Fraudulent tax refunds worth R51 million have been paid out by the South African Receiver of Revenue (SARS), because companies' details were illicitly changed on the Companies and Intellectual Property Registration (Cipro) database.
Finance Minister Pravin Gordhan revealed the extent of the fraud in response to written questions from the Democratic Alliance's deputy shadow minister of trade and industry, Jacques Smalle.
Cipro has been plagued by abuse of its database this year, with at least 11 companies having been reportedly hijacked, as fraudsters removed legitimate directors and replaced them with others on the agency's database. A recent well-publicised incident saw the directors of mining company Kalahari Resources head to court to have their status corrected, after being “removed” from their positions.
In September, the office said about 10 000 companies filed director change forms each month, and around 10 of these - or 0.001% - are called into question.
Gordhan revealed in his reply that, since April last year, SARS has recorded 16 cases where registered company details were altered with Cipro, “with the apparent intention to defraud SARS”.
Arrests made
The changed details resulted in an actual loss of R50.9 million in diverted tax refunds, says Gordhan. Of this amount, R37 million has been recovered, while property and vehicles to the value of about R20 million are being “attached”.
One SARS employee and one SARS contractor have been implicated in the fraud, and the staff member has been suspended without pay pending the final outcome of a disciplinary hearing, says Gordhan. Both individuals are currently on bail and face criminal charges of fraud and corruption.
Delayed action?
Gordhan adds that SARS and Cipro have set up a joint task team to address the situation, which has led to the registrar alerting SARS of detected suspicious changes of registered particulars of companies as soon as these are noticed. The early warning system has prevented diversion of tax refunds, says Gordhan.
Cipro implemented new security measures in October this year, which has reportedly limited fraudulent transactions. The office canned electronic company changes, making these manual, and implemented a password and SMS alert system.
However, the improved measures have previously been slammed as being too little, too late. The office's stalled implementation of an electronic content management (ECM) system is vital to prevent any further fraud on its database.
The implementation of the IT upgrade, which is also needed so that the office can carry out its duties in terms of the new Companies Act, stalled after the Department of Trade and Industry (DTI) canned a R153 million contract with Valor IT, after a forensic investigation picked up irregularities in the tender process.
Valor IT took the DTI to court to have the contract upheld, and has since agreed to a confidential settlement, after the Pretoria High Court ordered the parties to negotiate the issue.
The undisclosed settlement amount relating to the canned deal removed the threat of a possible court case, which could have held up implementation of the system for years.
However, while the threat of a court case has now been removed as a stumbling block, it seems there are a few sticking points with the agreement. As a result, the DTI will not comment on the status of the ECM implementation.
Neither Cipro nor SARS were available to comment this morning.
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