15 November 2018 - SARS achieves 30 fraud convictions involving R65 million in 6 months

Thursday, 15 November 2018 – Between April and September this year, SARS has achieved 30 successful convictions in Value-Added Tax (VAT) – and Personal Income Tax (PIT) fraud cases, involving R65 million*. This represents a 100% success rate in convictions relating to the fraud cases that were investigated by SARS criminal investigators and finalised by the courts during this time, Ms Mogola Makola, Chief Officer of Enforcement, revealed. In total, the courts finalised 74 cases during this time, which represents the first six months of SARS’ 2018-2019 financial year. The cases related to charges of bribery, fraud and theft and contravention of the Income Tax Act, VAT Act and Customs & Excise Act.

* Erratum: SARS incorrectly stated that an amount of R65 billion was involved in the 30 successful convictions of VAT and Pit fraud cases. The correct amount is R65 million. SARS sincerely apologises for this error.

Ms Makola released the figures in support of International Fraud Awareness Week, which ran from 7 – 11 November. It is an initiative of the international Association of Certified Fraud Examiners (ACFE). SARS officially supports the ACFE, and has 364 individual members and 25 certified fraud investigators affiliated to ACFE South Africa, the recognised professional body that certifies and governs fraud examination professionals in South Africa.

According to Ms Makola Fraud Awareness Week is recognised globally as one of the most important measures required to combat economic crimes, which are costing the country billions of rand. She appealed to members of the public to make use of the facilities provided by SARS to report suspicious activities as SARS depends on the reporting of economic crimes in order to put a stop to them.

Currently about 670 cases are being investigated by SARS’ investigators. These include 268 suspected VAT fraud cases and 63 investigations into tax practitioners in connection with suspected abuse of the tax system, for instance, by claiming fraudulent donation, business or medical expense deductions on the PIT returns they submit to SARS on behalf of their clients. VAT fraud mainly takes place through fraudulent refund claims, supported by fictitious entities or on behalf of bogus entities.

A total of 226 fraud cases relating to under or non-declaration of income are also being investigated while 4 encompassing national investigations deal with organised crime syndicates, operating in the tobacco industry amongst others.

A general global increase in fraud is also evident at SARS, Ms Makola said. “The potential prejudice to SARS from cases that were referred to the Criminal Investigations unit in the first six months of the 2018/19 financial year stands at approximately R4,5 billion: marking a 117% increase, compared to the same time the previous year (2017/2018), when the total prejudice from cases referred was approximately R3,3 billion. In the first six months of the 2016/2017 financial year, the prejudice associated to cases that was identified for further investigation was R1,4 billion. Most of these cases deal with VAT and PIT fraud.”

In step with international trends to increase investment in fraud detection, advances in SARS’ capability to detect fraud is, to a large extent, also responsible for the corresponding increase in the number and value of fraud cases referred to the Criminal Investigations team for further investigation.

The table below gives an indication of how VAT fraud has increased over the past three financial years.

Increase in convictions in VAT fraud: fictitious entities and fictitious invoices

Financial year	Cases convicted
2014/2015	32
2015/2016	23
2017/2018	57
2018/2019 *April-Sept	30

Internal fraud

Within our own backyard, SARS follows an emphatic zero tolerance approach to fraud and corruption, Ms Mokola notes. “SARS officials, without fear or favour, are duly reported to the South African Police Service (SAPS) and dismissed for fraudulent or corrupt activities when found guilty.”

Compared to the first six months of the previous financial year, there has been a sharp increase in the number of employees who have been sanctioned, dismissed or resigned following investigations by the Fraud Investigations Unit. So far this year, SARS has sanctioned 51 employees and dismissed 9 while 31 have resigned in connection with suspected fraudulent activities.

This is mainly due to a sharp increase in resignations (31 for the first six months of this year, vs 13 for the whole of last year). In this regard, we have noticed an increase in unauthorised interference in taxpayer matters, which have increased by 40% to 11 resignations, up from 2 during the previous year. There has also been a significant increase in resignations related to investigations into abuse of Customs & Excise processes: from 5 in 2017, to 10 in 2018. Customs fraud and corruption remain the biggest internal risk for SARS, she said.

“A positive developing trend is the significant increase in the reporting of suspected criminal activities by SARS employees. Between April and September this year, employees reported 158 or 89% of all cases, compared to only 94 cases reported during the comparative time last year.

“While I believe this is indicative of a desire amongst employees with integrity to rebuild trust in the organisation, it may also indicate that external parties are not using our economic crimes reporting channels to their full potential. In this regard we wish to appeal to the public to report suspected criminal activities of staff members and external parties alike,” Makola said.

She appealed to members of the public to please report suspicious activities by phoning the SARS Anti-Corruption Line on 0800002870, or via the SARS website under Report Tax Crime.

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15 November 2018 – SARS achieves 30 fraud convictions involving R65 million in 6 months