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Draft legislation to tighten governance at the South African Revenue Service will be tabled early next year, Parliament’s Standing Committee on Finance heard from SARS and National Treasury on Tuesday.

 

Treasury’s Ismail Momoniat told the committee that amendments would be considered to allow for clarification of the Tax Ombud’s role and outline procedures for both the appointment and removal of a SARS commissioner.

This follows the dismissal of former SARS commissioner Tom Moyane, after the Nugent Commission of Inquiry’s report found a range of governance failings, revenue collection weaknesses and non-compliance set in under his watch.

The commission, chaired by retired Judge Robert Nugent, was a judicial commission of inquiry into tax administration and governance at the revenue collection agency. It handed over its final report to President Cyril Ramaphosa in December 2018.

Momoniat on Tuesday said the proposed legislative amendments would also include amendments to the South African Revenue Service Act and the Tax Administration Act. The process would include public comments and hearings, just as the Tax Administration Laws Amendment Bill did.

“The commission made several proposals related to governance or strengthening organisational leadership, requiring amendments to current legislation to be overseen by the minister of finance and we are introducing a bill next year,” said Momoniat.

Under Moyane, SARS also faced controversy for its deal with consultancy Bain & Company, which was found to have developed an operating model which hampered the revenue service’s capacity to operate. The company has paid R217m back to SARS, which covers all its past fees plus interest.

In December 2018 Bain called its involvement with the tax agency under Moyane a “humbling episode”, saying that there is evidence to suggest that Moyane was “pursuing a personal political agenda at SARS”.

SARS Commissioner Edward Kieswetter told the committee that as a result of the Nugent report findings, the revenue service was asked by Treasury to look at the processes of procurement to see if there was any abuse.

“We had to review our standard practices. We were asked to review an IT contract and whether disclosures of conflict of interest and whether SARS derived value for money. SARS has reviewed procurement policy and aligned it to the directive,” Kieswetter said.

Kieswetter told the committee that since referring the Bain contract at SARS to the Director of Priority Criminal Investigations in April, the revenue service has kept a close eye on procurement processes and provisions to prevent abuse.

South African President Cyril Ramaphosa is hopeful an agreement that could see the continent become the world’s largest free-trade zone will boost the country’s sluggish economy. But the targeted start date is fast approaching and nations have yet to agree to any tariff concessions.

The African Continental Free Trade Area, will be a “game-changer” for South Africa, Ramaphosa said in his weekly letter to citizens Monday. Africa’s most-industrialised economy is “well-placed” to benefit due to its established manufacturing base, developed infrastructure and deep financial markets, he said.

First trade under AfCFTA is due to start July 1, but members haven’t settled on rules that determine the nationality of products, according to the Stellenbosch-based Tralac Trade Law Centre. Also, existing regional economic communities must still negotiate tariff liberalisation with their member states. AfCFTA’s precursor, the Tripartite Free Trade Area launched four years ago, has yet to come into effect.

“The target is ambitious to say the least,” said Ronak Gopaldas, a director at Signal Risk, an Africa-focused risk-management firm. “Ultimately, achieving this timeline will come down to one thing — political will. Getting countries to align continental objectives with domestic agendas will not be an easy task, especially in a context of rising global populism and nationalism and where protectionist approaches are being advocated by many countries.”

AfCFTA entered into force on May 30, and could cover a market of 1.2 billion people with a combined gross domestic product of $2.5 trillion, according to the African Union, which is leading the initiative. All but one of the 55 countries recognised by the body have signed the deal, Eritrea being the exception. Twenty-seven countries, including South Africa, have ratified the agreement, which should be fully implemented by 2030.

Intra-African exports comprised 16% of the continent’s shipments in 2017, with South Africa as the main exporter and importer, Tralac data show. The country accounted for 34% of intra-African exports and 17% of imports, it said.

South Africa averted a second recession in as many years after economic growth rebounded 3.1% in the second quarter, but the improvement may be short-lived amid stubbornly low business confidence and weak factory activity.

“The economies of the African continent are together growing at a rate far greater than our own, and we need to see the opportunity that such growth presents for our economy and for our people,” Ramaphosa wrote. “South Africa’s future lies in Africa. It is through our trade with the rest of the continent that we will grow our industries.”

A global alliance of accounting organisations has found that firms that offer both audit and non-audit services are best positioned to deliver robust and reliable assurance.

The report published today by Chartered Accountants Australia and New Zealand (CA ANZ), the Association of Chartered Certified Accountants (ACCA) and the International Federation of Accountants (IFAC) provides compelling evidence that “the presence of multidisciplinary firms in a large and evolving corporate reporting system fills a valuable market need” and simultaneously commends how the rules that have evolved over the past two decades “mitigate risks associated with audit firms providing non-audit services to some audit clients.”

The report, Audit Quality in a Multidisciplinary Firm, draws its findings from leading academic literature, views of policy experts, and an in-depth study of how regulators worldwide manage risk. It is meant to contribute constructively to the international debate on the multidisciplinary firm business model and auditors providing non-audit services.

The report notes that high quality audits require “a diverse skill base” and that “the multidisciplinary model is one of the best mechanisms to develop the skills, expertise and consistency needed for quality audits.”

The narrower issue of providing non-audit services to audit clients is more nuanced. The report notes, “There continues to be concern that independence is compromised in doing so, in spite of strict rules that prohibit or restrict firms from providing such services to audit clients.

“Services that are permitted quite often are complementary to the audit, and threats to independence can be effectively mitigated. However, demonstrating to the public that perceived conflicts of interest are being appropriately managed is challenging.”

The report continues: “As this issue continues to be considered, it is important to remember that evidence cited in this paper calls into question the need for sweeping regulatory changes that could have unintended consequences on audit quality” and notes that “the vast majority of non-audit fees actually come from clients for whom firms do not provide audit services.”

Maggie McGhee, executive director – governance at ACCA, said:

“We welcome a robust debate on these issues that no doubt will continue to be important for the profession and policy makers, and encourage a conversation grounded on the facts.

“ACCA is delighted to publish this report with our colleagues from CA ANZ and IFAC. It is the latest example of the benefits which our alliance creates for our members and our students, as well as for the accountancy profession and the public interest.”

Amir Ghandar, CA ANZ Reporting & Assurance Leader, said:

“The multidisciplinary base of auditing firms is a strength that contributes to audit quality, but firms and the profession at large must continue to actively establish and demonstrate a culture of integrity through governance, transparency, and our core ethics.

“Robust independence rules have evolved over the past two decades to mitigate real or perceived risks of conflict of interest associated with audit firms providing non-audit services, and these should continue to evolve in order to keep pace with public expectations and emerging challenges.”

Kevin Dancey, IFAC CEO, said:

“Questions about audit quality, independence, and competition are always worth asking. But no one should rush to conclusions. The business case for the multidisciplinary model is strong and there is significant evidence in support of the model.

Let’s work with the facts as we continue to best serve the public interest.”

By the end of the week, a proposed bank strike in South Africa could wreak havoc as gatvol workers strike back against the financial sector. Several warnings have already been sounded ahead of the planned industrial action, and judging by the numbers, it has the potential to bring Mzansi to a standstill.

The South African Society of Bank Officials (Sasbo), the country’s biggest financial union, has planned a national banking strike on 27 September. The total shutdown will see more than 73 000 finance sector employees down tools. Cash machines, inter-personal bank services and a host of branches will be affected across the country.

Bank strike in South Africa: Why are workers protesting?

As we reported earlier, the union is upset with the increased “digitalisation” of banking practices. It’s caused significant retrenchments at many of our major banks – including 1 200 job losses at 91 Standard Bank branches. The workforce have had enough, and unless groundbreaking interventions are made by the end of the week, a banking shutdown will grip SA.

So how can you avoid the inevitable issues? Some of the top financial institutions in the country have broken their silence on the matter this week, and their advice should help us have a pain-free Friday. The banking industry plan to interdict the demonstrations on Wednesday, but senior figures are preparing for the worst:

Tips for dealing with the looming bank strike in South Africa:

Withdraw any money you will need on Friday ahead of schedule

Sasbo General Secretary Joe Kokela is under no illusions as to how big the protest action could be. He’s anticipating that transactional services will eventually go offline, and has started encouraging citizens to sort themselves out ahead of time. Kokela has suggested that people use the rest of this week before Friday to withdraw enough cash to get them through until Saturday.

Don’t put your tax payments off

SARS have also chimed into the debate, and they’ve issued a similarly prompt warning to their customers. They believe that anyone trying to process their tax affairs when tens of thousands of bank workers are on strike will run into some difficulties. Any payments you have to make to SARS, make them before close of business on Wednesday:

“The anticipated bank strike in South Africa may impact transactions related to tax payments and tax refunds. We would like to ensure that the impact of the strike on these transactions are minimised for both the taxpayer and SARS. Taxpayers are encouraged to submit payments two business days in advance and similarly, conduct any tax transactions two business days in advance.”

SARS statement

Maximise your “banking from home” options

Despite the union’s insistence that they will “shutdown” transactional activity, FNB are one of the banks that remain confident in their ability to keep going on Friday. Although they envisage staff shortages, the group believe customers can ease the workload by registering for online banking, or downloading FNB’s official app.

For those who are dragging their heels on the technological revolution, now might be a good time to take the plunge. If the banking industry is unsuccessful in court this week, sorting your affairs out in-branch promises to be nothing short of a nightmare on Friday, should the bank strike go ahead.

This is the third article of a risk management series and focuses on business continuity planning and risk mitigation strategies. The first article Eight Steps to Establish a Firm Risk Management Program covered the benefits and steps of establishing risk management program and the second Ten Steps to Successful Firm Risk Management highlighted 10 key steps for successful risk management.

The articles are a result of discussions at recent IFAC’s SMP Committee meetings, which involves practitioners from around the world sharing their perspectives and insights. In February 2019 SMPC meeting featured a session about the Japanese accountancy professions involvement in disaster recovery support and reconstruction activities following the earthquake in 2011.

Japan is one of the few nations that has an active disaster recovery support for small- and medium-sized entities (SMEs). It is well recognized that SMEs are critical to every countries economy, for innovation, employment and contribution to GDP. Hence, the continuation and sustainability of SMEs during and after any natural disaster is vital.

The Guide to Practice Management for Small- and Medium-Sized Practices (the PM Guide) includes a whole module on risk management including: professionalism and ethics, client engagement, quality control and business continuity planning and disaster recovery. In addition, practitioners are encouraged to use a Good Practice Checklist for Small Business as a marketing or diagnostic tool to help them determine the advice a small business client may need, and also help them in managing their own business. It includes a section on Environmental Management Tasks highlighting the necessity for SMEs to have a contingency plan for an emergency or disaster and contains a checklist on “how to respond to emergencies”.

Developing a Business Continuity Plan

The key to business continuity planning and disaster recovery is to look at it as an entire function as whole and complete in itself. The most effective way to coordinate planning in this area is to include the various components required in one central document. This is called a Business Continuity Plan. The purpose of developing a Business Continuity Plan is to ensure the continuation of the firm during and following any critical incident that results in disruption to the normal operational capability of the firm.

The Business Continuity Plan is based on the Prevention, Preparedness, Response and Recovery (PPRR) framework:

Prevention is all about risk management planning (please see Eight Steps to Establish a Firm Risk Management Program). This is where the likelihood and/or effects of risk associated with an incident are identified and managed. The key elements of the risk management processes are implemented at this stage, with threats identified and dealt with, or reduced to an acceptable level.

The key tool for the Preparedness element is the Business Impact Analysis. This is where the key activities of the firm that may be adversely affected by any disruptions are identified and prioritized.

The key function of the Response element is Incident Response Planning. This plan outlines the immediate actions to be taken to respond to an incident in terms of containment, control and minimizing of impacts.

The Recovery section focuses on recovery planning. The purpose is to outline the actions that are to be taken to recover from an incident in order to minimize disruption and recovery times.

Another important element of the Business Continuity Plan is the concept of regular updates and review. It is hoped that the firm will never need to use the plan, but if the need ever arises, staff should know the plan is up to date with current details, information and resources. This is important, as it should reflect the changing needs of the firm.

Key items the plan should include:

• Distribution list: An up-to-date list should be maintained of the people who have been supplied with a copy of the plan and their contact details. Remember to keep a copy of the plan in a safe off-site location.
• References and related documents: Make a list of all the documents that have a bearing on the Business Continuity Plan.
• Objectives of the plan: Objectives clarify the purpose of the plan and should describe the intended result. An example includes:
  • Undertake a risk management assessment of the firm;
  • Define and prioritize the firm’s critical practice functions;
  • Detail the immediate response to a critical incident;
  • Detail strategies and actions to be taken to enable the firm to continue operating; and
  • Review and update this plan on a regular basis.

Ten Risk Mitigation Strategies

Each firm should have risk mitigation strategies to prepare in case of death, loss or injury of a partner.

1. Document Sensitive Information

It is important to document and keep in a safe place critical information that is necessary for the effective running and operation of the firm. This information may include:

• Client agreements and arrangements;
• Employee agreements and arrangements;
• Supplier agreements and arrangements;
• Personal guarantees provided and to whom;
• Bank and finance arrangements;
• Lawyer’s name and contact details;
• Intellectual property residing within or developed by the firm; and
• Recommendations for ongoing management of the firm.

2. Maintain Adequate Insurance

It is important to maintain adequate insurance to cover the firm. It is prudent to ensure that the firm has adequate insurance to cover each partner and to provide the funds to pay out the estate for the partner’s share of the firm in the event of their death. The prudent firm will insure their key human assets just as they do their physical assets.

Important insurance coverage to hold includes:

• “Key person” insurance;
• Partnership/shareholder insurance (this provides for payment to the survivors of the partner); and
• Business equity insurance (it is important that the business equity insurance policy is supported by a “buy/sell agreement,” as discussed below).

3. Ensure there is a Valid “Buy/Sell Agreement”

If there are partners in the firm, it is important to ensure there is a legally drawn and valid “buy/sell agreement.” This outlines the terms and conditions agreed upon between the partners for the purchase or sale of their share in the firm. It should be confirmed that it has been reconciled with the partnership/shareholder insurance coverage to ensure there is no shortfall.

4. Inform Bankers and Suppliers

It is important to consider beforehand what might be the reaction of bankers, other lenders and suppliers to the death or incapacitation of a partner of the firm. For instance, would they be prepared to continue with their financial arrangements, or would they call up their debt? Consideration would need to be given to whether the firm has sufficient financial reserves to cover such a situation.

5. Ensure Adequate Training of Staff

Appropriate training should be provided to staff in the key areas of management and the operation of the firm so that it is not totally dependent on one partner. The PM Guide includes a whole module ‘People Power: Developing a People Strategy’, which covers leadership, managing and retaining employees, recognition, training and development.

6. Ensure Procedures Manual Written and Maintained

It is vital to the ongoing operation of the firm that a procedures manual has been prepared which fully documents the procedures, processes and operations of the practice. It needs to be maintained and kept current. This means the firm is able to continue to operate during the death or incapacitation of the practitioner until certainty as to its future is known. The procedures manual also becomes a key document in any valuation process which is undertaken, as it tends to add value to the firm by reducing reliance on one partner.

7. Ensure Job Descriptions are Completed

It is important that job descriptions have been completed for all roles within the firm and that each staff member is clear on the tasks they are to perform.

8. Undertake Regular Staff Appraisals

Regular staff appraisals allow staff to stay informed of their progress and development within the firm and provides the opportunity to provide feedback on their performance. It also provides the opportunity to advise the staff member of the steps that should be taken if a partner were to die or become incapacitated.

9. Partnership Issues

If there are partners within the firm, it is important they clarify what will happen in the event of either their death or their incapacitation.

10. Other Business Relationships

It is important to understand whether the untimely death or incapacitation of a partner would unduly affect any other business relationship that the firm has. There should be a documented succession and continuity plan in place.

Accountants are now bound by a revised code of ethics to take action when they perceive a threat to their ethical standards, according to experts at the SAIPA Accounting Indaba on Tuesday.

SAIPA, the South African Institute of Professional Accountants, held its indaba – with the theme “The Future-Ready Professional Accountant in the 4th Industrial Revolution” – at the Cape Town International Convention Centre from 14 – 16 August.

Speaker Saadiya Adam, a technical advisor for the International Ethics Standards Board for Accountants (IESBA), said the ethics board’s recently implemented revised code makes it clear that where a threat to ethical standards is perceived, action must be taken to bring the threat down to an acceptable level.

The IESBA is an independent standard-setting body for professional accountants worldwide.

“So, if a professional accountant evaluates that a threat is at an unacceptable level, he or she must use safeguards,” said Adam. “This safeguard action could include declining to do the work in question.”

Threats could include self-interest – for instance the promise of a lucrative “bonus” depending on the decision taken by the accountant; too much familiarity between the client and the accountant; and even intimidation by threatening the accountant’s job.

The revised code also asks that an accountant takes a step back when evaluating a potential threat. To see if a threat is at an unacceptable level an accountant must look for additional information and also at the environment surrounding the issue, according to Adam.

Other speakers underlined the importance of ethical accounting.

Tax Ombud Judge Bernard Ngoepe noted that SA needs investor confidence and, therefore, “those tasked to look after our monies” must be held accountable and made to stick to ethics principles.

“I believe there are some problems which go beyond just the accounting profession. A lot of other professions – like the legal profession – have issues too. For instance, how can you write a three-page opinion for government and charge R3m?” asked Ngoepe.

He said it does not matter to him how big an accounting firm is, as long as every single individual in that institution is ethical.

“I sympathise with the accounting profession. To fix some of these things we may have to start creating the kinds of individuals we want much earlier. We need to start moulding (ethical) people earlier. You must factor in public interest too,” he added.

Tax and corporate law specialist Ettiene Retief said many people rely on the audit industry and the information it produces.

“Some say the audit profession has gotten too much control and in Europe there is talk about breaking up the dominance of large international auditing firms,” commented Retief during a panel discussion.

“I do not think that will fix it. It is not just about an audit function, but about an assurance function. I think in moving forward the industry should focus on the quality of the assurance it gives.”

He emphasised that the integrity of the audit profession is also about its mindset towards questioning when something appears out of place or raises a concern.

“If it looks like a duck, it does not mean it is a duck – it must also quack like a duck,” said Retief.

1. Today is all about the GDP. The second-quarter number is out at 11:30 this morning.

2. The situation remains tense in Turffontein, Johannesburg, after police clashed with groups of residents who looted shops owned by foreign nationals in the area. Outnumbered police officers, who were only armed with their service pistols, stood helplessly by as the mob moved from shop to shop. Meanwhile, traffic across the country has been disrupted by a trucker protest.

3. As from Wednesday, petrol will be increasing by 11c per litre for both 93 and 95, while diesel will be increasing by 26c per litre.

4. In its half-year results, which showed a 10% increase in its headline earnings, Old Mutual says it is planning to exit a company founded by its on-again, off-again CEO Peter Moyo. Moyo owns 25% of a company called NMT, which he cofounded, while Old Mutual also owns 20% in NMT. Since 2004, Old Mutual invested almost R300m in various NMT companies.

7 things people who are good with money know that the rest of us don’t

Reported by Liz Knueven

For people who are good with money, it’s not about always having the latest and greatest, or even having huge incomes or bank accounts. It’s about good habits for saving and planning for the future.

According to Lynette Khalfani-Cox, an author and money coach, there are certain habits those who are good with money know that the rest of us just don’t understand:

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They know they don’t need to buy everything that crosses their path

Khalfani-Cox says that one of the things that people who are good with money do is say no to consumer culture.

“People who are good with money are often not afraid to go against the grain and to actively unplug from consumerism,” she says.

“Whereas the person who is deep in debt and broke and living paycheck to paycheck might drive a BMW and have designer handbags or some of the trappings of success in terms of material goods, the person who does far better has several hundred thousand in the bank,” she continues.

For example, Warren Buffett still lives in a house that’s worth just .001% of his net worth (not that you have to be a billionaire to be good with money). For those who are good with money, it’s all about living on less than you really need to.

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When they do buy things, they’re not chasing brands

People who are good with money aren’t chasing name-brand goods. Instead, they’re chasing value and deals, as well as searching for quality items that will last.

“They’re more concerned with quality as opposed to quantity, and they’re also less interested in brand names just for the sake of flossing and just trying to look good,” says Khalfani-Cox.

And when people who are good with money do splurge, they’re thinking about things long-term. “If they are going to buy a R10,000 bag or something, it’s going to be like, ‘oh, this bag’s gonna last me 10 years,'” she continues.

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And they spend their money on experiences over things

“People who are good with money that they would rather have an experience than an item to be able to show off,” Khalfani-Cox says.

Millennials are increasingly displaying this pattern, and making spending on experiences a priority. As Business Insider’s Hillary Hoffower reports, in a survey of millennials, “more than a quarter of respondents said that after a rough week, the thing that would bring them the most joy is some form of entertainment, such as going to the movies, happy hour, or a concert.”

And in Khalfani-Cox’s opinion, millennials might just be onto something.

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They plan carefully for the future

Those who are good with money are planning ahead, whether it’s through saving, investing, or working with financial planners.

“People who are not as capable with money are present-oriented,” says Khalfani-Cox.

One of the key differences between those who are good with money and those who aren’t, in her experience, is that those who are good with money are planning ahead. “Be strategic in your planning and don’t be so driven by everything today,” she says.

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They’re willing to invest in getting financial help

“People who are good with money buy the financial products and services, and buy the team that’s going to help them to gain further wealth,” says Khalfani-Cox.

They see these kinds of expenses as an investment. “The person with a wealth mindset knows that accountant, that money manager, that financial planner, et cetera, is going to help them to double their wealth or to further grow their assets, and potentially their income as well,” she says.

Those who aren’t as good with money are going to feel that they can’t afford this expense, and won’t see it as an investment, she says.

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They make saving and investing a part of their routine

Those who are good with money aren’t waiting for a raise or a large gift to save – they’re making it a part of their routine and using whatever money they have now.

“People who are good with money know that discipline and consistency are far more important than large gestures of any kind,” says Khalfani-Cox.

She’s seen this particularly with those wanting to invest. “The person who is not particularly good at investing or not as good with money is thinking, ‘oh, I have to wait until I get R10,000,’ or, ‘I have to wait until I get a lump sum of cash to be able to invest that,'” she says.

Khalfani-Cox emphasises even the smallest of contributions are valuable. “These people have made saving or investing a habit and they’re more successful as a result,” she says.

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They’re not always millionaires — they just know how to do the best with what they have

“Anybody at any income or asset level can be good with money by practicing fiscal discipline and smart money management habits,” says Khalfani-Cox.

While she acknowledges that building wealth is a very different scenario for those with little access to credit and lower incomes, there are still things anyone can do.

Rather than saying they can’t, people who are good with money see anything as a step in the right direction. Someone who is good with money would say, ‘If I can just save, even if it’s R100 a month, that’s better than nothing,’ rather than, ‘Why bother saving if I’m only saving R100 per month?’

It doesn’t take tremendous wealth to manage your money well – whether you’re saving R100 or R2,000 per month, anyone who’s good with money knows how to work with the wealth they have.

The issuing of the printed Tax Clearance Certificate (TCC) will be terminated after 25 October 2019, as we are fully implementing a more secure and electronic Tax Compliance Status (TCS) system.

Since the implementation of the TCS system in 2015, we advised taxpayers that our goal was to terminate the use of the printed TCC, and would stop issuing TCCs at a future date.

We have now reached a point where the ability to print a TCC will be terminated, and the TCS PIN will have to be used by taxpayers to share their tax compliance status electronically with third parties. In addition to terminating the ability to obtain and/or print a TCC, all active TCCs that are currently in circulation will be cancelled. You will therefore no longer be able to verify or print it.

You are encouraged to familiarise yourself with the electronic TCS system and the use of the TCS PIN, so as to be prepared when we entirely terminate the TCC concept.

The secure and convenient electronic TCS PIN provides you with a way to authorise any third party (an organisation or government department) to view your tax compliance status online via eFiling by providing them with the PIN. It will present them with your overall tax compliance status as at the date and time they view it, instead of your tax compliance status as it was at the date when the TCS PIN was issued to you. To protect the confidentiality of taxpayer information, no other information will be accessible to a third party through this process.

It is important to remember that your tax compliance status is not static, but changes according to your continued compliance with tax obligations.

For more information on how to use the TCS PIN, please refer to the  “Guide to the Tax Compliance Status Functionality on eFiling”.

Sincerely,

THE SOUTH AFRICAN REVENUE SERVICE
August 2019