OP-ED

SARS Acting Commissioner Mark Kingon on Accounting & Accountability: ‘We clearly have something to fix’

By Mark Kingon 15 August 2018

This is an edited version of an address by SARS Acting Commissioner Mark Kingon to the Institute of Internal Auditors of South Africa, delivered on 13 August 2018.

It is an honour and a privilege to address you today. Firstly I want to acknowledge the significance of this month which marks the 62nd anniversary of the heroic struggle of women in this country to be treated equally without gender or race bias. As the country grapples to cope with ever increasing levels of gender based violence, I am reminded of the wise words of President Nelson Mandela when said he that “Freedom cannot be achieved unless the women have been emancipated from all forms of oppression”. This is one among the many lessons that the father of the nation taught us. He was also firm in his belief that strong institutions are the key to our future as a country and as a continent.

As the Acting Commissioner of one of the key State institutions, I would like to thank you for inviting SARS to be a part of this very important discussion on building credibility of the Accounting and Auditing profession, both in the country and globally.

As you are aware, the respect and high esteem in which the profession was once held, both globally and within the country, is currently under scrutiny, thanks to the unethical practices of a few individuals. However, such conduct has been so damaging that it has brought into question our values, both as professionals and as people. From State institutions to private businesses and accounting firms, these underhand practices have resulted in a loss of confidence and trust that will be difficult to regain.

I spoke recently at a similar gathering of professionals and I reflected that until last year, South Africa was ranked, for seven consecutive years, as the world’s number one for auditing and reporting standards, but that has now changed.

According to the World Economic Forum’s (WEF’s) Competitiveness Index Report for 2017-2018, our ranking of the quality of auditing and reporting standards has fallen to number 30. So we clearly have something to fix.

The role of the internal auditor in correcting these practices is even more important when we are facing credibility challenges in both the public and private sectors. Your oversight role and your exposure to the workings of the company, as a whole, and your responsibility for advising the Board of Directors makes you an important factor. And your professional conduct in doing your work should be guided by ethical codes as set by organisations like the IIASA (Institute of Internal Auditors of South Africa).

But we have to ask ourselves: is it enough for an organisation like the Institute of Internal Auditors of South Africa to educate and create awareness of ethical codes? Is signing on to ethical codes as a condition of membership enough? How are we ensuring that these codes are internalised? Is it only when the media exposes wrongdoing that we want to surface the issue in forums like these?

These questions have become more relevant given the current debate among firms on the ethical issues related to segregation of accounting and advisory services. As we have seen both in South Africa and the world, this is an issue that requires attention and I hope that this will be resolved soon, before the moral issues that it raises impacts negatively on the profession.

I am reminded of the words of a strong woman leader of our times, Oprah Winfrey, who said that “real integrity is doing the right thing, knowing that nobody’s going to know whether you did it or not”. And these questions are not only a focus area for professional bodies like yours; in my own organisation we are facing similar debates around credibility.

This year SARS has, as one of its most crucial risks, low levels of public trust and credibility in our institution, which as we all know impacts on the fiscus. We saw this with revenue collection last year and we all know that this cannot continue. Revenue is central for the development plan for our country, to grow the economy and to ensure that we continue to provide services for the public good. But, we can’t do that without a strong base of trust from taxpayers.

To demonstrate our willingness as SARS to be accountable, we published the SARS Service Charter on 2 July this year. This is available on our website and you will see that we have set the bar quite high. We are also quite clear that this is a living document, and we invite taxpayers to engage with us around the Service Charter.

The charter sets out the obligations of taxpayers as well as SARS commitments to treat the South African public and taxpayers in a professional, courteous and respectful manner. We are committed to improving service and practical improvements like reducing long queues at our branches in the long term. We want to serve as best we can and we want to do the right thing, always.

As I have said in many such forums, SARS is not perfect. I am inviting you as professionals in the industry to engage with us when things don’t work as we committed to in the Service Charter. Let us know where we have faltered – there are SARS offices throughout the country who will work with you in the spirit of the charter. But, also let us know when we get it right…

I believe that we have a cadre of committed SARS employees who serve the higher purpose yet there is a trust deficit amongst our stakeholders, which is of our own making. We are working through our issues and we know that is going to be a long and hard process. But we have to find ways to ensure that we do rebuild the trust with our stakeholders including the taxpayers – we, as SARS, owe that to our citizenry.

I think it would be remiss of me not to remind you to eFile your ITR12 returns as soon as possible, albeit most of you are provisional taxpayers. And to those of you who have already filed your returns, Siyabonga – you make South Africa great!

As you know, Tax Season 2018 started last month. Just a reminder that unlike in previous times, tax season will end in October rather than in November.

I would like to give you a brief glimpse into the progress to date. We have a monumental task this year to raise R1.345-trillion and to date:

  • Total returns received since the start of filing season is around 2 million;

  • Total refunds paid since the start of the filing season is around R6-billion. The refunds can relate to returns submitted before the start of the filing season.

At SARS we are aware of the increasing number of schemes being invented to commit tax fraud and rob the fiscus of its due. As you may have read recently, SARS publicly named 10 people who had been convicted and sentenced since April 2018 for failure to submit outstanding tax returns. This is a serious offence and those taxpayers now have criminal records.

We have noted a significant drop in compliance in recent years and we are hoping that by making these cases public – as permitted by the law – it will demonstrate the seriousness of the matter. However, these are the tax evaders that come to light through SARS investigations and there are many others that are undetected.

We are seeing more tax professionals tread the thin line between tax evasion and tax avoidance. I have no doubt that you are seeing similar incidents in the execution of your duties. Remember what Chinua Achebe, the great African thinker and writer, said:

One of the truest tests of integrity is its blunt refusal to be compromised.”

That should be the defining element in all that we do. It is simple, when in doubt, do the right thing. Your role and independence as monitors of good governance and accountability within both public and private sector entities is so important.

Sadly, in our country, each day more scandals are reported where there has been collusion between public and private sectors and the public purse is affected. Looting of State resources has real, palpable consequences in that we lose resources that are meant to be for the common good – for roads, education, and housing for South Africans who desperately need these resources. And that is not acceptable – not in the private or public sectors.

Investors, shareholders and the general public depend on the accounting and auditing profession to provide a balanced and unbiased view of the state of companies and State institutions. However, public trust has been affected by the exposure of some professionals who have demonstrated a serious lack of ethical conduct in discharging their responsibilities. This must be addressed if we are to rebuild trust in the profession and the important role it plays.

On the other hand we have regular reports from auditors, who take their responsibility seriously and, as honest brokers, report incidents where they believe audit clients may have broken tax laws. This is an important source of intelligence for SARS and we treat these cases seriously.

While I understand that the role of Internal Auditors is designed to add value and improve an organisation’s operations, I would suggest that your role of improving the effectiveness of risk management, control, and governance processes should include tax. While your reporting would be to the Audit and Risk Committee and maybe the external auditors, I must ask the question as to what you do if you find tax failures which the organisation fails to rectify. Is there some reporting obligation, should there be…?

We have to question why it is that some accounting and auditing professionals are willing to ignore their ethical responsibilities. And the question that the Institute for Internal Auditors needs to grapple with is: Are the consequences for such behaviour effective, and what works well as deterrents? Also examine why it is that some individuals are not staying true to the dictum that you have to do the right thing even when no one is looking. At SARS we are looking at similar issues and examining ways to resolve these challenges.

As professionals we are appreciated and celebrated for our abilities and skills. A recent study commissioned by the University of the Witwatersrand of matric students indicated that the majority of young people want to pursue a career in the accountancy and auditing profession. We owe it to these bright-eyed young people to leave them with a legacy and a profession that is credible and trusted.

Discussions, like this forum, are the starting point in a marathon that requires stamina and commitment. To rebuild trust is a long and hard road, but it must be done if we are to resolve the issue and regain the confidence both in the country and in the world.

In conclusion, please allow me to reiterate that the SARS Executive and I are fully committed to rebuilding the SARS reputation through ensuring that we provide effective, professional, transparent and fair services to all taxpayers. We are responsible for the way SARS is experienced and perceived, and as we all know, trust in a tax authority is the most important factor in ensuring compliance.

I would like to wish you well as you deliberate and discuss today this very important issue. I do hope that this will not end here and that firms and individuals will seriously consider the damage that is caused by intentional wrongdoing that has wider impact and the potential to cause serious damage to the profession and, by extension, the country.

I would like to end by quoting former First lady of the USA, Michele Obama, when she said, “with integrity – the truth matters… you don’t take shortcuts or play by your own set of rules… and success doesn’t count unless you earn it fair and square”. DM

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