Secrecy over auditor in SAA scandal
Regulator risks being another toothless agency
IT took hours of tedious sleuthing for the Financial Mail to establish that PwC is the “respondent” cited in an Independent Regulatory Board for Auditors (Irba) investigation for its failure to disclose blips in the conduct of the “entity”, its client SA Airways (SAA).
For years the national carrier has been able to secure unqualified audit reports despite its constant flirtation with financial extinction. Given its enormous procurement muscle, inappropriate handling of procurement-related risk is a deeply troubling issue.
And yet, were it not for the fact that Simon Mantell broke ranks to go public with his SAA procurement problems a few years ago, it would not be possible to tie PwC and the national carrier.
Mantell, a chartered accountant and owner of Mantelli Biscuits, lodged a complaint with the Irba all the way back in November 2015.
But, as regulatory environments go, the one operated by the Irba looks to be frighteningly ineffective. Without a major overhaul, it risks being relegated to the same bucket of toothless enforcers as Shaun Abrahams’ National Prosecuting Authority.
At the heart of the Irba’s enforcement mechanism are its disciplinary, investigative and advisory committees. These are the teams of highly qualified experts who interrogate allegations of wrongdoing by audit firms and come up with findings.
Remarkably, if an audit firm is found guilty at the end of what should be a daunting process, there is nothing more than an inoffensive reference to the issue in the Irba’s quarterly newsletter and a modest fine.
No mention is even made of the audit firm or the client that suffered the inappropriate audit service. It is nothing that might discourage noncompliance.
A read through the latest newsletter, available in mid-October, shows just how toothless the process is. It notes that the Irba disciplinary advisory committee met twice during the quarter and concluded 39 matters.
The committee decided to pursue 28 of these and charged the parties in 26 cases. These matters were then finalised by consent order.
The newsletter’s reference to these “matters” reads like something generated by a secret society; it is more suited to a Dan Brown novel than a 21st-century regulatory system for a critical roleplayer in our economy.
Here’s what the newsletter had to say about “Matter 1” – which the Financial Mail established refers to the audit relationship between PwC and SAA: “The respondent did not appropriately respond to the risk related to procurement in terms of the requirements of international standards on auditing. In addition, the respondent failed to disclose noncompliance with legislation regarding procurement in the joint audit report of the entity.”
PwC was fined R200 000, of which R50 000 was suspended.
The DA’s Alf Lees says it is astounding that, despite the publicity surrounding SAA and the losses it has incurred, the joint auditors – PwC and Nkonki, which was also implicated – apparently failed to appropriately respond to the risk related to procurement.
The Irba newsletter contained similarly dense statements relating to the other 25 matters – seemingly designed to protect guilty auditors, while giving the semblance of oversight.
The problem for the Irba and the audit firms it so loosely regulates is that the public has had enough of people in authority being able to avoid consequences.
But even Mantell is hesitant to comment on the Irba’s handling of his complaint.
“There certainly didn’t seem to be any sense of urgency in dealing with it. I’ve never even seen the charge sheet,” said Mantell, who describes the Irba process as lacking in transparency.
The Irba refused to confirm that PwC was the respondent. Though the regulator says it has the authority to decide whether names will be disclosed (they rarely are), they can’t be disclosed in this case.
“Unfortunately in concluded matters where the finding was for publication in general terms (no names), we are unable to confirm or provide more information,” said Lorraine van Schalkwyk, manager of strategic projects & media relations at the Irba.
Fortunately, PwC – no doubt realising change is in the wind – confirmed that the matter related to its SAA audit. It says it views any complaints against the firm in a serious light.
“We co-operated with the regulator and enabled it to conclude its investigation speedily,” said the auditor’s head of media relations, Sanchia Temkin. — BDLive