The dangerous state of provincial finances

Written by Ciaran Ryan. Posted in Journalism

This article first appeared in Moneyweb.

It’s hard to find a kernel of good news in the auditor-general’s (AG) 2018 report on provincial and national departments, other than the Western Cape and Gauteng leading the way in terms of financial accountability.

Elsewhere, the results are mostly dreadful. Only 23% of the entities audited had clean audits. The Western Cape is way ahead of everyone else with 83% of audits in the province proclaimed “clean”, but even here there was some slippage.

In Gauteng, where irregular expenditure remains a problem, the figure was 53%. This does not necessarily mean money spent was wasted or the result of fraud – it could mean that correct processes were not followed.

One has to empathise with AG Kimi Makwetu’s near-impossible task of pointing out and curtailing misspending at government level. Being an auditor is no longer a safe occupation in SA. A female auditor working as part of a team dispatched by the AG to clean up maladministration in Emfuleni Municipality, south of Joburg, was shot twice in the leg two months ago in the guest house where she was staying. The assailants made off with two laptops and a cell phone, all presumably containing vital information on wrongdoing at the municipality. Makwetu decided to withdraw his team.

Last month two AG staff members were held hostage by subcontractors in Tshwane when they were conducting routine asset verifications. An audit team sent to eThekwini was withdrawn in May after one of its staff members received death threats. Police must now accompany audit staff on dangerous assignments.

It’s clear from the report released on Wednesday that Makwetu is not the most popular man in SA’s administrative ranks. In his report, he says provinces and administrators prefer to contest his audit results rather than address the problems identified.

The number of departments reporting fruitless and wasteful expenditure was up 10%, and most of these have been on the list for the last three years. Even more disturbing is the 200% increase in fruitless and wasteful expenditure over the last year to R2.5 billion. Audited irregular expenditure came to R51 billion, but nearly R80 billion when entities not audited are included.

The days of easy evictions are drawing to a close

Written by Ciaran Ryan. Posted in Journalism

This article appeared in Moneyweb.

Following the lead recently set by the South Gauteng High Court, a full bench of the Cape High Court will decide this week whether to set reserve prices on repossessed homes.

In the Gauteng case, the banks argued against reserve (or floor) prices, except in exceptional circumstances. The court found otherwise and now insists on reserve prices in all but exceptional circumstances. Having lost that case, the banks have now decided the matter is not worth arguing and have agreed to abide by the Cape court’s decision.

Until now, the courts have allowed repossessed homes to be sold at sheriffs’ auctions without a reserve price, resulting in homes selling for a fraction of their market value and leaving the defaulting borrower with a large outstanding debt to the bank. This is no longer possible in Gauteng. Now the Cape court wants to decide whether it should follow Gauteng’s example.


This follows a change in court rules a year ago which allowed judges to set reserve prices in home repossession cases. The Lungelo Lethu Human Rights Foundation (LLHRF) has campaigned for a change in court rules to stop easy evictions by banks. It says more than 100 000 families have been evicted from their homes since the Constitution came into effect more than two decades ago due to the ease with which banks have historically obtained court judgments.

The LLHRF, which has been admitted as a friend of the court, says in its court papers that many of these evicted families end up destitute and cut off from any chance of economic recovery. It wants the court to balance the Constitutional rights of those in financial distress with the banks’ right to recover loans.

Lawyers defending debtors against the banks say this practice of selling repossessed homes without reserve prices was an open invitation to bid-rigging syndicates to pick up properties for a song and then flip them for a quick profit.

A directive issued by Western Cape Judge President John Hlophe wants a full bench of the high court to decide on eight home repossession matters, six of them involving Standard Bank and one involving Absa.

Hlope wants the court to decide whether the change in court rules allowing reserve prices introduces “substantive legal requirements” before judges can grant banks an order declaring a property “specially executable” – which is required before a property can be sold at auction. The Cape court must now decide how judges should go about setting reserve prices prior to properties being sold at auction.

Judge Kathy Satchwell interrupts Sasol board lunch

Written by Ciaran Ryan. Posted in Journalism












This article first appeared in Moneyweb.

Sasol’s annual general meeting at the Sandton Convention Centre started off sedately enough until group chairman Mandla Gantsho attempted to limit the number of questions from the floor.

Judge Kathy Satchwell leapt to her feet and, microphone in hand, let rip at the board for trying to wrap things up with obvious haste so they could retire for lunch. “This is the one opportunity in the year for shareholders to ask questions and you are limiting the number of questions. I know you want to rush off to lunch, but you can stay where you are until we are done.”

Gantsho asked her to sit down, but Satchwell, representing the Raith Foundation, wasn’t having any of it. “Judge, please sit down – you will get your chance,” said Gantsho. Satchwell’s microphone went quiet but she continued lambasting the board regardless.

Gantsho asked for a moment’s silence for the four Sasol workers who died in the last financial year. When Satchwell again got the microphone, she asked whether any of the directors had visited any of the injured, whether they attended their funerals of those who died, and whether they would donate any of their bonuses to improve safety. “I realise your lunch is waiting,” she added.

Shareholder activist Theo Botha questioned why the group’s key performance indicators gave such a low weighting to fatalities. Sasol replied that weightings were higher at the operational level.

Company secretary Vuyo Kahla said that senior management members visit the scene of all fatalities and assess what can be done to help the families of the deceased. Joint president and CEO Stephen Cornell said the company now tracks the severity of injuries and has introduced stringent safety rules to prevent further deaths. Because most work-related deaths are the result of collisions with machines, proximity detectors are being installed to shut down machines when they get too close to humans.

Transnet’s R100bn dagger pointed at the heart of SA

Written by Ciaran Ryan. Posted in Uncategorized












This article first appeared in Moneyweb.

Transnet pensioners have fought a decade-long battle to get their former employer to cough up an estimated R100 billion in benefits as a result of a 1989 promise made in the dying years of apartheid as Transnet assumed the legal responsibilities of SA National Transport Services.

This staggering sum of money is sufficient to sink the economy should Transnet lose the case, says Advocate Anton Alberts, chairperson of the Freedom Front Plus, which has campaigned on behalf of pensioners. “Transnet is holding the country to ransom. If they lose this case, SA is finished. We will straight away be downgraded to junk.”

Not that Transnet would have to pay out R100 billion in one go. But it would have to fork out several billion rands a year to top up the pension funds, putting additional strain on its already tattered balance sheet.

While the case has careened through the courts, the number of pensioners has declined from 80 000 to 50 000. According to some estimates, they are dying off at the rate of 300 to 400 a month. The question some pensioners are asking is whether there will be any pensioners alive to witness the successful conclusion of the case.

The case originates with a promise made by management in 1989 to top up the pension funds by 70% of the rate of inflation plus 2% each year, as was the case in the years prior. This promise was upheld until 2003 when all but the 2% annual payments were stopped. With inflation running at about 6%, this meant pensioners’ benefits were sliding back at the rate of about 4% a year. The pensioners’ lawyers, based on 2013 figures, claimed 80% of pensioners were receiving less than R4 000 a month.

“Some pensioners have nothing left at the end of the month after paying their medical bills. Now it seems that Transnet is reneging on its responsibility,” says one of the pensioners, Nicky Oelofse.

Transnet has fought the case every inch of the way, first by contesting the right of pensioners to be recognised as a class of claimants with substantially similar arguments. The case has been mired in technical argument and exceptions raised by Transnet, all of which were struck down in the Constitutional Court in April. The ConCourt case dealt mainly with exceptions raised by Transnet, rather than the merits of the pensioners’ claims.

Time running out

Pensioners saw this as a major victory and it looked for a time as if they were close to settling the case a few months ago, as Transnet itself reported to Parliament. But this turned out to be false. This means the case must go back to the High Court for argument. This is likely to happen next year, by which time a few more thousand Transnet pensioners will likely have died.

Head of e-tolls company was an e-tolls boycotter

Written by Ciaran Ryan. Posted in Journalism










This article first appeared in Moneyweb.

Coenie Vermaak, CEO of e-tolls collections company Electronic Toll Collection (ETC), was an e-tolls boycotter in his previous life as an engineer working on the Medupi Power Station and SA National Roads Agency (Sanral) roads.

Like 70% of Gauteng motorists, he believed the decision to impose electronic tolling was ill-conceived and done without proper public engagement. That changed when he was hired two years ago as CEO of ETC, owned 100% by Austrian company Kapsch.

“I was an e-tolls boycotter because I didn’t like being charged another tax for something that I had no decision over,” says Vermaak. “But I was also ignorant. I had not applied my mind to the matter. When I joined here, I didn’t even want my in-laws to know I worked at the toll collections company.”

ETC’s contract expires in December 2019, and will be put out to tender in the new year by Sanral.

E-tolls have become a political rod with which to beat the ANC government, and Vermaak concedes it is a tough ask convincing non-payers to follow his lead and abandon the boycott. With an election looming in 2019, e-tolls will become a key election issue in Gauteng, and opposition parties will feast on the entrails of this failed project. To underline the point, the Congress of South African Trade Unions (Cosatu), Organisation Undoing Tax Abuse (Outa) and the ANC in Gauteng staged a march against e-tolls last weekend in Pretoria.

In his medium-term budget policy speech last month, newly installed finance minister Tito Mboweni gave no sign of the government abandoning its fealty to e-tolls or the user-pays principle. He said e-tolls had to be paid if the road network was to function. The project originally cost R22.5 billion, funded through the issue of bonds, but that cost has now escalated to more than R40 billion. Sanral’s 2018 annual report shows a finance cost of R4.4 billion at an average cost of capital of 9.43% a year. If Mboweni sticks to his guns, it appears government will have little choice but to find an extra R500 million to R1 billion a year to pay the interest on these borrowings. Scrapping e-tolls could impact SA’s sovereign status and increase the cost of all government-backed borrowings.

Just as the decision to build the loss-making King Shaka International Airport in Durban was a political decision, so government pushed Sanral to upgrade Gauteng’s roads ahead of the 2010 World Cup. It is now clear that government never anticipated the level of protest that would accompany the launch of e-tolls in 2013.

SA’s twisted history of pension fund plunder

Written by Ciaran Ryan. Posted in Journalism

This article first appeared in Moneyweb.

South Africa has a grimy history of companies raiding their pension funds, and the fear is that two recent court cases, which found in favour of the pension fund trustees, will do little to curb the practice.

The first case, involving two pensioners against the Tongaat Hulett Pension Fund, wound its way through the lower courts to the Supreme Court of Appeal (SCA), only to be defeated on what the vanquished pensioners regard as a poor understanding of the law by the judges. They were denied an opportunity for review at Constitutional Court (ConCourt).

The second case involved Rosemary Hunter, former deputy pension fund registrar at the Financial Services Board (now called the Financial Services Conduct Authority), against the FSB over its attempts to deregister funds that still had assets owing to former employees. She too lost her case in the ConCourt, principally on the basis that the court assumed the FSB had competent and responsible people running it, and had investigated a few funds (less than 20%) that had been deregistered as part of the FSB’s cancellations project.

Both cases ended up in defeat at the ConCourt, with no further avenues of legal redress available to the applicants. But the findings of the judges in favour of the pension fund trustees and regulator should be a cause for concern for employees, past and current, with claims to a share of actuarial surpluses or other assets sitting in pension funds of which they are members.

The Tongaat Hulett pensioners, in a recent missive to the 54 fellow pensioners that supported their legal fight, spell out several false or erroneous findings they believe were made by the judges who heard their case.

They claimed in their court papers that the trustees were able to deceive the courts by mislabelling R1.43 billion in contingency reserves as “excess assets”, a term not found in the Pension Funds Act. “Assets in contingency reserve accounts” – a term that isdefined in the act – should be shared among the members when they are no longer needed to provide for contingent liabilities. It is at this point they become an actuarial surplus. The pensioners argued that by renaming these assets as something else, the trustees, who by law must balance the interests of employees and the company, were able to divert funds away from the members to the company.

Tom Moyane fired, leaving Sars in a state of “intrigue, fear, distrust and suspicion”

Written by Ciaran Ryan. Posted in Journalism

This article first appeared at Accounting Weekly.

President Cyril Ramaphosa has fired former SA Revenue Services (Sars) Commissioner Tom Moyane after receiving the Nugent Interim Report into the tax agency.

The President had little choice, though Moyane is taking his case to the Constitutional Court. It is clear from the report that Moyane was a one-man wrecking crew who instilled fear and distrust in the one state organisation that functioned reasonably well and was relatively untainted by corruption.

Moyane installed CCTV cameras so that staff felt they were under constant surveillance. He trashed the modernisation programme intended to use IT to replace the largely paper-based system that preceded it, thereby making it easier for cigarette smugglers and other tax dodgers to roam relatively unmolested.

Two weeks after Moyane took office in 2014, The Sunday Times reported the existence of a “rogue unit” within Sars, whose members had supposedly placed listening devices in the home of former President Jacob Zuma. A series of similar stories followed, causing immeasurable damage to Sars. It began to look like a set-up, a ruse intended to take the heat off criminals and tax cheats.

Nugent could find no evidence that the setting up of this unit was unlawful. When the press reports were published, Moyane called the Executive Committee (Exco) together and asked what they knew about these allegations. The Exco disavowed any knowledge. Moyane promptly announced he had no confidence in the Exco and disbanded it.

“That response is extraordinary in any rational terms. Mr Moyane had barely arrived at Sars, with no experience of revenue collection, yet almost immediately he denounced and humiliated senior management, with vast knowledge and experience, and dissolved the body through which Sars was being managed. All that on the basis of no more than a newspaper report, and moreover, a report on events of which at least most of the Chief Officers could not be expected to have had any knowledge,” says Nugent’s interim report.

Two senior members of the so-called rogue unit – Ivan Pillay and Peter Richter – were suspended and their reputations smeared. Moyane ordered the disbandment of the rogue unit (called the High Risk Investigation Unit) which had been legitimately set up to chase down smugglers and big-time tax cheats. In December 2014 KPMG was brought in at a cost of R24 million (the money has since been returned to Sars) which made damning allegations against Pillay, former finance minister Pravin Gordhan and ANC secretary general Ace Magashula.

Consulting firm Bain was brought in, and after a perfunctory “diagnosis” with little or no consultation with operational managers, and no communication with employees, a new operating model was devised and implemented. It was a disaster. The new operating model threw operational managers into uncertainty on their jobs. Some 200 employees were eased out and forced to re-apply for posts in the new organisational structure.

Another consulting firm, Gartner, was brought in to review Sars’ IT infrastructure. It was paid R200 million but virtually nothing it recommended was implemented.

By 2017 the Exco that existed when Moyane arrived in 2014 had been demolished. No responsible leader of so complex an organisation would have acted as Moyane did, says the report. Legislative changes were needed to make sure this kind of one-man wrecking crew could never get near the levers of so vital an organisation.

Lonmin says it is a victim of vexatious litigation

Written by Ciaran Ryan. Posted in Journalism

This article first appeared in GroundUp.

The Mining Forum of South Africa has applied to the North West High Court to have the mining licences suspended of Lonmin, as well as Eastern Platinum and Western Platinum (both controlled by Lonmin). The Forum, a not for profit organisation that seeks regulatory compliance in the mining industry, says Lonmin has shirked its Social and Labour Plan (SLP) obligations.

Chris Loxton, counsel for Lonmin, told the court in Mahikeng on Friday that the application is incompetent, vexatious and must fail. He said the case against the mining companies was so deficient, the court should grant a cost order against the two applicants, the Forum and its president, Blessings Ramoba.

All mining rights in South Africa are granted in terms of the Mineral and Petroleum Resources Development Act (MPRDA) and are subject to the fulfilment of SLPs intended to uplift surrounding communities and provide jobs and skills.

The Forum argued that the three mining companies had failed to honour their SLPs spanning a period of five years, and that the minister was obliged under law to suspend their mining licenses. The Minister of Mineral Resources is also a respondent in the case.

The Forum is trying to stop the proposed R5-billion takeover of Lonmin by Sibanye-Stillwater on the grounds that this would erode the group’s SLP commitments to the community. The takeover would include Lonmin’s Marikana operations, responsible for 95% of the group’s output, and the scene of the massacre of 34 striking mine workers in 2012.

The Forum argued that conditions for mine workers and the surrounding communities were atrocious, with many miners living in informal settlements. Lonmin had failed in its promise to provide schools, health facilities and other infrastructure in terms of its 2014 SLP.

Lonmin argued in its papers that while it had not spent the full amount outlined in the original SLP, this was due to radically deteriorating economic conditions. The mining group pointed to the roughly R680 million over three years spent on upliftment programmes and nearly R12 billion in BEE procurement as evidence of its commitment to its SLP obligations.

The toxic role of consultants in SA

Written by Ciaran Ryan. Posted in Journalism

This article first appeared at Accounting Weekly.

Several years ago John Micklethwaite and Adrian Wooldridge published The Witch Doctors, a brutal excoriation of the consultancy business and the damage it had inflicted on businesses in the name of “change management”, “quality” and “mastering chaos”.

In page after page, they detailed how consultants had sold business executives on the need for change – which they of course would administer – only to leave behind a trail of corpses. The advice being peddled by these gurus was faddish, unproven and often reckless.

Surveying the wreckage of SA’s public sector and the R24,6 billion spent on consultants in just eight government departments in the three years to 2013, one can only conclude that the consulting business has been good for consultants – but not for anyone else. To put this in some kind of context, then deputy Auditor General Kimi Makwetu (now Auditor General) issued a report in 2013 pointing out that 74% of the total spend in these eight government departments had gone on consultants. He urged much stricter controls on the use of consultants, but it is clear that this advice went nowhere.

Nicolaas van Wyk, CEO of SA Institute of Business Accountants (Saiba), points out another feature of the consulting scam that is rife in SA: the revolving door nature of the work. “Projects initiated by one firm are never completed, so the next consulting firm can come in and take over. This seems to be the way they agree to operate, so they are always generating work for each other.”

Appearing before the SA Revenue Services’ (Sars) commission of inquiry this week, IT consultancy Gartner explained how it had been brought into the tax agency within months of suspended commissioner Tom Moyane’s decision to freeze the modernisation programme. Last week the inquiry was told that Sars’ IT infrastructure was falling apart. Gartner was brought in to fix that as part of a dubious multi-phase project. It was paid R200 million for its efforts, but virtually nothing it recommended was implemented.

Then there are claims that Boston-based consulting firm Bain & Company had been instrumental “in the capture and destruction of the revenue service.” Evidence was led at the inquiry showing that Bain’s managing partner, Vittorio Massone, had been Tom Moyane’s executive coach prior to him taking over at the helm of Sars, and had recommended a radical refresh of the tax agency based just on publicly available information. He also recommended “neutralising” Sars’ then chief operating officer, Barry Hore. Within weeks of Moyane arriving at Sars, Hore resigned.

Things took a dramatic turn when Massone failed to arrive to give testimony at the inquiry, saying he was receiving treatment in Italy. Massone has since withdrawn from the inquiry, offering instead to file evidence by way of affidavit.

It was left to Gartner to take the heat at the inquiry. Business Day reports that Lithgow largely blamed the Sars leadership at the time for this. He said he wrote a letter to Moyane and ‘‘made it clear that unless we had strong, committed leadership, the transformation process would not work’’. He said there was resistance to change within Sars, and there were also ‘‘fiefdoms and factions’’ and people ‘‘would not co-operate’’.

The way in which Gartner and Bain secured their contracts was also highly questionable. Both firms worked closely with Moyane and the contract specs appear to have been written to suit their sales pitches. In Gartner’s case, the firm appeared unaware that writing specs for the contract eventually awarded to it was illegal. In total, both firms picked up fees of about R400 million from Sars. But it was Bain that is reckoned to have done most damage at the tax agency, getting rid of 200 skilled staff and overturning what had been a relatively functioning organisation.

The destruction at Sars has benefitted tax dodgers and delinquent taxpayers, wrote retired Judge Robert Nugent, who is chairing the inquiry. It desperately needs a new CEO with credibility and clout.

Given what we already know about consulting firm McKinsey’s fleecing of Eskom, and the havoc created by accounting firms and their consulting units, it’s reasonable to assume the future of Big Consulting in SA is bleak. No government department, state-owned company or private organisation will look at these witch doctors the same way again.

The Economist, famously wrong on just about everything, disses Bitcoin

Written by Ciaran Ryan. Posted in Journalism

This article first appeared at Accounting Weekly.

I was waiting for The Economist to diss Bitcoin. Now that it has done so, I feel it is safe to buy. This smug, establishment BS factory is at it again. Reg Rumney tears into them here. Back in the 1980s, what was their solution to apartheid South Africa? Dump gold everyone! That’s real activism for you. Drive down the price of gold and the racists will surrender. This ship of fools just keeps on sailing, talking into the establishment bubble that is its base. How they have kept going so long with a track record as miserable as their’s is one of the wonders of our age.

The magazine that is famously wrong on just about everything is a trader’s best friend. You cannot take them seriously on anything. When it says go long, it is a dead certainty that the reverse will happen. The crypto naysayers have been at it for a decade, and they have been wrong every time.

Now listen to two guys who actually know a thing or two about cryptos, Marco Wutzer and Doug Casey. The real risk for everyone alive today is the sustainability of the fiat currency ponzi scheme that has made everyone poorer.

Understand this: there are those who are mortally threatened by cryptos. After reading this you would be a fool not to own some.

From International Man:

Nick Giambruno: I always tell my readers that owning Bitcoin lets you escape the matrix… the financial prison that governments have erected with fiat currencies, central banks, and privacy-killing regulations serving as the bars on the door. It’s like a Swiss bank account in your pocket.

Unlike paper currencies, Bitcoin is an inherently international asset. It has incredible utility as a value-transfer mechanism. You can take any amount of it in and out of any country. You don’t need permission from any government.

Bitcoin’s resilience to government interference terrifies politicians. This is why it’s such a disruptive and exciting technology. Still, not everyone thinks it’ll last.

Can the U.S. government—or any government—shut down Bitcoin?

Marco Wutzer: Governments can outlaw the use of cryptocurrencies such as Bitcoin in their respective countries and go after businesses and individuals that trade them.

However, no government on this planet has the power to shut down a globally decentralized and distributed network, such as Bitcoin.

That would involve coordinated and sustained action in all countries on the planet simultaneously. The notion that any entity can shut down a global network like Bitcoin is a fairy tale.

The unstoppable nature of cryptocurrencies is what makes them so powerful in the first place, and is one of the main reasons they are so superior to fiat currencies.

There are certainly third world countries that have outlawed cryptocurrencies. But these countries are, for the most part, completely irrelevant to the world economy and will simply fall further behind.

On the other hand, there are plenty of governments that realize the importance of cryptocurrencies and are actively trying to attract crypto businesses and investment funds to their countries. Switzerland, Singapore, Japan, the United Kingdom, the Netherlands, and Denmark are a few examples that come to mind.

Continue reading.