The Auditor-General of South Africa (AGSA) presented its annual report on the audit outcomes for the finance portfolio. The overall outcome was impressive, although the AG identified problems areas such as material mistakes on financial statements, irregular spending and supply chain management concerns. The main recommendations given by the AG were the need for additional training, improved supply chain management, and Ministerial as well as Committee support.
In discussion, Members raised issues regarding the root causes of financial statements with material mistakes, the criteria used for not auditing some entities such as South African Airways, performance reports, and the regression of the Land Bank.
The National Treasury (NT) presented its report, citing the impressive implementation of its eight programmes, the R23 billion allocation to Eskom, the acquisition of a 5 % shareholding in the African Development Bank, and the payment of up to R3.22 billion to the Jobs Fund since its inception. South Africa’s growth rate had been revised down, the government had had to lower its expenditure, and tax measures to boost revenue had been announced. The NT had received an unqualified audit report.
In discussion, the Members raised the ongoing allegations against the Chief Procurement Officer, the nuclear build programme, Eskom disbursements, the inclusiveness of those who were previously marginalised, the impact of the withdrawal of Future Growth funding and the late payment of service providers.
SARS presented its report, noting a high ending to the 2015/2016 fiscal year with a clean audit, increased collections, improved e-filling and implementation of the SARS Complaints Management Office.
In discussion, Members raised the controversial issues surrounding the suspended SARS second-in-command, Mr Jonas Makwakwa and his partner, the perception of SARS in the public domain, assertions of non-cooperation by the Finance Intelligence Centre (FIC), late payments of value added tax (VAT) refunds, VAT fraud, tax leakages and border management.
Auditor General of South Africa (AGSA): briefing
Mr Solly Segooa, Corporate Executive: AGSA, introduced the delegation from AGSA. They were Mr Polani Sokombela and Mr Hein de Wet, both senior managers in the organisation.
Mr De Wet briefed the Committee on the general outcomes. The outcomes of the portfolio were outlined, indicating that none of the entities had qualified reports and two had improved -- the Financial Services Board and the Financial and Fiscal Commission (FFC). However, the Land Bank had regressed. The areas of challenges were identified as the problems with submitting of credible statements, and procurement and contract management. Performance reporting of the portfolio had regressed, so entities had to strengthen the skills they had.
The report also identified that the Land Bank had supply chain management (SCM) issues. Individuals/oversight bodies that provided financial reporting (assurance providers) had been assessed, and AGSA had found that while internal audits and audit committees had improved, there was still room for improvement.
On financial management, it was shown that the most prevalent non-compliance was on financial statements. Material mistakes on financial statements had been identified, and entities had agreed to make corrections. Irregular expenditure was still prevalent, even though it was something that should not be an issue in the finance portfolio. It was recommended that additional training be provided, as well as close monitoring by the Minister and the Committee.
The process of consolidation of the rest of the government financial statements was ongoing, and it was recommended that the Minister followed up. The Integrated Financial Management System (IFMS) was a huge responsibility, and AGSA sought the Minister’s attention in this area as well. The Chief Procurement Office also required the attention of the Committee and the Minister in order to improve supply chain management.
Ms T Tobias (ANC) commented that there had been improvement and she was impressed. Nonetheless, she expressed concern that the report said that some entities were not performing well, and asked for the specific entities, rather than the generalisation in the report. Reference was made to page 26 of the report, indicating that some government entities had not been audited, and she asked for reasons why this was so. She went further to ask why South African Airways had so many outstanding audits. The report indicated that some government departments had irregular expenditure. This was important, because if any government department fells under the National Treasury, it was not acceptable to have “irregular expenditure”. The AG delegation was asked to name the specific entities that had not implemented the IFMS. She suggested a report within six months to deal with lack of competence and slow response of management, stating that this was totally unacceptable. She referred to the concept of material misstatements, and said this was usually a result of incompetent persons, and asked for ways to counter the matter.
Mr R Lees (DA) asked for an explanation on the supply chain issue at the Land Bank that had resulted in the red block in the report.
Mr B Topham (DA) asked the AG to provide causes for the irrational preparation of financial statements. He expressed satisfaction with the consolidation project, and asked for the two specific sets of financial statements which the report referred to.
The Chairperson thanked the AG for their commitment and acknowledged their contribution, and suggested that they should work with other Committees as well. The AG was urged to be more proactive in asking the Committee for progress on implementation. He noted that the Committee had to deal with the issue of the Chief Procurement Officer, particularly the accusations in the public domain. The AG was asked to answer the questions related to the Independent Regulatory Board for Auditors (IRBA) that had been raised consistently recently. The AG was urged to be firm in specifying what they wanted from the Committee, and not to be “too soft”. He suggested that the AG should list recommendations of what the Committee should do and hold the it accountable.
AGSA was asked what criteria it used to decide not to audit specific institutions, as well as the specific institutions that were not audited in accordance with those criteria.
The report had stated that the quality of the statements had gone down, compared to the previous financial year, and the AG was asked to provide reasons for the decline. How could the process of internal auditing be used to improve the situation, and what was being done to ensure that audits reflected what was truly happening.
Mr In addressing entities not doing well, Mr Sokombela noted that the Land Bank was doing relatively well, however there was new executive; thus resulting in restructuring process. In the process of doing so, they had to appoint assistance in getting clearance certificates and they were errors in doing so. There has been regular engagement with the CEO. Irregular expenditure amounts to more than R30 million and AG got commitment that they would be improvement. GEPA was also identified as another entity not doing well due to; several investigations on-going, new pension fund system being developed thus resulting in a number of irregularities. In regards to the SAA, the AG opted not to audit but several engagements ongoing.
Ms T Tobias (ANC), interjected and asked for the reasons why the AG opted not to audit the SAA.
In response, Mr Sokombela said that initially there had been no skills to audit the state-owned enterprises, and the concentration had been more on national departments. Therefore, due to capacity issues, it had opted not to audit the SAA. Also, there were procedures to be followed, which then was a governance issue.
In response to the lack of competence regarding financial statements, Mr Sokombela explained that financial statements were compiled once a year, resulting in a lot of mistakes. Furthermore, the challenge was the disclosure notes, and he recommended that while doing monthly management accounts, disclosure notes should be included as well. The suggestion of internal audits was a good recommendation, and was something that AGSA always recommended.
Mr De Wet then addressed the implementation of the IFMS. He pointed out that the system was still being developed, so it was not easy to ascertain which entities were not complying.
Regarding the root causes of material mistakes in financial statements, he said that all national departments derived standards from the National Treasury, so there were areas for development and the training of financial officers was needed.
Mr De Wet explained that the two sets of financial statements were for the national department and the national public entities. AGSA was committed to being more proactive, as requested by the Chairperson. South Africa’s auditing profession was rated one of the best in the world, and although it was not an easy concept, the budgeting process was one of the best. Nonetheless, an improvement in performance and financial reporting was needed.
The Chairperson asked that the unanswered questions be dealt with.
Mr S Buthelezi (ANC) sought clarity on the nature of the disclosure notes.
Mr Sokombela responded that the nature of the disclosure notes was an issue of quality of financial statements. More so, they were repeat findings, reported for the last two years.
Ms Tobias reminded the Committee that 12 years ago they had requested a move from financial reporting to performance reporting, and the then AG had stated that there was no capacity to do so. Now, 12 years on, the AG was giving the same reasons, with money being unnecessarily spent on consultants that did not do their work, but nonetheless performance reporting was needed. She expressed concern over the Land Bank that had regressed in terms of performance. The answer regarding clearance certificates had not addressed the issue, and a precise answer was required.
Mr Sokombela responded that the capacity issues had been addressed. However, there was a process that needed to be followed when something had to be done. In respect of the Land Bank, it had been audited and the law was to the effect that if there was an irregular finding, they were required to investigate, and the investigation was yet to be done.
Mr Lees said that the issue of tax clearance issues could not be related to the new executive, as there was obviously a clerk who dealt with them. In respect of the AG’s capacity to audit state entities, he emphasised that it was an important issue and that in the next two days, a complaint would be lodged against SAA for its lack of audits from 2013 to 2016, on whether or not there had been due diligence.
The Chairperson cautioned that the issue of challenging the audit was an issue of a political party, not the Committee. He suggested that the AG should attend the quarterly reports by the National Treasury, if possible. He acknowledged that there had been performance reporting over the years -- the ANC had suggested performance reporting years back -- and a recommendation should be made to the Minister for additional resources.
Mr Segooa noted that all the issues raised would be addressed.
National Treasury: Annual Report
Mr Stadi Mngomezulu, Deputy Director General (DDG): Corporate Services, National Treasury (NT) began by pointing out that the NT had received the analysis of their report by the Committee, and each issue had been responded to. This had been distributed to the Members so that they could clarify responses that were not specific. He indicated that the Chairperson had asked the NT whether they intended to respond to the AG’s report, as well as the allegations against the Chief Procurement Officer (CPO), and asked for the Chairperson’s guidance on how to tackle the issues.
The Chairperson responded that the NT had discretion on how to respond.
Mr Mngomezulu stated that when the allegations against the CPO surfaced, Mr Ismail Momoniat, who was at the time the acting DG, in consultation with himself (Mr Mngomezulu) and Communications, issued a media statement on the matter.
The Chairperson replied that there could not be a CPO accused of corruption, and whatever the legitimacy, the issue had to be responded to.
Mr Ismail Momoniat, DDG: Tax and Financial Sector, NT, took over and apologised on behalf of the Director General (DG), Mr Lungisa Fuzile (DG), for his absence.
In response to the allegations against the CPO, he said that the NT had zero tolerance for corruption, given that the NT regulated financial management and procurement. He pointed out that the NT had not yet received any report from any official agencies, and the only information available at the moment was from reports in the media. The NT had written to the Department asking for a report, but as yet there were no substantiated allegations. Additionally, Mr Brown was a long serving member of the NT, and to maintain fairness, all those making allegations should provide a report so that management could act. He said that there had been a response from the Hawks, who were looking into the matter.
Mr F Shivambu (EFF) asked the NT to clarify who had handled the dossier.
Mr Momoniat said that all they knew was what was being reported in the media.
Chairperson interjected, saying that the NT had nothing from the SA Police Service (SAPS) as well as Mr Jimmy Manyi, CEO of the Government Communication and Information System (GCIS) and Cabinet spokesperson, and asked if NT had written to him.
Mr Momoniat responded that they had written to him, but there was no dossier or any material information. Although the issue had generated a lot of public interest, there was no information to act on. The NT’s staff were proud public servants, had no interests, and there was a system where management had to declare assets. Any member who had allegations was welcome to approach the NT.
Mr Shivambu said that the systematic attack on the NT had to be taken note of, such as the Gupta issue and Mr Manyi, who had written to the President that the Income Tax Bill which would be about the financial transparency of public officials. There were several issues which the ANC should deal with, like the Gupta state capture.
Ms Tobias said there were serious allegations against an official in the public domain, yet the NT said there was no report. She asked how the Committee should deal with the issue.
The Chairperson responded that the CPO had been set up to avoid irregularities, and had then been accused. Everyone accused had to be discussed in the Committee. In order for the Committee to report, it required a report from NT. The Chairperson indicated that he had not read the NT media statement, and had no idea that the NT had no report. He suggested that the Committee write to Mr Manyi to provide a report.
Ms Tobias indicated that her intention had not been that the Committee should write to Mr Manyi, but there were serious allegations in the media and the NT said they had no report, so guidance was needed on what the Committee should do.
Mr D Maynier (DA) added that the Committee should avoid getting into the merits of the case. Nevertheless, it needed to be aware of the NT procedures in an event where allegations were being made against a senior official.
The Chairperson suggested that the state’s lawyers should be approached for guidance.
Mr Shivambu reiterated that a lack of decisiveness would lead to deeper crisis and the state being captured, therefore the matter had to be dealt with.
The Chairperson suggested that the Committee should write to the NT to inform it that no allegations had been brought, and once they had been brought, it should give clarity on the process thereafter.
Mr P Mabe (ANC) said that the statement issued by the CPO that the ruling party was opposed to him, was not entirely true, since the ruling party had implemented the office of the CPO with the intention of curbing corruption. As the ANC had led the process of establishing the CPO, they could not be undermining the very same institution.
Mr D Maynier (DA) indicated that he was not aware that the CPO had made a statement.
The Chairperson reiterated that the Committee should express concern as suggested by Ms T Tobias. More so, Committee should do the right thing, chief whip was clear on that, and should be done with the majority vote. However, accusing the CPO was like accusing a magistrate or judge of a serious offence, as he was there to maintain the integrity of the institution. Therefore a compromise should be found to deal with the matter.
Mr Lungisa Fuzile, DG, NT, apologised for being late, and clarified that Mr Manyi had responded but had not furnished any information, which was totally unhelpful. The allegations suggested that someone had ended up with the CPO’s bank statements, which were a private matter, and it was concerning how that person had ended up with the statements. Furthermore, the comparison that people were drawing from the two cases was fallacious, given that in one case there was information that had been duly obtained, without hiding their identity, while in the CPO case there was no information, whether obtained illegally or not.
Mr Mabe said that the article in question had been published in the Business Day on 6 October 2016.
The Deputy DG said that they respected the independence of AGSA, and they would not go into the details of the report. Whenever there was a difference of opinion with the AG, they used the oversight unit of the department, the Audit Committee, which was independent, so that the institution’s integrity was maintained. He suggested that the Committee should have the chairperson of the audit committee in their meetings.
The Chairperson asked to what extent the NT took into account the AG’s reports.
Mr Fuzile said that in the process, a wide range of issues was considered, such as performance and the resources required. He gave an example of the question that had been raised in another Committee after the NT had taken back conditional grant money from a municipality. They had done so because there had been no spending. He said they had spent much time justifying why the money had been taken back, showing that in essence, if money was taken back, no service was lost, but it was not an easy concept to clarify.
The Chairperson directed that the actual report of the NT be dealt with, and noted that perhaps a recommendation could be made to amend the Public Finance Management Act (PFMA) so that the AG’s reports were implemented.
The DG said that Mr Momoniat had found the article in question. It was somewhat confusing, and in the relevant paragraph a certain “Mr Ralph” was quoted.
The Chairperson directed that they should not start from scratch, and should continue from where they left off last year.
Mr Fuzile then proceeded with the annual report, starting with the overview of the NT and noting important factors to be discussed. He said the economy had not grown and doubts were being raised on whether the 0.9% target set for 2016 would be achieved. Growth was expected to be much lower due to a number of factors, both internal and external. The DG stressed that although not much could be done to control external factors, much more could be done to control the internal factors, and the sooner structural reforms were implemented, the better for the country. Lower growth rates had imposed a constraint on the country in terms of affordability, so the NT had to take actions that did not result in lower output and employment. The most obvious solution was to learn to do more with less. The NT had gone beyond issuing cost containment measures, and the Minister had also tasked the CPO to target specific areas, particularly those where the government could buy better and save costs. A process was under way to ensure that procurement was easy and administrative burdens on companies were reduced.
The DG highlighted the programmes under the NT.
The Administration Programme (corporate services) had saveds a total of 0.7% in the cost of goods and services. 91% of the positions had been filled and it had achieved 98% payment of suppliers within an average of nine days.
The economic policy, tax, financial and regulation research section had conducted research on the impact of rising electricity prices on demand, reviewed key trends in the mining sector, the implications of the prolonged drought, the enhancement of South African export competitiveness, calculated the optimal levels of reserves, identified the macro-economic determinants of the yield curve and worked on improving the long run yield specification in the quarterly forecasting model.
The Public Finance and Budget Management was responsible for intergovernmental relations in coordinating fiscal and financial relations between the national, provincial and local spheres of government. The programme also had a division on public finance which oversees budgetary planning and execution in national departments, as well as providing advice. The last sub-division was the Budget Office responsible for the national budget process.
The Asset and Liability Management had an overall duty of management of government financial assets and liabilities.
The DG also briefed the Committee on the financing and transfer of the R23 billion equity allocation to Eskom, which the government had acquired after selling its 13.9% shareholding in Vodacom to the Public Investment Corporation. The allocation to Eskom had been appropriated through the Eskom Special Appropriation Act, 2015, and conditions had been attached to the transfer of the R23 billion. The allocations had taken place as follows: R10 billion in July 2015, R5 billion in December 2015, R5 billion in February 2016 and R3 billion in March 2016. The allocation to have been made in December 2015 had been delayed as Eskom had not fully demonstrated compliance with the conditions attached to the equity allocation.
The Office of the Chief Procurement Officer had registered 100 000 suppliers by 1 April 2016. An e-tender portal had been launched, 3 052 tenders published, and 14 transversal contracts renewed.
The office of the Accountant General had conducted investigations in 28 targeted departments, and 44 cases for criminal proceedings and civil recovery had been referred. Municipal officials had been trained to enhance financial management competences.
The International Financial Relations had increased South Africa’s shareholding in the African Development Bank to 5 %, and continued to manage multilateral financial relations.
The Civil and Military Pensions, Contributions to Funds and other benefits, had paid an average of 92.5% of benefits, and complaints had been resolved within seven days.
The Technical and Management Support and Development Finance had provided technical advisory support to 189 projects. The financial management grant had been transferred during the reporting year. The Jobs Fund had concluded six calls for proposals since its inception in June 2011 and had disbursed R3.22 billion in grant funding to 95 implemented projects.
The DG lastly briefed the Committee on the outcome of the AG’s report, which indicated an unqualified audit opinion. However, the Department could not correct the previous year’s finding on pre-determined objectives, as the 2015/2016 Annual Performance Plan (APP) had already been submitted when the audit report was finalised. The 2016/2017 APP’s targets and indicators had been revised to ensure that they were specific and measurable within the performance framework.
The Chairperson cautioned that the questions to be asked should take into account what had been done last year. Due to time constraints, each Member was given a maximum of five minutes to ask questions.
Mr Maynier’s first question related to the nuclear build programme. He said there had been eight references to work done by the NT, but no reference to this programme. He asserted that the non-reference suggested that the report had been purged and no work had been done. He asked the NT specifically to outline the work and reports done on the nuclear build programme. Also, if the report had been purged, what had been the reasons? He referred to the Eskom disbursements, noting that the reason for staggered disbursements was due to non-compliance, and asked for the ways in which Eskom had not complied and the conditions involved. Lastly, in relation to the attack on NT, asked whether the State Security Agency had completed its investigations into project spyware, and whether the Agency had been in contact with the NT.
Mr Buthelezi began by congratulating the NT for its unqualified audit report. He asked for the NT’s honest opinion regarding its performance on inclusive growth. He stressed that one of the main obligations of the NT was to transfer money to the national departments specifically for Broad-based Black Economic Empowerment (BBBEE) to assist previously marginalised persons, and asked whether the NT had any idea of how much money had been transferred to previously marginalised people and black professionals. He added that there had been a big outcry from the public, that neither the public nor private sectors were making use of their services, which meant they were being disadvantaged from both sides. He raised the issue of Future Growth, which had made a decision not to fund state-owned entities (SOEs), and enquired whether there had been any interaction between Future Growth and the NT. If so, what had been the outcome of the discussions, and did Future Growth understand the impact of its decision specifically on the economy? Lastly, he commented that it appeared that small businesses had become funders of the government due to the non-payment for services provided.
Mr Lees referred to the matter of South African Airways (SAA), particularly the guarantee of R4.7 billion, as well as the internal memo of 23 August 2016 which had been addressed to the board to say that the R4.7 billion was not enough. He asked whether the NT was aware of the memo, and said that the AG should have been aware of the memo, and could have challenged the board and had the audit report qualified.
Mr Shivambu raised the issue of the ongoing protests over free education. He said he had seen that an NT employee had stated that free education for all was impossible. He emphasised that this was an important issue for all political parties that had to be addressed. There had been a meeting with the National Student Financial Assistance Scheme (NSFAS) in which it had been stated that on the assumption of one million students, each requiring about R65 000 per year for higher education funding, approximately R65 billion to R75 billion was needed per year to fund the students. The NT was asked to pave the way forward, and he suggested that 2.5% levy on pension funds be used to fund education. This was justifiable, since the burden to pay fees would be shifted. Furthermore, the country was in a crisis because of the outcry, and therefore suggestions were needed. He asked the Committee to give an overview of the possibilities so that feasible decisions could be made.
Ms Tobias cautioned that the Committee should be able to separate political matters from the NT mandate. The fees issue a political matter, and had to be dealt with separately. She suggested that the matter of institutions struggling to implement the integrated financial model system should be addressed. She highlighted that the NT had surpassed its budget for the Jobs Fund, and expenditure appeared to be more towards agriculture and tourism, which afforded temporary employment. The focus should therefore be on job creation that was not seasonal. She said the application system was not cumbersome for big companies, which was the opposite for small companies, so the application process should be made easy for small companies. She suggested that the share in the African Development Bank be increased to 10 %, and that training for business should be increased. Lastly, she raised her concerns over SAA not being audited.
Mr Topham said the fact that 98% of NT suppliers had been paid in an average of nine days was an achievement. Given that the role of the NT was to find money, he enquired whether there was a way it could fund local governments to reduce their cost of borrowing, taking into consideration that service delivery was being held back by lack of funding.
Mr Mabe also raised the issue of fees funding, and suggested NT should start looking at various ways to finance free education, for instance, with tax packages. Furthermore, the country needed to be informed of what was happening before it was too late. On procurement, he asked what the NT was doing to make the system available in remote areas. Lastly he commented that the tender portal had been a good initiative of good governance, led by the ruling party.
The DG responded to the nuclear build issue raised by Mr Maynier, and said that the reports were not published before they were submitted to the Minister, and assured him that there had been no censorship. The NT was also working with the Department of Energy to ensure that they executed the nuclear build plan in the best possible way.
On the issue of Eskom disbursements, the DG said that the conditions had included that Eskom had to adhere to their build programme plan on time, as well as ensure that critical positions were filled at all times.
On the issue of the Project Spider Web, the DG said that the NT had not yet received a report.
The DG further addressed the issues of growth, inclusiveness and BBBEE raised by Mr Buthelezi. He reiterated that the growth rate was not necessarily a reflection of the future, given that there were several sectors of the economy that the NT could not influence. Nevertheless, there was a collective responsibility for the entire economy. In addressing inclusiveness, he said that in his opinion, the only way persons could be included in the economy was through job creation. Additionally, transformation matters were indeed important and several Acts were there to address such matters, which fell under different departments. In light of the over-lapping, the inclusion of black professionals was something that the whole government should be accountable for.
In response to the question on Future Growth, there had indeed been informal conversations, and it had been admitted that procedure had not been followed. Nonetheless, Future Growth was well aware of the impact of its decision. In essence, although the decision had been a short term inconvenience, if there were questions to be asked, they should be addressed.
Mr Fuzile then addressed the issue of late payments, and said that it was a serious issue. However, there were several departments responsible for that, and he therefore could not answer on behalf of them. The respective departments should be approached to get precise answers. Information had been provided to Cabinet on institutions not paying on time and an age analysis had been done on delayed payments, therefore the Cabinet could use the information to act. A call centre had also been set up to ensure that persons could lodge complaints which would then be directed to the responsible departments.
He said that the AG was going to audit SAA.
The Chairperson informed the Committee that the Commission had invited the Minister of Finance for engagements on the fees issue. The Parliamentary Budget Office would shortly meet with the Standing Committee on Appropriations. He thus suggested a joint meeting with the Portfolio Committees on Higher Education and Appropriations to take the matter forward.
The DG admitted that on the fees issue, indeed more had to be done. Several factors had to be considered, such as equity and redistribution.
On issues raised by Ms T Tobias relating to the modified cash system, he acknowledged that more had to be done and the NT would look into simplifying the system.
In response to the funding of the municipalities, the DG commented that there had been several conferences on ways to fund the municipalities, including their borrowing capacity.
Mr Buthelezi expressed concern over the answers provided on inclusive growth, and said the matter needed to be revisited. Inclusive growth does did not relate to employment only. The Future Growth issue was a national disaster, and the main worry was the manner in which it had been done. He stressed that he was not raising theses issues with the intention of holding the NT responsible, but because the NT had the obligation to raise and pay out money.
Ms Tobias cautioned that DG could not answer on political issues. She suggested the ongoing fee issue should be dealt with in the Committee as well. On municipal funding, she suggested that municipalities that were not implementing their plans should be identified, particularly those giving back money due to their lack of capacity to spend, and especially those municipalities not generating revenue, and which had huge debts.
The Chairperson reminded the Committee of procedure, pointing out that the Members were asking the DG same questions as they had asked before. He directed that before parting for the year, the Committee should meet to discuss how to deal with annual reports. Members were required to provide follow up questions by Monday, 17 October. 2016. Regarding the answer given on inclusive growth, he agreed with Mr Buthelezi. On issue of fees, there was a possibility of a joint meeting.
Mr Fuzile said that he mentioned a whole range of matters in regard to inclusiveness, and emphasised that he had said that the majority would be included through job creation.
The Chairperson interjected, and said that the ANC felt that the NT was not sensitive to the creation of black African industry, or ensuring that the Johannesburg Stock Exchange (JSE) was owned by a majority of black Africans. At the moment, not sufficient was being done, thus creating frustrations. He agreed with Ms Tobias that policy issues were matters that should be addressed by the Ministers, if possible at a sitting on the matter as joint Committees. However, if the policy had been agreed on, the DG should be held accountable.
Ms Tobias) cautioned again that policy issues should not be addressed in the Committee.
The Chairperson in response said there was no substantial difference, but if it was an agreed policy, the DG should be held accountable.
South African Revenue Service (SARS): Annual Report
Mr Tom Moyane, SARS Commissioner, gave an overview of the SARS mission, which was the collection of revenue within the legislative mandate. The values underlying SARS were highlighted -- integrity, fairness, respect, honesty, accountability, transparency and trust.
The 2015/2016 financial year had ended on a high note, with SARS having collected more than the set targets in some areas. Customs revenue collected had amounted to R197.6 billion, with progress on the implementation of the Customs Control Act and Customs Duty Act, as well cooperation with international jurisdictions and strategic risk management. The customs revenue collected had resulted in a R920 000 deficit due to the constrained growth of taxable imports. Tax revenue collected had amounted to R872.4 billion, with personal income tax (PIT) at R389.3 billion, corporate income tax (CIT) at R193.4 billion, and value added tax (VAT) at R281.1 billion. However, the debt book had increased by 7.4%, or R96.378 billion, due to a higher inflow of VAT and CIT debt cases. The target set for VAT refunds had not been achieved due to an increase in fraud cases. Overall, electronic filing of tax returns had slightly increased. SARS had received a clean audit from the AG.
Mr Maynier expressed concern over the controversial issue involving the SARS second-in-command, Mr Jonas Makwakwa.
The Chairperson cautioned that Members ought to deal with the report first.
Mr Maynier then made reference to the annual report on units. He enquired about the number of units there were under SARS, their purpose, and their employment. He specifically asked about the “SARS Rogue Unit,” and how the SARS advisory unit had made recommendations to prevent the issue from happening again. He questioned how the recommendations had been made, and their implementation..
Mr Mabe reiterated that the perceptions in the public domain about SARS could not be ignored, particularly the continuing allegations against individuals within SARS. He asked how SARS dealt with such matters and commented on the importance of such issues, since there was huge public interest. He referred to the report on SARS not achieving its VAT collection targets, and asked whether measures were being taken to counter the issue.
Ms D Mahlangu (ANC) commented on the values, fairness and integrity that SARS had referred to in its presentation, and said she was concerned about the public domain issues. She asked how far SARS was with the implementation of Lebombo border measures. She also expressed how impressed she was with SARS.
Mr Buthelezi expressed his pride in SARS and the clean audit. The pivotal role of SARS in advancing socio-economic policies was reiterated. He asked how sustainable SARS’ impressive results were. He said there had been a lack of clarity in the presentation on border management. The issue of tax leakages was addressed, and SARS was asked to identify the tax leakages and steps being taking to curb them.
Ms Tobias also commented on how impressive SARS had been in its performance. She enquired if there were ways of juxtaposing CIT and PIT, and if there was any preparedness to collect more tax in order to meet social needs, fees and inclusiveness. She noted a decrease in writing off of debts, and asked for statistics. She then moved on to municipality taxes, and enquired on how SARS assisted in tax payment relief. She asked SARS how people with offshore accounts could be encouraged to bring their investments back to the Republic.
Mr Topham enquired about the filing of tax returns by practitioners, and the time taken for refunds.
Mr Lees commented on how SARS might be falling behind on VAT refunds, and said it was a concern that SARS owed so much to people. Although SARS had mobile offices for easy access to the public, their ineffectiveness was being exposed.
The Commissioner emphasised that there were a number of specialised units, particularly those involved in investigations, audits and enforcements, all working towards the common goal of an efficient system.
There was constant contact with the advisory board, and a report had been made.
He addressed the interface issue, and said that the objective was to deal with the customs programme. He was not aware of any investigations.
In response to how SARS dealt with the public domain, he reiterated that SARS had visible leadership in all spheres, although it was difficult to deal with the media since it was not fully aware of internal issues. Nonetheless, he was proud of the SARS team. They had an annual survey on how employees viewed its leadership, and despite the media perception that SARS was falling apart, they were striving and addressing issues that needed to be addressed.
Ms Firdous Sallie, Acting Chief Officer for Business and Individual Tax, SARS, responded on the VAT challenges. Over the last few years SARS had implemented a system that allowed it to verify information provided, problem areas had been picked up and werebeing addressed by the team to help prevent VAT fraud.
The Commissioner, in response to allegations against employees within SARS, emphasised that they ha a detection system mechanism on what might impact staff, and it was not wise to make decisions to the exclusion of employees. Every year, each staff member was required to make a declaration of personal interest and if issues arose, the system was looked into.
Mr Jed Michaletos, Chief Officer, Customs and Excise, SARS, addressed the customs enquiry. He said Beit Bridge now had a cargo scanner which scanned between 60 and 80 trucks per day. Lubombo now had a baggage scanner and eight more were in the process of placement.
The Commissioner, in response to the question about the sustainability of SARS results, indicated that SARS had a Group Executive Forum which sits to set targets, dissect challenges, suggest changes and the implementation thereof. He reiterated that SARS had leadership that was visible and interactive -- for instance, meeting with CEOs of banks and tax bodies.
The problem of tax leakages was acknowledged. The Commissioner assured the Committee that the matter was being looked into, taking into consideration that analysis was needed in order to come up with initiatives.
Regarding SARS’s preparedness to venture into other means of tax collections, Mr Moyane reminded the Committee that such issues were Ministerial decisions, and if such a decision was taken, his duty was to implement the mandate. He suggested that the student fees issue might be addressed by the tax gap.
Mr Kosie Louw, Chief Officer, Legal and Policy, SARS, responded on the write-off of debts. He said that there was a disclosure programme for persons to come forward and regularise their tax compliance. There was about R12-13 billion of debt under dispute. The laws were to the effect that the debt was not completely written off, but suspended.
Ms Sallie added that debt collection agencies were continuing with debt collection, and SARS was in constant contact with the agencies.
Mr Matsabane Matlwa, Chief Finance Officer, SARS, addressed that costs that were not clear and identified what they were related to.
Chairperson reminded Committee of the prior agreement they had that the Finance Intelligence Centre (FIC) could do only so much and then handed over to other authorities, and suggested that other Committees be brought in that were inter-related to the FIC. He also reminded the Committee of prior commitments made to visit the Beit Bridge border and that at least four people should do so, in the first week of December. Members should put questions by Monday and also start making recommendations.
Follow up discussion
Mr Maynier reminded the Commissioner of the prior Committee meeting they had had, and the question he had asked about whether a certain official within SARS was being investigated. In response, the Commissioner had said he was not prepared to discuss the ongoing investigation. In addition, the Commissioner had received an FIC report with serious allegations against Mr Makwakwa. He reiterated that his main concern was the reason Mr Makwakwa had been part of the delegation. Furthermore, a statement had been issued on 16 September 2016, in which the Commissioner had stated that there had been a lack of co-operation from the FIC. He asked the Commissioner to substantiate his statement, particularly in what respect the FIC was not cooperating, and if it was not correct to assume that the FIC did not cooperate because it reported to the Minister of Finance. He sought clarity on the purpose of an international law firm being hired, and given that the Hawks were investigating, whether the matter had been reported to SARS.
He then asked the FIC to comment on the fact that the Minister had taken issue over the way the matter was being handled.
Mr Maynier continued to pose questions to the FIC. He expressed concern over how it interpreted its mandate, given that a report had been produced, but it had responded that it had no mandate to report to the public. He asked the FIC to explain its purpose in handing over the document to SARS, its mandate in terms of the Act, and if a report had indeed been furnished to SARS.
Ms Mahlangu referred to a meeting in May, where the Commissioner had said that there had been no cooperation from the FIC, and asked for clarity in that respect. She further emphasised that the public needed clarity, given that there was a perception that the Commissioner had acted inconsistently.
Mr Buthelezi said how important the matter was, since it had the potential of affecting the whole of SARS like “a spot on a white shirt”.
Ms Tobias voiced her concern over how she never imagined that a SARS official would face such allegations. She enquired if there were any measures to deal with the corruption and irregular appointment of a person referred to as Mr Makwakwa’s “partner,” Ms Kelly Ann Elskie.
The Chairperson complimented the Members on quality of their questions.
The Commissioner, in his response, made reference to the minutes of the meeting on 23 August 2016. He expressed shock, and indicated that the matter was between SARS and the FIC, given the confidential nature of the two institutions. He asked how a Member had gained access to FIC documents. The Commissioner went on to quote George Orwell, and emphasised that Mr Makwakwa was not unequal to the others. He described the events leading to the FIC documents he had received. Between 14 and17 May, he had been in China and had received a letter. On 17 May, they had had a Group Executive Forum, where he received a message from his personal assistant (PA) that there was someone who had delivered confidential documents. He had opened the documents and was in total shock when he read a report about a colleague. The Commissioner had then referred to the collective agreement on code of conduct and had contacted the head of HR. Given the confidential nature of the documents, they were never left in the office. On 20 May, he had written to his colleague, Mr M Michell, acknowledging his letter and indicated in the letter that he would like a discussion on the issue. On 15 June, he had met with Mr Michell to discuss the issue and had asked for assistance. The Commissioner had then sent a letter to Mr Makwakwa and his partner.
The Chairperson interjected, and warned that the meeting should not turn into a commission of inquiry, and there was a need to be careful, since Mr Makwakwa was not there to answer. The Chairperson asked advice from the Committee, particularly Adv Jantjies.
Adv Jantjies agreed with the Chairperson, and said that the Committee should respect the people involved and not get into the details of the matter.
Mr Maynier responded to the Chairperson, and said that he agreed that they should not deal with the merits, but clarity on the questions asked was needed.
The Commissioner continued responding to the questions raised, and stressed that he had not taken a reckless approach. Given that disciplinary had to be confidential, this applied to every employee at SARS. Mr Makwakwa had been suspended, as well as his partner, after due process had been followed. He had done what was required of an accounting officer and had informed his colleagues after suspending Mr Makwakwa.
Ms Mahlangu asked whether there had been due process and consistency, particularly with regard to the irregular appointment of Ms Kelly Ann Elskie.
Mr Teboho Mokena, Chief Officer, Human Capital and Development, SARS, responded to Ms Mahlangu’s question, indicating that they had taken note of what had been in the media. In relation to process followed with the appointment itself, there had been an “internal investigation”, and therefore the investigation had to be completed first.
Mr Louw added that the Committee should allow the process to unfold.
Mr Murray Michell, FIC Director, then addressed Mr Maynier’s questions on the FIC’s disclosure. Emphasis had been placed on the need to be careful. He went further to explain the mandate of the FIC as contemplated in the Act, which was to deal with money laundering, terrorism and the proceeds from unlawful activities. S29 of the FIC Act dealt with the reporting of suspicious transactions, in sub section 3 and 4, the Act explicitly provided that no person shall disclose the contents of the report unless, inter alia, it was within the scope of powers and duties, carrying out the provisions of the Act, or for the purpose of legal proceedings, etc. S40 of the Act provided for access to information held by the Centre, and specified that no person shall have access except the investigating authority in the Republic, SARS and the intelligence services. S41 further extended on the duty not to disclose information unless certain conditions were met, such as a court order, power derived from legislation and the permission of the Centre. Disclosure jeopardised investigations, therefore their standard response remained that they could neither confirm nor deny the allegation.
Mr Michell then reminded the Committee that the FIC was not covered by Parliamentary immunity, and so should not be compelled to breach the Act. He further reiterated that operational information was not shared and the existence of the report was not denied. Once an investigation had been completed, the FIC was mandated to refer the matter to competent authorities, which included the SAPS and SARS, and it was therefore up to the authorities to take the matter further. In respect of timing, it depended on when the information was provided and the trend analysis of the report.
Mr Michell then went on to deal with the issue of cooperation, and said that in terms of S40, support could be given. The FIC acted as an advisor to the competent authority, and it was up to the recipient to follow up on the report. They provided as much detail as they could.
The Chairperson expressed concern over the extent of cooperation and suggested that it was a matter of legal interpretation. If amendments were needed, then they should be tabled in Parliament. He further indicated that he did not know the meaning of the phrase, “lack of cooperation,” and asked the Committee if there was any relevance in the questions asked. He then assured the Members that if they disagreed, they had the right to raise their objections. He suggested that either the matter had to be discussed in confidence, or an adjournment and a legal report was needed to deal with the issues by mid-November.
Ms Tobias said that she agreed with the Chairperson, that this was a matter for another day.
The Chairperson went on to express his discontent with Mr Maynier for his failure to disclose.
Mr Maynier replied that he had reasons for not disclosing, but given the public interest in the matter, the questions raised should be answered. The Commissioner had been asked to be specific on how the FIC had not cooperated and where the matter had been referred and when. He had also asked for clarity on the status of both affected individuals. He went on to explain his reasons for not disclosing the issue to the Chairperson, and emphasised that his non-disclosure was due to the lack of a response -- for example, the National Treasury took more than 200 days to respond.
Mr Mabe interjected and said that the Committee should learn from the experience, and suggested that the Committee should allow competent authorities to advise them on the legal issues arising.
The Commissioner, referring to the issue of the irregular appointment, said that lawyers had been appointed to investigate the matter and were yet to make a finding on whether there had been due process or not.
The Chairperson then asked the Commissioner to provide reasons why Mr Jonas Makwakwa had been brought to their prior meeting while in the knowledge of the ongoing allegations against him.
In response, the Commissioner said that he had been following due process.
The Chairperson said that as Chairperson, he had never been faced with such an issue and suggested that they should look at the law and engage. He also called for a report from the Commissioner on the issue.
He repeated in his closing remarks that he did not want a situation where there were serious allegations and the Committee was doing nothing to address the issue.
Mr Maynier expressed his discontent at the failure to answer crucial questions.
The Chairperson adjourned the meeting.
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