Mandatory Audit Firm Rotation: public hearings; FICA Bill: proposed amendments

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Finance Standing Committee

15 February 2017
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

Portfolio Committee amendments (see previous version)

The Independent Regulatory Board for Auditors (IRBA) said that the Enron case showed that auditors could become too close to companies. The Masterbond case led to recommendations to strengthen regulations to ensure stricter audit oversight and guard the independence of auditors. IRBA was looking at governance and independence because of the threat of self interest. The audit firms were not able to agree on its own transformation charter and therefore this was where legislation in future might be required. IRBA was looking at a comprehensive regulator for not only auditors, but for accountants and tax professionals and chief financial officers as well. The board had started proposing Mandatory Audit Firm Rotation (MAFR) in 2013 due to three concerns: to strengthen auditor’s independence and enhance audit quality, there was a concern over market concentration; and the promotion of transformation in the profession.

The CFO Forum spoke about the consultation process, the protection of the investing public, transformation, market concentration and MAFR as a measure to address transformation and market concentration. The Forum believed that it was equally important to adopt a transparent, robust, comprehensive process, to present evidence and research prior to making a decision which could impact on the business environment.

SAICA said it was important not to be subjected to a particular view because SAICA had not had time to discuss the issue so that a unified view could be developed. SAICA questioned the legitimacy of the process and hence called for more time to be allocated for consultation.

The King Committee said MAFR was not the way to achieve audit independence in South Africa. MAFR would be in conflict with existing company legislation and it reduced the responsibility of the internal audit committee to decide if and when to replace an audit firm. The King Committee had serious concerns regarding the consultation process.

The International Federation of Accountants (IFAC), said IFAC did not favour, nor reject MAFR. Audit quality was important and there was no clear evidence that MAFR improved audit quality. There needed to be clear objectives for the reform which should be evidence based and jurisdictions should implement regulatory reform appropriate for each jurisdiction. IFAC said that that there was a need to look at the whole ecology of reporting. It was concerned about regulatory fragmentation and said that there should be full considered discussion and consultation.

Members said that the audit profession was dominated by a cartel of four companies and they handled more than 90% of JSE listed companies. Parliament had an obligation to reverse such imbalances. The issue should not be about rotation of audit firms, but about transformation. Audit firms had a close relationship with the companies they audited, leading to aggressive tax avoidance. The Committee should support MAFR on the principle of transforming the industry and the transformation should be legislated. Members said it appeared that there was a need for more dialogue with critical stakeholders who were calling for empirical evidence. Members said that moral suasion had been tried and if it did not work, then transformation had to be regulated. Members said that stakeholders had always been engaged and that there should be lots of consultation and the process should not be rushed. Members said that there was a need to define IRBA’s scope. Could IRBA’s views be changed by Parliament? Members said audit independence, as the primary objective should not be conflated and override transformation and market concentration, the secondary objectives. How many audit reports did IRBA do per year and how many failed? Other comments were that IRBA should not have oversight over CFOs; IRBA and SAICA should give input on what the big four firms contributed towards transformation and how MAFR would impact the training programme; audit costs were being used as a barrier to transformation; de-concentration of the market was needed because South Africa was overly monopolistic, in a racial form; independence was not separate from transformation and market concentration, because the debate was about transformation whether one like it or not; IRBA had not reflected experiences of many other developing countries; about the concern that a credible figure like Dr Nombembe had reservations about the process.

Mr Jeffery Mathuloe, a chartered accountant registered with IRBA, spoke to issues raised by SAICA that MAFR in isolation could not address transformation and sustainable economic growth through SMME support. He said that SAICA was not committed to transformation. And 23 years into a new democratic South Africa, SAICA was still driving transformation when the truth was that SAICA had failed the black community. He urged the Committee to call medium sized black audit firms to be heard in Parliament so as to get the truth about transformation from the people who were affected. SAICA also hampered trainee chartered accountants and this was just the tip of the iceberg. The present model of SAICA had to be reviewed.

KPMG said it supported efforts to strengthen auditor independence. However, KPMG did not support MAFR as a mechanism to enhance auditor independence and address market concentration and transformation.
There was no evidence that the audit failures mentioned could be attributed to auditor independence or the lack thereof. The IRBA consultation paper already had a predetermined outcome and therefore did not allow for differing views to be aired. Other transformation solutions had to be explored. KPMG believed the consultation process was flawed and rushed with not enough time for consultation and engagements and that there was a lack of research on MAFR and its impact on the profession, the country and the economy.

Deloitte said that while Deloitte was an international brand, every partnership was owned by citizens of the country. Deloitte fully supported everything that promoted audit quality and independence. Deloitte was not fully convinced that a case had been made that MAFR would promote audit quality and independence. Deloitte spoke to the process and the failures of the process followed by IRBA as well as the impact analysis that had not been considered by IRBA.

Nkonki Incorporated said it believed that there was still room for improvement in the independence of auditors in the current environment, especially in terms of ‘familiarity threat’. Nkonki supported the introduction of MAFR as it would improve the protection of the investing public from potential audit failures and financial losses. Nkonki believed that MAFR would have a big impact on SME audit firms. Nkonki believed that MAFR would assist black professionals in obtaining intellectual capital and in the transformation of the industry.

Members asked for a database which provided how many people had been trained and for how long they had been trained. Members said SAICA had not paid adequate attention to the skills development of black chartered accountants. Members said transformation was not de-racialisation. Members said the submissions by Deloitte and KPMG showed the need to push for transformation. Members asked IRBA for clarity about the consultation process. The Committee should consider asking IRBA to engage further.

FICA Amendment Bill
The Committee looked at the most recent draft of the amendments.

The Democratic Alliance presented its proposed amendments which dealt with inspections to business premises and that a warrant needed to be obtained, the conduct of the inspector in the case of a search and the scope of the search where the premises included a tenant occupying part of the premises.

Treasury’s response to the DA’s proposals was that one needed to be mindful of the limited legislative space they had to operate in with this particular Bill and that proposals such as these needed to be done in a separate process.

The Financial Intelligence Centre said the introduction of a distinction between routine and non-routine was a new policy issue, especially for regulated businesses. Where a supervisor carried out a routine inspection, he would be placed in an impossible position if it was argued that this was a pretext for a non-routine inspection. The supervisor could not prove an absence of prior knowledge. The distinction between routine and non-routine was artificial and for those reasons it had decided not to follow this where warrants would or would not be required; and therefore they were not supporting the proposed amendments in subsection 1.

Members said the Bill was constitutional, the DA was overstretching the issue and they were not addressing the concerns of the President in referring the Bill back to Parliament. The Committee should ignore the DA’s amendments and the bill should go to plenary for adoption and become law.

The Chairperson agreed because the amendments were “bordering on, if not in fact, policy changes”. Five legal opinions had said the clause was constitutional. One could not say it was constitutional and then bring in new amendments.

A draft Committee Report on the Bill would be considered at the 21 February meeting and the Bill adopted.

Meeting report

Independent Regulatory Board for Auditors (IRBA) submission
Ms Rene Kenosi, Chairperson of IRBA, said the Enron case showed that auditors could become too close to companies. The Masterbond case led to recommendations to strengthen regulations to ensure stricter audit oversight and guard the independence of auditors. IRBA wanted to promote accountability and have balanced regulations. She said there was a growing demand for transparency, globally. IRBA was also looking to improve the reporting for auditors. All auditors were seen as being equal especially with regard to access to markets and all auditors should be afforded equal opportunities, in both the private and public sector. IRBA had seen an increase in the blocking of certain audit firms from entering certain markets. The audit firms were not able to agree on its own transformation charter and therefore this was where legislation in future might be required. IRBA was looking at a comprehensive regulator for not only auditors, but for accountants and tax professionals and CFOs as well. IRBA was also looking to take a leadership role in Africa to help improve standards in the rest of the continent.

The Committee Chairperson said it was totally unacceptable that the documents from IRBA were received only the day before, despite there being an agreed date for submission. This did not facilitate the Committee’s work.

Mr Bernard Agulhas, CEO of IRBA, said IRBA was looking at governance and independence because of the threat of self interest. He said the Financial Reporting Council (FRC) complained of there being a lack of scepticism existing amongst auditors. He said the government of Mauritius had implemented Mandatory Audit Firm Rotation (MAFR). IRBA had proposed MAFR in 2013 due to three concerns; one was to strengthen auditor’s independence and enhance audit quality, secondly, there was a concern over market concentration; and thirdly, the promotion of transformation in the profession. The market had conflated the primary goal of independence with the secondary goals of concentration and transformation. Most restatements of financial statements occurred when a fresh pair of eyes looked at the financial statements and these restatements were a threat to the self interest of CFOs and CEOs because they would incur penalties in their personal capacity. MAFR provided for a fresh pair of eyes. The second round of consultation with stakeholders had separated transformation from independence because the market had conflated the two. For now, IRBA wanted to focus on the independence of auditors. Currently there were worldwide concerns about corruption, transparency, governance and accountability. IRBA was also concerned about illicit financial flows. IRBA was not sure that all illicit financial flows were being reported by auditors. The Public Investment Corporation (PIC) insisted on audit rotation for the listed companies that they invested in, while Eskom changed auditors every five years. IRBA was concerned that the audit tenure of certain companies was very long, some over 100 years. Since the audit tenure rule was issued by IRBA, there was a change in shareholder reaction to reappointing shareholders. There was now an increased vote against keeping the same auditors. He said the Minister of Finance had spoken of an economy that was too oligopolistic, this was unacceptable to government and IRBA. On racial demographics, white audit partners signing off on all JSE listed companies totalled 73%. IRBA had been informed by SAICA that SAICA had a plan to address transformation in the chartered accountant’s profession. He said this was an ideal time for government to step in and legislate for transformation.

IRBA had wanted input on the 10-year period before MAFR rotation kicked in, not on whether IRBA should or should not have MAFR. MAFR was being used by the G20 countries as well as BRICS countries. IRBA was aware that some countries introduced MAFR and then decided to change, like Singapore which had introduced MAFR with a period of five years but this was found to be too short. He said it was not just about audit independence, it was about audit quality as well and South Africa was a world leader in audit regulations. He said the cost of rotation was difficult to quantify. IRBA noted the impact of concentration in the UK, which did not have MAFR. Working towards implementation in 2023, IRBA would monitor costs and implementation and work with the Competition Commission to monitor cartels, and this would give mid-tier firms time to build the capacity of their firms.

CFO Forum submission
Ms Christine Ramon, chairperson of the CFO Forum, spoke to the consultation process, the protection of the investing public, transformation, market concentration and MAFR as a measure to address transformation and market concentration. The Forum believed that it was equally important to adopt a transparent, robust, comprehensive process, to present evidence and research prior to making a decision which could impact on the business environment.

She said IRBA consultation paper did not show that IRBA had consulted everybody. Investors had raised concerns around the true intentions of MAFR and that there were better ways to address market concentration and transformation without imposing extra regulations on the auditing industry and on business. MAFR might result in businesses putting reduced resources and effort into transformation to counter increased costs and preparation time for audit proposals.

South African Institute of Chartered Accountants (SAICA) submission
Mr Terence Nombembe, CEO of SAICA, said he had not wanted to come to the meeting because it would show the disunity in the profession. He said it was important not to be subjected to a particular view because SAICA had not had time to discuss the issue so that a unified view could be developed. He questioned the legitimacy of the process and whether the Department of Trade and Industry and Treasury had been included; hence called for more time to be allocated for consultation. He referred to Auditor-General South Africa (AGSA), where transparency had led to access to markets for a greater portion of the population.

King Committee submission
Ms Lindie Engelbrecht of the King Committee, said the King Committee did not believe that MAFR was the way to achieve audit independence. MAFR would be in conflict with existing company legislation and it reduced the responsibility of the internal audit committee to decide if and when to replace an audit firm. The King Committee had serious concerns regarding the consultation process. She said the IRBA consultation paper said that the Institute of Directors had been consulted but they had not been consulted.

International Federation of Accountants (IFAC) submission
Mr Gary Pflugrath, Director: Public Policy and Regulation at IFAC, said IFAC had contributed to the global debate on MAFR in the past few years. IFAC did not favour, nor reject MAFR. Audit quality was important and there was no clear evidence that MAFR improved audit quality. There needed to be clear objectives for the reform which should be evidence based reforms and jurisdictions should implement regulatory reform appropriate for each jurisdiction, IFAC said that that there was a need to look at the whole ecology of reporting. It was concerned about regulatory fragmentation and said that there should be full considered discussion and consultation.

Discussion
Mr F Shivambu (EFF) said that he agreed with the IFAC view that a solution should not be imported. He said the audit profession was dominated by a cartel of four companies out of 2 000 audit companies in South Africa and they handled more than 90% of JSE listed companies. Parliament had an obligation to reverse such imbalances. The issue should not be about rotation of audit firms, but about transformation. Audit firms had a close relationship with the companies they audited, leading to aggressive tax avoidance like Lonmin, which had sent money to Bermuda. The Committee should support MAFR on the principle of transforming the industry and the transformation should be legislated.

Ms P Kekana (ANC) said she agreed with Mr Shivambu, but it appeared that there was a need for more dialogue with critical stakeholders who were calling for empirical evidence.

Mr S Buthelezi (ANC) said that moral suasion had been tried and if it did not work, then transformation had to be regulated. He acknowledged that the profession was saying they were independent, but what he did not understand was that they always called for the rotation of non-executive directors, what was the difference between that and MAFR. He said that stakeholders had always engaged and that there should be lots of consultation and the process should not be rushed.

Mr B Topham (DA) said that there was a need to define IRBA’s scope. Could IRBA’s views be changed by Parliament? He said IRBA’s scope was very broad. He said audit independence, as the primary objective should not be conflated and override transformation and market concentration, the secondary objectives. He said that IRBA should not have oversight over CFOs. He asked the King Committee to write a letter to the the Committee. IRBA and SAICA should give input as to what the big four firms contribute towards transformation and how MAFR would impact the training programme. How many audit reports did IRBA do per year and how many failed?

Mr P Mabe (ANC) wanted to be educated on audit fees, because he found that audit costs were being used as a barrier to transformation.

The Chairperson replied that IRBA had the right to do MAFR, because it was within their scope. IRBA was like a Chapter 9 institution. He said Treasury was just concerned at the pace of the process and Parliament could only urge IRBA to consult and engage. He wanted to see a de-concentration of the market, because South Africa was overly monopolistic, in a racial form. He was not convinced why independence was separate from transformation and market concentration, because the debate was about transformation whether one likes it or not. He said IRBA had not reflected many developing countries’ experiences. He said it concerned him that a credible figure like Mr Nombembe had reservations about the process.

Ms Ramon replied that their response had harped on independence because IRBA’s consultation papers had hinged on independence. Transformation was not part of IRBA’s mandate. The CFO Forum believed there were other, different solutions to address transformation and market concentration and said SAICA would be holding a transformation indaba soon. There was no evidence to suggest there were any issues with auditor independence and that before imposing any further regulations, it should look at existing regulations. She noted that the term ‘cosiness’ alluded to untowardness between CFOs and auditors and she took exception to this statement. Extra legislation would increase the cost burden. She said one could not ignore what the big four companies had achieved in terms of transformation in achieving BEE level one accreditation.

Mr Nombembe said there was not credible information to enable the Committee discuss the matter responsibly and time was needed to come up with a solution.

On how and why issues were separated, Ms Engelbrecht said it was about unintended consequences, because MAFR might increase concentration and slow down transformation. There was no conclusive research, only superficial research. She said that the fact that IRBA could do the implementation of MAFR did not necessarily mean that it should.

Mr Pflugrath said that IRBA’s consultation paper on independence related to audit quality not to transformation and concentration. IFAC was present for the former reason and would not comment on the latter issues. There was no simple one size fits all solution for MAFR and audit independence therefore South Arica’s solution had to be one that was best for the country.

Ms T Tobias (ANC) said she had served on the Defence portfolio where South Africa had set standards on cluster munitions in the context of the needs of South Africa, similarly it could do so in this case where one looked at the issues of transformation and concentration.

Mr Mathuloe’s submission
Mr Jeffery Mathuloe, a chartered accountant registered with IRBA, spoke to issues raised by SAICA that MAFR in isolation could not address transformation and sustainable economic growth through SMME support. He said that SAICA was not committed to transformation. And 23 years into a new democratic South Africa, SAICA was still driving transformation when the truth was that SAICA had failed the black community. He urged the Committee to call medium sized black audit firms to be heard in Parliament so as to get the truth about transformation from the people who were affected. SAICA also hampered trainee chartered accountants and this was just the tip of the iceberg. The present model of SAICA had to be reviewed.

KPMG submission
Mr Zola Beseti, an audit partner and board member of KPMG, said KPMG supported efforts to strengthen auditor independence. KPMG did not support MAFR as a mechanism to enhance auditor independence and address market concentration and transformation. He asked how one delinked independence and transformation. There was no evidence that the audit failures that were alluded to, could be attributed to auditor independence or the lack thereof. He said the IRBA consultation paper already had a predetermined outcome and therefore did not allow for differing views to be aired. He said there was evidence that MAFR lead to an increase in market concentration. Transformation should not only be looked at from a numbers perspective but also from a qualitative aspect. Other transformation solutions had to be explored. KPMG believed the consultation process was flawed and rushed with not enough time for consultation and engagements and that there was a lack of research on MAFR and its impact on the profession, the country and the economy.

Deloitte submission
Mr Bongisipho Nyembe, a partner at Deloitte, said that while Deloitte was an international brand, every partnership was owned by citizens of the country. Blacks owned 32% of the equity of the firm. Over the last 10 years, 17% of all black chartered accountants that qualified in South Africa had qualified via Deloitte. Deloitte fully supported everything that promoted audit quality and independence. Deloitte was not fully convinced that a case had been made that MAFR would promote audit quality and independence. He spoke to the process and the failures of the consultation process that was followed by IRBA as well as the impact analysis that had not been considered by IRBA.

Mr Nazeer Essop, head of the public sector at Deloitte, said Deloitte believed there was no problem regarding the independence of auditors. He shared some of the robust Deloitte processes to ensure auditor independence.

Mr Essop spoke to the market concentration risk around the big four audit companies and about transformation. He said there was a misconception that the big four were white firms. Deloitte was the biggest black firm in South Africa. It had 98 black South African partners out of 269, with 43 of the 98 being African black partners, 45 Indian and 10 coloured partners. Transformation in Deloitte started more than 30 years ago.

Mr Essop said MAFR would create uncertainty in the audit industry and hamper the transformation journey of Deloitte of achieving 51% black owned equity by 2020.

Nkonki Incorporated submission
Ms Thuto Masasa, Head of External Audit at Nkonki, said Nkonki believed that there was still room for improvement in the independence of auditors in the current environment, especially in terms of ‘familiarity threat’. Nkonki supported the introduction of MAFR as it would improve the protection of the investing public from potential audit failures and financial losses. Nkonki believed that MAFR would have a big impact on SME audit firms. Nkonki believed that MAFR would assist in black professionals obtaining intellectual capital and in the transformation of the industry. Currently only nine out of 4 300 registered auditing companies were black African and more than 90% of the JSE listed companies were audited by the big four audit companies. She spoke to the audit process and the MAFR implementation date of 2023 and the cost.

Discussion
Ms Tobias asked for a database which provided how many people had been trained and for how long they had been trained. She said that SAICA had not paid adequate attention to the skills development of black chartered accountants. The discussion was about barriers to entry. She said transformation was not de-racialisation. The fees being charged should be tested at the Competition Commission because it could be used as a barrier to entry.

Mr Topham said what was being looked at was transformation and the other points were moot. He said training would be affected as only the top students would be taken. In the case of the 9 out of 4 300 figure, he said this might be because of the Regulator over- regulating. Barriers to entry were imposed by the Regulator calling for a certain amount of experience. He asked for the KPMG submission to be in writing and what was their firm’s BEE rating. IRBA mentioned mandatory audit tendering and he would like information on this, as well as what consultation IRBA requested on mandatory tendering. He said the costs of training a clerk was expensive and therefore the inclusion of the six-month penalty clause.

Mr Shivambu said Deloitte had said 98 out of their 269 partners were black partners. Therefore, they were the company with the biggest number of black partners in the industry and bigger than the rest combined. This meant that the number of black people in the rest of the industry was even smaller than was thought. Therefore, there was a need to elevate the issue to the legislative realm because the industry was not transformed and the status quo should not be maintained. African Bank had collapsed but the auditors had not been investigated. The close relationship between auditors and companies was dangerous and they advertised publicly about how money could be sheltered offshore in a tax haven and these actions affected fiduciary regulations and undermined prudential regulations.

Ms Kekana said the submissions by Deloitte and KPMG showed the need to push for transformation. South Africa had an oligopoly similar to the one in the construction industry where there had been collusion. Transformation must be on the agenda.

On why IRBA had split its objectives, Mr Agulhas said that it was because the market had come to them and said that IRBA was conflating the issues, hence the focus on independence only, to address their concerns. It was unfortunate that the comments in the submissions focused on consultation and research, both of which IRBA believed were done appropriately. It would send the Committee the research and the consultation that had taken place. He said increased costs were not only because of a change in auditors, it could also be because of an increase in income of the company. He wanted to correct two statements. The first was that the failure rate of audit inspections was one percent. The previous year it was 43% and the new report would indicate an increase on that number. The second statement was that only a few cases went to disciplinary hearings. This was because auditors had an opportunity to admit guilt and therefore would not go to a hearing.

Mr Ismail Momoniat, Head: Tax and Financial Sector Policy, National Treasury said Treasury was talking to IRBA and would suspend its input to the meeting.

A Treasury official said it had encouraged IRBA to do three things: conduct thorough research; consult adequately, and for IRBA to act within laws and regulations because it did not want to drag the process through legal battles because transformation was important.

Ms Ramon posed the question whether MAFR would solve the problem of willful fraud in an organisation or an intention to willfully withhold information. MAFR would reduce confidence in the capital markets, not restore confidence in the capital markets.

Mr Peseti said KPMG had a level 2 BEE rating. He said transformation needed another engagement. The invitation was on MAFR with reference to independence. He said the reason he was still at the firm was to address challenges regarding transformation. The training intake for KPMG this year was 63% black, of which two thirds were female. 60% of the Board and of the executive were black. 83% of bursary spend went to black students and 55% of the staff at KPMG were black.

Mr Mathuloe said nine out of ten whites get better and more training. Typically, a white trainee would have six months more training. The most important statistic regarding the big four firms was how many trainees ended up getting post qualification experience because one was not in a position to become CFOs and CEOs of JSE listed companies without this experience.

Mr Mondisipho of Deloitte said the President had spoken of transformation in SONA. When he had started at Deloitte there had been fewer than 500 black chartered accountants. Now it was over 4 500 with the bulk trained by the big four. Then, there had been two black partners, now there were 11 partners of whom six were black. He said that as a black, he had appreciated the quality of the training which had included international experience. If aggressive moves were made, it might stall the impact of training at the company.

Ms Masasa said medium sized firms were accredited to audit JSE listed companies but the point was that black SME firms were accredited without necessarily getting the job.

The Chairperson asked IRBA for clarity on what the consultation was about. He said concentration and transformation were important and that de-racialisation was not equal to transformation and added that it was a class issue, even if Deloitte was 90% black it would not be right while Deloitte was part of an oligopoly of four firms. The Committee should consider writing to IRBA asking it to engage further. The need for empirical evidence however, should not be overplayed. He said the figures of 9 out of 4 300 that were quoted was just not acceptable.

FICA Amendment Bill
The Committee looked at three documents: the most recent draft of the amendments; the DA’s proposed amendments; and Treasury’s response to the DA’s proposals.

Mr Maynier said the DA proposal dealt with section 45B(1) on inspections of business premises. If where there were reasonable grounds of non-compliance, an inspector needed to obtain a warrant because one needed to protect the business or institution.

Secondly, it dealt with section 45B(1C)(b) where a warrantless search was conducted and that the criteria should be applied to the supervisor and/or inspector.

Thirdly, that inspectors should comply with good conduct, whether the inspection was with or without a warrant.

Fourthly, section 45B(1D)(5) needed to make explicit the scope of the inspection and that it be limited to a relevant inspection.

Mr Momoniat said one needed to be mindful of the limited space they had to operate in with this Bill. The matters that had been raised needed to be done in a separate process.

Mr Pieter Smit, FIC Executive Manager for Legal and Policy, said the introduction of a distinction between routine and non-routine was a new policy issue, especially for regulated businesses. Where a supervisor carried a routine inspection, he would be placed in an impossible position if it was argued that this was a pretext for a non-routine inspection. The supervisor could not prove an absence of prior knowledge. The distinction between routine and non-routine was artificial and for those reasons it had decided not to follow this where warrants would or would not be required and therefore they were not supporting the proposed amendments in subsection 1. The correct policy approach was to distinguish institutions that were regulated by licensed supervisors who had the right to do inspections whether routine or non-routine. A private home would still be subject to a warrant.

Mr Shivambu said the Bill was constitutional, the DA was overstretching the issue and they were not addressing the concerns of the President when he referred the Bill back to Parliament. The Committee should ignore the DA’s amendments and the Bill should go to plenary for adoption and become law.

The Chairperson agreed with Mr Shivambu because the DA amendments were “bordering on, if not in fact, policy changes”. Five legal opinions had said the clause was constitutional. One could not say it was constitutional and then bring in other new amendments.

On the recent draft of the amendments, Mr Smit said that with the changes they were making to address to address section 1c it had inadvertently made changes to section 1d, but this had been corrected.

On section 45B(1A)(b), the Chairperson asked why (in this section referred to as “unlicensed business premises”) was in brackets.

Mr Smit said it was just a shorthand phrase for unlicensed business premises.

The Chairperson wanted clarification of section 1C(a)(1)(aa) where a person was in control of the business as well as (bb) there being an occupant of the part of the private residence to be entered (for a business run from a private residence or unlicensed premises).

Mr Smit said the first person that should give consent was the business owner but also there was a need to look at consent by the non-owner (tenant) who occupied part of the premises.

The Chairperson said Adv Frank Jenkins, Senior Legal Advisor in the Parliamentary Law Office, had to draft a report by Monday and it would be voted on by Tuesday.

Ms Empie van Schoor, Chief Director for Legislation at National Treasury, said that in the DA proposal there was a valid point in seeking a correction of section 45B(1C)(b) which limits inspections after hours.

The Chairperson said that could be done as long as it was a minor change.

The meeting adjourned.

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