Home Accounting and Auditing Sars was the victim of a premeditated offensive – Nugent

Sars was the victim of a premeditated offensive – Nugent

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The final Nugent Commission of Inquiry report into SA Revenue Services (Sars) has just been handed to President Cyril Ramaphosa, and it’s a whopper. It details the damage inflicted on Sars by Bain & Co, the Boston-based consulting group.

Nugent says Sars employees were fearful of coming forward to give evidence in case fired former commissioner Tom Moyane should by some miracle survive the inquiry and the damning evidence against him. But as time went on, they were more forthcoming, providing a rich and textured picture of the revenue service under Moyane.

Two individuals declined to appear for oral evidence: Vittorio Massone of Bain & Co and Mr Maphakela of the firm Mashiane, Moodley & Monama Inc.

Different agendas at play

Luther Lebelo, group executive for employee relations at Sars, used the Inquiry as a platform to ventilate what he says was wrongdoing on the part of Mr Pillay, Mr Richer and Mr van Loggerenberg – who have been widely smeared as leaders of a rogue unit within Sars (for which there appears little evidence). It seems Lebelo and Maphakela were on a mission of their own to disseminate potentially harmful information about the three alleged “rogue” operatives within Sars. Maphakela was hired at a cost of R1 million (later reduced to R750,000) to find wrongdoing on the part of the “rogues”.

It turns out Maphakela didn’t have any authority to speak on behalf of Sars and went off on an expedition looking for smoking guns when his brief was something else entirely. Acting Sars Commissioner Mark Kingon subsequently withdrew Lebelo’s authority to dismiss staff. “It is time that dignity and decency return to Sars,” says the Nugent report.

The so-called “rogue unit” operating out of Sars comprised intelligence officials hired to track down big-time tax cheats. The Sunday Times beguiled the public with salacious stories concerning the activities of this group for nearly two years before recently admitting it was a bogus story and apologising. Huge amounts of taxpayer money was spent trawling through documents going back 11 years in search of wrongdoing, and the allegations were “opportunistically repeated in a Sars media release.

“When revenue collection is compromised the consequences are one or more of three. Government programmes must be curtailed, or taxes must be raised, or money must be borrowed, all of which prejudice the country. That is what this Commission is about, and it will not be diverted from inquiring into what is wrong at Sars, and how it can be righted, by attempts to use it for other ends,” reads the report.

Tom Moyane stays away but chirps from the sidelines

Former Commissioner Tom Moyane kept away from the Commission from inception, appearing on one occasion only, and then only to disparage and attempt to derail the inquiry, which has continued relentlessly since then. The executive committee likewise steered clear of the Inquiry, and when they did appear it was to exculpate themselves. It was left to junior members of the organisation to detail what was wrong.

“Sars is a large institution. It has about 14,000 employees, spread throughout the country. Its processes and structures are also complex.Such an institution calls for leadership with exceptional managerial experience and skill. Sars is also a prize for those who are bent on corruption. Almost all the revenue of the state passes through its hands and they speak at Sars in millions and billions. It cannot be said too strongly and too often that Sars demands leadership of the highest integrity and character, deeply conscious of their duty to account for their management of SARS.”

A 2014 benchmarking exercise by the International Monetary Fund found that Sars was world class in 15 of 27 categories, and only one rung below good international practice in one of the remaining 12 categories. It wasa place of higher calling for many skilled professionals eager to build a new democratic SA.

By March 2018 Sars was a shadow of the organisation lauded by the IMF. It reeked of intrigue, fear, suspicion and mistrust. Moyane installed CCTV cameras to surveille his staff, some of whom covered the lenses for fear of ending up in disciplinary hearing for a misdemeanor.

The modernisation programme that had been a decade in the making, replacing the largely paper-based system that preceded it with state-of-the-art computer systems, was summarily stopped when Moyane took over the helm, “with not so much as a word to the person who had been instrumental in creating it.”

Fragmenting the organisation

Perhaps one of the greatest gifts to tax cheats was the fragmentation of the organisational structure that inhibited cross-departmental communication.Measures to counter criminality were rendered ineffective, giving free reign to cigarette smugglers.

What happened at Sars was a premeditated offensive orchestrated by Bain & Co and Moyane, each in pursuit of their own interests. Bain’s head office in Boston, though disavowing complicity in the scheme of the local SA office, cannot escape responsibility for what transpired.

Evidence from National Treasury suggests Bain prepared its bid in one day, and evidence form Bain’s local head Vittorio Massone was “littered with perjury”. When asked what interactions it had with Sars and former President Zuma, Bain launched into a period of obfuscation and evasion. The consulting firm withheld, and continues to withhold, information from the Commission.It turns out Massone had more than 10 meetings with Zuma, aimed at securing work in all public institutions. He also met Moyane prior to his appointment to Sars, the purpose of which was to advise him on achieving his professional goals.This was nonsense: the real purpose was to secure work at Sars.

In October 2013 Bain put together a slide presentation,based on a perfunctory analysis using publicly available information, supposedly identifying Sars’ shortcomings and proposing a strategy reboot. This was extraordinary, given the fact that Sars was at that time recognised as a world class organisation.

In no time at all, Bain and Moyane were ensconced at Sars, and another slide presentation before the Commission spoke of virtually nothing but change and identifying those who would assist this change, and neutralising those who would not.

“Clearly Bain and Mr Moyane were in deep collusion to restructure Sars, no matter what they might have found at Sars,” says the report. “Neither was concerned for the interests of Sars,, but for their own interests, that were at least aligned with one another, though they might not have been quite the same.”

Sham procurement

Moyane and Sars went through a sham procurement exercise to engage the service of a consulting firm when it was clear the winner had already been chosen. Bain secured the contract with a foot-in-the-door price of R2,38 million, just below the next highest bidder. This would involve a “diagnostic evaluation” of Sars. Then came the big money: R164 million for Phase 2, and another R50 million for Phase 3. The Phase 2 contract did not go to the market for an open bid. This deviation from standard procurement procedures is only permitted by National Treasury in an emergency or when there is a sole supplier – neither of which applied in this case. Bain has since refunded R217 million to Sars and Massone has resigned from the company.

The damage inflicted by Bain on Sars was staggering. Staff  were not consulted about the changes about to be implemented, and many wondered why fix what isn’t broken.

The new organisation structure implemented by Bain in the so-called Large Business Centre was a disaster. Under the previous system,large taxpayers in an industry could deal with a Sars relationship manager,backed by accounting, legal and other specialisations. Bain recommended the lawyers be sent to the legal department and accountants to the accounting department. The multi-disciplined approach that had worked so well was dismantled. Tax professionals from the SA Institute of Tax Practitioners and the SA Institute of Professional Accountants reported the growing frustration of dealing with Sars and the resultant decline in tax morality.

Bain also took a hammer to the legal and enforcement unit. Previously,it could get approval for legal action within 48 hours. Once Bain worked its magic, it could take months for the same approvals.

It was the same story with customs. The customs modernisation programme launched in 2011 halved the time it took to import goods and had automated process that reduced illicit smuggling of cigarettes,narcotics and other goods. So much so, that in 2013 the World Bank gave SA special mention having improved the most in promoting ease of trading across borders.

Sars beaten back to pre-modernisation times

By 2018, SA had regressed to pre-modernisation ratings. Inspection processes are the longest they have been in seven years: 23 days compared to two days in 2013. Bain insisted best international practices that worked in other countries had been adopted at Sars, but failed in SA due to lack of cooperation among the units.

Let’s see if Bain can survive this devastating indictment of its work at SA’s most critical public institution.

You can download the full report here.