Reg­u­la­tors must show their teeth

Statu­tory bod­ies have to re­deem them­selves given that so many ex­ec­u­tives walk away from scan­dals

Mail & Guardian - - Business - Lisa Steyn

Reg­u­la­tors may be in­ves­ti­gat­ing the con­duct of KPMG and its al­leged role in state cap­ture with great fer­vour, but their abil­ity and ex­pe­ri­ence to dis­ci­pline guilty par­ties ad­e­quately has been called into ques­tion.

Iraj Abe­dian, a prom­i­nent econ­o­mist, has called on the reg­u­la­tory bod­ies to prove that they are ac­tu­ally do­ing their jobs.

“Reg­u­la­tors have a hand­i­cap. Their in­ter­nal pro­to­cols and gov­ern­ing mea­sures are so out of kil­ter with the speed at which re­sources are squan­dered and mis­con­duct is be­ing car­ried out in the econ­omy. They are com­ing from the age of wheel­bar­rows when now we are in the fourth in­dus­trial rev­o­lu­tion,” Abe­dian said.

His crit­i­cism of pri­vate sec­tor firms, in­clud­ing KPMG and McKin­sey, and their com­plic­ity in state cap­ture has been stri­dent.

If reg­u­la­tors were mak­ing an im­pact, they needed to be more vo­cal about it, he said. “We don’t know how many hun­dreds of cases they are look­ing at but, in your eye and my eye, they are seen as tooth­less and use­less. We need that in­for­ma­tion so that you and I are as­sured they are do­ing their job.”

For one, the South African In­sti­tute of Char­tered Ac­coun­tants (Saica), the coun­try’s pre-emi­nent ac­coun­tancy body, could be seen to be do­ing more.

“In mod­ern economies, you can­not en­gage in sus­tained mega-cor­rup­tion … un­less a chief fi­nan­cial of­fi­cer [CFO] signs off on it,” he said, adding that a fi­nan­cial of­fi­cer would have con­trols in place to quickly de­tect whether a deal was dodgy. “And no­body can be­come the CFO of any medium-sized com­pany, or big­ger, with­out be­ing a CA [char­tered ac­coun­tant].

“My ques­tion, there­fore, to Saica is: ‘What are you do­ing?’ ”

Ter­ence Nombe­mbe, Saica’s chief ex­ec­u­tive, said 507 cases of com­plaints were opened by the in­sti­tute last year. Of those, 330 in­volved trainee ac­coun­tants ac­cused of im­proper con­duct in re­la­tion to ex­am­i­na­tions. By De­cem­ber last year, Saica had at­tended to 203 of the com­plaints, and 130 cases were re­solved by the pro­fes­sional con­duct com­mit­tee, which can cau­tion, rep­ri­mand or fine a mem­ber, and 19 were at­tended to by the dis­ci­plinary com­mit­tee, which can im­pose larger fines or re­voke a char­tered ac­coun­tant’s mem­ber­ship. In 2016, one mem­ber was stripped of mem­ber­ship and dis­qual­i­fied from ap­ply­ing for read­mis­sion for 10 years.

Saica has an­nounced it is in­ves­ti­gat­ing the con­duct of the dis­graced KPMG, which will run par­al­lel to an in­ves­ti­ga­tion launched by the In­de­pen­dent Reg­u­la­tory Board for Au­di­tors (IRBA).

It hosted a press con­fer­ence about its plans, which is un­usual. Nor­mally, if an au­di­tor is in­volved, Saica waits for the find­ings of an IRBA in­ves­ti­ga­tion be­fore tak­ing ac­tion it­self.

When asked in July whether Saica would in­ves­ti­gate the chief fi­nan­cial of­fi­cers of scan­dal-hit state-owned com­pa­nies, such as Eskom’s re­cently sus­pended Anoj Singh, it said it could not com­ment on dis­ci­plinary mat­ters that had not been fi­nalised.

But, at the brief­ing about its KPMG in­ves­ti­ga­tion, Nombe­mbe said Saica would in­deed look at dis­ci­plin­ing the of­fi­cers of state-owned en­ti­ties.

Asked why the KPMG mat­ter ap­peared to be af­forded greater fan­fare than other mat­ters, he in­sisted that Saica does not dis­tin­guish be­tween high- or low-pro­file cases — all are treated equally.

But Abe­dian asked what Saica had done in the wake of many other past scan­dals, in­clud­ing the con­struc­tion car­tel that had col­luded to drive up prices for in­fra­struc­ture projects for the 2010 Fifa World Cup, as well as other cases of col­lu­sion un­cov­ered by the Com­pe­ti­tion Com­mis­sion.

Another case wor­thy of in­ves­ti­ga­tion and dis­ci­plinary ac­tion was the fail­ure of African Bank, which was put into cu­ra­tor­ship un­der the Re­serve Bank in Au­gust 2014. A com­mis­sion of in­quiry into the bank’s demise found that the chief ex­ec­u­tive at the time, Leon Kirki­nis, and fel­low di­rec­tors had man­aged the busi­ness reck­lessly. Kirki­nis is a reg­is­tered char­tered ac­coun­tant, Abe­dian points out, but there is no ev­i­dence that Saica has taken any ac­tion against him.

But Nombe­mbe said Saica, as a mem­ber or­gan­i­sa­tion, could not spec­u­late on in­ves­ti­ga­tions into com­pa­nies

Saica has 45 000 mem­ber char­tered ac­coun­tants. Of these, 4 500 are au­di­tors and are reg­is­tered with the IRBA, a statu­tory body.

The IRBA also does not re­port on its dis­ci­plinary pro­cesses and does not name those im­pli­cated.

But IRBA chief ex­ec­u­tive Bernard Agul­has said the board was toy­ing with the idea of nam­ing and sham­ing those found guilty, which was cur­rently lim­ited by its found­ing Act. How­ever, the IRBA can make ex­cep­tions when it is in the pub­lic in­ter­est to name an au­di­tor or firm.

Ac­cord­ing to the IRBA’s lat­est an­nual re­port, in 2017, 165 in­ves­ti­ga­tions were ini­ti­ated, 180 in­ves­ti­ga­tions were fi­nalised (in­clud­ing some that had not been fi­nalised in the pre­vi­ous fi­nan­cial year) and four mat­ters went to dis­ci­plinary com­mit­tee hear­ings.

The IRBA can re­voke an au­di­tor’s li­cence and im­pose a max­i­mum fine of R250 000 for a charge. It can also re­voke the li­cence of a firm but it has “never needed to”, Agul­has said.

In Par­lia­ment this week, Agul­has was un­able to say how many li­cences the IRBA has with­drawn. An in­ves­ti­ga­tion into the au­dit­ing of African Bank was con­tin­u­ing and the IRBA was com­mit­ted to fast-track­ing its KMPG in­ves­ti­ga­tion, he said.

Ac­count­abil­ity: Ter­ence Nombe­mbe says the char­tered ac­coun­tants in­sti­tute is prob­ing KPMG. Photo: Her­man Ver­wey/ City Press/Gallo Images

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