An analysis of the risk and limitations of placing reliance on lifestyle audits in the fight against corruption and tax evasion in South Africa

Abstract

Background: Taxation and corruption are global phenomena, and no society is immune to corruption. Lifestyle audits are used to identify corruption and tax evasion. These audits are commonly used by investigators to determine whether a person’s lifestyle is equivalent to their known income. The outcomes from the investigation aid in deterring those who find themselves under investigation. There are certain risks that need to be considered when relying on the outcomes from conducting these audits.

Main purpose of study: The purpose of the study is to analyse the risks, limitations, adverse factors, and the public’s perceptions on placing reliance on lifestyle audits in the fight against corruption and tax evasion in South Africa.

Method: In this study qualitative and quantitative methods in collecting and analysing data were applied, therefore a mixed-method approach was followed. A survey was distributed to respondents, which aimed at identifying the risks, limitations, adverse factors and the public’s perception of placing reliance on lifestyle audits in the fight against corruption and tax evasion in South Africa.

Results: It was found that corruption and fraud are the leading factors that negatively impact the reliance on lifestyle audits. It was also found that the main risks and limitations of placing reliance on lifestyle audits are a lack of information, violence against lifestyle auditors and whistle-blowers, violation of an individual’s rights, the lifestyle audit selection process, and the lack of skills and expertise of lifestyle auditors.

Conclusions: Lifestyle audits are a good start in detecting corruption and tax evasion. However, there are many risks and limitations that hinder the effectiveness of lifestyle audits in South Africa. Corruption needs to be addressed before lifestyle audits can be utilised as a reliable tool in the fight against corruption and tax evasion.