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3.   BUDGETARY REVIEW AND RECOMMENDATION REPORT OF THE STANDING COMMITTEE ON FINANCE, DATED 23 OCTOBER 2018

The Standing Committee on Finance (SCOF/ the Committee), having considered the National Treasury’s (NT), South African Revenue Services (SARS) and, the Independent Regulatory Board of Auditors (IRBA)  2017/18 annual reports as presented to the Committee on the 9, 10 and 16 October 2018, reports as follows:

  1. INTRODUCTION
    1. On 16 October, the Minister of Finance, Mr Tito Mboweni, the Deputy Minister of Finance, Mr Mondli Gungubele, the Director-General, Mr Dondo Mogajane and senior staff of NT and SARS, led by the Acting-Commissioner, Mr Mark Kingon, appeared before the Standing Committee of Finance to present the annual reports of NT and SARS for 2017/18. 
    2. The Independent Regulatory Board of Auditors (IRBA) tabled its annual report at the end of September and, led by its Chief Executive Officer, Mr Bernard Agulhus, briefed the Committee on 9 October.
    3. The Office of the Auditor General of South Africa (AGSA) briefed the Committee on the Auditor General’s audit processes, outcomes and findings on the 14 entities that report to the Minister of Finance.
  2. STRATEGIC GOALS FOR 2017/18: NATIONAL TREASURY  
    1. The NT is responsible for managing the country’s finances and draws its mandate from Chapter 2 of the Public Finance Management Act, as well as Chapter 13 of the Constitution. The overall legal mandate of NT is based on section 216 (1) of the Constitution which requires it to ensure transparency, accountability and sound financial controls in the management of the country’s finances and the Public Finance Management Act (1999).
    2. The performance of the Department as indicated in its 2017/18 annual report is measured against the Performance Indicators which were contained in the Annual Performance Plan of the Department for the 2017/18 financial year.
  3.  OVERVIEW OF NATIONAL TREASURY’S PERFORMANCE
    1. During the year under review, National Treasury received R40 billion and spent R39.7 billion which is 98.3% of its appropriated funds. The underspending of R692.2 represents savings realised from New Development Bank due to a stronger exchange rate at the time of payment
    2. The Administration Programme (Programme 1) which provides strategic leadership, management and support services to the department spent 98.3% of its R445.6 million allocation. In terms of performance targets, six of the nine targets were achieved. Achieved targets include the filling of vacant posts, the procurement of ICT infrastructure, and the implementation of retention management strategy.
    3. The Economic Policy, Tax, Financial Regulation and Research Programme (Programme 2) which provides specialist policy research, analysis and advisory services in the area of macroeconomics and regulatory reforms spent 92.6% of its R164 million budget for the 2017/18 financial year. The under-spending in Programme 2 was as a result of the discontinuation of ERSA research and the decision to implement cost containment measures on various goods and services. Eleven of the twelve targets were achieved under this programme. Achievements included the enactment of the “twin peaks” legislation, the publishing of tax proposals and implementation of tax legislation and the conducting of 80 economic research projects. This targets that were not achieved included slow progress in implementing the annuitisation by provident funds. 
    4. The Public Finance and Budget Management Programme (Programme 3) spent 95.5% of its R302.3 million budget for the 2017/18 financial year. Other savings were generated on various items in goods and services as a result of effective implementation of the cost containment measures and savings on consultancy services for the editing of the Estimates of National Expenditure (ENE).
    5. The Asset and Liability Management (Programme 4) which manages government’s annual funding programme in a manner that ensures prudent cash management, promotes, and enforces prudent financial management of state-owned entities through financial analysis and oversight spent 99.9% of its R10.1 million budget.
    6. The Financial Accounting and Supply Chain Management Systems Programme (Programme 5) spent 88.5% of its R1 billion budget. It is the worst performing programme in this financial year given the delays in appointing the service provider for consultancy services in the Office of the Chief Procurement Officer.
    7. The International Financial Relations Programme (Programme 6) spent 92% of its R5.9 billion for the 2017/18 financial year. The unspent funds of R470.9 million relate mainly to savings realised on payments to the New Development Bank (NDB) and African Development Bank. These changes arose from foreign exchange rate differences.
    8. The Civil and Military Pensions, Contributions to Funds and Other Benefits Programme (Programme 7) spent 92% of its R4.6 billion budget. The saving came from unspent funds on political office bearers.
    9. Further underspending was recorded for Technical and Management Support and Development Finance Programme (Programme 8) as a result of delays in appointing service providers for the Jobs Fund operational budget and withholding transfer payments to municipalities due to non-compliance with the NDP framework and Division of Revenue Act.
  4. STRATEGIC GOALS OF THE SOUTH AFRICAN REVENUE SERVICE: 2017/18
    1. SARS’s mandate is to contribute to the economic and social development of the country by collecting all taxes, duties and levies due, to fund the South African government’s public service programmes and priorities.
    2. The 2016/19 Strategic Plan and 2017/18 Annual Performance Plan are consistent in terms of reporting on strategic priorities.
  5. OVERVIEW OF THE SOUTH AFRICAN REVENUE SERVICE PERFORMANCE
    1. The 2017/18 total tax revenue estimate was revised to R1 217.3 billion in the February 2018 Budget based on deteriorating economic conditions. Collections for the 2017/18 year amounted to R1 216.5 billion, R843 million short of the revised Estimate. However, this represents a 6.3% growth in total tax revenue from 2016/17.
    2. The South African Revenue Service received a transfer from government of R10.2 billion which increased in line with the approvals obtained through Medium Term Expenditure Framework (MTEF). Other income received by SARS comes from it acting as an agent for the Department of Labour in collecting Unemployment Insurance Fund contributions (UIF) and Skills Development Levies.
    3. In the 2018 ENE final allocation, SARS received significant grant reductions over the MTEF period and NT made the decision to allocate the full R977million to the 2018/2019 financial year. This was done to supplement the reduced grant in 2018/2019 to ensure operational continuity as far as possible.
  6. STRATEGIC GOALS OF THE INDEPENDENT REGULATORY BOARD OF AUDITORS: 2017/18
    1. The Independent Regulatory Board of Auditors’ (IRBA) main strategic focus is to protect the financial interests of the public by ensuring that only suitably qualified individuals are admitted to the auditing profession and that registered auditors deliver services of the highest quality and adhere to the highest ethical standards.
    2. IRBA’s main objective is to develop and maintain auditing and ethical standards which are internationally comparable, and provide an appropriate framework for the education and training of properly qualified auditors as well as their on-going competence.
  7. OVERVIEW OF THE INDEPENDENT REGULATORY BOARD OF AUDITORS PERFORMANCE
    1. The IRBA received R113.8 million, which was comprised as follows: Government grants amounting to R39.6 million up from R29 million in the 2016/17 financial year;  revenue from regulatory functions from non-exchange and exchange transactions amounted to R69 million; and  funds were received from firm fees, registration fees, license and training contract fees.
    2. The operating expenses were made up of employee costs amounting to R81.9 million, which is 71.2 percent of operational expenditure. Total employment costs increased by 12 percent due to most vacant positions being filled. Salaries increased by an average of 6.63 percent including structural adjustments to offer market related salaries to employees.
    3. Other operational expenditures which saw an increase include: disciplinary and investigation expenses which increased to R8 million, up by R2 million the previous year; travel expenses increased from R2.6 million to R3.1 million, with international travel increased to R1.9 million up by R0.4 million.
  8. AUDITOR GENERAL’S REPORT
    1. The office of the AGSA performs audits on 14 entities that report to the Minister of Finance. These are: NT, SARS, IRBA, Public Investment Corporation (PIC), Office of the Ombudsperson for Financial Services Providers (FAIS), Financial Services Board (FSB) ( now become part of the Financial Sector Conduct Authority - FSCA), Pension Fund Adjudicator (PFA), Development Bank of Southern Africa (DBSA), Financial Intelligence Centre (FIC), Government Technical Advisory Centre (GTAC), Financial and Fiscal Commission (FFC), Government Pension Administration Agency (GPAA), Land Bank (LB) and Cooperative Banks Development Agency (CBDA).  
    2. None of these entities received a qualified audit opinion. Six (43%) entities (PIC, IRBA, FAIS, FSB, PFA and DBSA) received clean audits and the remaining eight (57%) received unqualified audit opinions with findings.
    3. The office of the AGSA said that the most common findings on the entities that received unqualified audit opinions with findings were: failure to comply with supply chain management (SCM) prescripts, failure to comply with laws and regulations; material adjustments to financial statements submitted for audit; material findings on usefulness of performance information; material findings on usefulness and reliability of indicators and targets for performance reporting.
    4. The office of the AGSA said that with many entities that received unqualified audit opinions with findings, the status of internal controls such as leadership, financial and performance management and governance, had deteriorated and required intervention.
    5. The office of the AGSA said that the leadership, management and governance issues resulting from vacancies applied to the Accountant-General (since 2015), Chief Procurement Officer (since 2016), and Chief Director Integrated Financial Management System (IFMS) (since 2013) at the National Treasury. GPAA had the following vacancies: Chief Financial Officer (since 2014), Chief Operating Officer (since 2014) and Head of Supply Chain (since 2016). GTAC has never had the Head of Entity (CEO) since it was established in 2014 and has had three acting Heads since.
    6. The office of the AGSA also raised issues about the Information Technology (ICT) projects at NT and GPAA, particularly the IFMS and modernisation project respectively. On the IFMS Project, the AGSA found that NT has no business case for it. On the modernisation program at GPAA, the AGSA found that four modules of the program had been piloted but the program was not yet fully developed/operational. There was also inadequate documentation (such as the business case), insufficient monitoring of activities, timelines and finances and lack of policy. The root cause of all these ICT project failures was leadership instability for the IFMS at NT and at GPAA.
    7. The office of the AGSA raised concerns about irregular expenditure of the NT and the entities related to it, which increased from R124million in 2016/17 to R959 million in 2017/18. R769million of this expenditure occurred at NT where, among others, contracts were extended without competitive bidding for BAS, PERSAL, LOGIS and, Central Supplier Database. Other entities posted irregular expenditure as follows; GTAC (R74million- no competitive bidding) , SARS (R102 million -payment of a performance bonus without the approval of the Minister and extension of a contract without the approval of NT), FIC (R3million- irregular tenders), FFC (R1,5million – no competitive bidding), FAIS (R3,9million – no competitive bidding and irregular finance lease agreements) and, GPAA (R2,4million – procurement without the required approval), LB ( R2million- irregular tendering).
    8. The office of the AGSA said that entities in the Finance cluster incurred R71million of fruitless and wasteful expenditure and R69million of this related to the Oracle IFMS contract of NT where technical support was being paid for when the system was not yet functional. An amount of R67 million was incurred in the 2016/17 financial year as a result of the Oracle IFMS contract.   
    9. The AGSA expressed concerns about consequence management, the slow response in improving key internal controls and addressing risks raised by the AG. It said that senior and executive authorities were not responding with the required sense of urgency to the AGSA’s calls for improving internal controls and risk management. 
    10. The office of the AGSA advised the Committee to:  follow-up and evaluate progress of the audit action plans put in place by the entities to improve their audit outcomes; follow-up with entities that incurred irregular, fruitless and wasteful expenditure to ensure that there is consequence management; follow-up on entities with vacancies in key positions to ensure that they are filled timeously and; follow-up on entities with key ICT projects to ensure that there is proper monitoring and control of project plans and deliverables.
  9. OBSERVATIONS AND RECOMMENDATIONS
    1. The Committee congratulates the new Minister of Finance, Mr Tito Mboweni, and wishes him well.
    2. While the focus of this Report is on the annual reports of the NT, SARS and IRBA we note the observations of the AGSA also on the other entities falling under the Ministry of Finance. Given the huge legislative load of the Committee, the onerous processes related to our oversight role on the MTBPS and the budget and the limited time between the tabling of annual reports and deadline for submitting the BRRR, it is obviously not possible for the Committee to consider the annual reports of all the entities every year in time to finalise this report.  However, through the briefings of the office of the AGSA, we get a very helpful snapshot of performance across all of them, especially their financial performance. Within the limits of space and time, the Committee tries to consider the annual reports of other entities has during the year. We have very limited time before the end of this 5th term of parliament but will seek to follow up on some of the issues the office of the AGSA raised with us about some of the entities that fall within the Ministry of Finance.
    3. The Committee commends the entities that achieved clean audits for the 2017/18 financial year – the PIC, IRBA, FAIS, FSB, PFA and DBSA. The Committee notes that the entities that have been achieving clean audits have been doing so consistently over the MTSF period, except for the Land Bank and SARS, which regressed from 2015/16 and 2016/17 respectively. The PIC improved its audit outcomes from the previous financial year.
    4. The Committee notes that while NT spent 98,3% of its appropriated budget, it only achieved 79.19% of its performance targets. While expenditure has regressed, the achievement of performance targets has improved from the 75% achieved in the previous year. The Committee however believes there is still room for improvement, especially in ensuring that financial expenditure is more aligned to the achievement of performance targets.
    5. The Committee notes that the audit findings of 2017/18 have not improved, but instead regressed as compared to those of the previous financial year (2016/17) despite assurances made to the Committee last year that the audit auction plans were being implemented. The Committee notes in particular the non-compliance with laws and regulations that NT itself has introduced, particularly on supply chain management such as non-invitation of competitive bids, incorrect or non-application of the preference point system, non-compliance with supplier’s tax requirements and, inadequate contract performance measurement and monitoring. We also note that the AGSA expressed concerns about consequence management, the slow response in improving key internal controls and addressing risks raised by the AG. It said that senior and executive authorities were not responding with the required sense of urgency to the AGSA’s calls for improving internal controls and risk management.  The office of the AGSA advised the Committee to:  follow-up and evaluate progress of the audit action plans put in place by the entities to improve their audit outcomes; follow-up with entities that incurred irregular, fruitless and wasteful expenditure to ensure that there is consequence management; follow-up on entities with vacancies in key positions to ensure that they are filled timeously and; follow-up on entities with key ICT projects to ensure that there is proper monitoring and control of project plans and deliverables. We require NT to report at our quarterly engagements with them on NT’s progress in attending to these weaknesses and reducing the prospects of them emerging again. 
    6. While recognizing the large department budget National Treasury has to manage, and that it spent 98,3 % of its budget, the Committee expresses its very serious concern that the AG has found that R769 million of NT’s expenditure is irregular and R69 million is fruitless and wasteful. We are particularly concerned because NT is the custodian of the PFMA, Treasury Regulations and other legislation dealing with effective financial management and governance and has the key responsibility of monitoring the budgets and financial expenditure of other organs of state, and should be setting the example and not become vulnerable to its credibility being questioned. We note that NT says that part of the reason for the irregular expenditure was that a 2014 memo was “mislocated” but has since been found, However, this refers to only one transaction of R369 million. The Committee notes that all irregular expenditure transactions incurred have been forwarded to the internal audit unit to investigate and to ascertain if any employee is liable. On submission of the audit committee’s report the NT will take appropriate action.
    7. The Committee notes that NT said that the filling of key senior vacancies is “ongoing” and that it has held interviews and recommendations have been made to the Department of Public Service and Administration who is responsible to take these to Cabinet. “The DPSA have raised technical matters with the recommendations, these are currently being attended to,” said NT. The Committee requires a progress report on this at the next Quarterly Meeting, especially on the posts of Accountant-General, Chief Procurement Officer, and Chief Director (IFMS) at NT.
    8. The Committee notes that NT discontinued its ERSA research deliverables. The Committee is not clear how this will affect its ability to do its economic modelling and forecasting and requires a comprehensive explanation for this at the next Quarterly Briefing
    9. NT said that together with South African Reserve Bank it is “conducting external and internal investigations into the events that led to the collapse of VBS. Initial indications are that there was widespread fraud in VBS audited returns. The two institutions are studying the reports (including extensive annexure) by the independent investigator. These will shed light on incidents of regulatory weakness if any and how these could be addressed given that the VBS collapse occurred prior to the implementation of Twin Peaks”.  The Committee’s primary concern is the innocent retail depositors who have lost out so badly, and urges that everything be done to ensure that as many of them as possible get back as much as possible of the money they deposited in VBS Mutual, even if it is over time.   In its 17 October statement, the Committee expressed its outrage at the plunder of VBS Mutual Bank and urged the Hawks and the NPA to act swiftly and decisively against those alleged to be responsible for this. The Committee said that we need to learn the lessons from the collapse of VBS Mutual to reduce the prospects of this happening in other financial institutions in future.  Consideration needs to be given to an inquiry into whether SARB, NT, the Department of Cooperative Governance and Traditional Affairs, the South African Local Government Association and other relevant organs of state could have acted sooner on VBS and reduced the extent of its failures. The Committee will consider the VBS Report on 7 November at a meeting that will include the SARB, Adv Motau, National Treasury (NT), the Financial Sector Conduct Authority, the Hawks, the NPA, the IRBA and the South African Institute of Chartered Accountants (SAICA). Once again KPMG is accused of wrongdoing – and we urge IRBA to complete its investigation into their conduct expeditiously. We also urge SAICA to not be lame and act decisively. The Committee believes that the collapse of VBS is a major setback for diversity and transformation in the financial sector.  Until we are convinced otherwise, our view remains that every attempt should be made to rescue VBS under a new effective leadership. The Committee would like to know at the 7 November meeting from NT and the SARB why VBS Mutual cannot be rescued and will consider its views further on this matter.
    10. The Committee expresses its disappointment that the Financial Sector Summit has been repeatedly postponed. The Committee understands the pressures on government, including in organizing the Jobs Summit, the Investment Summit, and the National Cohesion Summit, but believes strongly that the Financial Sector Summit should be held in the first quarter of next year. We repeat our call that the November 2017 Report on Financial Sector Transformation of the Scof and Portfolio Committee on Trade and Industry, which was adopted by the National Assembly, should be considered in the process of finalizing the Financial Sector Summit.
    11. The Committee notes the material impairments of R23 billion as a result of investments in the South African Airways in 2017/18, and NT’s explanation that these amounts were impaired because accounting standards require that where the value of the investment cannot be attained, the investment should be classified as an impaired asset. Since SAA has been transferred back to the Department of Public Enterprises, as the Committee has also regularly proposed, the Scof Chairperson will write to the Chairperson of the Portfolio Committee of Public Enterprise to draw her attention to this and request her to consider their Committee following up on this.
    12. The Committee is interested in why the terms of the China Development Bank to Eskom have not been made available to parliament. The government’s response is that the China Development Bank facility is more competitive than the global market rate and that the conditions of the loan agreement could not be made public as they are subject to confidentiality clauses, and would put Eskom at a disadvantage when pursuing more funding from the markets. It is said that the loan to Eskom has market sensitive information that could be used by competitors against Eskom and that public knowledge may cause information asymmetries. National Treasury in its response said that it “is mindful that the shareholder in this instance is the Department of Public Enterprises (DPE). Also, given that Eskom is a schedule 2 entity, fiduciary responsibility to negotiate terms and conditions of such loans lies with the board of Eskom. In this instance therefore, the Board and the shareholder is required to balance the constitutional requirement for public transparency with the need to protect information of a confidential and market sensitive nature. It is therefore important to balance secrecy, confidentiality and openness as information is made available.” The Scof Chairperson will raise this further with the Chairperson of the Portfolio Committee on Public Enterprise to consider pursuing the matter further.
    13. The Committee welcomes the Commission of Inquiry into allegations of impropriety regarding the Public Investment Corporation (PIC). The Committee notes that the Commission is required to submit an interim report by 15 February, 2019, and a final report by 15 April 2019.  The Committee will continue to proceed with the two PIC Bills before it as the 5th term of Parliament will end within 6 months or so, but will monitor the Commission’s progress as it deliberates on these Bills.
    14. The Committee is not able to substantively assess the performance of NT based solely on the performance indicators and targets set in a given financial year, as some of these indicators change each year. NT should improve on setting “SMART” and consistent performance indicators to enable the Committee to better conduct its oversight.
    15. The Committee notes the 6.3% increase in the revenue collected by SARS in 2017/18 and commends it for this, despite the collection shortfall on the revised estimates.
    16. The Committee expresses its objections to SARS paying a performance bonus of R4million without the approval of the Minister of Finance, and extending a contract without the approval of NT as was required, and urges SARS to abide by all the regulations that apply to it.
    17. The Committee notes with concern the significantly low tax compliance on Company Income Tax (CIT). The stagnant figures of CIT filing (38.26%) and payment (66.93%) compliance by economically active entities on SARS’s register are disappointing given the magnitude of the current revenue collection shortfalls and the burden of tax on households and individuals. The CIT rates have been dropping from about 50% in 1991, 40% in 1994 to 28% since 2009 to date, while PIT and other taxes have been increasing. The Committee believes that businesses must pay their fair share of income tax. The variance between the CIPC and the SARS registers of tax paying entities is quite high. This serves to reinforce  perceptions  that business evades and avoid paying taxes, which results in significant revenue losses for the fiscus. SARS needs to accelerate the process of modernising and maintaining CIT e-filing to encourage tax compliance by corporates and revenue collection. The Committee notes SARS’ commitment on cleaning the tax register and imposing administrative penalties on companies that default in filing returns, and its expectation that this will substantially increase CIT compliance levels during the 2018/19 year. The Committee requires SARS to report to it on progress on this in its Quarterly Briefings.
    18. The Committee expresses its appreciation to taxpayers on their impressive compliance with Personal Income Tax filing, which increased from 91.14% in 2016/17 to 94% in 2017/18.
    19. The Committee has for several years been focusing on the urgent need to tackle the Illicit Economy and Illicit Financial Flows (IFFs) far more decisively and has regularly expressed its concern at SARS’ inadequacies in this regard. We welcome the re-establishment of an enforcement unit, to be possibly named the Illicit Economy Unit (IEU), and urge SARS to ensure that it is suitably resourced with officials of the necessary skills and we will actively monitor progress in this regard.
    20. The Committee welcomes the Nugent Commission of Inquiry and looks forward to its final report.
    21. In considering what action to take on the basis of the final report of the Nugent Commission the Committee recommends that NT also take into account the Committee’s views, some of which may well overlap with the Nugent Commission’s final recommendations. Among our views are the following:
      1. There needs to be a review of the governance structures of SARS and the oversight model over it. This could be through a Board, or an Inspector General of Tax and Customs or some other appropriate structure. Proposals by the Davis Tax Committee should also be taken into account. Consideration also needs to be given to the proposal of the Acting Commissioner, Mr Mark Kingon, that there should an Inspector General of Tax and Customs which should have the legal authority and support infrastructure to oversee SARS, instead of a Board. This, he said, could include assisting in the appointment of the Commissioner and Deputy Commissioners, overseeing internal investigations of staff, and accessing SARS confidential and taxpayer information to execute its performance monitoring role. The Inspector General, said Mr Kingon,  should report to the Minister of Finance.
      2.             The President should appoint the SARS Commissioner after consultation with the Minister of Finance. But we also note proposals in the Davis Tax Committee Report that Parliament should through an open process propose the Commissioner.
      3.             There needs to be greater clarity in legislation and regulation on the relationship between the Minister of Finance and Commissioner of SARS. The SARS Commissioner should account to the Minister and the Minister should recognise the specific autonomy of SARS and not interfere in the day to day administration of taxpayer matters.
      4. Consistent with the Constitution and within the existing legislation, or as amended, consideration needs to be given to SARS, as is often the case with revenue raising agencies in many other countries, having an investigative/intelligence capacity to tackle the illicit economy more decisively and effectively. Any such SARS structure must cooperate with other intelligence agencies established in law and act within the law at all times.  
      5. The Office of the Tax Ombud (OTO) currently depends on SARS for support for its governance, fiduciary and administrative functions. The International Association of Ombuds has granted the OTO “observer” status until it can demonstrate its independence from SARS. The OTO needs to be more independent and strengthened and be allocated sufficient resources to do its work more effectively. The OTO should also be able initiate its own investigations. Under very circumscribed circumstances, the OTO should also in closed meetings deal with claims that SARS is not acting against people or businesses not paying tax or not paying what they should be.
    22.             The Committee also notes Acting SARS Commissioner, Mr Kingon’s view that consideration needs to be given to
    23.             The Committee notes the withdrawal of the SARS case against Mr Adrian Lackay. It was understood that Mr Lackay was primarily being taken to court because of breaches of secrecy in terms of chapter 6 of the Tax Administration Act (Sections 67, 68, 69 and 236) and also for defamation. The Committee could obviously not interfere in these allegations of Mr Lackay’s transgressions. Whether Mr Lackay was taken to court because he had written to the Chairpersons of Scof and the Joint Standing Committee on Intelligence or because he was suspected of leaking his correspondence to others and into the public domain was not clear. If it was solely because he wrote to the Chairpersons, it reinforces the need for a structure – maybe a Board, an Inspector General’s Office, the OTO or some other structure – where such matters as those raised in Mr Lackay’s correspondence can be addressed fairly in closed meetings, apart from, in his specific case, the Office of the Inspector-General of Intelligence. Acting SARS Commissioner Mr Mark Kingon, however, informed the Committee that Mr Lackay was taken to court solely on the basis of defamation, and “It is well-established law that the State, including Organs of State, cannot sue for defamation. There is no doubt in law on this aspect.” SARS said that notwithstanding the settled law, Commissioner Moyane proceeded to institute claims for damages based upon defamation on behalf of SARS, as well as in his official and personal capacities. The High Court dismissed the claim of SARS on 24 November 2017. SARS said that: “In the process, and in relation to a claim that should never have been instituted in the first place, both SARS and Lackay incurred legal costs”. The SARS Corporate Legal division reviewed the matter, and this led to the agreement between Mr Lackay and SARS, which disposed of the matter in as far as SARS as an institution and the Commisioner in his representative capacity is concerned.  It is not clear why the case was still being pursued after the the High Court had dismissed SARS’ claim. If the case against Mr Lackay was based solely on allegations of defamation and SARS current legal interpretation is correct that organs of state cannot sue for defamation, the Committee believes that serious consideration needs to be given by SARS for the costs of the litigation to be retrieved from those responsible. The Committee requires SARS to respond to this at its next Quarterly Briefing to the Committee.
    24. Following various media reports that SARS IT system was about to collapse, the Committee notes the assurance from the acting Commissioner of SARS, Mr Kingon, that SARS’ IT system is stable and not about to collapse. He explained that there were two critical IT issues, which are eFiling and IT infrastructure. He said that the eFiling platform was reaching its end of life cycle and will be replaced with HTML5 for the 2019 tax year. He further explained that the IT infrastructure has to be refreshed from Windows 7 to Windows 10 in a phased-in approach over the years. The Committee required SARS to update the Committee on a quarterly basis on IT modernisation at SARS. 
    25. The Committee notes that IRBA’s target on finalising investigations timeously was not met. However, it achieved or exceeded all its other targets including achieving a 100% clean audit. The Committee congratulates IRBA on its performance.
    26. The Committee welcomes the proposed amendments to the Auditing Profession Act to strengthen IRBA’s oversight role and its power to institute measures against errant auditors. The Committee will act on this expeditiously.
    27. The Committee also welcomes the gazetting of the Mandatory Audit Firm Rotation (MAFR) rule and believes that mandatory rotation will help to enhance the independence of auditors and encourage competition and transformation in the auditing profession. Following the public hearings the Committee held last year on the MAFR, it will continue to monitor the implementation of the rule. 
    28. The Committee notes the huge workload IRBA has, especially with the dramatic increase in allegations of wrongdoing by auditors. While recognising the severe constraints on the fiscus, the Committee reiterates that NT needs to provide IRBA with the necessary funds and other support to do its work efficiently and expeditiously.

Report to be considered