Adding up the loss sustained by SA auditing
Scandals threaten to erode profession’s stock in trade: trust
● Those trying to suggest that corruption in the private sector is as bad as that in the public sector following the Steinhoff scandal are misinformed, says Terence Nombembe, the CEO of the South African Institute of Chartered Accountants.
Nombembe, 56, was the auditor-general before he joined Saica, and every year exposed the fruitless and wasteful expenditure of billions of rands of taxpayer money.
“There is not a prevalence of corporate corruption out there in the capital markets,” he says.
Those using the Steinhoff scandal to suggest that the private sector is mired in corruption “are wrong, and we need to engage with them to tell them why they are wrong”, says Nombembe.
Fake news about corruption in the corporate sector is further harming the image of the accounting profession, which has already taken a hammering from the KPMG and Steinhoff scandals.
“The image and reputation of the brand have been badly damaged. Public trust has been dented, and that’s what basically defines our existence.
“It affects our entire value chain, from children who may want to become CAs, to trainees, to clients, to investors, to the general public in terms of civil society. They put their money in the trust that everything that is done [by chartered accountants] will be above board. The public interest element is critical.”
Nombembe says he is still asking himself how a board loaded with some of the most experienced CAs in South Africa could allow a disaster like Steinhoff to happen.
“We’ve told the Steinhoff supervisory board that when they’ve got credible and conclusive information, they must keep us informed.”
Saica will be interrogating the directors on the basis of information that comes out of a PwC investigation commissioned by Steinhoff.
“Once the investigation has elicited the exact nature of this so-called financial irregularity, we will be able to pinpoint where the responsibility ought to have rested to prevent what happened, and then deal with it as part of the normal Saica disciplinary process.”
He acknowledges that such is the level of mistrust in audit firms that PwC will be hard-pressed to avoid accusations of a coverup. He says it will have to demonstrate that the profession can still be trusted.
“One expects that PwC will be aware of this scepticism and make sure there are no grounds for that suspicion [of a cover-up].”
In the public mind — and this includes most analysts one speaks to — there is little doubt that the Steinhoff directors were guilty of dereliction of fiduciary duty. The only question is whether this was because they didn’t know what CEO Markus Jooste was up to — or because they were complicit.
Does Nombembe see any other likely explanation? “The report has got to identify what exactly happened and how. And then attach responsibility to whoever should have prevented it from happening.
“I can’t assume guilt or apportion blame before knowing what happened.”
He believes there are “reasonable expectations” that retribution will be meted out to the Steinhoff directors, not to mention Jooste himself.
“But I would prefer to wait until I can understand what gave rise to directors not preventing this occurrence from taking place.”
If PwC wants to avoid being accused of a cover-up then the speed with which its report is published, as well as its content, will be “critical”. He’d be surprised if it took longer than six months.
If the report nails directors, should they be jailed? All Saica will be able to do is strip them of membership or issue a fine, he says.
Does Saica need more teeth?
Being able to strip them of membership and in effect deny them the right to continue practising is all the teeth it needs, he says. “That is the biggest disgrace for any CA.” He says the Steinhoff scandal raises questions about the risks CAs face as directors.
“The biggest risk they’re facing is domination by people like CEOs or other directors who want to breach laws and regulations.”
A new code of ethics encourages CAs “to be courageous in reporting incidents of noncompliance to the prosecutorial services such as the NPA”.
The emasculation of the NPA and its specialised commercial crime unit has discouraged reporting and harmed both the profession and the cause of corporate governance, he says.
“We rely a lot on those structures to pursue our own responsibility to hold CAs accountable and charge them for misconduct.
“We are encouraged by a narrative that is leaning towards strengthening those structures. This will re-instil confidence in the justice system.”
He says the risk CAs involved in auditing face is the “tendency” to put pressure on them to reduce their fees.
“The moment you limit the fees of auditors you limit their ability to do a thorough job with more scepticism and more scrutiny.
“This is something that needs to be looked at very, very sharply.”
Nombembe expects Saica’s inquiry into KPMG and the work it did for the Guptas to start hearing testimony later this month — in the first such inquiry held by Saica since the Masterbond scandal more than 20 years ago.
“The negative publicity around KPMG was overwhelming for the profession and we had to do something.”
Saica is also investigating cases involving its members in state-owned enterprises who have been accused of corrupt behaviour.
They will either lose their membership or be fined, he says.
CAs take an oath when they qualify to act at all times in the public interest.
“We realise that is not enough,” he says. “The oath must be taken more frequently. There must be a constant renewal of that oath.”
The image and reputation of the brand have been badly damaged
Terence Nombembe CEO of the SA Institute of Chartered Accountants