Financial Mail


Jenitha John seems to have the right credential­s, but there is one rather awkward sticking point: she was chair of the audit committee at Tongaat

- By Rob Rose

here are three types of auditors, according to a local variant of the well-worn joke: those who’ve had the bad luck to be caught in an accounting scandal, and those who haven’t. It’s something to keep in mind, given the disturbing events at the Independen­t Regulatory Board for Auditors (Irba) — the watchdog mandated to tackle just these auditing failures.

Since 2008, Irba has been headed by Bernard Agulhas, who did not endear himself to audit firms by implementi­ng “audit firm rotation” — a rule that requires companies to swap auditors every 10 years to ensure they remain properly independen­t. But Agulhas’s contract ends this month, and Irba’s board opted not to keep him.

Instead, Jenitha John has been appointed the new CEO. As a former Firstrand executive with an impressive career, she seems to have the right credential­s.

There is, however, a rather awkward sticking point: for nine years until May 2019, she was the chair of the audit committee of sugar company Tongaat Hulett — scene of one of SA’S worst-ever accounting scandals.

This is what Pwc’s forensic team found at Tongaat: “Undesirabl­e accounting practices that resulted, among others, in revenue being recognised in earlier reporting periods than it should have been, and in expenses being inappropri­ately capitalise­d to assets.” Put simply, profits were falsified and investors were lied to.

Yet astonishin­gly, when Irba announced John’s appointmen­t on April 28, the regulator’s chair, Abel Dlamini, didn’t even bother trying to address the Tongaat issue.

Khaya Sithole, a part-time accounting lecturer, says this looks, at best, ridiculous­ly clumsy. “What would possess Irba to appoint someone associated with one of the entities being investigat­ed for accounting fraud? Sometimes you can’t help but stumble into a crisis, but here Irba is walking directly into a crisis unprovoked,” he says.

There’s another dynamic at play: Irba’s board ended its term on May 9, and its last major decision was to hire

John. Finance minister Tito Mboweni has yet to appoint a new board. With Agulhas due to leave soon too, it has created a governance vacuum.

And while John is due to start next Monday, the Organisati­on Undoing Tax Abuse (OUTA) has written to

Mboweni, asking him to halt her appointmen­t. “Appointing a CEO implicated in irregulari­ties will not only be highly inappropri­ate, but will also cause significan­t reputation­al

Tdamage to Irba, [which] has a substantiv­e role to play in addressing the growing concerns of financial reporting irregulari­ties in SA,” it said.

Agulhas tells the FM that Irba hasn’t completed its Tongaat investigat­ion. “Our mandate is only to investigat­e the auditors, which is Deloitte. It’s a big investigat­ion,” he says.

Asked about his replacemen­t, Agulhas says: “All I can say is that we need someone in charge who stands for integrity, is independen­t, ethical and not implicated in financial misconduct.” (The FM understand­s that Agulhas wanted to remain as CEO, but the board rejected this.)

This week, Irba sent the FM answers to questions about this issue, prepared by the board before it left.

First, it said John was picked from 267 candidates after a “comprehens­ive process of background screening, reference checking and qualificat­ion vetting”. On Tongaat, it said: “We interrogat­ed this matter quite extensivel­y with the candidate and were satisfied, on the basis of informatio­n presented and publicly available reports, [including] the PWC report, that there is currently no evidence of guilt or wrongdoing on [John’s] part.”

Maybe — but that doesn’t address the potential conflicts. For one thing, Deloitte auditor Gavin Kruger, who would have reported to John at Tongaat’s audit committee, is being investigat­ed by the organisati­on she’s now been picked to lead. Irba’s lacklustre response to this is that its investigat­ions process is robust and “independen­tly run”, and John would have “no role to play” in that process.

But, as Sithole argues: “If Irba’s investigat­ion is seen to be favourable to Deloitte, it’ll leave a lingering doubt in people’s minds. Especially at a regulator, it’s not just the existence of impropriet­y and compromise­d independen­ce that’s a problem, it’s the perception of it too.”

Aside from the Tongaat debacle, John was rated highly. This week, Richard Chambers, CEO of the Us-based Institute of Internal Auditors (IIA), described her as “one of the most widely known and respected auditors in the world”. From July, John will chair the IIA, which speaks for 200,000 internal auditors.

But there’s another twist. This week, Chambers wrote on the IIA website that John actually helped expose Tongaat’s irregulari­ties. “As early as 2018, she was calling for an independen­t, third-party review of Tongaat’s financial practices, much to the chagrin of some of [its] senior executives. She persisted with her request … until PWC was ultimately engaged to undertake an independen­t review in February 2019,” he said.

It’s an astonishin­g new claim. Insiders have always claimed PWC was only hired after CEO Gavin Hudson took charge in February 2019 and insisted on an investigat­ion. And the previous board certainly hadn’t raised any concerns publicly about Tongaat’s accounting either.

If true, it would cast the Tongaat issue in an entirely new light. Asked about it by the FM, John says she has evidence to prove this, which she gave the IIA. Now, her best chance to calm the storm is to release that evidence to the public. It’s a wonder that Irba didn’t insist on it.

The questions over Tongaat are real, and it’s an insult to SA’S intelligen­ce that Irba’s board thought it could simply hire John as CEO without addressing them, then vanish.

It’s an astonishin­g new claim.

If true, it would cast the Tongaat issue in an entirely new light

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