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Title: VOTE%20:%2021%20Defence%20and%20Military%20Veterans


1
VOTE 21 Defence and Military Veterans
  • Annual Audited Financial Statements
  • For the year ended
  • 31 March 2011

2
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 Generals Report

3
Purpose
  • The purpose of the presentation is to present
    Defences 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.

4
Breakdown of Appropriation Revenue
5
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.

6
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

7
Composition of expenditure by programme
7
8
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9
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 SDPs 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.

10
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11
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12
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 ST 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)

13
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14
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

15
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16
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17
Departmental Revenue
18
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

19
Compensation of Employees
20
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

21
Goods and Services
22
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.

23
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
  • RD Telecommunication
  • Operational Research
  • SABS
  • RD CSIR Services
  • Infrastructure and planning eg Rm 2
  • General Consultants (EDP)
  • Engineering Services
  • Calibration
  • Ship Design
  • Codification and Cataloguing

24
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 Repair Rm3
    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

25
Goods and Services- Continued
26
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.

27
Payments for Financial Assets
28
Analysis of Changes
  • Increase in other material losses written-off
  • Decrease in expenditure on settlements due to
    substantive claim in previous year not repeated
  • Increase in expenditure on legal opinions and
    legal fees due to additional legal assistance
    utilised by the DOD
  • Increase in unauthorised expenditure written off
    in compliance with SCOPA resolutions to
    partially write-off unauthorised expenditure
    which occurred in previous financial years (Rm
    128, 386)

29
Debtors
30
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)

31
Staff Debtors
32
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
34
Other Debtors - Continued
35
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)

36
Auditor Generals Report
37
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

38
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.

39
AG findings and corrective action Qualification
Item
GDA 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.
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.
LEGEND - OM Other Matter EOM
Emphasis of Matter Q Qualification
40
ASSET MANAGEMENT QUALIFICATION
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
41
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.
42
Corrective Measures (Tangible Capital Assets-
Movable)(Continued)
ASSET MANAGEMENT QUALIFICATION
  • 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.

42
43
ASSET MANAGEMENT QUALIFICATION
  • 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.

43
44
ASSET MANAGEMENT QUALIFICATION
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/POLPLAN/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.
44



45
Audit Outcome - Matters of Emphasis
  • Emphasis of matters paragraphs are included in
    the auditors 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 expenditure
  • As 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.

46
AG findings and corrective action Emphasis of
Matter Items
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 .
47
Restatement of corresponding figures (Continued)
  • 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.

47
48
Emphasis of Matter Items
GDA 09/10 10/11 Main Finding
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.
49
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50
DETAIL OF IRREGULAR EXPENDITURE FOR FY2010/11
Incident OutCome No of incidents R000  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 Total as for current year 129 799,349 50 705,004
50
51
DETAIL OF IRREGULAR EXPENDITURE CONDONED/ IN
PROCESS OF CONDONEMENT DURING FY 2011/12
Incident  Condonement Authority R000 
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
51
52
UNAUTHORISED EXPENDITURE AS ON 31 MARCH 2011
Incident R000
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
Expenditure wrt Military Museums. 2,376
Repair of Furniture. 16
Expenditure wrt Military Museums. 1,534
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
53
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54
DETAIL OF FRUITLESS AND WASTEFUL EXPENDITURE FOR
THE FY2010/11
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. Still under investigation. 7 54 3 49
Cash withdrawal charges levied twice on the same amount. Still under investigation. 1 9 0 9
Payment of interest claim on air services. Still under investigation. 1 48 1 0
Payment of finance charges for late payment of invoices regarding navigation and over flight charges. Still under investigation. 1 377 0 377
 Total  Total 12 491 4 437
54
55
DETAILS OF FRUITLESS AND WASTEFUL EXPENDITURE
UNDER INVESTIGATION AS ON 31 MARCH 2011
(including prior years)
Incident Number of incidents R000  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 10,322
55
56
Other Matter Items
GDA 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 Cabinets approval. Currently audit work is performed under the auspices of the Inspector-General DOD.
57
AG findings and corrective action Other Matter
Items
GDA 09/10 10/11 Main Finding
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.
58
AG findings and corrective action Other Matter
Items
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).
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
LEGEND - OM Other Matter EOM
Emphasis of Matter Q Qualification
59
Other Matter Items
GDA 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.
60
AG findings and corrective action Other Matter
Items
GDA 09/10 10/11 Main Findings
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.
61
AG findings and corrective action Other Matter
Items
GDA 09/10 10/11 Main Findings
Procurement and contract management - 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).
62
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
63
  • 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 SLAs, contracts, etc. To be done by
    legal services prior to signing of procurement
    contracts.
  • Publishing bidders details on website for all req
    gtR500k. 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.

64
Other Matter Items
GDA 09/10 10/11 Main Findings
Procurement and contract management - 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.
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 by 30 November 2011. Investigations are in process on the cases determined.
65
AG findings and corrective action Other Matter
Items
GDA 09/10 10/11 Main Findings
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.
Measures and Completion Dates 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.
66
SPECIAL DEFENCE ACCOUNT
67
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.

68
SPECIAL DEFENCE ACCOUNT
  • 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).

69
SPECIAL DEFENCE ACCOUNT
  • 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.

70
SPECIAL DEFENCE ACCOUNT
  • 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.

71
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.

72
SOUTH AFRICAN NATIONAL DEFENCE FORCE FUND
73
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 Generals report
  • Unqualified opinion.
  • Utilise Defences 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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