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Bain & Co 'failed' at SARS

Sep 02 2018 06:01
Justin Brown

Finance Minister Nhlanhla Nene was “utterly disappointed” by global management consultancy Bain & Company’s failure to deliver results during its work at the SA Revenue Service (SARS), he said during the Nugent Commission of Inquiry on Friday.

Bain had been involved in a turnaround at the Development Bank of Southern Africa and it was “very strange” that the company’s work at SARS didn’t have the same outcome, Nene said.

Vittorio Massone, managing partner of Bain’s local office, said during testimony at the inquiry this week that SARS had indicated that National Treasury had given the go-ahead for implementation of the new operating model at SARS that Bain was employed to design.

Inquiry evidence leader Advocate Carol Steinberg said that she had copies of the two memos that former SARS commissioner Tom Moyane sent to Nene regarding the new operating model. These memos were sent in November 2014 and August 2015.

Nene said that, in the first letter, Moyane indicated that he intended to procure a plan for a new operating model to “relaunch the SARS brand” after former SARS commissioner Oupa Magashula had left under a cloud. Nene said he thought that Moyane’s intentions were “noble indeed”.

Moyane’s letter was seeking “confirmation and concurrence”, he added.

“Ultimately, approval [from National Treasury] is only in principle … In terms of the legislation, the commissioner can proceed because it is an operational matter,” Nene said.

He added that SARS always needed enhancement and there couldn’t be complacency.

However, he said it turned out that the plan to improve SARS didn’t achieve the intended objectives.

Moyane was appointed as SARS commissioner in September 2014 following a process that saw 127 people apply for the job, he said.

In response to a question, Nene said that he would agree with the idea that Parliament get involved in the process of appointing a new SARS commissioner.

During the inquiry, National Treasury procurement official Solly Tshitangano said the procurement of Bain’s services by SARS was not done properly.

“I can’t say Bain was properly appointed. [There are] a number of red flags there which resulted in an irregular appointment,” Tshitangano said.

“This should have been done as one tender,” Tshitangano added, referring to the total cost, which he put at almost R204 million, that SARS paid Bain for three projects, including one that cost R151 million and another that cost R50 million.

The initial tender was not a competitive process because SARS only used companies that were already on its database, which limited the tender to five entities, he said.

The SARS request for proposal tender document, of which City Press has a copy, is headed "consultancy services to review the SARS operating model".

The SARS tender opened on December 12 2014 and closed on December 18 2014. PwC, one of the bidders, pulled out of the process as the time frames were “unrealistic”, Tshitangano said.

Only “clever” bidders would be able to respond to a tender that was only open for six days, Tshitangano said.

He said that SARS overrode procurement regulations on the grounds that the work was urgent, but it actually wasn’t an urgent matter.

“In one of their [SARS’] documents, they state clearly that we need 21 days, but we don’t have 21 days,” Tshitangano said.

Red flags were raised regarding the Bain tender at SARS, but the tender was still approved as “time was of the essence”, he said.

Massone said that Bain first met Moyane in 2012. Moyane joined SARS as commissioner two years later.

In “2013 or 2014”, Massone said Bain met to discuss SARS with Moyane while he was still the commissioner of the department of correctional services.

Massone said Bain was already talking to Moyane about SARS before Moyane got the job, including about doing some work at SARS. Massone said Moyane didn’t pay for this work. Massone said he bumped into Moyane at places like the residence of the US ambassador to South Africa.

However, Massone said, despite the existing familiarity and work done at SARS, Bain didn’t have prior knowledge about the December 2014 SARS tender.

Steinberg put it to Massone that Bain’s bid price for the SARS diagnostic report tender was “fractionally under” that of McKinsey & Company. “Did anyone let you know what McKinsey’s price was?” she asked.

“Absolutely not,” Massone replied.

Steinberg then put it to Massone that Bain’s work for SARS was “inadequate”.

Massone rejected this and said: “I think our work is solid and not inadequate.”

Steinberg asked Massone if Bain felt any need to apologise to South African taxpayers. Massone said there wasn’t.

Judge Dennis Davis, a tax administration expert, said the current system of appointing a SARS commissioner was “hopeless” as it was important for a prospective commissioner to be put through a proper due diligence process.

“How it worked for Mr Moyane is that you had 127 people ... my understanding is that there were a whole host of highly qualified people who were totally discarded. In a case like this, you have to ask what due diligence was done, including whether he knew anything about tax.”

Parliament’s involvement in the appointment of a SARS commissioner couldn’t be relied on as “Parliament had failed to ensure accountability”, Davis said.

He added that his impression of Moyane was that he wasn’t hands on “in the slightest”.

“Every time I met him, there was Mr [Jonas] Makwakwa, former SARS chief of business and individual taxes, who was the person who told me the information I needed to know.”

Makwakwa was the chief officer for business and individual tax at SARS. He resigned earlier this year.

On the topic of Bain, Davis said he did not “quite understand” the need to restructure SARS as it was a “very good organisation”.

Malusi Gigaba, who was the finance minister from March last year to February, approved an urgent “secret trip” for Moyane to Russia last year without asking for any details either before or after the trip. Gigaba said he didn’t probe the details of the trip because he relied on Moyane’s “integrity”.

The trip to Russia took place in November. President Cyril Ramaphosa suspended Moyane in March.

Gigaba called for a commission of inquiry into the affairs at SARS while he was minister of finance to test, he said, negative perceptions about SARS and to check whether the issues with SARS were valid.

Gigaba said he hoped that inquiry could address “credibility issues” at SARS.

Gigaba said that SARS’ shortfall on collections looked like a combination of administrative issues and a lacklustre economy.

However, only after Ramaphosa became president in February was an inquiry into the affairs of SARS set up.

Commission chair Judge Robert Nugent said at the close of this week’s hearings that there was a lot of work to do and the next round of hearings were likely to be held next month, which is after the deadline for the interim SARS inquiry report.

The final report is due at the end of November.

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