1 vote : 21 defence and military veterans annual audited financial statements for the year ended 31...

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VOTE : 21 Defence and

Military Veterans

Annual Audited Financial Statements For the year ended

31 March 2011

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Scope Purpose of the presentation Breakdown of Appropriation Revenue Statement of Financial position and analysis of changes Statement of Financial performance 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 Auditor General’s Report

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Purpose

The purpose of the presentation is to present Defence’s 2010/11 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 2011.

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Breakdown of Appropriation Revenue

2010/11R'000

Programmes Final Appropriation

R'000

Actual FundsReceived

R'000

Appropriation Received

2009/10R'000

Administration 3,452,915 3,452,915 2,914,090 18.5%

Force Employment 2,265,457 2,265,457 1,887,489 20.0%

Landward Defence 9,295,568 9,295,568 9,042,226 2.8%

Air Defence 5,488,936 5,488,936 8,643,761 -36.5%

Maritime Defence 2,349,916 2,349,916 1,997,454 17.6%

Military Health Support 3,150,334 3,150,334 2,608,189 20.8%

Defence Intelligence 633,853 633,853 594,704 6.6%

General Support 3,805,612 3,805,612 3,637,343 4.6%

Total 30,442,591 30,442,591 31,325,256 -2.8%

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Analysis of Changes

Increase in programme Administration due to new Military Salary Dispensation, general inflation increases and the establishment of the Department of Military Veterans.

Increase in programme Landward Defence due to new Military Salary Dispensation, increase in Military Skills Dispensation (MSD), procurement of critical ammunition and the establishment of the works capability.

Decrease in programme Air Defence mainly due to the termination of the A400M airlift capability.

Increase in programme Maritime Defence due to new Military Salary Dispensation.

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Analysis of Changes Increase in programme Military Health Support due

to new Military Salary Dispensation Increase in programme Defence Intelligence due to

Military Salary Dispensation Increase in programme General Support due to the

maintenance and repair of Defence Infrastructure and the write-off of unauthorised expenditure. There was a decrease due to the delay in the upgrade of the AFB Waterkloof runway

Increase in programme Force employment due to support during the 2010 FIFA World Cup and public service strike

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Force Employment7%

Landward Defence31%

Administration11%

Air Defence18%

Maritime Defence8%

Military Health Support

10%

Defence Intelligence2%

General Support13%

Administration

Force Employment

Landward Defence

Air Defence

Maritime Defence

Military Health Support

Defence Intelligence

General Support

Composition of expenditure by programme

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Final Appropriation Actual Expenditure Expenditure as % of final

appropriation

Final Appropriation Actual Expenditure

R'000 R'000 % R'000 R'000Current paymentsCompensation of employees 16,597,098 16,597,098 100.0% 12,705,579 12,705,579 Goods and services 8,890,703 8,890,703 100.0% 8,070,281 8,069,332 Interest and rent on land - - 0.0% - - Transfers and subsidiesProvinces & municipalities - - 0.0% - - Departmental agencies & accounts 3,024,728 3,024,728 100.0% 8,629,128 8,629,128 Universities & technikons - - 0.0% - - Foreign governments & international organisations - - 0.0% - - Public corporations & private enterprises 737,510 737,510 100.0% 603,608 603,608 Non-profit institutions 5,407 5,187 95.9% 4,402 4,342 Households 120,592 120,592 100.0% 126,350 126,350 Gifts and donations - - 0.0% - - Payments for capital assetsBuildings & other fixed structures 251,203 251,203 100.0% 599,094 599,094 Machinery & equipment 581,388 581,388 100.0% 537,105 537,105 Heritage assets - - 0.0% - - Specialised military assets 66,760 66,760 100.0% - - Biological assets 71 71 100.0% 10 10 Land & subsoil assets - - 0.0% - - Software & other intangible assets 132 132 100.0% 140 140 Payment for financial assets 166,999 166,999 100.0% 49,559 49,559 Total 30,442,591 30,442,371 100.0% 31,325,256 31,324,247

Appropriation per Economic classification2010/11 2009/10

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Analysis of Changes

Increase in Compensation of employees due to improvement in salary dispensation.

Increase in Goods and services due to bigger expenditure on consultants, contractors and agency/outsourced services, Computer services, Inventory, Operating leases, Owned and leasehold property and other operating expenditure.

Decrease in transfers and subsidies to departmental agencies and accounts due to smaller transfer to the SDA due to cancellation of A400M Airlift Capability and SDP’s in process of finalisation.

Increase in transfers and subsidies to public corporations and enterprises due to bigger transfer to Armscor.

Decrease in buildings and other fixed structures due to the delay of the completion of the AFB Waterkloof runway.

Increase in machinery and equipment and Specialised Military assets due to inflation increases.

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

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DEPARTMENT OF DEFENCE AND MILITARY VETERANSVOTE 21

Statement of Financial Positionas at 31 March 2011

Note 2010/11 2009/10R'000 R'000

ASSETS

Current assets 740 829 915 549 Unauthorised expenditure 8 60 918 60 918 Fruitless and Wasteful expenditure 9 29 927 Cash and cash equivalents 10 58 607 70 951 Prepayments and advances 11 74 964 92 237 Receivables 12 533 949 678 154 Loans 14 12 362 12 362

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

TOTAL ASSETS 815 829 990 549

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DEPARTMENT OF DEFENCE AND MILITARY VETERANSVOTE 21

Statement of Financial Positionas at 31 March 2011

LIABILITIES

Current liabilities 598,913 784,145 15 220 1,009 16 4,139 2,371

17 538,000 737,695 18 56,554 43,070

TOTAL LIABILITIES 598,913 784,145

NET ASSETS 216,916 206,404

Represented by:Capitalisation Reserves 75,000 75,000 Recoverable revenue 141,916 131,404

TOTAL 216,916 206,404

Bank overdraftPayables

Departmental revenue to be surrendered to the Revenue Fund

Voted funds to be surrendered to the Revenue Fund

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Analysis of Changes Decrease in cash and cash equivalents due to smaller

requirement for cash at year end (Positive) Decrease in prepayments and advances due to backlog in

S&T advances worked down (Positive) Decrease in receivables due to Unauthorised expenditure

written off (Positive) Decrease in bank overdraft also due to Unauthorised

Expenditure written off (Positive)

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Note 2010/11 2009/10REVENUE R'000 R'000

Annual appropriation 1 30,442,591 31,325,256 Departmental revenue 2 689,688 699,949 TOTAL REVENUE 31,132,279 32,025,205

EXPENDITURECurrent expenditureCompensation of employees 3 16,597,098 12,705,579 Goods and services 4 8,890,703 8,069,332 Total current expenditure 25,487,801 20,774,911

Transfers and subsidies 6 3,888,017 9,363,427

Expenditure for capital assetsTangible capital assets 7 899,422 1,136,210 Software and other intangible assets 7 132 140 Total expenditure for capital assets 899,554 1,136,350

Payments for financial assets 5 166,999 49,559

TOTAL EXPENDITURE 30,442,371 31,324,247

NET SURPLUS FOR THE YEAR 689,908 700,958

Reconciliation of Net Surplus for the yearVoted Funds 15 220 1,009

16 689,688 699,949 NET SURPLUS FOR THE YEAR 689,908 700,958

Departmental revenue

DEPARTMENT OF DEFENCE AND MILITARY VETERANS

for the year ended 31 March 2011Statement of Financial Performance

VOTE 21

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Analysis of Changes

Decrease in total appropriation due to smaller allocation from National Treasury

Increase in expenditure on Compensation of employees due to improvement in salary dispensation

Decrease in expenditure on Tangible capital assets due to delay in the completion of the AFB Waterkloof runway

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Note 2010/11 2009/10R'000 R'000

Capitalisation ReservesOpening balance 75 000 75 000

Other movements - - Closing Balance 75 000 75 000

Recoverable revenueOpening balance 131 404 162 016 Transfers 10 512 (30 612)

Irrecoverable amounts written off 5.4 (3 326) (5 245) Debts revised (5 975) (52 725) Debts recovered (included in departmental receipts) (27 135) (25 295) Debts raised 46 948 52 653

Closing balance 141 916 131 404

TOTAL 216 916 206 404


Statement of Changes in Net Assetsfor the year ended 31 March 2011

VOTE 21

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Note 2010/11R'000

2009/10R'000

CASH FLOWS FROM OPERATING ACTIVITIESReceipts 31 109 211 32 005 724

Annual appropriated funds received 1 30 442 591 31 325 256 Departmental revenue received 2 666 620 680 468

Net decrease/(increase) in working capital 175 860 (22 777) Surrendered to Revenue Fund (688 929) (803 273) Current payments (25 487 801) (20 774 911) Payments for financial assets (166 999) (49 559) Transfers and subsidies paid (3 888 017) (9 363 427) Net cash flows available from operating activities 19 1 053 325 991 777

CASH FLOWS FROM INVESTING ACTIVITIESPayments for capital assets (899 554) (1 136 350) Proceeds from sale of capital assets 23 068 19 481 Net cash flows from investing activities (876 486) (1 116 869)

CASH FLOWS FROM FINANCING ACTIVITIESIncrease/(decrease) in net assets 10 512 (30 612) Net cash flows from financing activities 10 512 (30 612)

Net increase/(decrease) in cash and cash equivalents 187 351 (155 704)

Cash and cash equivalents at beginning of period (666 744) (511 040)

Cash and cash equivalents at end of period 20 (479 393) (666 744)

for the year ended 31 March 2011

VOTE 21

Cash Flow Statement

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Departmental Revenue

2010/11R'000

2009/10R'000

Sales of goods and services other than capital assets 25.9% 263,989 209,606

Fines, penalties and forfeits 19.7% 4,459 3,724

Interest, dividends and rent on land -4.4% 2,628 2,750

Sales of capital assets 18.4% 23,068 19,481

Transactions in financial assets and liabilities -38.7% 144,777 236,097

Transfer received 9.8% 250,767 228,291

Departmental revenue collected -1.5% 689,688 699,949

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Analysis of Changes Increase in Sales of goods and services other

than capital assets due to increase in receipts for board and lodging and housing rent

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

Decrease in financial assets and liabilities due to smaller exchange rate profit than in the previous financial year

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

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Compensation of Employees

2010/11R'000

2009/10R'000

Basic salary 28.8% 10,483,192 8,136,264

Performance award -1.0% 111,480 112,579

Service Based 21.0% 48,598 40,176

Compensative/circumstantial 82.7% 1,825,212 998,935

Other non-pensionable allowances 17.8% 2,371,257 2,012,693

Total 31.3% 14,839,739 11,300,647

Social contributions

3.2.1 Employer contributions

Pension 25.3% 1,669,043 1,331,782

Medical 20.4% 87,650 72,778

Bargaining council 79.0% 666 372


VOTE21

Notes to the Annual Financial Statements

for the year ended 31 March 2011 (continued)

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Analysis of Changes

Increase in basic salary due to the new Military Salary Dispensation and the general salary increase

Increase in compensative/circumstantial due to the increase in the Military Skills Dispensation (MSD) and increase in Reserve Forces salaries

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

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Goods and Services

Note 2010/11R'000

2009/10R'000

Administrative fees 10,318 9,668

Advertising 5,553 7,186

Assets less then R5,000 4.1 108,647 126,736

Catering 38,016 39,235

Communication 88,873 107,906

Computer services 4.2 856,280 841,358

Consultants, contractors and agency/outsourced services4.3 3,940,203 3,517,891

Entertainment 9,170 6,997

Audit cost – external 4.4 49,972 46,442

Inventory 4.5 1,787,881 1,591,843

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Analysis of Changes Increase in computer services due to

adjustment in SITA tariffs. Increase in consultants, contractors and

agency/outsourced services due to bigger expenditure on medical general consultants, research and development and maintenance and repair.

Increase in inventory due to bigger expenditure on fuel, oil (largely sensitive to dollar rand exchange and oil price fluctuations) and gas, other consumable materials, military stores and medical supplies.

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BREAKDOWN OF CONSULTANTS, CONTRACTORS AND AGENCY/OUTSOURCED SERVICES

• More than 200 individual budget line items.• 6 Main categories

• Business and advisory services eg: Rm 288• Burial Services• Security Services• R&D Telecommunication• Operational Research• SABS• R&D: CSIR Services

• Infrastructure and planning eg: Rm 2• General Consultants (EDP)• Engineering Services• Calibration• Ship Design• Codification and Cataloguing

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BREAKDOWN OF CONSULTANTS, CONTRACTORS AND AGENCY/OUTSOURCED SERVICES (CONTINUE)

• Laboratory Services eg: Rm 20• Occupational Health Analytical Services• Environmental Health Analytical Services

• Legal Costs Rm 1

• Contractors – primarily Maintenance & RepairRm3 263• SA Army (60 items) • SAAF (68 items)• SA Navy (64 items)• SAMHS (61 items)

• Agency and support/outsourced services eg: Rm 364 • Veterinary services• Nursing• Medical waste removal

•

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Goods and Services- Continued

Note 2010/11R'000

2009/10R'000

Operating leases 259,120 222,160

Owned and leasehold property expenditure 4.6 580,930 485,521

Travel and subsistence 4.7 728,501 703,034

Venues and facilities 9,972 14,897

Training and staff development 118,977 110,696

Other operating expenditure 4.8 298,290 237,762

Total 8,890,703 8,069,332

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Analysis of Changes Increase in operating leases due to

increase in the payment of leases for non state owned properties by DPW.

Increase in owned and leasehold property expenditure due to bigger expenditure on municipal services.

Increase in other operating expenditure mainly due to aircraft chartering for sustainment flights etc.

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Payments for Financial Assets

2010/11R'000

2009/10R'000

Payments for financial assets

Other material losses written off 158 873 42 409

Debts written off 2 199 1 389

Forex losses 5 927 5 761

Total 166 999 49 559

5.1 Other material losses written off

Nature of losses

Settlement 4 811 29 361

Legal fees State Attorney - 74

Motor vehicle losses 1 714 1 765

Other claims against the state 442 724

Legal opinions 4 068 421

Legal fees 18 540 9 458

Interest claims 29 592

Fruitless and wasteful expenditure 880 7

Spectacle losses 3 7

Unauthorised expenditure written off 128 386 -

Total 158 873 42 409

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Debtors

Receivables

Less than one yearR'000

One to three yearsR'000

Older than three yearsR'000

2010/11TotalR'000

2009/10TotalR'000

Claims recoverable 12.1 & Annex 4 3,423 1,370 2,238 7,031 9,383

Staff debt 12.2 49,095 10,136 7,921 67,152 91,192

Other debtors 12.3 30,217 25,670 403,879 459,766 577,579

Total 82,735 37,176 414,038 533,949 678,154

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Analysis of Changes

Decrease in claims recoverable from Department of Health

Decrease in staff debt due to smaller amount in suspense accounts not allocated to budget at year-end

Decrease in other debtors mainly due to unauthorised expenditure written off, increase in operational debt (Exercise GOLFINHO) and increase in contractual liabilities (studies at state expense)

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Staff Debtors2010/11

R'0002009/10

R'000

Description

Salary related -34.9% 45,027 69,117

Students 10.6% 10,167 9,191

Motor vehicle accidents 8.3% 4,582 4,232

Deposits -18.6% 5,035 6,184

State guarantees -3.2% 1,356 1,401

Loss of State money -9.6% 763 844

Damage to State property 13.3% 85 75

Private patients -7.4% 137 148

Total -26.4% 67,152 91,192

In the 2009/10 financial year, an amount of R10 635 773.26 was reclassified from cash on hand to staff debtors (salary related)

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Analysis of Changes

Decrease in salary related staff debtors due to smaller amount in suspense account not allocated to budget at year-end

33

Other debtors

Note2010/11

R'0002009/10

R'000

Unauthorised expenditure not approved by Parliament and to be written off

299,029 427,411

Operations 61,631 44,993

Contractual liabilities 60,221 58,583

Aviation services 4,591 7,653

Suppliers 1,517 2,140

Motor vehicle accidents 4,437 4,143

Estates 829 776

State guarantees 395 586

Medical Claims 1,980 2,648

Private Patients 229 213

Market Support 636 2,833

Humanitarian aid - 47

34

Other Debtors - Continued

Note2010/11

R'0002009/10

R'000

Institutions 16 62

Damage to State Property 28 30

Miscellaneous 344 42

Loss of State Money 13,828 13,734

Fruitless and Wasteful Expenditure 128 360

State Departments - 29

Salary Overpayments 9,927 11,261

Sales Per Tender - 35

Total 459,766 577,579

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Analysis of changes

Decrease in other debtors mainly due to unauthorised expenditure written off, increase in operational debt (Exercise GOLFINHO) and increase in contractual liabilities (studies at state expense)

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Auditor General’s Report

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Summary of the findings

• Qualification on asset management

• Emphasis of Matter items on Restatement of Corresponding Figures for Operating

Leases Irregular Expenditure

• Other Matter items on Internal Audit Financial Misconduct Annual Financial Statements, Performance and Annual

report Human Resource Management and Compensation Procurement and Contract Management Expenditure Management

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Audit OutcomeQualification on Assets

Qualified opinion on the basis of the assets that are now stated at R 76.8 billion (no disclosure in prior years) in disclosure notes 32, 33 and 34 to the financial statements

The AG acknowledges that the department has commenced addressing some of the prior year qualification matters, the process is unfinished.

The matter had been reported in previous financial years.

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AG findings and corrective action Qualification ItemGDA 09/10 10/11 Main Finding

Tangible and Intangible Capital Assets

Q Q The DOD could not provide sufficient appropriate audit evidence to support the amount disclosed, and the records did not permit the application of alternative procedures.

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

Challenges and underlying causes

• DOD asset management systems are not accrual accounting compliant and not updated since there was a moratorium on development of systems set by National Treasury pending the development of the Integrated Financial Management System.

• Some DOD units are still on manual asset management systems.

• No single asset management system in the DOD.

• Values of assets updated to reflect the latest price and therefore overstating the true value of assets.

• Mismatch of classification in regard to the changing SCOA classification.

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Action Plans

Corrective Measures (Tangible Capital Assets- Movable):

• Post structures were approved by the PDSC for a Director : Asset Management, Deputy Director: Inventory Management, Deputy Director: Leases Management and Deputy Director: Central Asset Control and Register Manager under the command of Chief of Logistics – all financially skilled personnel.

• Director: Asset Management and all the Deputy Directors have been appointed except Deputy Director: Leases Management.

• National Treasury is working with the DOD on the Financial Management Capability Maturity Model project aimed at providing assistance in achieving a clean audit outcome.

• An interim reporting framework that will meet minimum Accountant General reporting requirements is being developed. This reporting framework will extend over a three year period (2011/12 to 2014) under the direct supervision and guidance of Accountant General, and is deemed adequate for the DOD to resolve most of its compliance challenges

ASSET MANAGEMENT QUALIFICATION

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Action Plans

Corrective Measures (Tangible Capital Assets- Movable)(Continued)

• The Financial Management Division is being re-organised to ensure that financial management capacity and functions provide the Services and Divisions with appropriate and adequate financial management skills that meet the current accounting standards requirements

• The Accountant General has deployed five officials to participate in the Operation Clean Audit project which holds Bi-weekly meetings. They assist in the conceptualisation of the list of defence unique accounting policy dispensation that is expected to be in place to ensure compliance while matching the needs of the Defence environment.

• An agreement is being crafted in terms of which the Accountant General will further allocate the Trainee Accountants (serving articles of clerkship) in the various areas requiring assistance (at the moment in CD Accounting, and the Director : Asset Management).

• Financial Management System (FMS) and Log Systems enhancement (to produce Asset Register information) have been completed and is being used in populating and updating of the Asset Register.

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Corrective Measures (Tangible Capital Assets- Movable)(Continued)

• The charter for the Asset Management and E-procure modules of the Integrated Financial Management System has been signed with NT resulting in the lifting of the moratorium on system enhancements.

• The process for the development of a Single Integrated System for DOD Log requirements is now underway to be integrated with IFMS.

• A system integrated validation process between the FMS and the Logistical Systems is being developed to enable monthly reconciliation between the two systems with regard to additions and accruals.


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Corrective Measures (Tangible Capital Assets - Immovable)

• Strategy and policy on Immovable Tangible Capital Assets in the DOD has been developed, and the Defence Endowment Property portfolio register has been finalized

.• Establish Service Level Agreement with N DPW on the

disclosure of Immovable Tangible Capital Assets for 2011/12 AFS.

• Initiate vesting process and then disclose Immovable Tangible Capital Assets (Defence Endowment Property portfolio), once vesting complete, by 28 Feb 2012.

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Measures and Completion Dates (Intangible Capital Assets- ICA):

• Initiated the DOD ICA management process in Feb 2011 and established lines of responsibility for ICA nodal reporting in Aug 2011.

• Reviewing and updating DODI/POL&PLAN/00020/ 1999 (Edition 1) to be completed by Jan 2012.

• Establishment of an ICA management section at C Def Mat by Apr 2012.

• An ICA Register has been established and is being populated, to be ready for audit by Dec 2012.

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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: Restatement of corresponding figures

As a result of the corresponding figures for operating leases for March 2010 being restated as a result of an error discovered during 2010-11 financial year.

Irregular expenditureAs disclosed in note 27 to the financial statements, irregular expenditure to the amount of R 799,349 million, mainly comprising procurement not in terms of Treasury Regulations, was incurred by the department.

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GDA 09/10 10/11 Main Finding

Restatement of corresponding figures

- EoM The corresponding figures for operating leases for 31 March 2010 have been restated as a result of an error discovered during 2010-11 financial year.

Reasons for the corrections made:

• In the previous year most of the lease information for lease agreements whose contracts were not available from DPW was compiled on the basis of information that was in the DPW register.

• When the actual leases were located it was noted that in some cases the information recorded was not in line with the information per the contracts hence adjustments were required.

• Information regarding the long term leases as well had to be adjusted accordingly.

Measures and Completion Dates:• DD Lease Management has been created to manage and coordinate the

maintenance of the register. • The DOD has compiled an accounting manual during the 2010/11 financial year

providing detailed guidelines and instructions regarding the compilation and submission of financial statement figures .

AG findings and corrective action Emphasis of Matter Items

47

Corrective Measures• The FMD is busy restructuring to place financial managers at

all Services and Divisions who will in future be responsible for the verification of the accuracy and completeness of financial statement figures.

• The DOD is also busy appointing a Head of Internal Audit to ensure that audits are conducted on the feeder systems, thereby providing additional assurance and quality control to the CFO and the Accounting Officer regarding completeness and accuracy of figures submitted to AGSA for audit purposes.

• Consideration for the establishment of a technical unit in the CFO office to deal with the fast development of technical requirements along the line of the Auditor General arrangements and to provide/perform quality assurance reviews at units.

Restatement of corresponding figures (Continued)

47

48

Emphasis of Matter Items


Irregular Expenditure

EoM EoM Irregular expenditure to the amount of R 799,349 million, mainly comprising procurement not in terms of Treasury Regulations, was incurred by the department.

Measures and Completion Dates • The Office of the CFO has developed a Financial Misconduct Strategy which was

presented to the Accountability Management Committee (AMC) and approved by the Accounting Officer (AO) in March 2011.

• The main objective of the strategy is aimed at preventing, detecting, recording, reporting, investigation, taking appropriate action and implementing corrective measures to discourage future reoccurrence of unauthorised, irregular and fruitless & wasteful expenditure.

• Includes a comprehensive awareness/communication strategy for both internal and external role players regarding the occurrence of irregular expenditure.

• A Financial Misconduct policy has been revised, approved and implemented during the 2010/11 financial year.

• Each case is investigated to determine the cause, the transgressor, circumstances which led to its occurrence, recommendations on actions necessary and corrective actions.

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DETAIL OF IRREGULAR EXPENDITURE FOR FY2010/11

Incident OutComeNo of incidents R’000

Finalised/ Condoned

Value for finalisationR'000

Procurement without Financial Authority and Government Order

26 Reprimand / Office bearing.22 No one to blame

81 13,901 48 12,008

Housing allowance. Misinterpretation of policy 1 89,888 1 0

Financial Lease payments. General condonement by NT on transversal contract

1 2,564 1 0

A400M Airbus: Day-to-day operational expenditure. Submit 2 NT 4 condonemnt

1 101 0 101

Payments made after the contract has expired.

Under investigation to determine responsible official.

2 866 0 866

Deviation from Bidding process.

Under investigation to determine resp official.

20 467,449 0 467,449

Deviation from Payment process.

Under investigation to determine responsible official.

23 224,580 0 224,580

Total as for current year 129 799,349 50 705,004

50

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DETAIL OF IRREGULAR EXPENDITURE CONDONED/ IN PROCESS OF CONDONEMENT DURING FY 2011/12

Incident Condonement Authority R’000

A400M Airbus day-to-day operational costs Referred to NT. 38,027

Procurement without Financial Authority and Government Order

In the process of being finalised at the Supply Chain Irregular Expenditure Control Committee (SCIECC) 9,609

AMG Account

In the process of being finalised at the Supply Chain Irregular Expenditure Committee 381,865

Various matters

Condoned by Accounting Officer, SCIECC and Prosecution and Recovery Committee 119,475

Total 548,976

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UNAUTHORISED EXPENDITURE AS ON 31 MARCH 2011

Incident R’000

Budget over expenditure on Compensation of Employees. 427,411

Expenditure wrt Military Museums. 7,475

Expenditure on the hire of photocopiers. 1,700

Expenditure on the hire of photocopiers Nolle Prosequi by the court. 1,765


Repair of Furniture. 16


Expenditure on the hire of photocopiers Nolle Prosequi by the court. 2,031

Ordered Peace Support Operations not adequately funded via the Adjustment Estimate (NT to be engaged).

40,292

Total 484,605

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Incident Disciplinary steps taken/criminal proceedings

Number of incidents

R'000 Finalised / Condoned

Value to be finalised

Payment of allowances for members not entitled to.

Still under investigation.

1 1 0 1

Deviation from State contract. Still under investigation.

1 1 0 1

Cancellation fees paid on different occasions.


7 54 3 49

Cash withdrawal charges levied twice on the same amount.


1 9 0 9

Payment of interest claim on air services.


1 48 1 0

Payment of finance charges for late payment of invoices regarding navigation and over flight charges.


1 377 0 377

Total 12 491 4 437

DETAIL OF FRUITLESS AND WASTEFUL EXPENDITURE FOR THE FY2010/11

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DETAILS OF FRUITLESS AND WASTEFUL EXPENDITURE UNDER INVESTIGATION AS ON 31 MARCH 2011 (including prior years)

Incident Number of incidents

R’000 Finalised / Progress from 1/4/11 - 30/9/11

Value to be finalised R'000

Payment of allowances for members not entitled to. 1 1 0 1

Deviation from State contract. 4 4,059 0 4,059

Cancellation fees paid on different occasions. 9 5,524 4 5,479

Cash withdrawal charges levied twice on the same amount. 1 9 0 9

Payment of interest claim on air services. 1 48 1 0

Payment of finance charges for late payment of invoices regarding navigation and over flight charges. 1 377 0 377

Damages paid. 5 450 4 284

Interest and penalties paid. 8 3 1 3

Other matters 9 93 4 86

Medical Payments 4 25 0 25

Total per closing balance 43 10,589 14 10,32255

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Other Matter ItemsGDA 09/10 10/11 Main Finding

Internal Audit OM OM The accounting officer did not ensure that an internal audit function was in place as per requirements of TR 3.2.2. However, the Inspector General did perform certain compliance and other procedures which were reported to the audit committee.

Measures and Completion Dates • Internal Audit function. The internal audit structure was developed and

approved. The DOD is awaiting the appointment of the Chief of Internal Audit who will manage the process of staffing this new structure.

• Appointment of the Chief of Internal Audit. The first interview for the appointment of the CIA was held and a short list was compiled. The Minister of Defence and Military Veterans conducted the final interviews on 2 August 2011 and the appointment of the best suited candidate was submitted to DPSA to obtain Cabinet’s approval.

• Currently audit work is performed under the auspices of the Inspector-General DOD.

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AG findings and corrective action Other Matter Items


Financial Misconduct

OM OM Sufficient appropriate audit evidence was not available in all instances, to determine if the AO ensured that investigations were conducted into all allegations of financial misconduct made against officials within 30 days from the date of discovery of the allegation as required in terms of TR4.1.2.

Measures and Completion Dates

• Service and Divisional representatives are on a monthly basis sensitized in the Prosecution and Recovery Committee (PRC) regarding the requirement that investigations must be conducted on all allegations of financial misconduct made against officials within 30 days from the date of discovery.

• An instruction to raise awareness and ensure compliance with Financial Misconduct cases has been developed.

• There is high priority placed on the prompt finalisation of long outstanding cases through the PRC and the AMC.

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GDA 09/10 10/11 Main Findings

Annual financial statements, performance and annual report

- OM The accounting officer did not implement adequate control systems for the safeguarding and maintenance of assets to prevent theft, losses, wastage and misuse, as required by the PFMA section 38(1)(d) and TR 10.1.1(a).

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

Corrective Actions This finding relates to the Asset qualification and plans

related to it are part of the Assets Management Plan.Plan include appointment of capacity in the LOG

environment to oversee the Management of the Asset register

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Other Matter ItemsGDA 09/10 10/11 Main Findings

Human resource management and compensation

- 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 • Instructions will be issued annually to SMS members informing them of the due

date for the submission of performance agreements by 31 January of each year.

• A report will be made monthly to Plenary Defence Staff Council (PDSC) on outstanding contracts.

• Update SMS performance agreement database on a continuous basis.• Follow-up on outstanding performance agreements on a monthly basis.• Introduce SMS communication process to notify SMS members of outstanding

performance agreements (system to be developed on Persol) by 30 November 2011.

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Procurement and contract management

- OM • In some instances goods and services with a transaction value of more than R500 000 were not procured by means of a competitive bidding process as per the requirements of TR 16A6.1, TR 16A6.4 and National Treasury Practice Note 6 and 8 of 2007/08.

• Awards were made to suppliers who did not declare their employment by the state or their connection with a person employed by the state or their relationship with persons involved in the evaluation and/or adjudication of the bids as per the requirements of Practice Note 7 of 2009/10. Contrary to SCM requirements this is not a requirement in terms of departmental policies.

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- OM • Instances were identified where senior managers did not disclose their business interest in a supplier to the department and to the executive authority as per the requirements of chapter 3(C1) of the Public Service Regulations.

• In some instances the SCM officials and/or other SCM role players and those whose close family members and/or partners and/or associates had a private or business interest in contracts awarded by the department failed to disclose their interest and in some cases participated in the process relating to the awarding of the contract contrary to the requirements of TR 16A8.4(a) and (b).

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Components

• 24 DOD employees had possible interest in a supplier :

• No declaration of interest could be provided.

• They allegedly performed work outside their employment without written permission.

• 7 members are Reserves and falls outside the scope of policy.

• 16 DOD employees had a family member with an interest in a supplier of the department.

• 1 Company is no longer active

• Various cases still under investigation

• 17 DOD employees had an interest in a supplier of other departments and Government entities.

• 9 members are Reserves and falls outside the scope of policy.

• Various cases still under investigation

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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.

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Other Matter ItemsGDA 09/10 10/11 Main Findings


- OM Some employees performed remunerative work outside their employment in the department without written permission from the relevant authority as per the requirements of section 30 of the Public Service Act and Department of Defence Instruction: PERS NO 4/99 dated 22 December 1999.


• 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 by 30 November 2011.

• Investigations are in process on the cases determined.

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Expenditure management

- OM The accounting officer did not, in all instances, immediately upon the discovery reported irregular expenditure to the National Treasury as per the requirements of section 38(1)(g) of the PFMA.


• DOD reported all instances of irregular and fruitless expenditure monthly to NT in the year under review.

• This was based on an understanding and agreement with National Treasury.

• From May 2011 NT has in writing issued a template that requires the information Monthly with the Early Warning Expenditure report.

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SPECIAL DEFENCE ACCOUNT

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SPECIAL DEFENCE ACCOUNTSequence of Events Financial Statements of the SDA for the year

ended 31 Mar 2011 not included in Annual Report for 2010/2011.

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 Oct 2010 excluded Entity Specific accounting framework as an approved accounting framework for the Public Sector.

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Discussions took place between DOD and NT from Dec 2010 to Jun 2011 on the applicable accounting framework for the SDA:DOD continued to prepare on Entity Specific basis of accounting for the FY ending 31 Mar 2011

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.

Statements were prepared on Entity Specific accounting framework reconstructed in accordance with Generally Recognised Accounting Practice (GRAP).

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NT letter dated 06 June 2011 confirmed two applicable accounting frameworks namely GRAP for National Departments as prescribed by NT and GRAP as published by Accounting Standards Board (ASB).

Early July 2011 it was then concluded in discussion with AG that financial statements of the SDA must be prepared in accordance with GRAP (ASB) and that an external service provider be appointed to assist the DOD in this endeavour due to the time limitations.

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Reconstructed the financial statements with assistance of Specialist GRAP(ASB) experts recommended by the AG due to urgency and to transfer skills to DOD officials.

Reconstruction of these financial statements of the SDA required going back to the three prior years’ numbers to be restated.

Reconstructed financial statements submitted to the Audit Committee on 28 Sep 2011.

Submitted for audit on 29 Sep 2011. Audit envisaged to be completed by 30 Nov

2011. To be tabled in Parliament after completion of

audit.

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SPECIAL DEFENCE ACCOUNTFinancial Statements: Future

Financial statements for the SDA will in future be prepared in accordance with GRAP (ASB).

Preparation of Interim financial statements for period ending 31 Dec 2011.

DOD will acquire GRAP compliant software application (CASEWARE) to compile GRAP (ASB) compliant financial statements.

Technical assistance from external service provider will be utilised if and when required.

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SOUTH AFRICAN NATIONAL DEFENCE FORCE FUND

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SANDF Fund Established in terms of the Fund Raising Act,

1978 (Act No. 107 of 1978). Its Aim is render aid to the members and

former members of the SANDF and Auxiliary Services and their dependants who suffer hardships and financial distress related to their service or duties i.t.o the Defence Act 2002.

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SANDF Fund – Balance Sheet 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 24 976 Investments (Fixed Deposits R 12 021 035 Total Assets R 12 046 011

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

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SANDF Fund – Income Statement

Surplus for the year has declined from R747k(2009/10) to R655k (2010/11) as a result of decline in revenue and increase in expenditure.

Expenditure has increased from R35k(2009/10) to R39k (2010/11).

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 R781k

to R694k (11% decline).

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Thank You

1 vote : 21 defence and military veterans annual audited financial statements for the year ended 31...

Documents

financial assets0

appropriation statementfor

year ended31

capital assets49

capital assets18

capital assets54

capital assets24

analysis of changesstatement