One of the victims in the recent scourge of hacked Sars e-filing profiles is a Sandton-based ICT firm that lost a whopping R20m tax refund.
The case has been sitting on the receiver of revenue’s desk for more than a year, the Sunday Times has established.
Sars is apparently hesitant to acknowledge and investigate allegations that the theft could involve insiders who give sophisticated syndicates access to the system, an independent investigator said this week.
“The modus operandi is that they change the bank details on the systems and that can only be done if they have an insider at Sars, as the normal process would require the client's high level involvement and generally the person who has that authority is director level.
“In the case/s we have seen it can only be possible with Sars interventions at a higher level. The money then goes into the syndicate's bank account and is distributed at speed or, in certain circumstances, cash is drawn,” the investigator said.
Sars before state capture had two parts unparalleled in the world: enforcement capacity and modernisation
— Former government employee
The information comes to light as the office of the tax ombud (OTO) has revealed it has sought and obtained permission from the finance minister to investigate allegations that Sars is failing to assist taxpayers affected by hijacking.
Last week the tax ombud issued a statement saying it had received complaints and queries from taxpayers and industry bodies, and engagement from the same stakeholders during a public workshop it hosted in June.
“The main aim of the engagement was to obtain direct information on the experiences of taxpayers and tax practitioners on the issue of hacking of taxpayers' e-filing profiles, with a view to request the finance minister to allow the OTO to conduct a systemic review,” said Gert van Heerden, OTO’s senior manager for legal services and systemic investigations.
“About 305 participants attended the public engagement. At this stage it is not possible to confirm the existence or extent of material loss as this will form part of the review.
“Sars has been notified of the approval by the minister and, as with the previous systemic reviews conducted during 2017 and 2018, Sars will give its full co-operation during the process,” he said.
While the Sunday Times does not have all the details of the hack of the profile of the Sandton firm, it was established that the company last year sent Sars summons for damages related to the loss because of its failure to act. This claim ties in with complaints to the tax ombud from tax practitioners frustrated with the inaction.
The Sunday Times has previously reported on the case of Mol Pro Consulting, where an internal Sars probe established the involvement of former Sars employees in the hacking of the company's profile in 2019. Instead of acting on this, a Sars criminal investigations official referred the company's directors for criminal prosecution twice. Both times charges were provisionally withdrawn by the National Prosecuting Authority.
The second withdrawal came after the directors' legal representatives revealed malfeasance and governance lapses on the part of the Sars investigator.
To date, Sars has not acted on the hacking and the investigator. Sars did not respond to questions from the Sunday Times this week.
A former government employee with direct knowledge of the inner workings of Sars operations said the revenue collector’s diminished enforcement capacity was caused by years of state capture and had led to criminals not fearing the organisation.
He said even though Sars was performing better under current commissioner Edward Kieswetter, it was still recovering from the effects of state capture from 2014 to 2018, which led to about 55 executives and about 500 of Sars' 15,000 skilled staff leaving the organisation.
“Sars needs a dedicated unit to deal with refund fraud instead of people having to go to the tax ombud.
“Sars before state capture had two parts unparalleled in the world: enforcement capacity and modernisation.
“Enforcement capacity was effective and it played a crucial role in helping other law enforcement agencies with criminal prosecutions. But we all know that enforcement capacity was deliberately destroyed, as was found by judge [Robert] Nugent. When enforcement is limited, it leads to people not fearing Sars because there are no quick responses. The second part that made it strong was modernisation, which went under when the executives who were leading it were forced to leave,” said the source.
Sars before state capture had two parts unparalleled in the world: enforcement capacity and modernisation
— Former government employee
The Nugent commission was set up to investigate tax administration and governance at Sars. It found that governance failures were made possible by weaknesses in the governing legislation for the revenue authority. Nugent recommended that mechanisms be put in place to prevent a recurrence of the breakdown of governance. He also recommended an inspector-general be appointed to investigate internal governance to ensure that a commissioner's conduct could be probed.
Sars in its 2011 to 2014 strategic plan noted that its modernisation programme was “well advanced” and anticipated it would be completed within a three-year cycle. It noted, however, the risks facing the organisation.
“Sars faces a risk of ongoing capacity constraints in critical skills areas, specifically in areas of processing outstanding returns, managing new debt inflows and conducting audits. Sars will need to strengthen its capability in these areas, either through external recruiting of talent, building the skills pipeline and developing current capacity and redeployment where feasible,” it said in the strategic plan.
The source said that for the criminal syndicate to pull off its tax refund heists, it simply needed to understand Sars' IT weaknesses, have someone inside, either through coercion or voluntary participation, and have someone in the banks.
“Our population is growing and the economy is not and government capacity is shrinking. That means we are running into a squeeze so people are moving into all kinds of criminal activities, be it investment schemes or tax refunds. Crime is becoming a phenomenon and how society responds to it becomes important. We are not even slowing down crime but making it easier for the criminals. Crime is evolving at a faster rate, not just white collar crime,” he added.
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