RealTime Transcriptions 30th August 2018 Commission of Inquiry into Tax Administration & Governance

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    64 10th Avenue, Highlands North, Johannesburg P O Box 721, Highlands North, 2037 Tel: 011-440-3647 Fax: 011-440-9119 Cell: 083 273-5335 E-mail: realtime@mweb.co.za Web Address: http://www.realtimesa.co.za

    TRANSCRIPTION OF THE

    COMMISSION OF INQUIRY

    SOUTH AFRICAN REVENUE SERVICE

    BEFORE COMMISSIONER

    THE HONOURABLE MR JUSTICE NUGENT (RETIRED)

    ASSISTED BY

    PROF M KATZ MR V KAHLA

    MS M MASILO

    HELD ON

    DAY 11 30 AUGUST 2018 PAGES 1698 - 1937

    HELD AT

    The Auditorium, 2nd Floor Lifton House, Brooklyn Bridge, 570 Fehrsen Street, Brooklyn, Pretoria

    © REALTIME TRANSCRIPTIONS

    mailto:realtime@mweb.co.za http://www.realtimesa.co.za/

  • 30th August 2018 Commission of Inquiry into Tax Administration & Governance by SARS Inquiry

    011 440 3647 011 440 9119 RealTime Transcriptions realtime@mweb.co.za

    Page 1698 1 [PROCEEDINGS ON 30 AUGUST 2018]

    2 [09:07] MS STEINBERG: Morning Judge. Our

    3 witness this morning is Mr Massone from Bain & Company.

    4 COMMISSIONER: Good morning Mr Massone.

    5 MR MASSONE: Good morning. Good morning.

    6 Good morning.

    7 COMMISSIONER: Will you affirm that the

    8 evidence you give will be the truth, the whole truth and

    9 nothing but the truth? If so will you say I do?

    10 EVIDENCE OF MR MASSONE

    11 MR MASSONE: I do.

    12 MS STEINBERG: Judge and panel, Bain & Co

    13 are going to start with a presentation and after which

    14 we’ll ask questions.

    15 COMMISSIONER: I gather that it will be

    16 done in portions, is that right?

    17 MS STEINBERG: I think we should see how,

    18 if you wouldn’t mind –

    19 COMMISSIONER: Okay.

    20 MS STEINBERG: Just see how it goes.

    21 MR MASSONE: Thank you and I promise you

    22 I will use slides only where necessary. You will see me

    23 turning pages but I will try to speak up.

    24 COMMISSIONER: Ja, bear in mind that

    25 we’ve got a big pack from you of your submissions with all

    Page 1699 1 the slides on it.

    2 MR MASSONE: Yes.

    3 COMMISSIONER: So don’t think that the

    4 only ones we will look at are the ones you use here, but

    5 it’s probably a lot more convenient that we don’t go

    6 through too many and we listen to what you say.

    7 MR MASSONE: Thank you. I would like to

    8 make an opening statement if that’s appropriate. So first

    9 of all I would like to thank you, the Commission for

    10 allowing me and allowing Bain to be here today to represent

    11 the facts that we saw at SARS and our interpretation of

    12 what happened there, so thank you for that. I want to say

    13 –

    14 COMMISSIONER: Sorry is that microphone

    15 on?

    16 MR KAGAN: It’s on.

    17 COMMISSIONER: Yes okay thank you.

    18 MR MASSONE: I’d like to say we started

    19 working at SARS in 2015 with a lot of pride and excitement.

    20 We were convinced it was going to be a success story for us

    21 in South Africa like others we had and so we started with

    22 all the best intention. Duly (inaudible) we found a case

    23 for change and I think we will spend time today on that.

    24 It wasn’t a case for a radical change like it was said, it

    25 is a case for improvement and I will elaborate on that. So

    Page 1700 1 everything that we say on the case for change shouldn’t

    2 take anything away from the work that’s done in the

    3 previous 20 years at SARS from its leaders. Still there

    4 was a case to make SARS even better, and again I will

    5 elaborate on that. So we designed the four structure that

    6 was one of the areas of improvement, the structure. A

    7 fifth one was then implemented like the thing was presented

    8 in the previous testimonies. And we still accepted it –

    9 and I think we’re going to spend time on that as well – we

    10 accepted it because it was still at that stage within the

    11 boundaries of the principles we had designed and seen an

    12 improvement compared to the previous one.

    13 What I believe reading the transcripts is that

    14 some other changes happened afterwards. So reading the

    15 testimonies I, and this is my opinion but I think that all

    16 the bad things that happened there are not to be, the root

    17 cause of all the things that happened there is not the

    18 organisation structure that we redesigned, but I can point

    19 to three factors.

    20 The first one is the change in leadership that

    21 was too wide, to broad and too deep and probably also too

    22 fast. The second is the change management communication

    23 plan that wasn’t properly done right so there was no buy-

    24 in. And the third one is what we call the software

    25 elements so if the structure is the hardware, all the other

    Page 1701 1 things that need to complement the structure and need to be

    2 redesigned if you change the structure. The processes, the

    3 ways of working, the communication lines, the culture and

    4 the leadership style has to be redesigned. And the

    5 compounding of too many people changing the buy-in is not

    6 there and the software elements in our design, in my

    7 opinion, created what happened there and I think we will

    8 have time on that. And then lastly I think reading the

    9 transcript was really a painful exercise for me, what

    10 happened there, and so I think that there are a lot of

    11 lessons learned for us as well. I think for many people.

    12 Thank you.

    13 MS STEINBERG: Do you want to begin your

    14 presentation?

    15 MR MASSONE: Yes. So the context of our

    16 intervention, so Bain was appointed in around January 2015

    17 to do a diagnostic on the operating model. The appointment

    18 follow-up of course then the process run by SARS around

    19 September, November, December 2014. This initial

    20 diagnostic was around I think five, six weeks, I think we

    21 eventually work a little bit longer, it was probably

    22 eventually six, eight weeks and it was quite short and I

    23 say in terms of what a normal diagnostic will be. And aim

    24 at pointing to areas of improvement for SARS, and this was

    25 the initial mandate and that’s what we did.

  • 30th August 2018 Commission of Inquiry into Tax Administration & Governance by SARS Inquiry

    011 440 3647 011 440 9119 RealTime Transcriptions realtime@mweb.co.za

    Page 1702 1 The, we then stopped the work there and we were

    2 brought back in June 15 to work on some of these areas that

    3 were identified and one is organisation structure in two

    4 areas of performance improvement at a very operational

    5 level on customs and tax. And this occupied 2015 until May

    6 2016 and there was a short tail at the end of 2016 and

    7 beginning 2017 there was specifically a pilot on customs.

    8 Again between June 16 and October 16 we were not at SARS so

    9 our presence was around two years for us, sort of 18, 20

    10 months of work.

    11 During the diagnostic, which is what we do

    12 typically we conduct a series of face to face interviews

    13 with the management. The list of the people to have been

    14 interviewed was given us by the Commissioner. We

    15 interviewed a few external stakeholders to hear what they

    16 had to say about SARS. We did benchmarks with that revenue

    17 service, I think it was seven, the big ones, both in

    18 emerging markets and in developed markets. We then

    19 developed a set of operating model principles. That was

    20 the starting point and then the design structure and this

    21 was then presented to the advisory board, I think it was

    22 the Kroon Commission at that time and was presented to

    23 them. The organisational structure that was then

    24 implemented was different and we’re going to go through

    25 that.

    Page 1703 1 There was a question around the fees I think as

    2 we speak about the mandate I would like to clarify that.

    3 So we gave SARS, we applied a normal fees that we applied

    4 to our private and public sector clients. There was a

    5 discount that we applied to them and the fees were directly

    6 proportional to the manpower they were employing, so one of

    7 the questions was about the success fees so there wasn’t a

    8 success fees like normal process that are deliverables. I

    9 think every other month there would be a reconciliation

    10 between our deliverables and the mandate and that would

    11 trigger the payments. Just as a notation give