State’s use of foreign consultancy firms in spotlight

The government is reviewing its use of international agencies such as Bain, Gartner and Hogan Lovells, whose reputations were damaged by the work they did for the SA Revenue Service (Sars) when it was under the control of former commissioner Tom Moyane.

This review would also include the work of other consultancies for state-owned enterprises such as McKinsey.

Sars has strongly recommended to the Treasury that it consider placing the Sars-related companies on a restricted suppliers list, which if approved would mean that they will no longer be able to do business with the government.

The government also plans to follow up with foreign governments to see if those companies broke the laws of their home countries, Treasury deputy director-general Ismail Momoniat told parliament’s finance committee on Tuesday.

He noted that many international consultancy and legal firms legitimised the seizure of Sars (and other state-owned entities) including the firing of officials and producing “independent” reports to protect officials implicated in criminal activities.

“Aside from probably breaking SA laws, the question is whether they have broken their home country laws like the Foreign Corrupt Practices Act,” Momoniat said.

He said international companies using their international brand to secure work in SA “but when there is trouble then suddenly their parent or headquarters dissociates itself from their SA operations”. 

“We don’t buy that story,” Momoniat said. “I am absolutely convinced that Bain must be charged,” he added, saying he was positive that there would be action in a number of these cases.

“I have a sense that there is movement.”

Bain was responsible for drawing up the new operating model for Sars, which led to its destruction. The firm held meetings with Moyane a year before his appointment.

Sars commissioner Edward Kieswetter told MPs that consultancy firm Bain had paid back R217m to Sars but that IT consultants Gartner had declined to do the same despite several engagements. Gartner rejected Sars's view that the tax authority did not get value for money from the work done.

Both Bain and Gartner have been referred by Sars to the Hawks for further investigation.

“Owing to the way in which these companies conducted their business activities consideration should be given to placing them on a restricted suppliers list which if approved means that they will not be able to do business with the SA government,” Kieswetter said.

Kieswetter said Sars had made substantial progress in implementing the recommendations of the Nugent commission of inquiry. The large business centre, which was abolished under Moyane had gone through an organisational redesign and was now functional. It will be launched at its new premises in October.

The illicit trade capacity has been re-established in the enforcement division. Its primary focus will be on tax collection related to organised crime and customs and excise evasion schemes in the tobacco, cash and carry, clothing and textiles and other industries.

Sars has also re-established the compliance unit and in October will reconstitute its high court litigation unit, which had been broken up into regional entities, hampering the pace at which it functioned. The integrity unit will also be re-established.

The IT division has been stabilised by temporarily filling key positions with experienced IT professionals.

“Regarding the resignation of senior employees who no longer regarded Sars as a home professionally, the recruitment policy has been revised to allow for the recruitment of staff that left the employment for various reasons. Employees who were shifted into meaningless roles have all been given meaningful work.”

A performance review of executive committee members, as required by the Nugent commission, was under way and disciplinary proceedings had been instituted in certain cases where executives had been suspended.

All benefits of executive committee members and appointments without ministerial approval have been submitted to finance minister Tito Mboweni for review and approval.

Kieswetter told MPs that from October 1 2018 Sars no longer applied a monthly VAT refund target to limit the refunds paid in a particular month. Instead, when a VAT refund became payable, it is paid without considering the monthly refund target.

“This change in approach has resulted in an additional R30bn of refunds being paid out in the 2018/2019 financial year,” he said.

He said a process was under way to recover R2m in legal costs incurred by Moyane in seeking advice on the matter of senior executive Jonas Makwakwa and on an unauthorised trip to Russia in November 2017.

Momoniat told MPs that later this year the Treasury would release a discussion paper on the governance structure of Sars based on the recommendations of the Nugent commission. The paper will be released for public comment and will deal with strengthening governance, organisational design, the accountability of Sars and on the potential role of the inspector-general. The discussion paper will also clarify the role and powers of the tax ombud.

A Sars amendment bill will be drafted on the basis of this discussion paper.

“The cabinet recognises the importance of strengthening the autonomy and governance arrangements of Sars to strengthen its capacity to collect all revenue due,” Momoniat said.

ensorl@businesslive.co.za