ECONOMIC CRIME REMAINS A SERIOUS ISSUE
Economic crime remains a serious challenge to business leaders, government officials and private individuals in South Africa with 69 per cent experiencing some form of economic crime in the last 24 months compared to 37 per cent of global respondents. This is the first time since 2005 that the prevalence of economic crime has increased in South Africa, according to the findings of PwC’s 2014 Global Economic Crime Survey.
Louis Strydom, PwC Forensic Services Leader for Africa, says: “Like a stubborn virus, economic crime persists despite ongoing efforts to combat it. No ongoing organisation of any size, anywhere in the world, is immune to the impact of crime. Those committing economic crime have adapted to shifting global conditions like reliance on technology and the expansion of emerging economies.
“Even worse than the direct financial impact of economic crime is its threat to a wide range of business systems that are the lifeblood of corporate operations. Economic crime damages internal processes, erodes the integrity of employees and tarnishes reputation.”
The survey, which is carried out every two years, was conducted among 5 128 senior representatives from over 93 countries during the fourth quarter of 2013. In South Africa, 134 organisations across 17 industries took part in the survey.
The survey found that asset misappropriation remains the most common form of economic crime, reported by 77 per cent of respondents. It is followed by procurement fraud (59 per cent), bribery and corruption (52 per cent), human resources fraud (42 per cent) and financial statement fraud (35 per cent). Bribery and corruption has been the fastest growing economic crime category in South Africa since 2011.
The exact direct loss associated with economic crime is difficult to assess. “Organisations often fail to grasp the full financial impact of economic crime until after it has occurred – sometimes well after. This is especially true of crimes ostensibly committed on behalf of the organisation,” says Strydom.
There has also been an alarming shift in the perpetrator profile in South Africa since 2009, with senior management now regarded as the main perpetrator of economic crime committed by insiders.
For the first time this year, the survey measured procurement fraud, reported by almost 60 per cent of South African respondents. Procurement fraud is seen as a double threat, victimising businesses both in their acquisition of goods and services and in their efforts to compete for new opportunities. Vendor selection was the step in the procurement process that was targeted mostly by fraudsters, although all steps appear to be vulnerable to fraud. “Organisations should pay attention to safeguarding each step in the procurement process,” warns Strydom.
Out of all industries, money laundering affects the financial services industry the most. Over one quarter (27 per cent) of global and South African respondents in the financial services industry reported having experienced the crime of money laundering in the last 24 months. All respondents considered damage to corporate reputation the most serious consequence of money laundering.
CREDIT BUREAUS TO CLEAR PAID-UP JUDGEMENTS FROM
Trade and Industry Minister Rob Davies announced at the end of February 2014 that credit bureaus would clear paid-up judgements from 1 April.
This move will help those who have paid their debts to improve their access to credit facilities, job opportunities and rental agreements, reports Business Day.
Davies reiterated that this was not an amnesty for those in debt: “You still have to pay back your debt … but we do not think the current system is adequate to prevent reckless lending and to protect individuals who are affected.”
BENEFITS FOR MEMBERS ABROAD
For years, SAICA has been recognised as a leading organisation in South Africa’s financial arena. But what of its benefits for those abroad?
South Africa has been steadily exporting graduates and professionals for some time now. There are certain skills and traits that make South Africans desirable for foreign employers and job markets. So much so, that South Africa has been battling to retain some of its best talent for years.
Within South Africa, the Chartered Accountant (SA) [CA(SA)] mantle is one to be worn with pride. After all, CAs(SA) are some of the most soughtafter and well-rewarded professionals in the country. Furthermore, some 50 per cent of JSE-listed companies have CAs(SA) on the board of directors.
The CA(SA) qualification is the best business qualification in South Africa and opens the door to a lifetime of opportunities. Backed by extensive support programmes, initiatives and benefits for SAICA members, life for CAs(SA) is certainly very promising.
Going beyond our borders, SAICA has been hard at work to enhance the value offered to its international members. As is, the CA(SA) qualification holds enormous weight. It has high acclaim internationally, and will position any candidate above their peers during the recruitment process.
Aside from the backing of a world-renowned brand and qualification, some 7 000 CAs(SA) abroad now have access to a programme of continuous education and support which was developed by SAICA. Underpinned by an effective digital communications backbone, CAs(SA) will have full access to these resources, regardless of their locality.
The recently launched International Member Executive Council (IMEC) is a new project launched by SAICA and is specifically designed for members living abroad. International members can expect a strengthened service offering and better support as a result of the IMEC platform.
It will allow for increased information and knowledge sharing amongst members across the globe. International best practices, trends and other resources will be made available to the various regional structures to help keep CAs(SA) at the forefront of the accounting profession.
With the establishment of the CA Worldwide Initiative, of which SAICA is a founding member, CAs(SA) living abroad can look forward to even more global recognition. This initiative will strengthen the CA designation, making it arguably the most desirable qualification in the world.
SAICA will continue to strengthen the benefits enjoyed by its members and it would seem as though the future for CAs(SA) looks brighter than ever before, regardless of which country they intend to pursue their dreams in.
ANNUAL SMALL BUSINESS SURVEY
The SME Growth Index is a multi-year research project geared towards establishing a solid, evidence-based understanding of South Africa’s small and medium enterprises.
It is the largest, most comprehensive study of the sector ever undertaken in South Africa, and one of a few of its kind worldwide. The research is based on an annual survey that tracks the experiences of a panel of 500 established small firms in the manufacturing, business services and tourism sectors.
Nearly two-thirds of SMEs surveyed saw a rise in turnover in 2013, with a 13 per cent average increase across the panel. This is marginally better than the increase of 9 per cent recorded in 2012.
Despite rising sales, over 70 per cent of panel members said that it was harder to operate a business in South Africa in 2013 than the previous year. The challenges are mainly to be found in the domestic environment, rather than global conditions.
Business owners identified the top barriers to growth as lack of skills (15 per cent), burdensome regulations (12 per cent), lack of finance (10 per cent) and the cost of labour (10 per cent). Together, these five factors accounted for almost 60 per cent of the panel’s responses.
Chris Darroll, CEO of SBP, said that the government’s current SME policy is at odds with the National Development Plan (NDP). “While the government’s current focus – stimulating start-ups and helping to carry them through their formative years – has an important place in an economic strategy, these young companies are unlikely to drive extensive job creation and meet the NDP’s employment goals.
“The research has consistently shown over its three years that older, more established and more sophisticated firms show a decidedly greater ability to create and sustain jobs.”
TAX UPDATE
Anti-avoidance rules
The anti-avoidance rules in sections 8F and 8FA of the Income Tax Act, No 58 of 1962 are effective from 1 April 2014. Whilst section 8F focuses on the characteristics of a debt instrument, section 8FA focuses on the yield of an instrument in determining whether the debt instrument is a ‘hybrid debt instrument’ or whether the yield is ‘hybrid interest’, respectively.
This legislation is quite complex, but the effect can be summarised: If these rules apply, an interest deduction will be denied and the interest will be treated as a dividend in specie by both the issuer and the holder of the ‘hybrid debt instrument’.
These amendments will have an impact on new and existing loans and in particular, it is likely that intercompany loans without redemption periods could fall foul of the new rules. Companies must review their agreements (in substance) to identify whether these re-characterisation rules will result in a disallowance of interest paid as well as potential dividends tax on the deemed dividend in specie.
ACCOUNTING UPDATE
Accounting Practices Committee submissions
SAICA’s Accounting Practices Committee (APC) submitted comment letters to the IASB on the following exposure drafts:
- ED 337 – IFRS for SMEs – Proposed Amendments to the International Financial Reporting Standard for Small and Medium-sized Entities. In its response the APC requested for the removal of Other Comprehensive Income from the IFRS for SMEs; agreed that section 29 – Income Tax of the IFRS for SMEs be aligned to the IFRS requirements on income taxes; and requested for further ‘undue cost or effort’ exemptions.
- ED 338 – Equity Method: Separate Financial Statements – Proposed Amendments to IAS 27 – Separate Financial Statements. The APC supported the proposal to restore the equity method to account for investments in subsidiaries, associates and joint ventures.
- ED 339 – Annual Improvements to IFRSs 2012–2014 Cycle. The APC fully supported the proposed amendments to the financial instruments standard and interim financial reporting standard and raised some concerns on the proposed changes to the non-current assets held-for-sale and discontinued operations and employee benefits standards.
The detailed comment letters can be downloaded from the SAICA website.
Have you considered the impact of the new IFRS on rate-regulated activities on your business?
An interim standard, IFRS 14 – Regulatory Deferral Accounts, that will specify the financial reporting requirements for regulatory deferral account balances that arise when an entity provides goods or services to customers at a price or rate that is subject to rate regulation has been issued.
IFRS 14 is effective for annual periods beginning on or after 1 January 2016. Earlier application is permitted. IFRS 14 and the IASB press release can be downloaded from eIFRS.
Inform the IASB of your experiences in applying the business combinations standard
The IASB is giving preparers, investors, market regulators, auditors, users, experts and accounting standard-setters an opportunity to express their concerns or share their experiences with the application of IFRS 3 – Business Combinations, as it commences with its post-implementation review on this standard.
The deadline for comment to the IASB on this post implementation review is 30 May 2014. ED 340 – Request for Information – Post-implementation review: IFRS 3 – Business Combination and the IASB press release can be downloaded from the SAICA website.
ASSURANCE
Understanding and applying the guidance in the IFAC Guide to Review Engagements
Please Note that this Guide has not yet been subjected to due process by The Irba And The Iaasb and should be used with caution
IFAC has introduced a new slide deck and article designed to support SMPs in understanding and applying the guidance in the recently published IFAC Guide to Review Engagements.
The guide aims to provide implementation support for practitioners in conducting review engagements in compliance with International Standard on Review Engagements (ISRE) 2400 (Revised).
The slides, Limited Assurance Engagements for Practitioners, which are published with the guide:
- Can be used to introduce your staff and members to the guide and in training and CPD courses
- Include an overview of the guide and an introduction to reviews, touching on the four key areas of a review engagement – Accepting, Planning, Performing, and Reporting
- Include information on the uses and benefits of conducting a review engagement
Members are also encouraged to read an article by IFAC SMP Committee Member Phil Cowperthwaite, ‛A Value-Adding Client Service’, which:
- Focuses on how a review engagement can be a cost-effective service for clients and enable a practitioner to provide added value
- Highlights the meaningful level of assurance provided through a review engagement and the benefits for all parties
To access these documents, visit the IFAC website.
The article is issued by SAICA under the following copyright permission from the International Federation of Accountants (IFAC):
“Copyright © (February 2014) by the International Federation of Accountants (IFAC). All rights reserved. Used with permission of IFAC. Contact permissions@ifac.org for permission to reproduce, store or transmit, or make other similar uses of the document.”
DANGER OF HALTING MINING OPERATIONS
A protracted strike in the platinum sector will have “absolutely dire” consequences for the industry, says Terence Goodlace, CEO of Impala Platinum.
More than 70 000 platinum mineworkers downed tools in Rustenburg on January 23.
Mr Goodlace said there would be no need for a CEO at the world’s second-largest platinum mine if the strike continued much longer. If settlement was reached, it would take three to six months to normalise operations as conditions underground became unsafe with no mining taking place, he said.
“If the strike continues for much longer, I fear for the industry. The consequences will be absolutely dire,” he said. “At a personal level, I’d like employees back at work while the negotiations continue.”
After five weeks of no underground activity, Impala’s inspectors had found that about 16 per cent of the rock panels at its Rustenburg operations might be unsafe to mine.
“The longer it goes on, the more panels are going to be at risk and the longer it will take to build [operations] back up again. Rock is going to fall if you don’t support it and don’t work it,” Goodlace said.
No mining was taking place at Impala as it had placed non-striking workers, about 19 per cent of its Rustenburg workforce, on paid leave to ensure their safety.
Source: Sunday Times: Business Times
NEDBANK READY FOR ‘RAMOS WAR’
Nedbank CEO Mike Brown CA(SA) is not worried about Barclays Africa CEO Maria Ramos’s vow to fight harder in the battle for customers lost to Nedbank and other lenders.
And Ingrid Johnson, Nedbank’s head of retail and business banking, said that, besides being used to dealing with competitive peers, she was “delighted that we have lots of growth and momentum because of the four years of effort”.
Johnson’s strategies have been instrumental in the battle for customers.
The confidence of Brown and Johnson stems from their having grown numbers to 6,4 million from 4,2 million in 2009, largely at the expense of Barclays Africa.
When Ramos took over as the boss of Barclays Africa in 2009, customer numbers were registered at 11,4 million. But two weeks ago, the group reported that it had managed to keep customer numbers in South Africa stable at 9,25 million.
In the week of 27 February, Nedbank reported a 17,2 per cent return on equity (RoE), up from 16,4 per cent in the previous year. Barclays Africa’s RoE rose to 15,5 from 14,1 per cent.
Nedbank recorded a 14,9 per cent rise in headline earnings a share to 1884c while Barclays Africa’s was up 14 per cent to 1397c.
Both dished out hefty dividends to shareholders. Barclays Africa increased the dividend payout 20 per cent to 820c, despite having paid out R11,6 billion in a special dividend during the financial year.
Nedbank paid a dividend of 895c even though its dividend increase was 19 per cent.
What does trouble Brown and Johnson is the knock-on effect of interest-rate hikes on highly indebted consumers. Interest-rate hikes may result in increased bad debt among banks that played aggressively in this market.
And what may add fuel to the imminent fire is the fact that lenders have turned their backs on consumers who may want to refinance their debts. “This probably keeps most of us awake at night,” Brown said.
However, the group is well positioned for the interest-rate cycle, according Brown.
Source: Sunday Times: Business Times
WHAT IS THE WORLDS TOP PROBLEM?
WIN/Gallup International asked 66 806 people in 65 nations what they think the world’s top problem is. Here is a sampling of what they said:
- Corruption – 21 per cent
- The gap between rich and poor – 12 per cent
- Unemployment – 10 per cent
- Environmental issues – 7 per cent
- Religious fundamentalism – 2 per cent
Source: TIME Magazine, 3 March 2014
BOOK OF THE MONTH
Tax, lies and red tape
Find out why:
- It’s wrong to blame Wall Street bankers for the global financial crisis
- The rhino-horn trade should be legalised
- Exempting anything from VAT is a bad idea, even for the poor
- Job creation is a fruitless exercise
- South Africa’s problem is not poverty
This book is an insightful and very opinionated book about economics by one of South Africa’s most experienced and controversial economists. Dawie Roodt argues that economics is not about numbers, graphs and statistics; it is about people, and about how they react to incentives. Unfortunately our politicians seem to have forgotten this.
Using simple concepts and thought-provoking anecdotes, the book explains how ‛the market’ evolved with humanity, what was wrong with communism, what the global financial crisis is really about, the ways in which the state spends your money, how tax is collected, how money and inflation really work, the ins and outs of trade, and the ups and downs of labour.
