Audit Profession Amendment Bill: Inclusion of Mandatory Audit Rotation Rule discussion
Meeting Summary
The Select Committee on Finance convened an online video conference for a discussion with Cosatu and well as the National Treasury on the Audit Profession Amendment Bill (“Bill”) and on their response to submissions made by Cosatu, particularly concerning the mandatory audit rotation policy of IRBA being formalised into legislation.
The meeting comprised three sections:
In the first section Cosatu gave its submission advocating the IRBA policy of the mandatory rotation of auditors to be formalised through legislation. The Union’s primary argument was that IRBA has the ability to override such rules through certain procedures, thereby rendering it ineffectual. It conveyed its aversion concerning the role auditors have played in state capture, and urged the Committee to consider amending the legislation by adding the rule thereby circumventing IRBA’s ability to dispense with it on a case-by-case basis.
In the second section, the Treasury responded. The Treasury said that it did not disagree in principle, but wanted to take a more comprehensive approach. It advocated leaving the rule as a merely policy without elevating it to legislation. Its reasons were several: Firstly, adding such legislation would attract litigation from the major audit firms, particularly the so-called “Big Four” (that is KPMG, Deloitte, Ernst and Young and PwC). Another reason was that even if the audit rotation rule was legislated, the Big Four would merely collude to rotate their services, thereby undermining the very purpose of the rule. A further reason was that potential court action in response to legislating the policy would hamper provisions which were uncontentious but which were nevertheless needed. It was established in a preceding Committee meeting that simple changes, such as the correction of minor typographical errors could give rise to a delay in the passing of a bill, sometimes by as much as five years. Similar delays could result in the Bill presently before the Committee to be likewise delayed.
The Democratic Alliance (through Mr D Ryder) tended to agree with the approach of the Treasury, but in principle agreed that there needed, in the end, to be legislation once all possible consequences became known. One consequence that he foresaw was that certain institutions do not merely have one audit firm at a time. For instance, banks are required to have two audit firms, making the seamless mechanics of such potential “heavy-handed” legislation dubious. He therefore advocated for a “comprehensive approach” that would seek to legislate the rule over a longer period, once the potential unintended consequences have been identified and provided for. He agreed with the Treasury’s point that such legislation would be legally challenged and could compromise the legislating of relatively uncontroversial provisions currently before the Committee by delaying their passing in the National Assembly. Another reason he gave was that, as was common throughout the world and not merely in South Africa, the Big Four audit firms have a reputation that investors trust over comparatively unknown smaller audit firms. For this reason, the Big Four know that their services are all but indispensable to market growth and attracting investment. The consequence, he said, was that these firms would take turns “to eat,” which is similar to the argument made by the Treasury concerning the potential collusive rotation among the Big Four.
The Chairperson tended to disagree with the Treasury and the DA. He said that such arguments were “unconvincing” and “not compelling.” He said that these arguments prevented transformation in a sector which, after almost 30 years of democracy remained untransformed, and in the words of Cosatu, was still dominated by white men to the exclusion of small, black auditors who were locked out of the market by anticompetitive and corrupt behaviour of the Big Four. One particularly notable point was the issue of public hearings. The Chairperson sought the advice of the parliamentary legal advisor, Advocate Jenkins, on who would need to hold public hearings, that is, whether it should be held by the NCOP or by the National Assembly.
In the final section, the clauses were informally considered. Due to the fact that certain ANC members were not present in the meeting, the issue could not immediately be finalised, and the Chairperson resolved to call a further meeting, potentially in the following week. The Chairperson did, however, go over the clauses summarily (albeit not in detail) to “informally adopt” them, pending a study group and the subsequent aforesaid meeting where all members would be present.
Meeting report
The Select Committee on Finance was joined by the following officials:
● Ms Karen Maree (Acting Accountant-General, National Treasury)
● Adv Empie van Schoor (Chief Director: Legislation, National Treasury)
● Adv Ailwei Mulaudzi (Director: Fiscal and Inter-governmental Legislation, National Treasury)
● Ms Jillian Bailey (Director: Investigations, IRBA)
● Ms Rebecca Motsepe (Director: Legal, IRBA)
● Mr Matthew Parks (Deputy Parliamentary Coordinator, Cosatu)
● Adv Frank Jenkins (Senior Parliamentary Legal Advisor)
● Mr Ismail Momoniat (Deputy Director-General: Tax and Financial Sector Policy, National Treasury)
The Chairperson welcomed all attendees.
Apologies were noted.
The Chairperson said the Committee would be dealing with the Audit Profession Amendment Bill (“Bill”), and that there was only one policy issue outstanding, namely, the mandatory audit rotation rule, which is an IRBA policy. The issue concerns whether the IRBA policy should be added to the Bill in order to be made legislation.
The Chairperson indicated that he had asked each party to come to the Committee with their party positions. The ANC is meeting this week in their study group to decide on this. In the meantime, he wanted the Committee to get clarity on the issue. If there was any other policy issue the Committee could look at that also, after which it would proceed to consider the Bill clause-by-clause. He had now read the Bill, as he advised members last week, and that he had “exchanged” with Adv Jenkins the preceding day, who had advised the Chairperson that he was “fine with the amendments”.
He then asked members if there were any other policy issues that they wished to discuss.
Mr D Ryder (DA, Gauteng) said the point he made in the preceding meeting was that there needed to be more oversight over the Minister [of Finance] and his appointment of the IRBA (“Board”). However, he did not see this issue as something which should hold the current Bill back. This was a “good” Bill and it was a good idea to proceed with it, but the oversight issue was something he wished for the Committee to keep at the back of its mind.
The Chairperson said he did not have a problem with that and what Mr Ryder had been saying was something the Committee needed to take into account. However, the “usual debate will arise” concerning the “right balance between oversight and executive room to operate swiftly.” It depends on what the oversight role of Parliament should be and that the Committee should think about that. “Sometimes the executive needs to move swiftly and they can’t wait for parliamentary approval because Parliament might be in recess, especially between early December and the late January period.” He added that somehow Parliament and the executive usually find the right compromises.
He reminded members that he had asked Cosatu to write up their position and then present it to the Committee today. He then recognised Cosatu to give its brief submission, which had already been circulated to Committee members.
Cosatu’s Submission:
Mr Parks thanked members for giving Cosatu a chance to raise its additional thoughts and comments in its written follow-up to the Committee (see 9 February 2021 Cosatu submission).
On the required amount of meetings for the Board per annum, this issue was resolved. Treasury had assisted and it seemed that there was “consensus”. Cosatu was “happy in that regard”.
On the mandatory rotation of auditing firms, he reminded members that this is a rule already provided for by IRBA. It was introduced by IRBA to try to accelerate transformation in the sector (which is a “heavily untransformed sector”), but also to address the “inherently compromised cozy relationships at times” between companies and audit firms, some of whom have had contracts with companies for eighty years. There is also the need to remove the auditing firms’ profit relationships with companies, and “their fiduciary duty to provide oversight on the auditing format.” This is a matter which is important to the entire country and to workers. We have seen the consequence of corruption in state-owned enterprises (SOEs), other entities, municipalities and the private sector, like Steinhoff, among others. He said Cosatu was “very keen to see that progressive rule of IRBA being elevated into a requirement of law.” It was a “simple thing” because it is already an existing practice; there would be no destruction to the sector. This is because they have already “geared themselves for the 10 year auditing rotation rule.” There would be no administrative burden to IRBA since it is already its policy. For Cosatu, he added, “it is much more comforting to see it in law because [of] the stringent process to amendment laws” and its related delays. Whereas, if it simply remains a rule of IRBA “it wouldn’t take a rocket scientist…auditing firm which wants to change it to offer a board member a lucrative incentive: cash—whatever—has not been unheard of”.
Cosatu had recently proposed that the 10 year rule was too cumbersome; it is too long and should be reduced to five years. There was a useful response from colleagues at the Treasury to say “perhaps insert in the Bill that the firms have to be rotated every ten years but to equally empower the Minister to reduce that period through regulation to a lower period.” That would be a “fair compromise” in Cosatu’s view. The “most critical thing” is to have the 10 year rotation rule being inserted in the law, and that Cosatu would be happy if the Minister was empowered to “look at a lower period as needed, through regulation (sic).”
Cosatu was not convinced by the arguments from colleagues in the government about the need not to look into this matter at the present but rather to look at it “down the road.” Cosatu had experienced those kinds of discussion previously, and he had always been disappointed by them. He added that Committee members would know that bills take at least five years [to pass]. There have been legislation that have been “sitting for years, despite even the President asking for it to be accelerated” as well as members of Parliament.
When Cosatu participated in the 2019 public hearings, its understanding was that the Bill and components of the Financial Matters Amendment Bill were removed to allow for further discussion and consultation. If colleagues in the government did not do that, that cannot be an excuse to kick the can down the road again. It is a “very straight forward amendment”. It is a matter of “inserting one clause and a sub-clause” into the Bill. It can easily be done by Parliament’s legal advisors. If a House mandate is required to insert it, and even to hold an additional small public hearing to go the extra mile for consultation, then Cosatu would be “happy to support that.” But that would be a very “minor delay,” and would take “up to three months at most, as compared to doing a new bill which could take up to five years”.
Cosatu believes the “NCOP has the full Constitutional competence and mandate” to amend legislation as needed; it does not require the permission or indulgence of the Cabinet—Parliament is a not a “sub-committee of [the] Cabinet or [the] government.”
Discussion
The Chairperson said Mr Parks had covered the main points but asked for clarity: “Why are you mentioning [that] the NCOP can make amendments and don’t have to submit [the Bill] to Cabinet for approval? Who said that? What’s the point of that? Obviously we know that. Why do you raise that?”
Mr Parks said “I think there was a comment by Treasury colleagues in the last meeting which indicated that if there was an amendment to the Bill it would have to go to the Department [of Finance] for its own internal processes, the Cabinet, et cetera” and added that “we hoped that we had misunderstood that comment, but if we had heard it correctly, it would be a worrying comment […] to somehow merge the spheres of responsibility between Parliament and the executive. For us, it is very clear: Parliament has got full legislative authority”.
The Chairperson explained that he does not think that was said [by any Treasury official] but that if it was said “it was absurd” and that he “would not entertain it.” If it was said, he had not picked it up. The Chairperson then dismissed it: “Maybe it was said. But let’s not take that seriously. That was probably a joke or something.” What he did recall was that if the clause was introduced it would have delayed the process in the Cabinet, since it would need to, among other things, gazette it. The Chairperson took umbrage with this point and said he did not want to entertain it further.
The Chairperson then recognised the Treasury for their response.
Treasury’s Response:
Mr Momoniat said that “we don’t have a problem with mandatory audit rotation. And I’m not sure what problem Cosatu is trying to solve, because it is already a rule and it applies. I think that, generally, we will have a problem where we take rules and so on from regulators […] a lot of these things are set by standards—evolving standards—happening overseas and yes, sometimes we are ahead of the curve, and once it’s a rule it gets implemented, and it is being implemented. So, I’m not sure what value there is to put it into […] an Act of Parliament, because that also carries some dangers. The danger being that when we want to change a rule, depending on how the wording is in the Act, it may cause problems. I think that, given that this rule has been adopted by IRBA, and is being implemented, there will be some teething problems […] for example: For the major banks we have dual auditors, not one, two; and how do you rotate? Because the reality is that with most listed companies, they’re still going to rotate amongst the Big Four, so the kind of hold that the Big Four has over the audit industry is a world-wide problem, not just a South African problem.
“Most of our investors are from overseas, but even domestic investors place more reliance—even with all the scandals and all the problems that the Big Four themselves have had—still place more reliance on the Big Four than on other auditors. And all over the world you see lots of initiatives to get the incentives right for these auditing firms. [If] you look at today’s Business Day, you’d see that KPMG has decided not to provide consultancy services to JSE listed companies and similarly Deloitte [is] paying a fine of R1 billion over Steinhoff. Now whether those are sufficient measures is one thing, but just given all the problems in [the] audit process—and I should add that the Treasury is very concerned about a lot of the weaknesses around the audit process and let me just spell them out. Not only potential conflict of the services that they offer to their clients, but also I think that if we look at the corruption that has taken place, for me the role of audit committees, the role of the external auditors, even by the way, I should add, the oversight by the Auditor-General: Why did it not pick up any of the problems from, say, 2010 to 2017? It’s only then that you started getting negative audits, and so on. So, I’m saying that […] we do need to do much more on [the] audit process, and that’s why the Minister announced last year, in the last year’s budget, that he’d be setting up a panel because I do think that more fundamental changes are required. […] And, of course, with Covid, I must admit, that yes, we did not go ahead […] you had all these other priorities that come up (sic). But I do think we need to go back to those. Those reforms mustn’t be delayed, I’d agree with that. I mean I think that we do want a strict regime.
“So Chair, I think, I’m saying why pick on just this? You know, this particular rule by itself is not going to solve all those problems in the audit profession. I think we need a comprehensive approach. We’d be very happy to work with Cosatu and everyone else because I accept that we’re all concerned: If we can’t place reliance on what auditors say, it’s impossible for investors, for the community outside, for [the] government to know that things, when things are going wrong, or that they are going wrong. And in fact […] I would even say that all the audit companies that slap through seven years of corruption, even when it was in the newspapers, if they offered no value for money, they should be paying back the money to the State for all the audits that mislead [the] government. So we would want to go back to that more comprehensive approach.
“I think that with regard to this particular rule, the concern that we have—and it may seem trivial but it’s not—so firstly, as I said: Why put it in hard legislation when it’s still an evolving area? The rule is in place, it is being implemented; there may be some teething problems here and there. I think the regulators must have the flexibility to deal with those issues, and I would add that, given that this clause, if you remember, Chair, in 2017 […], you had all the audit companies coming. Yes, they didn’t like this provision, and my fear is that if you’re going to put the clause in, it’s not going to be simply that it then goes back to the NA and it would be quickly adopted, it’s a completely new clause. It will, then, I think… all these companies will want to come in. It’s, in a way, stirring a hornet’s nest; they’ll all want to come make comments, and our worry is that—and if we don’t go through that process it may lead to legal challenges to the Bill. And we feel that provisions that are there now which is really empowering IRBA to take action against all these deviant auditing firms, that that would be delayed and I think our team has explained that, yes, we want this law, as you know, before the elections, and because of time they had to take it out and yes the Bill was put forward (sic). Other things took priority. And it’s not all Treasury’s fault; I don’t want to ever say it’s Parliament’s fault but, you know, the Bill has been there.
“So Chair, I think, for these very pragmatic reasons, I would appeal to Cosatu: We’ve got the mandatory auditing (sic), it doesn’t by itself deal with the problems of the profession. I don’t think we should make this so rigid now as to put it in the Act. […] It is a rule, it takes effect already, and the risk that we’re putting in now to come with a change like this, which will be contested by the auditing firms, because as I said they don’t like this, okay? And I think that you may just slow this down to much more than three months if you go ahead. And having said that, we might open, I think, to push on the panel (sic) of the auditing firms to look at the problem and to work with all key state players who want to put in an input (sic) on how audit processes work and what the incentive structure is around it.”
The Chairperson then opened up the Committee for discussion.
Discussion
Mr Ryder said that he and Mr Momoniat were in “full agreement with each other” and that the latter had made a “compelling argument.” Cosatu’s point “is valid” but that taking a “longer run-up at it” is the “advisable course of action.” He added that “the implementation of this is going to be quite a difficult and tricky area. So I think leaving it in the regulations—certainly for now—is the preferred course of action.”
The Chairperson said that the Committee could discuss the policy issues but needed to be clear about the legal framework, since if the legal framework rules it (i.e. formalising the mandatory rotation of audit rule) out, then clearly it was not practicable, and could only be added to the Committee’s report “at most.”
He asked Adv Jenkins “is it a completely new clause?” And if it is a new clause, “what do we do?” On the other hand, “if it’s not, then presumably it would be treated like any other clause.”
Adv Jenkins said “it’s a new clause” and that he would “err on the side of caution”, although it has been raised a few times in the public hearings. It’s been raised since 2018. It’s been raised in all the public hearings, and in the National Assembly as well as in the Committee, but it has never been in the Bill. It also has not been a policy position “until now when people are saying ‘let’s consider it’, but I think if I needed to give legal advice […] I would say let’s err on the side of caution.”
There were, however, “two sides to this coin”. On the one side are the rules of the National Assembly and whether precedents are being created vis-a-vis the rules (that is, is it being interpreted to extend powers of a committee or “should we rather keep the powers more tightly to the House.” He added “the more important thing […] is the risk we take with challenges if we think ‘but this is nothing new and we can just go ahead’.” In that regard his advice was that the Committee would have to get “some kind of input from companies who didn’t think that this would come into the Bill at all.” The Committee, to be prudent, would have to ask those companies if they wanted to have any input “just to be one hundred per cent sure that we have complied [with] those public participation provisions. So that would be my conservative approach to this, Chair.”
The Chairperson asked him if he was there during the processing of the Bill.
Adv Jenkins replied that he was.
The Chairperson asked whether there were any other stakeholders who commented on the issue when Cosatu had first raised it.
Adv Jenkins said he would speak off the top of his head: “There were people commenting on it; there were (sic) resistance against it—as far as I know—from some of the industries” and said that there were parties saying that “it is a rule already—I don’t know the details”. He added “a lot was said but it is a rule and we can just stick with that. It wasn’t considered to be part of the bill at that stage”.
The Chairperson said: “So Matthew [Mr Parks] there is a formidable problem here. I’ll ask you to come back.” The ANC study group would meet on Thursday (18 February 2021) to consider the issue. If it is ruled out, then there is no need to do anything because “we can just put in our report that this is what we feel. So for those reasons, also, I need to respond to [the] Treasury.”
He agreed that there cannot be regulators and then “hem then in” by being “over-prescriptive.” He did not think that the relationship between Parliament and regulators has to be “so tight”. Otherwise why form regulators? Then Parliament can do everything itself—which of course it cannot do. “So, I agree, in general.” But then there are specific cases where one might want to say “that is too important” and therefore cannot leave it to rules and regulations. He asked whether this was not a case where it is an exception to that general notion of the relationship between the parliamentary committees, Parliament and the regulators. This is the question we need to ask ourselves. “Look at the horrific, heinous activities of auditors over the last ten years, globally but also very much in our own country. They have been complicit in state capture… That they’re going to […] make a noise is typical.”
“If you look at IRBA: they’ve just been dissolved. IRBA was regarded as one of the shining institutions in this country… In my five years on the NA side, they were amongst the better institutions.” IRBA has just been disbanded, but Parliament was not susceptible to disbandment in that way. “And the Minister has just dissolved IRBA, and we still really don’t know why. I mean I don’t know if the NA committees have arranged to have a meeting to find out why and its implications, but IRBA is a bit of a mess in the public domain, with accusations and counter-accusations from what I pick up in the media.” He said to Mr Momoniat that he was not of the view that anyone was under the illusion that the mandatory rotation rule would immediately lead to transformation. “We understood it would be [the] rotation of the Big Four and they will collude if they have to. But at least it’s a step forward. It’s part of an ongoing process of transformation.” Even the DA felt that the auditing sector was a “fundamentally untransformed sector and it has to be transformed and this is like the thin edge of the wedge maybe.”
He did not know what is meant by a “comprehensive approach” [a phrase Mr Momoniat had used]. Sometimes the executive uses this as a way of “deferring” something they do not agree with. He told Mr Momoniat that he said nothing that had convinced him, and that what Mr Momoniat had been talking about was a “long haul.” Just because Treasury wanted to use a “multi-pronged approach” does not mean the Committee should not do what Cosatu had suggested. He maintained that he was not siding with Cosatu purely on ideological grounds, but merely because what they were saying made sense. He would still have supported it no matter who raised it. “I mean I’m driven by ideology and values obviously, but I’m also pragmatic”. He even had disagreements with Cosatu, but could not deny that what they were suggested was reasonable. He has seen before that officials who worked for the executive at times attempt to delay provisions not supported by the executive by saying they would push such provisions through in a future bill. “If it was legally tenable… then we can’t do much, but this answer that the executive official gave… is not compelling, really. It will take years. And given Covid, and given the state of the Cabinet… and [the] Treasury, no doubt, it’s not going to happen immediately. There are many other bills in the pipeline that obviously come before this, so I’m not compelled by that.” “The Financial Matters Amendment Bill came to us very late,” and “were it not for the persistence of the NA we wouldn’t have passed those bills in any committee. In fact, the NA committee was prepared to process the IRBA provisions. It’s on record. It’s the NCOP committee that said… ‘no.’ In fact, there’s nothing to hide, it was in the public domain. But the then NCOP chairperson herself said ‘no, we are not going to process the Financial Matters Amendment Bill because so many bills have come to us from the NA and the term’s about to end on the eve of May 2019 election.” He said “But I agreed with them then and even more now.” The executive had “come very late with the bill.” By saying this he was not speaking about any individual official, but the executive as a whole. His point was that “no blame can be laid to Parliament” for these delays.
On the matter of the 10 year rotation, he said “we’ve discussed this. Frank [Adv Jenkins], we had endless… hearings. I remember, Frank, we had it on a Friday once and so on. Our view as a Committee was: In principle we support[ed] the rotation of auditors at the time. But we had a difficulty with the way IRBA was engaging with the big auditors and others. They were engaging in a way that we felt wasn’t sufficiently necessary, wasn’t sufficiently adequate, let’s put it that way. So we pleaded with them to defer it for three months, and of course we had no power […] to force them to do it.” There were also threats by the Big Four for court action. “But I haven’t seen anything in the media, so Treasury can you tell us: Did they actually go to court? Which is not to say, colleagues, that they will not go to court, now that it’s becoming […] something in the law. Now [that] it’s a difficult ball game. I have no empathy for them, no! I’m not prepared to discuss all of that here. [If] Anybody wants to discuss, they can talk to me offline. No, I don’t have any empathy for them, really […] not after what has opened over the last 10 years. And not after they get away with what they get away with. No! Absolutely not. They are also the reverse side of state capture, many of them. Not all. Not every individual in these companies. Where would we have been—people have asked, and rightly so—had Parliament exercised its oversight role over state capture? Very valid question. I have my own views about what colleagues and ex-colleagues have said in the Zondo Commission. But it is a very valid question, which was raised by ourselves in this Parliament. We’ve said it, about state capture. You can look at the Hansard and so on.”
On the issue of this “comprehensive approach, firstly, I think it resides on two premisses that I don’t necessarily agree with. One, the auditors are capable of being won over through engagements and whether [the] Treasury has got the strength, secondly. It’s not so strong as it was 10 years ago. It’s not taken as seriously by auditors or others, notwithstanding their excellent work by people like [Mr Momoniat] and so on.”
He then recognised Mr Parks.
Mr Parks said he wanted to share the Chairperson’s views on Mr Momoniat who he said was “one of our hardworking, under-appreciated public servants who really does deserve appreciation.” The motivation, for Cosatu here was that it thinks all persons who oppose corruption, be it in Parliament, the Treasury, Cosatu, IRBA, et cetera support this rule. It makes sense for dealing with the “incestuous relationships” and it makes sense for accelerating transformation of wherever we have a “white, male-dominated industry.” Cosatu’s motivation was to enshrine this rule; to give it the weight and the protection that it deserves. This is not new policy. It is just taking existing policy and elevating it, and making sure it is going to be retained and strengthened.
As Cosatu, we can’t afford to take state capture lightly, or even capture in the private sector. Our members are losing their jobs left and right. In the parastatals, in private sector companies, when public servants and other workers have seen their pensions being looted, and there has almost never been any consequence for the auditing companies. At best they might get a slap on the wrist in terms of a fine, but I do not recall any auditor being given “orange overalls by correctional services.” We have seen in the last Committee meeting the explanation by the legal advisors about how easy it is to change the existing [IRBA] rule; that the board can simply sit—as a few individuals—they can then publish in the government gazette for comment; we know very few people read government gazettes, ask for comments and after 30 days the board is empowered to make the change. In other words, within two months they can “delete” the rule with very little public scrutiny. Whereas if you have amended legislation, we all know how exhaustive and extensive it is: from the Department, to Cabinet, to two Houses of Parliament, political parties across the isle, the public participating… it would be much more difficult to delete that mandatory rotation principle in an Act, even if a Minister wanted to do it.
It really is a key transformation tool and we are now 27 years into democracy and we still have this untransformed sector, so it is a useful thing to uplift some of those “incestuous relationships,” to bring competition to the sector, and to advance black auditors who really have been blocked out of these opportunities. If we took the resistance of the sector to the Bill then we would not have this Bill. The public hearings in 2019 and 2020 in the NA, auditing companies opposed the entire Bill, they said “don’t allow the search and seizure, don’t allow access to IRBA, don’t do this, don’t do that.” These are persons with “compromised interests.” If we listened to them, we would have no bill. If the auditing sector felt that the rule itself was dubious constitutionally, then they would have taken it to court long ago. They have not done so. “Chair, we’re not sure, but what is the argument for opposing the Bill now?” If we support the IRBA rule—and all of us do—we have not heard any substantive policy reason for not formalising it.
On the issue of delays, he maintained, the government is being “a little bit disingenuous” with all due respect. What is the point for organisations and the public to raise issues in public hearings if they are not going to be even responded to, or at least to say it does not make sense and then dismiss it? That would be fine. But it was raised in 2019, not just by ourselves, but also by the former CEO of IRBA and others. We raised it again last year in the National Assembly hearings. If the government does not like it, they can just simply ignore it, “it really makes it difficult to know to what extent they actually take public hearings sufficiently [seriously].” In 2019 it was given to the Treasury to undertake further consultations on the Bill. Colleagues felt that it was “quite complicated” and that it could not be used. If the government has not done that, then why should we then be held back as a consequence? We do want to see the Bill being passed quickly; we do not think inserting a simple clause could delay the bill in perpetuity. It would be a lot quicker to add three months than to simply say let's wait five years for another bill. For Cosatu, going forward, it is not that complicated an issue. We would agree with the legal advisor [Mr Jenkins] about going the extra mile and making sure all the rules and constitutional prescripts for public participation are covered and getting a mandate from the House. We will even support and welcome additional public hearings on the amendment to make sure everyone feels fully included. That would only help to enrich the issue.
There is legal precedent for this. As the Treasury officials had pointed out quite helpfully, in the Companies Act, there is already a five year rotation rule for auditors within an auditing firm to rotate every five years. So, firstly, you have a legal precedent that has never been challenged in court; we have not had any resistance to that from the Treasury. But also there are limitations to that, since it only speaks to individual auditors within an auditing firm. Yes, it is useful, but it does not address the fundamental “conflict of interest” of a firm which wants to protect profit versus its fiduciary duty to hold a company’s books to account.
Lastly, at the risk of stating the obvious, as Cosatu and its members, we are exhausted by the never-ending spectacle of corruption across society, the government, and the private sector. We really want to see the government and Parliament taking clear, firm and decisive action on it. Some of that does require legislative intervention. Simply to give lip-service or platitudes that Cosatu is attacking it does not hold weight when you have public servants who are now facing a reality of four years of no wage increase. We have workers in SAA and SA Express going home with no jobs. The economy is in a “huge crisis” because of it. So for Cosatu, we really want to see decisive action, and it is a point of frustration for us that whenever an issue is raised concerning intervention on corruption, we are also told “no, that’s not necessary, it’s too extreme, we can’t do it.” But we all know that the consequences of us being too soft of corruption.
Mr Momoniat said that he did not think the Committee and the Treasury differed “at all”. This was just a “sort of tactical issue about whether we put it in the Bill.” What we have said is that “we do think that there needs to be a deeper process which shouldn’t take forever.” It should be a quicker process to identity problems in audit processes and although the Bill does deal with some of the issues” by making auditors much more accountable than they have been, including them having to answer for what happened between 2010 and 2017 when we got clean audits for Eskom, for Danel and for SAA. I do not know why we paid those auditors. They have to pay back the money for their failure to see what was in newspapers. So we agree on all of these things and we should get them done. I think what we are saying is that the Bill as it is does strengthen IRBA’s powers, but it can have much tougher sanctions. In my view it does not go far enough, but let’s focus on it today. What we are saying is that the mandatory rotation is there now, it is a rule, so I am not sure what problem we are trying to solve by putting it into even harder legislation, and I think that one does need the discretion of IRBA where there are some teething problems that may arise. So give them the space. The next two to three years will be critical as one has rotation; we will see how it works. They need to be able to resolve small issues that arise without moving away from the principle. The principle, I think, has been established.
The point you made, he said to the Chairperson, that the Treasury is not strong, or is weaker than what it was—“I don’t really buy that. That this is a story that seems popular in the press today.” I can tell you that I think the Treasury continues to have a lot of expertise; there are very hard-working colleagues. Yes, the times are tougher, but that is a topic for another day. I just thought I should mention that the Treasury is still very skilled at playing the role it needs to play. The auditing act is a very old-style regulatory approach. If you look at the way we moved on the Twin Peaks system where we really sharpened the powers of the regulators to give them much more powers was quite a different approach. The more fundamental reform for the audit profession is to modernise the approach in the law. These changes do not do that; these changes just deal with the urgent problems that we need to deal with now, such as when auditors are “really not doing their jobs and in fact deliberately looking the other way.”
Adv van Schoor said that that Ms Bailey had details about the investigation “regarding the rule and Treasury is not involved.”
Ms Bailey said that there is currently litigation in progress. It commenced in 2018. The applicants are seeking an order to review and set aside or declare unlawful the introduction of the rule relating to Mandatory Audit Firm Rotation (MAFR). The current status is that IRBA filed a full set of records and answering affidavit and is currently awaiting the applicant’s replying affidavit.
The Chairperson asked in which court this was taking place.
Ms Bailey said she did not know.
Ms Motsepe said that it was in the High Court in Pretoria. It was instituted in 2018.
The Chairperson asked when it would be heard.
Ms Motsepe said that at this present stage it would most likely not be heard in the current financial year, due to the ongoing formalities which need to first be observed before a court date can be given.
The Chairperson said “that’s three years later.”
Ms Motsepe said “probably later next year.”
The Chairperson exclaimed “Oh my God,” and then asked if any other member wanted to speak.
Mr Ryder said that Mr Parks ended up arguing against “referring this thing back with the new clause.” As he said, this is not something new. “It’s merely elevating it from a rule into legislation. In other words, it already exists. Now I haven’t heard a compelling argument why it needs to be elevated. It’s something that’s being tried and tested and implemented slowly. There’s massive benefit to that because as Mr Momoniat pointed out, the implementation of this is going to be incredibly difficult, especially when you get to sizable corporations that are employing two of the Big Four. What you’re going to have is that as soon as you start introducing legislation like this, noting that there are the Big Four, and people have to use two of them at a time, that’s kinda guaranteeing the other Big Two business coming forward. So it’s creating an anti-competitive situation where what you’ll find is that auditing fees are going to start rocketing because people know […] ‘it does matter what we do, or what we charge, we have to be used. […] Our turn will come.’ You know, this famous thing of ‘it’s our turn to eat.’ That’s going to now (sic) apply to the auditing profession as well. That’s something that we really should not be part of. So elevating into legislation at this stage—I think we need a longer, slower run at this and to just throw this out there as a kind of an intervention of the NCOP [and] a section 75 at the end the process, without having good due diligence into the implications of what our amendment is going to do is going to be quite dangerous. I do think that taking a slower, measured approach, keep it in the rules for now, letting people know ‘guys this is coming, we may make this part of the next bill when it comes through’ so that people are able to adapt and the industry is able to adapt to this thing over time and do it properly. What [Mr Parks] also said is that [inaudible] and that is part of what this Bill in its present form is trying to achieve. It’s trying to improve the disciplinary processes, trying to improve the ability of IRBA to enforce their standards and so on onto auditors. So, by pushing this thing back—because, look, we’re gonna have to have a draft clause drawn up, we’re gonna then have to put it out for public participation, it’s going to have to go back to the NA, blah blah blah—this is going to take us a good few months to process the amendment. So, for that to happen, we [are] going to have to be stalling the implementation of these better disciplinary processes that IRBA so desperately needs. And those disciplinary processes are things that they’ve come to us and said ‘people are processes are there, they [are] working okay, but we need stronger disciplinary processes’ and if you look at what clauses we went through in the clause-by-clause reading, it was the disciplinary issues that formed the majority of it. So what I’m say is, let’s get this Bill out there, let’s investigate properly what the implications of the mandatory rotation is going to be and see if it is actually implementable, because trying to put in a clause that’s not implementable, that’s going to cause this Act to be challenged as soon as it’s printed is then going to stymie other processes of IRBA which are not going to help the bigger picture of things (sic). So, you know, rotation auditors is good practice. Let’s be honest, it is good practice and I think that’s generally agreed and accepted. The fact is that sometimes there are compelling reasons for keeping auditors, but that’s why you also have things in the bigger corporations like audit committees, independent audit committees, et cetera, et cetera. So taking too quick a run at this, Chair, I think is a little bit heavy-handed. There’s validity to the concept, but it needs further investigation before we go ahead and pull the trigger.”
The Chairperson said that “many members are not here, so obviously we’re unable to conclude the matter.” The Committee had already spent an hour on the topic, and several members whose views were important were not present. He therefore doubted there was any value in taking the matter forward. The Committee could therefore not vote on the Bill the coming Thursday (18 February 2021), “so that meeting is called off.” He said that “we’ll see when we come back to this Bill, because next week we have the budget process but we will not delay finalising this Bill until the budget is over, obviously. Today what we’re going to do is just finish tying up this policy matter is look at them clause-by-clause and adopt them informally. So the only issue outstanding is to finalise this policy issue and then vote formally on the Bill. So we’re talking about a half an hour meeting some time, next week or the week after, so we’ll have done our part and take it to the House.”
He asked Adv Jenkins for clarity. “Since we cannot really, strictly speaking—you know you explained to us [that] what we do is write a report to Parliament requesting the NA committee to consider our proposed amendment, and we can’t actually amend the Bill—put our proposed amendments in our report to the House to refer to the NA, right (sic)? If I’ve got that right—first I want to ask you, who will have these public hearings? Let’s say we decide on adopting this approach or making it legislative, the mandatory rotating… who would actually have to have the hearings? Because we can have the hearings on our side, Frank. But what can we do? Do we just refer it to the NA? And the NA will find it difficult to go by what we’ve done unless they themselves have had hearings, so firstly could we not insert in the report—let’s say we do decide on this, I’m just looking at all possibilities, Frank, so we don’t come back to you, and when we meet as the ANC study group we can take our decision, [inaudible] oblivious to the consequences, legal and regulatory and other (sic). The question I’m asking is: Do we have to have the public hearings or can we just write in the report that we’ve feel it should be made legally necessary, this mandatory rotation, and we request that the NA take this forward? They have to have the public hearings. So the first point to you is: Do we have to have public hearings or do they? And if we do have public hearings it still means that they would have to have public hearings. The next point is: I just want to observe that it’s three years later—as I was saying to our colleagues from IRBA with the legal advisor—it’s 2021, they went to court in 2018 with the auditors, so we won’t know the outcome of this until next year. My understanding is that the auditors were in the NA process. Needless to say it seems that they opposed it. If [the] Treasury is saying it’s a tactical issue, it does maybe strengthen Cosatu’s argument that it’s a tactical issue, so it’s a difference in tactics [inaudible] principal or value. Often adversaries in debate say ‘oh, it’s a tactical issue’ when often it’s not, but I’m not saying it applies to this case.”
“I don’t know why [the] Treasury keeps saying ‘What is the problem that you are seeking to resolve by making this prescriptive?’ It’s been set out very clearly by [Mr Parks], so I don’t know why [the] Treasury repeats this. What you [are] basically saying is that you don’t agree this is the way to solve the problem. You can’t ask ‘What is the problem you are trying to address here?’ Because they have been very clear, and so have I, actually. And if we don’t understand each other, well, unfortunately, there’s nothing more I can do certainly, and I don’t know how much more Cosatu can do. So that’s like a bewildering question, Momo [referring to Mr Momoniat]. Then, I didn’t mean to say [the] ‘Treasury is limp and listless, and pathetically weak.’ What I’m trying to say is [that] the credibility of [the] government as a whole—our government—has gone down, including with the private sector (sic). And [the] Treasury, like every other department doesn’t carry the weight, understandably, that it previously did. It’s got nothing to do with the individuals who work ever so hard—no-one is saying that, even Cosatu says that—so that’s the point I’m making: That I find it hard to believe that 15 years ago [the] government and [the] Treasury were not more credible. [Inaudible] of social forces, civil society, and also the private sector and the unions well [inaudible] the unions because of the ideological divergence—well, Cosatu, at least, I don't know about other unions so much. Dennis, with due respect, I don’t understand what you [are] saying but let’s forget it, right? Because, you know, you [are] saying ‘let’s explore how this thing—’ well, I don’t know how you need to explore, like… what do you need to do? If we were to do this, if we take the approach you asked, it could apply to every major clause of a bill, and especially one that’s transformative. So, what you are saying about this particular proposal, could apply to every clause, actually, particularly those which are far reaching and transformational.”
“Insofar as you raise questions about, you know, ‘it’s our time to eat, and look what it will mean’ and so on, those questions came up, by the way, in 2017, I think it was, or 2018, when we looked at the rules. But we [are] not going to agree, and on the whole my own view—and it’s only mine—the argument for including it in the Bill seems to me stronger than the argument for leaving it to a comprehensive process […] that’s my view. But we will see how things go.”
“The only difficulty I have—and as a Chairperson I have to be, perhaps the onus is more on the Chair and the secretary and the legal authorities to ensure that we are legally and constitutionally, in terms of parliamentary rules, sound—so, Frank [referring to Adv Jenkins], you are making a big decision for me, at least, because of you, personally, I might have to give in and say ‘okay, we can’t do it, and write a strong report to Parliament and take the issue up in the debate but, so, frankly, you know, for me, the most constraining part of wanting to persuade my comrades in the ANC to implement this in the law is your argument, Frank, about the issues. I really plead with you that we exchange outside this [meeting], offline, and let’s see if I understand you better because, you know, we have to be clear that this is a completely new thing, and if need be, Frank, we will ask you to write a one-pager or something so that—and you may have to do that, so we need to give you time to mull over what you say and we won’t put you under enormous pressure. So, I don’t think, colleagues, that as a point going forward here, each of us has had a turn, so to speak, and I don’t see [that] we’re going to find a resolution here.”
“So may I suggest we move on from here, with the understanding that we’re going to go through clause-by-clause, unless people want to keep the debate open?”
He did not see a point in continuing the debate for now, and wanted to move on to the clauses, mull over what the Committee had been discussing, and arrange to meeting perhaps in the upcoming week Thursday or the following week to finalise the matter. One reason was that important members were not present. One member voiced agreement.
He allowed non-Committee members to exit the meeting. He asked Adv Jenkins if he wanted to say anything.
Adv Jenkins said that he was asked a few things pertaining to the Bill. Firstly, to check cross-referencing with other provisions in the Act and said “those are all good.” Also, the cross-referencing with the Companies Act, and said “that was all good.” He was also requested to check whether the “seizure and the warrant that underpins those procedures when it’s non-voluntary, whether that is consistent with the FICA Amendment Bill, but not the 2015 one, the 2016 one which we reconsidered after the President at the time referred it back, and we had senior counsel, Jeremy Gauntlett, making some input to even strengthen that provision beyond what the Constitutional Court guided Parliament when those provisions [inaudible]. So, the Bill before the Committee, Chairperson, is the one that follows that 2016 reconsidered or resubmitted Bill that came back from the President, so there’s no problem with that. It’s not a carbon copy but it is in substance one hundred per cent the same. Then I was also just asked to look at whether the document that [the] Treasury is presenting—which is not a consolidated Act—whether that is consistent with the B-version of the Bill, and it is. There was a mistake the last time with that (sic). I think that’s more procedural, Chair. So that’s all there. Chair, just on the question—I’ll just be one minute and I hope I’m not taking you back. Of course, if the Committee wants to do something to change the law, then we have to change the law here for the NA to reconsider it. If we just put something in the report, of course it goes straight to the President, [it] doesn’t go back to the National Assembly. If we don’t propose amendments to the Bill—if we just put it in a report, then it will not go back to the NA for another decision there, and then the public participation… Chair if that is the route the Committee wants to go then that will have to be done in the NCOP first when it goes to the NA. And the NA can decide whether they would want to look at what the NCOP did, or redo one or two things, Chair. You know how people would lobby to get a second bite of the cherry. So that’s my input.”
The Chairperson said, “You know, Frank, I don’t want to burden you with too much of work (sic); could you do us a one/two pager on this issue? We will attach it to our report. That might help the NA. In any case, let’s say we decide we want this, but we can’t actually implement it for whatever reason, right, for the legal and other constraints. Or, we want it and these are the constraints we have and so on (sic). Whatever the outcome, if it goes to the NA in that form or other they gonna come back to you, Frank to ask you for legal advice. So you’ll have to do that. So we can talk offline.”
The Committee moved straight to the Bill and its clauses but said the Committee would not go through it at the slow pace it went through it last week. The Committee was to commence “informally adopting” it. In fact, the Chairperson did not do a readout of the Bill clause-by-clause, but merely asked members if they had any disagreements or objections as he went through only the numbering (and not the substance) of each clause. There were no objections or disagreements.
The Chairperson reminded members that they were not meeting on Thursday (18 February 2021) and would seek to meet the following week Thursday (25 February 2021) or another appropriate date instead.
The Chairperson adjourned the meeting.
The Select Committee on Finance was joined by the following officials:
● Ms Karen Maree (Acting Accountant-General, National Treasury)
● Adv Empie van Schoor (Chief Director: Legislation, National Treasury)
● Adv Ailwei Mulaudzi (Director: Fiscal and Inter-governmental Legislation, National Treasury)
● Ms Jillian Bailey (Director: Investigations, IRBA)
● Ms Rebecca Motsepe (Director: Legal, IRBA)
● Mr Matthew Parks (Deputy Parliamentary Coordinator, Cosatu)
● Adv Frank Jenkins (Senior Parliamentary Legal Advisor)
● Mr Ismail Momoniat (Deputy Director-General: Tax and Financial Sector Policy, National Treasury)
The Chairperson welcomed all attendees.
Apologies were noted.
The Chairperson said the Committee would be dealing with the Audit Profession Amendment Bill (“Bill”), and that there was only one policy issue outstanding, namely, the mandatory audit rotation rule, which is an IRBA policy. The issue concerns whether the IRBA policy should be added to the Bill in order to be made legislation.
The Chairperson indicated that he had asked each party to come to the Committee with their party positions. The ANC is meeting this week in their study group to decide on this. In the meantime, he wanted the Committee to get clarity on the issue. If there was any other policy issue the Committee could look at that also, after which it would proceed to consider the Bill clause-by-clause. He had now read the Bill, as he advised members last week, and that he had “exchanged” with Adv Jenkins the preceding day, who had advised the Chairperson that he was “fine with the amendments”.
He then asked members if there were any other policy issues that they wished to discuss.
Mr D Ryder (DA, Gauteng) said the point he made in the preceding meeting was that there needed to be more oversight over the Minister [of Finance] and his appointment of the IRBA (“Board”). However, he did not see this issue as something which should hold the current Bill back. This was a “good” Bill and it was a good idea to proceed with it, but the oversight issue was something he wished for the Committee to keep at the back of its mind.
The Chairperson said he did not have a problem with that and what Mr Ryder had been saying was something the Committee needed to take into account. However, the “usual debate will arise” concerning the “right balance between oversight and executive room to operate swiftly.” It depends on what the oversight role of Parliament should be and that the Committee should think about that. “Sometimes the executive needs to move swiftly and they can’t wait for parliamentary approval because Parliament might be in recess, especially between early December and the late January period.” He added that somehow Parliament and the executive usually find the right compromises.
He reminded members that he had asked Cosatu to write up their position and then present it to the Committee today. He then recognised Cosatu to give its brief submission, which had already been circulated to Committee members.
Cosatu’s Submission:
Mr Parks thanked members for giving Cosatu a chance to raise its additional thoughts and comments in its written follow-up to the Committee (see 9 February 2021 Cosatu submission).
On the required amount of meetings for the Board per annum, this issue was resolved. Treasury had assisted and it seemed that there was “consensus”. Cosatu was “happy in that regard”.
On the mandatory rotation of auditing firms, he reminded members that this is a rule already provided for by IRBA. It was introduced by IRBA to try to accelerate transformation in the sector (which is a “heavily untransformed sector”), but also to address the “inherently compromised cozy relationships at times” between companies and audit firms, some of whom have had contracts with companies for eighty years. There is also the need to remove the auditing firms’ profit relationships with companies, and “their fiduciary duty to provide oversight on the auditing format.” This is a matter which is important to the entire country and to workers. We have seen the consequence of corruption in state-owned enterprises (SOEs), other entities, municipalities and the private sector, like Steinhoff, among others. He said Cosatu was “very keen to see that progressive rule of IRBA being elevated into a requirement of law.” It was a “simple thing” because it is already an existing practice; there would be no destruction to the sector. This is because they have already “geared themselves for the 10 year auditing rotation rule.” There would be no administrative burden to IRBA since it is already its policy. For Cosatu, he added, “it is much more comforting to see it in law because [of] the stringent process to amendment laws” and its related delays. Whereas, if it simply remains a rule of IRBA “it wouldn’t take a rocket scientist…auditing firm which wants to change it to offer a board member a lucrative incentive: cash—whatever—has not been unheard of”.
Cosatu had recently proposed that the 10 year rule was too cumbersome; it is too long and should be reduced to five years. There was a useful response from colleagues at the Treasury to say “perhaps insert in the Bill that the firms have to be rotated every ten years but to equally empower the Minister to reduce that period through regulation to a lower period.” That would be a “fair compromise” in Cosatu’s view. The “most critical thing” is to have the 10 year rotation rule being inserted in the law, and that Cosatu would be happy if the Minister was empowered to “look at a lower period as needed, through regulation (sic).”
Cosatu was not convinced by the arguments from colleagues in the government about the need not to look into this matter at the present but rather to look at it “down the road.” Cosatu had experienced those kinds of discussion previously, and he had always been disappointed by them. He added that Committee members would know that bills take at least five years [to pass]. There have been legislation that have been “sitting for years, despite even the President asking for it to be accelerated” as well as members of Parliament.
When Cosatu participated in the 2019 public hearings, its understanding was that the Bill and components of the Financial Matters Amendment Bill were removed to allow for further discussion and consultation. If colleagues in the government did not do that, that cannot be an excuse to kick the can down the road again. It is a “very straight forward amendment”. It is a matter of “inserting one clause and a sub-clause” into the Bill. It can easily be done by Parliament’s legal advisors. If a House mandate is required to insert it, and even to hold an additional small public hearing to go the extra mile for consultation, then Cosatu would be “happy to support that.” But that would be a very “minor delay,” and would take “up to three months at most, as compared to doing a new bill which could take up to five years”.
Cosatu believes the “NCOP has the full Constitutional competence and mandate” to amend legislation as needed; it does not require the permission or indulgence of the Cabinet—Parliament is a not a “sub-committee of [the] Cabinet or [the] government.”
Discussion
The Chairperson said Mr Parks had covered the main points but asked for clarity: “Why are you mentioning [that] the NCOP can make amendments and don’t have to submit [the Bill] to Cabinet for approval? Who said that? What’s the point of that? Obviously we know that. Why do you raise that?”
Mr Parks said “I think there was a comment by Treasury colleagues in the last meeting which indicated that if there was an amendment to the Bill it would have to go to the Department [of Finance] for its own internal processes, the Cabinet, et cetera” and added that “we hoped that we had misunderstood that comment, but if we had heard it correctly, it would be a worrying comment […] to somehow merge the spheres of responsibility between Parliament and the executive. For us, it is very clear: Parliament has got full legislative authority”.
The Chairperson explained that he does not think that was said [by any Treasury official] but that if it was said “it was absurd” and that he “would not entertain it.” If it was said, he had not picked it up. The Chairperson then dismissed it: “Maybe it was said. But let’s not take that seriously. That was probably a joke or something.” What he did recall was that if the clause was introduced it would have delayed the process in the Cabinet, since it would need to, among other things, gazette it. The Chairperson took umbrage with this point and said he did not want to entertain it further.
The Chairperson then recognised the Treasury for their response.
Treasury’s Response:
Mr Momoniat said that “we don’t have a problem with mandatory audit rotation. And I’m not sure what problem Cosatu is trying to solve, because it is already a rule and it applies. I think that, generally, we will have a problem where we take rules and so on from regulators […] a lot of these things are set by standards—evolving standards—happening overseas and yes, sometimes we are ahead of the curve, and once it’s a rule it gets implemented, and it is being implemented. So, I’m not sure what value there is to put it into […] an Act of Parliament, because that also carries some dangers. The danger being that when we want to change a rule, depending on how the wording is in the Act, it may cause problems. I think that, given that this rule has been adopted by IRBA, and is being implemented, there will be some teething problems […] for example: For the major banks we have dual auditors, not one, two; and how do you rotate? Because the reality is that with most listed companies, they’re still going to rotate amongst the Big Four, so the kind of hold that the Big Four has over the audit industry is a world-wide problem, not just a South African problem.
“Most of our investors are from overseas, but even domestic investors place more reliance—even with all the scandals and all the problems that the Big Four themselves have had—still place more reliance on the Big Four than on other auditors. And all over the world you see lots of initiatives to get the incentives right for these auditing firms. [If] you look at today’s Business Day, you’d see that KPMG has decided not to provide consultancy services to JSE listed companies and similarly Deloitte [is] paying a fine of R1 billion over Steinhoff. Now whether those are sufficient measures is one thing, but just given all the problems in [the] audit process—and I should add that the Treasury is very concerned about a lot of the weaknesses around the audit process and let me just spell them out. Not only potential conflict of the services that they offer to their clients, but also I think that if we look at the corruption that has taken place, for me the role of audit committees, the role of the external auditors, even by the way, I should add, the oversight by the Auditor-General: Why did it not pick up any of the problems from, say, 2010 to 2017? It’s only then that you started getting negative audits, and so on. So, I’m saying that […] we do need to do much more on [the] audit process, and that’s why the Minister announced last year, in the last year’s budget, that he’d be setting up a panel because I do think that more fundamental changes are required. […] And, of course, with Covid, I must admit, that yes, we did not go ahead […] you had all these other priorities that come up (sic). But I do think we need to go back to those. Those reforms mustn’t be delayed, I’d agree with that. I mean I think that we do want a strict regime.
“So Chair, I think, I’m saying why pick on just this? You know, this particular rule by itself is not going to solve all those problems in the audit profession. I think we need a comprehensive approach. We’d be very happy to work with Cosatu and everyone else because I accept that we’re all concerned: If we can’t place reliance on what auditors say, it’s impossible for investors, for the community outside, for [the] government to know that things, when things are going wrong, or that they are going wrong. And in fact […] I would even say that all the audit companies that slap through seven years of corruption, even when it was in the newspapers, if they offered no value for money, they should be paying back the money to the State for all the audits that mislead [the] government. So we would want to go back to that more comprehensive approach.
“I think that with regard to this particular rule, the concern that we have—and it may seem trivial but it’s not—so firstly, as I said: Why put it in hard legislation when it’s still an evolving area? The rule is in place, it is being implemented; there may be some teething problems here and there. I think the regulators must have the flexibility to deal with those issues, and I would add that, given that this clause, if you remember, Chair, in 2017 […], you had all the audit companies coming. Yes, they didn’t like this provision, and my fear is that if you’re going to put the clause in, it’s not going to be simply that it then goes back to the NA and it would be quickly adopted, it’s a completely new clause. It will, then, I think… all these companies will want to come in. It’s, in a way, stirring a hornet’s nest; they’ll all want to come make comments, and our worry is that—and if we don’t go through that process it may lead to legal challenges to the Bill. And we feel that provisions that are there now which is really empowering IRBA to take action against all these deviant auditing firms, that that would be delayed and I think our team has explained that, yes, we want this law, as you know, before the elections, and because of time they had to take it out and yes the Bill was put forward (sic). Other things took priority. And it’s not all Treasury’s fault; I don’t want to ever say it’s Parliament’s fault but, you know, the Bill has been there.
“So Chair, I think, for these very pragmatic reasons, I would appeal to Cosatu: We’ve got the mandatory auditing (sic), it doesn’t by itself deal with the problems of the profession. I don’t think we should make this so rigid now as to put it in the Act. […] It is a rule, it takes effect already, and the risk that we’re putting in now to come with a change like this, which will be contested by the auditing firms, because as I said they don’t like this, okay? And I think that you may just slow this down to much more than three months if you go ahead. And having said that, we might open, I think, to push on the panel (sic) of the auditing firms to look at the problem and to work with all key state players who want to put in an input (sic) on how audit processes work and what the incentive structure is around it.”
The Chairperson then opened up the Committee for discussion.
Discussion
Mr Ryder said that he and Mr Momoniat were in “full agreement with each other” and that the latter had made a “compelling argument.” Cosatu’s point “is valid” but that taking a “longer run-up at it” is the “advisable course of action.” He added that “the implementation of this is going to be quite a difficult and tricky area. So I think leaving it in the regulations—certainly for now—is the preferred course of action.”
The Chairperson said that the Committee could discuss the policy issues but needed to be clear about the legal framework, since if the legal framework rules it (i.e. formalising the mandatory rotation of audit rule) out, then clearly it was not practicable, and could only be added to the Committee’s report “at most.”
He asked Adv Jenkins “is it a completely new clause?” And if it is a new clause, “what do we do?” On the other hand, “if it’s not, then presumably it would be treated like any other clause.”
Adv Jenkins said “it’s a new clause” and that he would “err on the side of caution”, although it has been raised a few times in the public hearings. It’s been raised since 2018. It’s been raised in all the public hearings, and in the National Assembly as well as in the Committee, but it has never been in the Bill. It also has not been a policy position “until now when people are saying ‘let’s consider it’, but I think if I needed to give legal advice […] I would say let’s err on the side of caution.”
There were, however, “two sides to this coin”. On the one side are the rules of the National Assembly and whether precedents are being created vis-a-vis the rules (that is, is it being interpreted to extend powers of a committee or “should we rather keep the powers more tightly to the House.” He added “the more important thing […] is the risk we take with challenges if we think ‘but this is nothing new and we can just go ahead’.” In that regard his advice was that the Committee would have to get “some kind of input from companies who didn’t think that this would come into the Bill at all.” The Committee, to be prudent, would have to ask those companies if they wanted to have any input “just to be one hundred per cent sure that we have complied [with] those public participation provisions. So that would be my conservative approach to this, Chair.”
The Chairperson asked him if he was there during the processing of the Bill.
Adv Jenkins replied that he was.
The Chairperson asked whether there were any other stakeholders who commented on the issue when Cosatu had first raised it.
Adv Jenkins said he would speak off the top of his head: “There were people commenting on it; there were (sic) resistance against it—as far as I know—from some of the industries” and said that there were parties saying that “it is a rule already—I don’t know the details”. He added “a lot was said but it is a rule and we can just stick with that. It wasn’t considered to be part of the bill at that stage”.
The Chairperson said: “So Matthew [Mr Parks] there is a formidable problem here. I’ll ask you to come back.” The ANC study group would meet on Thursday (18 February 2021) to consider the issue. If it is ruled out, then there is no need to do anything because “we can just put in our report that this is what we feel. So for those reasons, also, I need to respond to [the] Treasury.”
He agreed that there cannot be regulators and then “hem then in” by being “over-prescriptive.” He did not think that the relationship between Parliament and regulators has to be “so tight”. Otherwise why form regulators? Then Parliament can do everything itself—which of course it cannot do. “So, I agree, in general.” But then there are specific cases where one might want to say “that is too important” and therefore cannot leave it to rules and regulations. He asked whether this was not a case where it is an exception to that general notion of the relationship between the parliamentary committees, Parliament and the regulators. This is the question we need to ask ourselves. “Look at the horrific, heinous activities of auditors over the last ten years, globally but also very much in our own country. They have been complicit in state capture… That they’re going to […] make a noise is typical.”
“If you look at IRBA: they’ve just been dissolved. IRBA was regarded as one of the shining institutions in this country… In my five years on the NA side, they were amongst the better institutions.” IRBA has just been disbanded, but Parliament was not susceptible to disbandment in that way. “And the Minister has just dissolved IRBA, and we still really don’t know why. I mean I don’t know if the NA committees have arranged to have a meeting to find out why and its implications, but IRBA is a bit of a mess in the public domain, with accusations and counter-accusations from what I pick up in the media.” He said to Mr Momoniat that he was not of the view that anyone was under the illusion that the mandatory rotation rule would immediately lead to transformation. “We understood it would be [the] rotation of the Big Four and they will collude if they have to. But at least it’s a step forward. It’s part of an ongoing process of transformation.” Even the DA felt that the auditing sector was a “fundamentally untransformed sector and it has to be transformed and this is like the thin edge of the wedge maybe.”
He did not know what is meant by a “comprehensive approach” [a phrase Mr Momoniat had used]. Sometimes the executive uses this as a way of “deferring” something they do not agree with. He told Mr Momoniat that he said nothing that had convinced him, and that what Mr Momoniat had been talking about was a “long haul.” Just because Treasury wanted to use a “multi-pronged approach” does not mean the Committee should not do what Cosatu had suggested. He maintained that he was not siding with Cosatu purely on ideological grounds, but merely because what they were saying made sense. He would still have supported it no matter who raised it. “I mean I’m driven by ideology and values obviously, but I’m also pragmatic”. He even had disagreements with Cosatu, but could not deny that what they were suggested was reasonable. He has seen before that officials who worked for the executive at times attempt to delay provisions not supported by the executive by saying they would push such provisions through in a future bill. “If it was legally tenable… then we can’t do much, but this answer that the executive official gave… is not compelling, really. It will take years. And given Covid, and given the state of the Cabinet… and [the] Treasury, no doubt, it’s not going to happen immediately. There are many other bills in the pipeline that obviously come before this, so I’m not compelled by that.” “The Financial Matters Amendment Bill came to us very late,” and “were it not for the persistence of the NA we wouldn’t have passed those bills in any committee. In fact, the NA committee was prepared to process the IRBA provisions. It’s on record. It’s the NCOP committee that said… ‘no.’ In fact, there’s nothing to hide, it was in the public domain. But the then NCOP chairperson herself said ‘no, we are not going to process the Financial Matters Amendment Bill because so many bills have come to us from the NA and the term’s about to end on the eve of May 2019 election.” He said “But I agreed with them then and even more now.” The executive had “come very late with the bill.” By saying this he was not speaking about any individual official, but the executive as a whole. His point was that “no blame can be laid to Parliament” for these delays.
On the matter of the 10 year rotation, he said “we’ve discussed this. Frank [Adv Jenkins], we had endless… hearings. I remember, Frank, we had it on a Friday once and so on. Our view as a Committee was: In principle we support[ed] the rotation of auditors at the time. But we had a difficulty with the way IRBA was engaging with the big auditors and others. They were engaging in a way that we felt wasn’t sufficiently necessary, wasn’t sufficiently adequate, let’s put it that way. So we pleaded with them to defer it for three months, and of course we had no power […] to force them to do it.” There were also threats by the Big Four for court action. “But I haven’t seen anything in the media, so Treasury can you tell us: Did they actually go to court? Which is not to say, colleagues, that they will not go to court, now that it’s becoming […] something in the law. Now [that] it’s a difficult ball game. I have no empathy for them, no! I’m not prepared to discuss all of that here. [If] Anybody wants to discuss, they can talk to me offline. No, I don’t have any empathy for them, really […] not after what has opened over the last 10 years. And not after they get away with what they get away with. No! Absolutely not. They are also the reverse side of state capture, many of them. Not all. Not every individual in these companies. Where would we have been—people have asked, and rightly so—had Parliament exercised its oversight role over state capture? Very valid question. I have my own views about what colleagues and ex-colleagues have said in the Zondo Commission. But it is a very valid question, which was raised by ourselves in this Parliament. We’ve said it, about state capture. You can look at the Hansard and so on.”
On the issue of this “comprehensive approach, firstly, I think it resides on two premisses that I don’t necessarily agree with. One, the auditors are capable of being won over through engagements and whether [the] Treasury has got the strength, secondly. It’s not so strong as it was 10 years ago. It’s not taken as seriously by auditors or others, notwithstanding their excellent work by people like [Mr Momoniat] and so on.”
He then recognised Mr Parks.
Mr Parks said he wanted to share the Chairperson’s views on Mr Momoniat who he said was “one of our hardworking, under-appreciated public servants who really does deserve appreciation.” The motivation, for Cosatu here was that it thinks all persons who oppose corruption, be it in Parliament, the Treasury, Cosatu, IRBA, et cetera support this rule. It makes sense for dealing with the “incestuous relationships” and it makes sense for accelerating transformation of wherever we have a “white, male-dominated industry.” Cosatu’s motivation was to enshrine this rule; to give it the weight and the protection that it deserves. This is not new policy. It is just taking existing policy and elevating it, and making sure it is going to be retained and strengthened.
As Cosatu, we can’t afford to take state capture lightly, or even capture in the private sector. Our members are losing their jobs left and right. In the parastatals, in private sector companies, when public servants and other workers have seen their pensions being looted, and there has almost never been any consequence for the auditing companies. At best they might get a slap on the wrist in terms of a fine, but I do not recall any auditor being given “orange overalls by correctional services.” We have seen in the last Committee meeting the explanation by the legal advisors about how easy it is to change the existing [IRBA] rule; that the board can simply sit—as a few individuals—they can then publish in the government gazette for comment; we know very few people read government gazettes, ask for comments and after 30 days the board is empowered to make the change. In other words, within two months they can “delete” the rule with very little public scrutiny. Whereas if you have amended legislation, we all know how exhaustive and extensive it is: from the Department, to Cabinet, to two Houses of Parliament, political parties across the isle, the public participating… it would be much more difficult to delete that mandatory rotation principle in an Act, even if a Minister wanted to do it.
It really is a key transformation tool and we are now 27 years into democracy and we still have this untransformed sector, so it is a useful thing to uplift some of those “incestuous relationships,” to bring competition to the sector, and to advance black auditors who really have been blocked out of these opportunities. If we took the resistance of the sector to the Bill then we would not have this Bill. The public hearings in 2019 and 2020 in the NA, auditing companies opposed the entire Bill, they said “don’t allow the search and seizure, don’t allow access to IRBA, don’t do this, don’t do that.” These are persons with “compromised interests.” If we listened to them, we would have no bill. If the auditing sector felt that the rule itself was dubious constitutionally, then they would have taken it to court long ago. They have not done so. “Chair, we’re not sure, but what is the argument for opposing the Bill now?” If we support the IRBA rule—and all of us do—we have not heard any substantive policy reason for not formalising it.
On the issue of delays, he maintained, the government is being “a little bit disingenuous” with all due respect. What is the point for organisations and the public to raise issues in public hearings if they are not going to be even responded to, or at least to say it does not make sense and then dismiss it? That would be fine. But it was raised in 2019, not just by ourselves, but also by the former CEO of IRBA and others. We raised it again last year in the National Assembly hearings. If the government does not like it, they can just simply ignore it, “it really makes it difficult to know to what extent they actually take public hearings sufficiently [seriously].” In 2019 it was given to the Treasury to undertake further consultations on the Bill. Colleagues felt that it was “quite complicated” and that it could not be used. If the government has not done that, then why should we then be held back as a consequence? We do want to see the Bill being passed quickly; we do not think inserting a simple clause could delay the bill in perpetuity. It would be a lot quicker to add three months than to simply say let's wait five years for another bill. For Cosatu, going forward, it is not that complicated an issue. We would agree with the legal advisor [Mr Jenkins] about going the extra mile and making sure all the rules and constitutional prescripts for public participation are covered and getting a mandate from the House. We will even support and welcome additional public hearings on the amendment to make sure everyone feels fully included. That would only help to enrich the issue.
There is legal precedent for this. As the Treasury officials had pointed out quite helpfully, in the Companies Act, there is already a five year rotation rule for auditors within an auditing firm to rotate every five years. So, firstly, you have a legal precedent that has never been challenged in court; we have not had any resistance to that from the Treasury. But also there are limitations to that, since it only speaks to individual auditors within an auditing firm. Yes, it is useful, but it does not address the fundamental “conflict of interest” of a firm which wants to protect profit versus its fiduciary duty to hold a company’s books to account.
Lastly, at the risk of stating the obvious, as Cosatu and its members, we are exhausted by the never-ending spectacle of corruption across society, the government, and the private sector. We really want to see the government and Parliament taking clear, firm and decisive action on it. Some of that does require legislative intervention. Simply to give lip-service or platitudes that Cosatu is attacking it does not hold weight when you have public servants who are now facing a reality of four years of no wage increase. We have workers in SAA and SA Express going home with no jobs. The economy is in a “huge crisis” because of it. So for Cosatu, we really want to see decisive action, and it is a point of frustration for us that whenever an issue is raised concerning intervention on corruption, we are also told “no, that’s not necessary, it’s too extreme, we can’t do it.” But we all know that the consequences of us being too soft of corruption.
Mr Momoniat said that he did not think the Committee and the Treasury differed “at all”. This was just a “sort of tactical issue about whether we put it in the Bill.” What we have said is that “we do think that there needs to be a deeper process which shouldn’t take forever.” It should be a quicker process to identity problems in audit processes and although the Bill does deal with some of the issues” by making auditors much more accountable than they have been, including them having to answer for what happened between 2010 and 2017 when we got clean audits for Eskom, for Danel and for SAA. I do not know why we paid those auditors. They have to pay back the money for their failure to see what was in newspapers. So we agree on all of these things and we should get them done. I think what we are saying is that the Bill as it is does strengthen IRBA’s powers, but it can have much tougher sanctions. In my view it does not go far enough, but let’s focus on it today. What we are saying is that the mandatory rotation is there now, it is a rule, so I am not sure what problem we are trying to solve by putting it into even harder legislation, and I think that one does need the discretion of IRBA where there are some teething problems that may arise. So give them the space. The next two to three years will be critical as one has rotation; we will see how it works. They need to be able to resolve small issues that arise without moving away from the principle. The principle, I think, has been established.
The point you made, he said to the Chairperson, that the Treasury is not strong, or is weaker than what it was—“I don’t really buy that. That this is a story that seems popular in the press today.” I can tell you that I think the Treasury continues to have a lot of expertise; there are very hard-working colleagues. Yes, the times are tougher, but that is a topic for another day. I just thought I should mention that the Treasury is still very skilled at playing the role it needs to play. The auditing act is a very old-style regulatory approach. If you look at the way we moved on the Twin Peaks system where we really sharpened the powers of the regulators to give them much more powers was quite a different approach. The more fundamental reform for the audit profession is to modernise the approach in the law. These changes do not do that; these changes just deal with the urgent problems that we need to deal with now, such as when auditors are “really not doing their jobs and in fact deliberately looking the other way.”
Adv van Schoor said that that Ms Bailey had details about the investigation “regarding the rule and Treasury is not involved.”
Ms Bailey said that there is currently litigation in progress. It commenced in 2018. The applicants are seeking an order to review and set aside or declare unlawful the introduction of the rule relating to Mandatory Audit Firm Rotation (MAFR). The current status is that IRBA filed a full set of records and answering affidavit and is currently awaiting the applicant’s replying affidavit.
The Chairperson asked in which court this was taking place.
Ms Bailey said she did not know.
Ms Motsepe said that it was in the High Court in Pretoria. It was instituted in 2018.
The Chairperson asked when it would be heard.
Ms Motsepe said that at this present stage it would most likely not be heard in the current financial year, due to the ongoing formalities which need to first be observed before a court date can be given.
The Chairperson said “that’s three years later.”
Ms Motsepe said “probably later next year.”
The Chairperson exclaimed “Oh my God,” and then asked if any other member wanted to speak.
Mr Ryder said that Mr Parks ended up arguing against “referring this thing back with the new clause.” As he said, this is not something new. “It’s merely elevating it from a rule into legislation. In other words, it already exists. Now I haven’t heard a compelling argument why it needs to be elevated. It’s something that’s being tried and tested and implemented slowly. There’s massive benefit to that because as Mr Momoniat pointed out, the implementation of this is going to be incredibly difficult, especially when you get to sizable corporations that are employing two of the Big Four. What you’re going to have is that as soon as you start introducing legislation like this, noting that there are the Big Four, and people have to use two of them at a time, that’s kinda guaranteeing the other Big Two business coming forward. So it’s creating an anti-competitive situation where what you’ll find is that auditing fees are going to start rocketing because people know […] ‘it does matter what we do, or what we charge, we have to be used. […] Our turn will come.’ You know, this famous thing of ‘it’s our turn to eat.’ That’s going to now (sic) apply to the auditing profession as well. That’s something that we really should not be part of. So elevating into legislation at this stage—I think we need a longer, slower run at this and to just throw this out there as a kind of an intervention of the NCOP [and] a section 75 at the end the process, without having good due diligence into the implications of what our amendment is going to do is going to be quite dangerous. I do think that taking a slower, measured approach, keep it in the rules for now, letting people know ‘guys this is coming, we may make this part of the next bill when it comes through’ so that people are able to adapt and the industry is able to adapt to this thing over time and do it properly. What [Mr Parks] also said is that [inaudible] and that is part of what this Bill in its present form is trying to achieve. It’s trying to improve the disciplinary processes, trying to improve the ability of IRBA to enforce their standards and so on onto auditors. So, by pushing this thing back—because, look, we’re gonna have to have a draft clause drawn up, we’re gonna then have to put it out for public participation, it’s going to have to go back to the NA, blah blah blah—this is going to take us a good few months to process the amendment. So, for that to happen, we [are] going to have to be stalling the implementation of these better disciplinary processes that IRBA so desperately needs. And those disciplinary processes are things that they’ve come to us and said ‘people are processes are there, they [are] working okay, but we need stronger disciplinary processes’ and if you look at what clauses we went through in the clause-by-clause reading, it was the disciplinary issues that formed the majority of it. So what I’m say is, let’s get this Bill out there, let’s investigate properly what the implications of the mandatory rotation is going to be and see if it is actually implementable, because trying to put in a clause that’s not implementable, that’s going to cause this Act to be challenged as soon as it’s printed is then going to stymie other processes of IRBA which are not going to help the bigger picture of things (sic). So, you know, rotation auditors is good practice. Let’s be honest, it is good practice and I think that’s generally agreed and accepted. The fact is that sometimes there are compelling reasons for keeping auditors, but that’s why you also have things in the bigger corporations like audit committees, independent audit committees, et cetera, et cetera. So taking too quick a run at this, Chair, I think is a little bit heavy-handed. There’s validity to the concept, but it needs further investigation before we go ahead and pull the trigger.”
The Chairperson said that “many members are not here, so obviously we’re unable to conclude the matter.” The Committee had already spent an hour on the topic, and several members whose views were important were not present. He therefore doubted there was any value in taking the matter forward. The Committee could therefore not vote on the Bill the coming Thursday (18 February 2021), “so that meeting is called off.” He said that “we’ll see when we come back to this Bill, because next week we have the budget process but we will not delay finalising this Bill until the budget is over, obviously. Today what we’re going to do is just finish tying up this policy matter is look at them clause-by-clause and adopt them informally. So the only issue outstanding is to finalise this policy issue and then vote formally on the Bill. So we’re talking about a half an hour meeting some time, next week or the week after, so we’ll have done our part and take it to the House.”
He asked Adv Jenkins for clarity. “Since we cannot really, strictly speaking—you know you explained to us [that] what we do is write a report to Parliament requesting the NA committee to consider our proposed amendment, and we can’t actually amend the Bill—put our proposed amendments in our report to the House to refer to the NA, right (sic)? If I’ve got that right—first I want to ask you, who will have these public hearings? Let’s say we decide on adopting this approach or making it legislative, the mandatory rotating… who would actually have to have the hearings? Because we can have the hearings on our side, Frank. But what can we do? Do we just refer it to the NA? And the NA will find it difficult to go by what we’ve done unless they themselves have had hearings, so firstly could we not insert in the report—let’s say we do decide on this, I’m just looking at all possibilities, Frank, so we don’t come back to you, and when we meet as the ANC study group we can take our decision, [inaudible] oblivious to the consequences, legal and regulatory and other (sic). The question I’m asking is: Do we have to have the public hearings or can we just write in the report that we’ve feel it should be made legally necessary, this mandatory rotation, and we request that the NA take this forward? They have to have the public hearings. So the first point to you is: Do we have to have public hearings or do they? And if we do have public hearings it still means that they would have to have public hearings. The next point is: I just want to observe that it’s three years later—as I was saying to our colleagues from IRBA with the legal advisor—it’s 2021, they went to court in 2018 with the auditors, so we won’t know the outcome of this until next year. My understanding is that the auditors were in the NA process. Needless to say it seems that they opposed it. If [the] Treasury is saying it’s a tactical issue, it does maybe strengthen Cosatu’s argument that it’s a tactical issue, so it’s a difference in tactics [inaudible] principal or value. Often adversaries in debate say ‘oh, it’s a tactical issue’ when often it’s not, but I’m not saying it applies to this case.”
“I don’t know why [the] Treasury keeps saying ‘What is the problem that you are seeking to resolve by making this prescriptive?’ It’s been set out very clearly by [Mr Parks], so I don’t know why [the] Treasury repeats this. What you [are] basically saying is that you don’t agree this is the way to solve the problem. You can’t ask ‘What is the problem you are trying to address here?’ Because they have been very clear, and so have I, actually. And if we don’t understand each other, well, unfortunately, there’s nothing more I can do certainly, and I don’t know how much more Cosatu can do. So that’s like a bewildering question, Momo [referring to Mr Momoniat]. Then, I didn’t mean to say [the] ‘Treasury is limp and listless, and pathetically weak.’ What I’m trying to say is [that] the credibility of [the] government as a whole—our government—has gone down, including with the private sector (sic). And [the] Treasury, like every other department doesn’t carry the weight, understandably, that it previously did. It’s got nothing to do with the individuals who work ever so hard—no-one is saying that, even Cosatu says that—so that’s the point I’m making: That I find it hard to believe that 15 years ago [the] government and [the] Treasury were not more credible. [Inaudible] of social forces, civil society, and also the private sector and the unions well [inaudible] the unions because of the ideological divergence—well, Cosatu, at least, I don't know about other unions so much. Dennis, with due respect, I don’t understand what you [are] saying but let’s forget it, right? Because, you know, you [are] saying ‘let’s explore how this thing—’ well, I don’t know how you need to explore, like… what do you need to do? If we were to do this, if we take the approach you asked, it could apply to every major clause of a bill, and especially one that’s transformative. So, what you are saying about this particular proposal, could apply to every clause, actually, particularly those which are far reaching and transformational.”
“Insofar as you raise questions about, you know, ‘it’s our time to eat, and look what it will mean’ and so on, those questions came up, by the way, in 2017, I think it was, or 2018, when we looked at the rules. But we [are] not going to agree, and on the whole my own view—and it’s only mine—the argument for including it in the Bill seems to me stronger than the argument for leaving it to a comprehensive process […] that’s my view. But we will see how things go.”
“The only difficulty I have—and as a Chairperson I have to be, perhaps the onus is more on the Chair and the secretary and the legal authorities to ensure that we are legally and constitutionally, in terms of parliamentary rules, sound—so, Frank [referring to Adv Jenkins], you are making a big decision for me, at least, because of you, personally, I might have to give in and say ‘okay, we can’t do it, and write a strong report to Parliament and take the issue up in the debate but, so, frankly, you know, for me, the most constraining part of wanting to persuade my comrades in the ANC to implement this in the law is your argument, Frank, about the issues. I really plead with you that we exchange outside this [meeting], offline, and let’s see if I understand you better because, you know, we have to be clear that this is a completely new thing, and if need be, Frank, we will ask you to write a one-pager or something so that—and you may have to do that, so we need to give you time to mull over what you say and we won’t put you under enormous pressure. So, I don’t think, colleagues, that as a point going forward here, each of us has had a turn, so to speak, and I don’t see [that] we’re going to find a resolution here.”
“So may I suggest we move on from here, with the understanding that we’re going to go through clause-by-clause, unless people want to keep the debate open?”
He did not see a point in continuing the debate for now, and wanted to move on to the clauses, mull over what the Committee had been discussing, and arrange to meeting perhaps in the upcoming week Thursday or the following week to finalise the matter. One reason was that important members were not present. One member voiced agreement.
He allowed non-Committee members to exit the meeting. He asked Adv Jenkins if he wanted to say anything.
Adv Jenkins said that he was asked a few things pertaining to the Bill. Firstly, to check cross-referencing with other provisions in the Act and said “those are all good.” Also, the cross-referencing with the Companies Act, and said “that was all good.” He was also requested to check whether the “seizure and the warrant that underpins those procedures when it’s non-voluntary, whether that is consistent with the FICA Amendment Bill, but not the 2015 one, the 2016 one which we reconsidered after the President at the time referred it back, and we had senior counsel, Jeremy Gauntlett, making some input to even strengthen that provision beyond what the Constitutional Court guided Parliament when those provisions [inaudible]. So, the Bill before the Committee, Chairperson, is the one that follows that 2016 reconsidered or resubmitted Bill that came back from the President, so there’s no problem with that. It’s not a carbon copy but it is in substance one hundred per cent the same. Then I was also just asked to look at whether the document that [the] Treasury is presenting—which is not a consolidated Act—whether that is consistent with the B-version of the Bill, and it is. There was a mistake the last time with that (sic). I think that’s more procedural, Chair. So that’s all there. Chair, just on the question—I’ll just be one minute and I hope I’m not taking you back. Of course, if the Committee wants to do something to change the law, then we have to change the law here for the NA to reconsider it. If we just put something in the report, of course it goes straight to the President, [it] doesn’t go back to the National Assembly. If we don’t propose amendments to the Bill—if we just put it in a report, then it will not go back to the NA for another decision there, and then the public participation… Chair if that is the route the Committee wants to go then that will have to be done in the NCOP first when it goes to the NA. And the NA can decide whether they would want to look at what the NCOP did, or redo one or two things, Chair. You know how people would lobby to get a second bite of the cherry. So that’s my input.”
The Chairperson said, “You know, Frank, I don’t want to burden you with too much of work (sic); could you do us a one/two pager on this issue? We will attach it to our report. That might help the NA. In any case, let’s say we decide we want this, but we can’t actually implement it for whatever reason, right, for the legal and other constraints. Or, we want it and these are the constraints we have and so on (sic). Whatever the outcome, if it goes to the NA in that form or other they gonna come back to you, Frank to ask you for legal advice. So you’ll have to do that. So we can talk offline.”
The Committee moved straight to the Bill and its clauses but said the Committee would not go through it at the slow pace it went through it last week. The Committee was to commence “informally adopting” it. In fact, the Chairperson did not do a readout of the Bill clause-by-clause, but merely asked members if they had any disagreements or objections as he went through only the numbering (and not the substance) of each clause. There were no objections or disagreements.
The Chairperson reminded members that they were not meeting on Thursday (18 February 2021) and would seek to meet the following week Thursday (25 February 2021) or another appropriate date instead.
The Chairperson adjourned the meeting.
Documents
Present
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Carrim, Mr YI
Chairperson
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Aucamp, Mr S
DA -
Du Toit, Mr SF
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Mamaregane, Ms ML
ANC -
Mkiva, Mr Z
ANC -
Ryder, Mr D
DA
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