease in

the revenue from non-exchange transactions.

The decrease in the non-exchange transactions is a result of the Strategic Defence Procurement Packages(SDP’s) nearing completion.

72

Statement of Changes in Net Assets

2010/11 2009/10

R'000 R'000

Note

Balance at the beginning of the year 8 945 507 2 735 272

As previously stated 3 8 118 161 2 116 486

Change in Accounting Policy 24 827 346 618 786

Distribution to the NRF (53 986) (149 858)

(Deficit)/Surplus for the year (1 766 383) 6 360 093

As previously stated 24 6 055 587 Change in accounting policy 23 358 418 Prior period error (53 912)

7 125 138 8 945 507

73

The decrease in the Net Assets is due to the net loss incurred in this reporting period.

The loss was financed from the SDA Reserves.

74

Analysis of major changesStatement of Changes in Net Assets

Analysis of changesCash Flow Statement

• The decrease in cash and cash equivalents was mainly due to the decrease in the revenue from non-exchange transactions (decrease in SDP’s activity).

76

Auditor General’s Report2010/11

77

Summary of the findings

• Emphasis of Matter items on Significant uncertainties Fruitless and wasteful expenditure

• Other Matter items on Annual financial statements and annual reporting Procurement process and contract management

79




80


Significant uncertaintiesAs disclosed in note 20 to the financial statements, the SDA through the Department of Defence and its service provider is a defendant in certain lawsuits. The outcome of these lawsuits cannot be determined at present and no provision has been made for any liabilities that may result.

Fruitless and Wasteful ExpenditureAs disclosed in note 22 to the financial statements,

fruitless and wasteful expenditure of R110 414 000 was incurred after the reinstatement of a contract that had previously been cancelled.

81

SDA AUDIT REPORT AND ACTION PLANS

For the year ended

31 March 2011

82

SDA 09/10 10/11 Main Finding

Significant uncertainties

- EoM As disclosed in note 20 to the financial statements, the SDA through the Department of Defence and its service provider is a defendant in certain lawsuits. The outcome of these lawsuits cannot be determined at present and no provision has been made for any liabilities that may result.


83

Progress made in clearing/resolving the matter:• The matter was considered in Lisbon and the Court found in favour of

Armscor. • The Lisbon Court ruled that it has no jurisdiction to hear the matter.

The plaintiffs have filed an appeal. • Armscor filed a counter argument during February 2012 requesting the

dismissal of the appeal. The date for the hearing of the appeal has not yet been set down.


Fruitless and Wasteful Expenditure

- EoM As disclosed in note 22 to the financial statements, fruitless and wasteful expenditure of R110 414 000 was incurred after the reinstatement of a contract that had previously been cancelled.


84

Progress made in clearing/resolving the matter:The matter referred to in this case was discussed at the relevant parliamentary committee dealing with Intelligence matters and is receiving attention.


Annual financial statements and annual reporting

- OM Due to delays in finalising the accounting framework to be adopted for the 2010-11 financial year and the late preparation thereof in terms of SA Standards of GRAP, the accounting officer could not submit the financial statements for auditing within two months after the end of the financial year, as required by section 40(1)(c) of the PFMA. Furthermore, as a result of the delays, the accounting officer could not comply with the requirements of section 40(1)(d) of the PFMA to submit the financial statements and audit report of 2010-11 to the executive authority within five months after the end of the financial year.

85

Corrective Actions• This was as a result of a change in the basis of accounting from Entity

Specific to Generally Recognised Accounting Practices for Public Entities. • As a result of that requirement the financial statements had to be reproduced

and the numbers restated for the two financial years ended 31 March 2010 and 2011 respectively.

• These financial statements have, in order to enhance the proper presentation and relevance of the financial state of affairs of the SDA, been included in the Annual Report of the Vote 22 and are now presented as part of the Vote.


Procurement process and contract management

- OM The correct procedures were not followed when signing the contract for a major capital project, as this contract was not recommended by the constituted adjudication committees as prescribed by the supply chain management policy. This non-compliance also resulted in possible financial misconduct as per section 81(1) of the PFMA. This financial misconduct was not reported to the National Treasury as per section 85 of the PFMA.

86

Corrective ActionsA board of inquiry will be instituted to conduct a full investigation and provide a

report which will guide the processes to resolve this matter.


SDA 2011/12

87

During the 2011/2012 audit process, certain prior year figures were restated: Prepayments & Advances Cash & Cash Equivalents Other Financial Assets

These changes were not material and did not affect the unqualified audit opinion

88

Prior year (2011) restatements

Analysis of major changesStatement of Financial Performance• Change in Foreign exchange gains is mainly due the forex profit of the A400M aircraft.

• Forex profit is due to the strengthening of the rand value.

90

Analysis of major changesStatement of Financial Position • Change in Net Assets is mainly due to the collection of a debtor in respect of the A400M aircraft; and

• Repayment of the collected amount to the National Treasury – Rb3.487

92

Analysis of major changesStatement of Changes in Net Assets

• Repayment of the cash collected to the National Treasury – Rb3.487

94

Analysis of changesCash Flow Statement• The cash position remained relatively constant with expenditure in

line with the vote allocation.

• The large increase in cash receipts is due to the collection of the debtor in respect of the A400M aircraft, but

• The amount was repaid to the National Treasury, thus increasing and decreasing the cash resources.

96

OTHER MATTERS

• Contingent liabilities: Court case in Portugal was won by DOD. An appeal has been lodged. Final outcome expected end of 2013.

• Irregular expenditure: Local component of the A400M aircraft contract to be condoned in 2012/2013.

• Fruitless and Wasteful expenditure: Contract cancelled and re-instituted.

97

Auditor General’s Report2011/12

98

Audit Outcome

Unqualified report

99

Summary of the findings

• Emphasis of Matter items on Significant uncertainties Financial reporting framework Restatement of corresponding figures

• Other Matter items on Financial misconduct

100

SDA AUDIT REPORT AND ACTION PLANS

For the year ended

31 March 2012

101




102



As disclosed in note 17 to the financial statements, the SDA through the Department of Defence and its service provider is a defendant in certain lawsuits. The outcome of these lawsuits cannot be determined at present and no provision has been made for any liability that may result. The aforementioned is in accordance with the requirements of the accounting standards.

103



As disclosed in note 1.6.1 to the financial statements, the Minister of Finance has exempted the SDA per General Notice 563 of 2012 issued in Government Notice No 35533 of 23 July 2012 from applying GRAP 6 (consolidated statements) and instead applies GRAP 104 (accounting for financial instruments) regarding special defence activities.

104



As disclosed in notes 5 and 7 to the financial statements, the corresponding figures for 31 March 2011 have been restated as a result of an error discovered during 31 March 2012 in the financial statements of the SDA.

105



EoM EoM As disclosed in note 17 to the financial statements, the SDA through the Department of Defence and its service provider is a defendant in certain lawsuits. The outcome of these lawsuits cannot be determined at present and no provision has been made for any liability that may result. The aforementioned is in accordance with the requirements of the accounting standards.


106

Progress made in clearing/resolving the matter:• The matter was considered in Lisbon and the Court found in favour of

Armscor. • The Lisbon Court ruled that it has no jurisdiction to hear the matter.

The plaintiffs have filed an appeal. • Armscor filed a counter argument during February 2012 requesting the

dismissal of the appeal. The date for the hearing of the appeal has not yet been set down.



- EoM As disclosed in note 1.6.1 to the financial statements, the Minister of Finance has exempted the SDA per General Notice 563 of 2012 issued in Government Notice No 35533 of 23 July 2012 from applying GRAP 6 and instead applies GRAP 104 regarding special defence activities.


107

Progress made in clearing/resolving the matter:• Discussions with National Treasury are underway in trying to

resolve/finalise this matter.



- EoM As disclosed in notes 5 and 7 to the financial statements, the corresponding figures for 31 March 2011 have been restated as a result of an error discovered during 31 March 2012 in the financial statements of the SDA.


108

Reasons for the corrections made:

• In the previous year errors occurred in Prepayments, Cash and cash equivalent and forex calculations.

SANDF Fund – Financial Position Auditor General’s report

Unqualified opinion. Utilise Defence’s Audit Committee

Total Asset base is largely held in liquid assets as follows: Cash and Cash equivalents R 28 447 Investments (Fixed Deposits R 12 635 823 Total Assets R 12 664 270

Low liquidity risk and low to medium interest risk as investments are made in reputable financial institutions.

113

• Change in Other financial assets are due to:– Interest earned on investments– Non-payment of aid to beneficiaries

• Structures and processes are now in place to enable the Fund to start with aid in 2013.

• Aid was offered during 2012, but not accepted by the beneficiary (personal choice).

Analysis of major changesStatement of Financial Position

114

SANDF Fund – Financial Performance

Surplus for the year has declined from R655k(2010/11) to R616k (2011/12) as a result of decline in revenue and increase in expenditure.

Expenditure has increased from R39k(2010/11) to R44k (2010/11). The increase is due to escalation in audit fees (R29 384)

Operating Revenue of the fund is derived from Investment income which: Is sensitive to interest rate changes Has declined in the year under review from R694k to

R660k (5% decline).

115

Thank You

116

vote : 22 defence and military veterans

Documents

capital assets

air defencecurrent payment

financial position

annual financial statements

maritime defence

auditor generals report

analysis of changesstatement

general support