World leaders recently attended an International Anti-Corruption Summit in the UK. During this event the UK Prime Minister noted that accountants have sometimes been “enablers” of corruption.
This follows close on the heels of the four major banks recently severing their ties with the Gupta aligned Oakbay resources due to questions of integrity.
In response Nicolaas van Wyk, the CEO of the Southern African Institute for Business Accountants (SAIBA) stated that “we view our role in preventing corruption as one of the bedrocks of our profession. Our members from CFOs to general accountants are all bound by a strict code of ethics that are very explicit in its requirement to enhance transparency and avoid any activity or client that may affect our integrity.”
“Talk to any person living in Africa and one of their concerns will be corruption. If tax money is not governed and accounted for, the country’s citizens are negatively impacted by a lack of services such as health, housing, sanitation, education and job creation,” continues Van Wyk.
As was recently revealed in the Panama Papers, over $60 million was lost in South Africa through investment fraud from the mineworkers’ death benefits pool. About 46 000 South African widows and orphans were impacted when they lost their benefits due to this fraud. Former President Thabo Mbeki, who compiled the illicit financial outflows report in 2015 for the African Union, also found that large sums of money are being taken out of Africa illegally by wealthy individuals and multinationals in different ways – making the fight against unemployment and poverty even harder.
One of the reasons stated for this loss was a lack of transparency and disclosure in corporate financial reporting. SAIBA believes that stricter accounting standards are needed to address tax evasion.
“Accounting and auditing practices have historically been dominated by the demands from transnational corporations, or multinationals. Multinationals are enjoying the benefits of offshore tax havens as they might produce their goods in one country but sell them elsewhere, or register their business’s domicile in one of these countries and reap higher profits due to savings in tax,” says Professor Dovhani Thakhathi, chairperson of SAIBA.
According to Professor Thakhathi “Disclosure of financial statements and greater transparency is needed to hold companies accountable and minimise illicit capital outflows. SAIBA is of the opinion that investors and tax authorities, as representatives of the public interest, should have access to information that indicates where productive activities are located and compare this to where the taxes are paid. Companies in particular should indicate the amount of taxes paid per jurisdiction they operate in.”
Illicit capital outflows have a tremendous detrimental effect on developing nations. It restricts the ability of governments to build infrastructure, provide service delivery and it shifts the tax burden to other taxpayers. “Quality accounting and auditing practices and improved disclosure should enable South Africa to address illicit capital outflows, the plague of corruption, to assess the impact and viability of interventions for alleviating poverty to build infrastructure, and to assess the performance and profitability of the business sector,” states Van Wyk.
To develop our country’s economy and provide services to South Africans, illicit capital outflows must be prevented. “Through regulated and transparent accounting practices this can be achieved, and SAIBA calls on all professional accounting bodies to request an amendment to financial reporting standards and corporate governance rules to ensure transparency in the reporting of base erosion and profit shifting,” concludes Van Wyk.
In light of the Panama Papers, 300 economists issued an open letter calling for new global rules forcing companies to report taxable activities country-by-country publicly. An extract states: “The existence of tax havens does not add to overall global wealth or well-being; they serve no useful economic purpose. Whilst these jurisdictions undoubtedly benefit some rich individuals and multinational corporations, this benefit is at the expense of others, and they therefore serve to increase inequality.” (Accounting Weekly, 10 May 2016)