Municipal Assurance Services

Treasury Regulations 3.1.4 and 3.1.5 require that members of audit committees must be independent. For this reason, the payments made to the Members do not constitute “remuneration” as defined in the Fourth Schedule to the Income Tax Act, 1962 (the Act). Members are independent contractors under the common law and for purposes of the main body of the Act, and also for PAYE purposes under the Fourth Schedule. No PAYE is therefore required to be withheld from payments to Members.

If an Institution and Member agree to voluntary deductions of PAYE, an Employees’ Tax certificate (IRP5) must be issued. The total amount paid or payable, before the deduction of PAYE, must be disclosed under code 3616 on the IRP5. The total must include any allowances/reimbursements paid to the Member.

These amounts will be taxable on assessment of the Members’ income tax returns, but the PAYE deducted will be set off against the tax liability.

It should be considered that the same principle applies to audit committee members of municipalities appointed under section 166 of the Local Government: Municipal Finance Management Act 56 of 2003. Payments to them are not subject to compulsory employees’ tax withholding, although a municipality and an audit committee member may agree to voluntary deductions.

It is important that the AC build a collaborative and cooperative relationship with management.  This matter therefore requires a tactful response.  There are the regular avenues that can be used to address this matter such as:

• stipulating the compulsory attendance of senior management at the AC meetings
• ensuring that MFMA Circular 65 is adopted by council

There are also additional methods such as the one deployed by the audit committee to meet with management to address the matter and to understand the reasons for non-attendance.  It would be helpful if the AC informs the MM and CFO, in advance, of the topics for each meeting as it aligns with the AC annual work plan and calendar.

Remuneration will only be applicable to officials employed outside the public service. No remuneration for participating in audit committees will be payable to officials employed at national, provincial and local government, its agencies or other entities regarded as falling within the definition of an organ of state, except for out-of-pocket expenses which may be reimbursed.

It is crucial to handle the situation with care and professionalism, here are some tips to consider: 

1. Maintain Professionalism and Objectivity: Ensure that your actions and communications remain professional and objective. Avoid any personal confrontations or emotional responses. 
2. Review the Report: Conduct a thorough review of the report to verify the accuracy of the information. Ensure that all findings are supported by evidence and that the report adheres to the standards set by the International Professional Practices Framework (IPPF) and the Code of Ethics.  
3. Seek Legal Counsel: Consult with your organization’s legal department or an external legal advisor to understand the implications of the threat and to get advice on how to proceed. Legal counsel can provide guidance on protecting yourself and the organization. 
4. Document Everything: Keep detailed records of all communications and actions taken in response to the threat. This documentation can be crucial if the situation escalates. 
5. Communicate with Management: Inform senior management and the Audit Committee about the threat and the steps you are taking. Transparency is key to maintaining trust and ensuring that the organization is aware of potential risks. 
6. Follow Internal Procedures: Adhere to your organization’s policies and procedures for handling disputes and threats. This might include escalating the issue to higher authorities within the organization. 
7. Maintain Confidentiality: Protect the confidentiality of the investigation and the individuals involved, as required by your organization’s policies and relevant laws. 
8. Consider an Independent Review: If there are significant concerns about the accuracy of the report, consider having an independent party review the findings. This can help ensure objectivity and address any claims of bias or inaccuracy. 
9. Protect Your Rights: Ensure that your rights as an employee and a professional are protected. This might involve seeking support from professional bodies such as The Institute of Internal Auditors (IIA) or other relevant organizations. 

By following these steps, you can address the threat in a structured and professional manner, ensuring that the integrity of the audit process is maintained. 

References 

1. American Bar Association. (2017). When the Last Thing You Need is Another Headache. Available at: https://www.americanbar.org/groups/business_law/resources/business-law-today/2017-february/when-the-last-thing-you-need-is-another-headache/ (Accessed: 22 October 2024). 
2. JD Supra. (2019). Legal Privilege of Corporate Internal Investigations Under US Law. Available at: https://www.jdsupra.com/legalnews/legal-privilege-of-corporate-internal-96023/ (Accessed: 22 October 2024). 
3. The Institute of Internal Auditors. (2019). Fraud and Internal Audit: Assurance Over Fraud Controls Fundamental to Success. Available at: https://www.theiia.org/globalassets/documents/resources/fraud-and-internal-audit-assurance-over-fraud-controls-fundamental-to-success-april-2019/fraud-and-internal-audit.pdf (Accessed: 22 October 2024).