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COMMITTEE ON PUBLIC ACCOUNTS (SCOPA)
7 November 2006
INVESTIGATION OF EXPORT AND SALE OF DIAMONDS IN TERMS OF DIAMONDS ACT: PROGRESS REPORT BY AUDITOR-GENERAL
Chairpersons: Mr T N Godi
Documents handed out:
Sixty-Second Report of Standing Committee on Public on Public Accounts: South African Diamond Board, dated 14 September 2005
The Auditor-General reported on disappointingly slow progress in the investigation of the sale and export of diamonds by the SA Diamond Board in terms of the Diamonds Act, 1986. The investigation had been at the behest of Standing Committee on Public Accounts (SCOPA)
and had been recommended in its Sixty Second Report dated 14 September 2005. The Auditor-General made it clear that his role was that of facilitator and not investigator. He felt that the Department of Minerals and Energy should lead the investigative process. The Committee was disappointed with the slow progress that had been made thus far.
The Chair stated that the aim of the meeting was to get a report-back from the Auditor-General on progress made with the investigation into the sale and export of diamonds by the SA Diamond Board in terms of the Diamonds Act, 1986. The investigation had been at the behest of the Committee and had been recommended in its Sixty Second Report dated 14 September 2005.
The Auditor-General, Mr Shauket Fakie, responded that he had received a letter from the Madam Speaker on the 12 June 2006. The letter however had originally been sent to him on the 5 December 2005, the reason for the delay in the Auditor-General receiving it remained unexplained. The contents of the letter stated that the Committee had undertaken a resolution that an investigation should be intiatated. Mr Fakie stated that he had responded to the letter on the 13 June 2006 in which he confirmed having received the recommendations made by the Committee and Parliament and undertook to keep Parliament informed.
Mr Fakie explained that he understood his role to be that of facilitator between the various role-players rather than that of an investigator. On 22 February 2006 a meeting was convened between SARS, the SA Diamond Board, the Department of Minerals and Energy, National Treasury and the Public Services Commission. At the meeting Mr Fakie had presented the resolution of the Committee to the various role-players and he said that there were different views expressed on it. Mr Fakie felt that the Ministers of Finance and of Minerals and Energy supported by their respective departments needed to take forward the views of the various role-players emanating from the meeting. Following the meeting, he had expected the departments to keep their respective Ministers updated.
In May 2006 he had written to Madam Speaker and the SCOPA Chair informing them of the progress made. In August 2006 he once again wrote to the SCOPA Chair to keep the Committee updated. Mr Fakie said that his office had been in contact with the Department of Minerals and Energy in order to keep abreast with what progress had been made. He felt that the Department of Minerals and Energy was central in leading the process, and to put forth whatever options were available. He had been disappointed with the slow progress that had been made by department officials and on the 25 October 2006 he had decided to correspond directly with the Ministers.
Mr Fakie felt that the Office of the Auditor-General had as best as it could, fulfilled its role as a facilitator. He suggested that the Committee perhaps interact directly with the Minister of Minerals and Energy on the issue.
The Chair said that he was disappointed with the slow progress that had been made. He nevertheless thanked the Auditor-General for the briefing.
Mr P Gerber (ANC) agreed that progress was slow and recommended that the Committee meet with the Minister of Minerals and Energy as soon as possible.
Mr Fakie emphasised that a meeting with the Minister was what was needed. He said that if the Committee met only with department officials, the matter would continue to drag on.
Ms A Dreyer (DA) felt that the matter was politically sensitive and that a meeting with the Minister of Minerals and Energy was paramount.
The Chair suggested that a meeting with the Minister of Minerals and Energy and National Treasury be scheduled for the week of 13 November 2006.
The Committee agreed.
Mr Gerber referred to the period when the SA Diamond Board had undertaken the transactions in question and asked what the tax rate had been at the time.
Mr Fakie responded that the rate at that time had been 15% but that no tax had been paid in any event. Huge amounts of monies had been lost by the state as a result of the non-payment. The current tax rate stood at 5%.
The meeting was adjourned.
Sixty-Second Report of Standing Committee on Public on Public Accounts: South African Diamond Board, dated 14 September 2005:
The Standing Committee on Public Accounts, having heard and considered evidence on the Annual Report and the Report of the Auditor-General on the financial statements of the South African Diamond Board (Board) for the year ended 31 March 2003/ 2004 tabled in Parliament and reffered to it, reports as follows:
2. Investigation relating to the export and sale of diamonds in terms of the Diamonds Act, 1986 (page 29-31 of the annual report)
The Committee noted with concern the significant weaknesses highlighted in the audit report with regards to the export and sale of diamonds. The following issues were raised:
a. validity of exemptions given under section 63 of the Act to diamond producers and dealers by virtue of agreements entered into in terms of section 59 of the Act;
b. limited documentation for Section 59 agreements;
c. the drastic decline in export duties;
d. differences and disputes between the Government Diamond Valuator (GDV) and the SA Diamond Board relating to the role and functions of the GDV; and
e. The length of time the above issue remain unresolved.
Having heard and considered the views of National Treasury, SA Diamond Board, the Department of Minerals and Energy and the Auditor-General, the Committee is of the view that this matter has been unduly prolonged.
The Committee is aware of the many administrative initiatives to resolve these issues but notes the failure of these to produce positive result.
The Committee therefore recommends that:
a. the relevant state institutions initiate legal proceedings with a view towards resolving the section 59 exemption in question – a special meeting should be convened by the Auditor General for this purpose within 30 days after this report has been adopted by Parliament;
b. the Board ensures that all South African produced diamonds be valued in SA on a fair market basis;
c. the Board strengthens its efforts to increase local beneficiation of SA diamonds; and
d. the Board confers with the Department of Minerals and Energy to finalise and implement the new legislation.
The Committee expresses its disappointment at the inadequate representation from the Department of Minerals and Energy at the hearing and insists that future representation be at an Accounting Officer level.
The Committee requests the Board to furnish it with a progress report covering all the above-mentioned issues within 60 days after this report has been adopted by Parliament.
Report to be considered.
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