It may be time to try whistleblower route

Adding more regulation is not the answer to preventing another VBS

If the question is how we keep people in positions of authority honest, one thing the VBS scandal proves is that regulation is not the answer. As Stuart Theobald wrote in Business Day recently, when it comes to banks it’s all belts and braces. Indeed, these are so all-encompassing it’s surprising there’s any scope to do business, let alone dodgy business.

In addition to all manner of regulations and laws governing their every move, the Reserve Bank keeps a beady eye on banks — including the granting of approval for all director appointments. Legend has it that this is why Steinhoff’s Markus Jooste was never appointed to the Investec board; presumably some wily character at the Bank was not as trusting of Jooste as Christo Wiese was.

In addition to all the regulations and the Bank’s near-oppressive oversight, VBS was required — as all banks are — to have two audit firms. PWC was the internal auditor while KPMG did the external audit work.

Whatever PWC was paid for this role it now looks as though it could have been too much. Earlier this year PWC said the scope of its work at VBS was agreed on with management.

“Our mandate generally concerned the consideration of VBS’S risk management, internal control and governance processes,” said PWC before going on to note, rather bizarrely: “PWC confirms that it was not within our scope of engagement to identify fraudulent transactions.”

That sort of logic helps explain why auditing has fallen into disrepute.

In April VBS withdrew the 2017 audited accounts from its website. The accounts had revealed continued strong growth in total assets as well as hefty cash balances.

KPMG, which signed off on the 2017 work of fiction, is being sued by the two former partners responsible for the VBS work. The two partners tendered their resignation in April following media reports that family members had substantial loans from VBS.

So if regulation and oversight didn’t work at VBS it’s likely that adding more is not the answer. All that would result in is an additional burden for those who do adhere to the rules.

And if the answer isn’t more regulation, does it lie in more trust? Wiese contends a large part of the reason he is now R59bn poorer is he trusted Jooste too much.

Indeed, everybody he should have been able to trust — the directors, auditors, bankers and advisers — failed him and all the other Steinhoff shareholders. Despite that, Wiese continues to believe trust is essential to business.

Perhaps the answer lies in enhancing the role of whistleblowers. Right now there’s no good reason (beyond virtue being its own reward) and lots of bad reasons (such as job loss) for being a whistleblower. We need to interrogate why there was nobody deep within VBS, KPMG or PWC who felt they could alert somebody to what was going on before it got out of hand.

Similarly at Steinhoff, where the problems seem to stretch back years, the fact that nobody raised any issues is troubling — though given its governance standards, it is hardly surprising

If we don’t want more regulation we have to make things easier for whistleblowers, who might help to keep everyone more trustworthy.

Let’s ask why nobody deep within VBS, KPMG or PWC felt they could alert somebody to what was going on